Bautista vs. Balolong

A bank-mortgagee is deemed a mortgagee in good faith when it conducts the required higher degree of diligence — ocular inspection of the property, verification of the title's authenticity with the Register of Deeds, and neighborhood checking — and encounters no circumstance that would arouse suspicion of fraud, even if the mortgagor's title was subsequently found to have been fraudulently obtained. The mortgage and the title derived from the fraudulent sale remain valid and binding as against the true owner.

Spouses Ceferino and Felisa Bautista were the registered owners of two parcels of land in Lingayen, Pangasinan, covered by TCT Nos. 139362 and 163938. In the 1980s, the spouses and their son Nehemias migrated to Canada, entrusting the care of the subject properties to their daughter Minda, who later married co-respondent Francis Balolong and built their home on the properties. The dispute arose from Francis's fraudulent procurement of a new title over a portion of the properties and its subsequent mortgage to Metrobank, pitting the true owners against the bank that accepted the fraudulently obtained title as collateral.

Spouses Ceferino and Felisa Bautista were the registered owners of two parcels of land situated in Lingayen, Pangasinan, covered by TCT Nos. 139362 and 163938. Sometime in the 1980s, the spouses and their son Nehemias migrated to Canada, leaving the subject properties to the care of their daughter Minda. Minda later married Francis Balolong, and the couple built their home on the subject properties.

On June 17, 2003, the Bautistas' other son, Philip, who was based in Marikina City, received a call from a Metrobank branch manager informing him that a property mortgaged by Minda to the bank was due for foreclosure. Upon investigation, the petitioners discovered that TCT Nos. 139362 and 163938 under the name of Spouses Bautista had been cancelled and the subject parcels of land subdivided into three lots: Lot 1 covered by TCT No. 262244 in the name of Spouses Balolong; Lot 2 covered by TCT No. 262245 in the name of William Bautista, Minda's brother; and Lot 3 covered by TCT No. 262246 in the name of Nehemias. Minda and Francis had obtained a P1,500,000.00 loan from Metrobank secured by a mortgage on Lot 1.

Petitioners filed a complaint before the RTC for cancellation of title, declaration of nullity of title, declaration of nullity of mortgage, and damages, with a prayer for a writ of preliminary injunction. They alleged that Minda and Francis, through fraud and forgery, made it appear that Spouses Bautista had sold Lot 1 to them. Spouses Bautista belied the execution of the Deed of Absolute Sale dated March 9, 2002 and submitted proof that they were in Canada at the time. Minda, for her part, denied any participation in the fraud and forgery committed by her husband, claiming that he made her sign the mortgage documents under the belief that they were for a chattel mortgage of their vehicle, and that her signatures on the promissory notes and mortgage were forgeries. Francis did not file an answer and was declared in default by the RTC.

Metrobank insisted that it was a mortgagee in good faith, having conducted due diligence and approved the loan based on Spouses Balolong's capacity to pay and on the identity of the subject property offered as collateral. The bank examined the Certificate of Title and found no defect or reason to suspect fraud. The RTC declared the questioned Deed of Absolute Sale void and the signatures thereon as forgeries — a finding corroborated by Francis's conviction for Falsification of Public Documents by the MTCC of San Carlos City in Criminal Case No. 7874. However, the RTC deemed Metrobank a mortgagee in good faith, having exercised due diligence through an ocular inspection of the property and verification of title with the Register of Deeds, which revealed no indicia of suspicion. The RTC dismissed the case against Minda and Metrobank, upheld the validity of the real estate mortgage and TCT No. 262244, and ordered Francis to pay P1,500,000.00 as actual damages plus moral damages, exemplary damages, and attorney's fees. The CA affirmed the RTC ruling in toto, and petitioners elevated the case to the Supreme Court.

• Sufficiency of Evidence for Good Faith: Petitioner argued that the CA committed reversible error in affirming the RTC's finding that Metrobank was a mortgagee in good faith, because there was no evidence on record to prove that Metrobank exercised extraordinary diligence before approving the loan and mortgage contract.
• Lack of Documentary Corroboration: Petitioner maintained that other than the lone testimony of Marlon Magali, Metrobank's branch manager, that he conducted a credit investigation and ocular inspection, Metrobank failed to present any credit investigation report, ocular inspection report, or any document proving that the branch manager personally conducted neighborhood checking.
• Validity of Mortgage and Foreclosure: Petitioner argued that the RTC erred in declaring the real estate mortgage and TCT No. 262244 valid on the ground of the principle of mortgagee in good faith, and that the CA erred in upholding the validity of the mortgage and its foreclosure.

• Due Diligence Conducted: Respondent Metrobank countered that it was a mortgagee in good faith, having conducted due diligence by examining the Certificate of Title, conducting an ocular inspection of the property, verifying the title's authenticity with the Register of Deeds, and performing a neighborhood check, all of which revealed no defect or indicia of suspicion.
• Loan Based on Capacity and Collateral Identity: Metrobank argued that the loan was approved based on Spouses Balolong's capacity to pay and on the identity of the subject property offered as collateral, and that no fraud could be attributed to the bank in approving the real estate mortgage and in foreclosing it.

• Mortgagee in Good Faith: Whether the CA committed serious and reversible error in ruling that Metrobank is a mortgagee in good faith.
• Validity of Mortgage and Foreclosure: Whether the CA committed serious and reversible error in upholding the validity of the mortgage constituted over the subject property, as well as the foreclosure thereof, under the principle of mortgagee in good faith.

• Mortgagee in Good Faith: No. The Court found no cogent reason to deviate from the concurrent factual findings of the RTC and CA that Metrobank discharged its burden of proving its status as a mortgagee in good faith, having conducted the required ocular inspection, title verification, and neighborhood check.
• Validity of Mortgage and Foreclosure: No. The real estate mortgage contract with Spouses Balolong and the registration of the subject parcel of land under TCT No. 262244 remain valid and binding, Metrobank being entitled to the protection accorded to a mortgagee in good faith.

• Mortgagee in Good Faith: The threshold procedural question was whether the issue of good faith could even be entertained in a Rule 45 petition, since the ascertainment of good faith is a factual matter and the Court is not a trier of facts. While exceptions to this rule exist, none was present. The Court therefore treated the issue as one of sufficiency of evidence. In civil cases, the required quantum is preponderance of evidence, and each party bears the burden of proving its own affirmative assertions. There is no rule requiring that testimonial evidence be corroborated by documentary or object evidence to be convincing; as long as testimonial evidence meets the required evidentiary quantum and is sufficiently persuasive, it may be given credence. The testimony of Metrobank's branch manager, Marlon Magali, underwent cross-examination and the scrutiny of the trial court. Petitioners were given the opportunity to rebut his testimony but did not successfully impugn the actual conduct of the ocular inspection and background check. Notably, petitioners acknowledged in their CA appeal that Magali conducted an investigation, though they claimed it was done in haste; they only raised the issue of lack of documentary evidence in their motion for reconsideration before the CA. Magali's testimony established the specifics of Metrobank's standard operating procedure for background checking loan applicants, including the ocular inspection, verification of title authenticity with the Register of Deeds, and neighborhood check. Petitioners themselves admitted that Spouses Balolong resided on the subject land and that it was registered under their name in the fraudulently acquired TCT No. 262244. The concurrent factual findings of the RTC and CA — that Metrobank conducted the necessary due diligence and that nothing could have alerted it to the fraud — are binding on the Court, there being no clear misapprehension of facts or manifestly mistaken inference.

• Validity of Mortgage and Foreclosure: The doctrine of protecting mortgagees in good faith emanates from the public interest embedded in the legal concept of indefeasibility of titles: a mortgagee has the right to rely in good faith on the Certificate of Title of the mortgagor, and in the absence of any sign that might arouse suspicion, has no obligation to undertake further investigation. This rule, however, does not apply to banks, whose businesses are impressed with public interest and which are therefore expected to exercise a higher degree of care and diligence compared to private individuals. Before approving a loan application, it is standard operating practice for banks to conduct an ocular inspection of the property offered for mortgage and to verify the genuineness of the title to determine the real owners thereof, the apparent purpose being to protect the true owner and innocent third parties from a usurper who may have acquired a fraudulent certificate of title. Metrobank satisfied this heightened standard: it conducted a background check on Spouses Balolong's capacity to pay, a neighborhood check, an ocular inspection revealing only Francis and Minda residing on the lot, and a verification with the Register of Deeds of Lingayen confirming the authenticity of TCT No. 262244. Nothing could have put Metrobank on alert — even Minda herself did not suspect her husband's fraud. Accordingly, Metrobank's real estate mortgage contract with Spouses Balolong and the registration of the subject parcel of land under TCT No. 262244 will no longer be nullified.

• Mortgagee in Good Faith (General Rule) — A mortgagee has the right to rely in good faith on the Certificate of Title of the mortgagor of the property offered as security. In the absence of any sign that might arouse suspicion, the mortgagee has no obligation to undertake further investigation. This doctrine emanates from the public interest embedded in the legal concept of granting indefeasibility of titles. The Court applied this doctrine to uphold Metrobank's mortgage, finding that the bank encountered no indicia of suspicion during its dealings.

• Higher Degree of Diligence for Bank-Mortgagees — Because the business of banking is impressed with public interest, banks are expected to exercise a higher degree of care and diligence compared to private individuals before entering a mortgage contract. The rule that a person dealing with registered lands can rely solely on the certificate of title does not apply to banks. Before approving a loan application, it is standard operating practice for banks to conduct an ocular inspection of the property offered for mortgage and to verify the genuineness of the title to determine the real owners thereof. The Court found that Metrobank satisfied this heightened standard through its ocular inspection, title verification, and neighborhood check.

• Binding Nature of Concurrent Factual Findings of RTC and CA — Factual findings of the trial court, when affirmed by the CA, are generally binding on the Supreme Court. The Court may only delve into the facts if there is a clear misapprehension of facts or when the inference drawn from the facts is manifestly mistaken. The Court found no cogent reason to deviate from the RTC and CA findings that Metrobank was a mortgagee in good faith.

• Sufficiency of Uncorroborated Testimonial Evidence — There is no rule requiring that testimonial evidence be corroborated by documentary or object evidence to be convincing. As long as testimonial evidence meets the required evidentiary quantum and is sufficiently persuasive, it can be given credence and accorded probative weight. The Court applied this principle to uphold the testimony of Metrobank's branch manager as sufficient to establish due diligence.

• "the doctrine of protecting mortgagees in good faith emanates from the public interest embedded in the legal concept of granting indefeasibility of titles. Thus, a mortgagee has a right to rely in good faith on the Certificate of Title of the mortgagor of the property offered as security, and in the absence of any sign that might arouse suspicion, the mortgagee has no obligation to undertake further investigation." — This passage articulates the doctrinal basis for the mortgagee-in-good-faith rule, tying it to the Torrens system's guarantee of indefeasibility.

• "Since its business is impressed with public interest, the mortgagee-bank is duty-bound to be more cautious even in dealing with registered lands. Indeed, the rule that [a] person dealing with registered lands can rely solely on the certificate of title does not apply to banks." — This quotation, drawn from Arguelles vs. Malarayat Rural Bank, Inc., establishes the heightened diligence required of bank-mortgagees and is the controlling standard against which Metrobank's conduct was measured.

• "there is no rule which requires that for testimonial evidence to be convincing, it must be corroborated by documentary or object evidence. As long as the testimonial evidence meet the required evidentiary quantum and is sufficiently persuasive, it can be given credence and accorded probative weight." — This passage defines the evidentiary principle that disposed of petitioners' argument that Metrobank's branch manager's testimony required documentary corroboration.

• "Indeed, there was nothing that could have put Metrobank on alert that there was something suspicious about the entire transaction. Hard as it might be to believe, even Minda herself did not suspect that her husband Francis had committed the fraud that he did." — This passage, quoted by the Supreme Court from the CA's ruling, encapsulates the factual basis for concluding that Metrobank lacked any notice of the fraud and was therefore entitled to good-faith protection.

• Andres vs. Philippine National Bank, 745 Phil. 459 (2014) — Cited as the source of the doctrine that the protection of mortgagees in good faith emanates from the public interest embedded in the legal concept of indefeasibility of titles. Followed.
• Arguelles vs. Malarayat Rural Bank, Inc., 730 Phil. 226 (2014) — Cited for the proposition that banks, whose businesses are impressed with public interest, are duty-bound to exercise a higher degree of care and that the rule allowing reliance solely on the certificate of title does not apply to banks. Followed.
• Bank of Commerce vs. Spouses San Pablo, Jr., 550 Phil. 805 (2007) — Cited in support of the principle that a mortgagee has the right to rely in good faith on the Certificate of Title of the mortgagor and has no obligation to undertake further investigation absent any sign arousing suspicion. Followed.
• Ursal vs. Court of Appeals, 509 Phil. 628 (2005) — Cited for the proposition that banks are expected to exercise a higher degree of care and diligence compared to private individuals before entering a mortgage contract. Followed.
• Prudential Bank vs. Rapanot, 803 Phil. 294 (2017) — Cited for the enumerated exceptions to the rule that the Supreme Court is not a trier of facts in Rule 45 petitions. Distinguished (none of the exceptions found applicable).
• Quintos vs. Development Bank of the Philippines, 766 Phil. 601 (2015) — Cited for the definition of preponderance of evidence as the required quantum of evidence in civil cases. Followed.

• Rule 45, Rules of Court — Governs petitions for review on certiorari before the Supreme Court, which may only raise questions of law. The Court noted that the ascertainment of good faith is a factual matter generally not reviewable under Rule 45, though exceptions exist; none was found applicable here.

Perlas-Bernabe, Senior Associate Justice (Chairperson), Hernando, Inting, and Baltazar-Padilla, JJ., concurred.