Spouses Miles vs. Lao

A mortgagee has the right to rely in good faith on the face of the mortgagor's Torrens Certificate of Title, and in the absence of any sign arousing suspicion, has no obligation to undertake further investigation; dealing with the mortgagor through a middleman does not, by itself, constitute bad faith.

Petitioners entrusted the duplicate of their TCT to their niece, Rodora Jimenez, to find a buyer. Instead, Rodora and spouses Ocampo conspired to falsify a Deed of Donation, transferring the property to spouses Ocampo. A new TCT was issued to spouses Ocampo, who subsequently mortgaged the property to respondent. When spouses Ocampo defaulted, respondent foreclosed.

• Original Filing: RTC of Makati City, Branch 146, Civil Case No. 99-1986
• Lower Court Decision: January 14, 2009 — RTC ruled in favor of petitioners, nullifying the donation, sale, mortgage, and restoring petitioners' original TCT.
• Appeal: Respondent appealed to the CA (CA-G.R. CV No. 95973).
• CA Decision: May 24, 2013 — CA reversed the RTC, declaring respondent a mortgagee in good faith and the mortgage valid.
• SC Action: Petition for Review on Certiorari under Rule 45 assailing the CA Decision and Resolution.

• Petitioners' Ownership: On March 28, 1983, petitioners became registered owners of a Makati property under TCT No. 120427.
• Entrustment of Title: Before leaving for the US, petitioners entrusted the duplicate TCT to their niece, Rodora Jimenez, to offer to interested buyers. No written Special Power of Attorney (SPA) to sell was given.
• Fraudulent Donation: Rodora and spouses Ocampo falsified a Deed of Donation dated April 21, 1998, making it appear petitioners donated the property to spouses Ocampo. TCT No. 120427 was cancelled, and TCT No. 212314 was issued to spouses Ocampo.
• Mortgage Contract: Spouses Ocampo mortgaged the property to respondent Bonnie Bautista Lao for a Php2,500,000 loan.
• Foreclosure: Spouses Ocampo failed to pay the loan, prompting respondent to foreclose the mortgage.
• Respondent's Dealings: Respondent dealt with spouses Ocampo through a middleman, Carlos Talay. She claimed she inspected the title (which was clean and in spouses Ocampo's names) and conducted an ocular inspection finding the lot vacant.
• Spouses Ocampo's Manifestation: During the trial, spouses Ocampo manifested that petitioners had already taken possession of the property and were leasing it to a certain Juan Armamento, arguing the case was moot as to them.

• Respondent never conducted an investigation on the title and status of the property before entering the mortgage contract.
• Respondent was not diligent because she dealt with spouses Ocampo only through a middleman (Carlos Talay), which should negate her claim of good faith.

• She entered the mortgage contract without knowledge of the defective title.
• At the time of the mortgage, the property was registered in the name of spouses Ocampo and the title was clean, giving her no reason to suspect fraud.
• She conducted an ocular inspection and found the property vacant.
• Filing a foreclosure suit instead of a criminal case against spouses Ocampo was merely an exercise of her legal right as a secured creditor, not an indicator of bad faith.

• Procedural Issues: Whether the issue of good faith (a factual matter) can be entertained in a Petition for Review on Certiorari under Rule 45.
• Substantive Issues: Whether the CA erred in ruling that respondent is a mortgagee in good faith despite dealing with the mortgagors through a middleman.

• Procedural: The SC can review the factual issue of good faith. While Rule 45 generally restricts review to questions of law, an exception exists when the RTC and CA have divergent findings of fact, as occurred here.
• Substantive: The CA did not err. Respondent is a mortgagee in good faith.
• The mortgagors' title (TCT No. 212314) was registered as early as May 6, 1998, while the mortgage was executed on December 16, 1998. Respondent had every right to rely on the face of the Torrens title.
• Dealing through a middleman does not equate to bad faith. Good faith is a state of mind judged by outward acts; using a middleman may be risky or reckless, but bad faith requires a corrupt motive or intent to take unconscientious advantage, not mere bad judgment or negligence.
• Respondent's ocular inspection finding the property vacant was uncontroverted during trial. Spouses Ocampo's later manifestation about the property being leased was a mere allegation unsupported by evidence and could have occurred after the mortgage's execution.
• Filing a foreclosure suit instead of a criminal case is a valid exercise of a creditor's alternative remedies under the law, not proof of bad faith.

• Doctrine of the Mortgagee in Good Faith — Buyers or mortgagees dealing with property covered by a Torrens Certificate of Title are not required to go beyond what appears on the face of the title. A mortgagee has the right to rely in good faith on the certificate of title, and in the absence of any sign that might arouse suspicion, has no obligation to undertake further investigation. Applied: Respondent relied on a clean TCT in the name of spouses Ocampo, justifying her good faith.
• Burden of Discovery in Invalid Transactions — The burden of discovering invalid transactions relating to a property covered by a regular title is shifted from the third party relying on the title to the co-owners or predecessors of the title holder, who are more intimately knowledgeable about the property's status and history. Applied: Petitioners, as the true owners, bear the burden of discovering the fraud rather than the innocent mortgagee.
• Good Faith — An honest intention to abstain from taking any unconscientious advantage of another, even through the forms or technicalities of the law, together with an absence of all information or belief of fact which would render the transaction unconscientious. Bad judgment or negligence does not simply connote bad faith. Applied: Respondent's use of a middleman was risky but did not demonstrate a corrupt motive or intent to take advantage of petitioners.

• Rule 45, 1997 Rules of Civil Procedure — Governs Petition for Review on Certiorari, generally limited to questions of law. Exception applied here due to divergent factual findings between the RTC and CA.
• BP 22 (Bouncing Checks Law) — Mentioned as an alternative remedy available to a creditor alongside foreclosure, emphasizing that choosing foreclosure over criminal prosecution is a lawful exercise of right.