The Supreme Court has ruled that a mortgagee cannot claim good faith if they fail to exercise due diligence in verifying the authority of a person acting on behalf of the property owner, especially when dealing with a Special Power of Attorney (SPA). This decision emphasizes that lenders must conduct thorough inquiries beyond the face of notarized documents to ensure the validity of transactions, protecting property owners from unauthorized encumbrances. This case highlights the importance of verifying the authenticity of documents and the authority of individuals involved in real estate transactions to protect property rights.

Forged Authority: Who Bears the Risk in Real Estate Mortgages?

This case revolves around a property dispute in Guimba, Nueva Ecija, where Delfin Domingo Dadis sought to reclaim his land from Spouses Magtanggol and Nora De Guzman. The core issue arose when Delfin’s daughter, Marissa, mortgaged the property to the De Guzmans using a Special Power of Attorney (SPA) that was later proven to be forged. Delfin argued that he was in the United States when the SPA was supposedly executed, rendering it invalid. The De Guzmans, however, claimed they acted in good faith, relying on the notarized SPA presented by Marissa. The legal question before the Supreme Court was whether the De Guzmans could be considered mortgagees in good faith, despite the forged SPA, and what responsibilities lenders have when dealing with representatives rather than direct property owners.

The Supreme Court, in its analysis, underscored that the doctrine of a **mortgagee in good faith** cannot be automatically applied, especially when dealing with an attorney-in-fact. The Court emphasized that lenders have a **higher duty of care** when the mortgagor is not the registered owner of the property. As the Court highlighted in Abad v. Sps. Guimba:

x x x A person who deals with registered land through someone who is not the registered owner is expected to look behind the certificate of title and examine all factual circumstances, in order to determine if the mortgagor/vendee has the capacity to transfer any interest in the land. One has the duty to ascertain the identity of the person with whom one is dealing, as well as the latter’s legal authority to convey.

In this case, the De Guzmans failed to adequately verify the authenticity of the SPA and the authority of Marissa. The Supreme Court noted that the De Guzmans were aware that Delfin was not present during the transaction and that they even advised Corazon (Delfin’s wife) to secure an SPA. This awareness should have prompted them to conduct a more thorough investigation into the SPA’s validity. Instead, they relied solely on the document’s notarization, which the Court found insufficient.

The Court further elaborated on the evidentiary weight of notarized documents, stating that while they are generally presumed to be regular, this presumption can be overturned by clear and convincing evidence. Section 23, Rule 132 of the Rules of Court provides guidance on public documents as evidence:

SEC. 23. Public documents as evidence. – Documents consisting of entries in public records made in the performance of a duty by a public officer are prima facie evidence of the facts therein stated. All other public documents are evidence, even against a third person, of the fact which gave rise to their execution and of the date of the latter.

In this instance, Delfin presented compelling evidence, including his passport entries and witness testimony, proving he was in the United States when the SPA was allegedly executed. This evidence successfully rebutted the presumption of regularity, shifting the burden of proof to the De Guzmans to prove the SPA’s genuineness, a burden they failed to meet.

The Supreme Court distinguished this case from situations where the mortgagor holds a fraudulent title, emphasizing that the doctrine of mortgagee in good faith applies when the mortgagor has already obtained a Torrens title in their name. In this case, Marissa did not hold title to the property; she merely presented a falsified SPA. The Court cited Bautista v. Silva, clarifying that the reliance on a notarized SPA is not absolute and that lenders must still exercise due diligence, especially when there are circumstances that should raise suspicion. The Court stated:

[No] automatic correlation exists between the state of forgery of a document and the bad faith of the buyer who relies on it. A test has to be done whether the buyer had a choice between knowing the forgery and finding it out, or he had no such choice at all.

Moreover, because the property was conjugal, the lack of Delfin’s consent rendered the mortgage void. The court highlighted Article 124 of the Family Code which governs the disposition of conjugal property:

ART. 124. …In the absence of such authority or consent, the disposition or encumbrance shall be void.

The Court noted that a sale (or encumbrance) of conjugal property without the consent of both spouses is void and cannot be ratified.

The Supreme Court concluded that the De Guzmans were not mortgagees in good faith because they failed to exercise the required degree of caution and prudence in verifying Marissa’s authority. They had actual notice of facts that should have prompted them to inquire further. The Court ultimately ruled in favor of Delfin, reinstating the trial court’s decision declaring the real estate mortgage void and ordering the cancellation of the title issued in favor of the De Guzmans. This decision reinforces the principle that lenders must conduct thorough due diligence to ensure the validity of real estate transactions, particularly when dealing with representatives acting under a Special Power of Attorney.

FAQs

What was the key issue in this case?	The key issue was whether the Spouses De Guzman were mortgagees in good faith despite relying on a forged Special Power of Attorney (SPA) presented by Marissa Dadis. The Court determined that they were not, due to their failure to exercise due diligence in verifying the SPA’s authenticity.
What is a Special Power of Attorney (SPA)?	An SPA is a legal document that authorizes a person (the attorney-in-fact) to act on behalf of another person (the principal) in specific matters. It grants limited authority for specific actions, such as selling property or entering into contracts.
What does it mean to be a ‘mortgagee in good faith’?	A mortgagee in good faith is someone who, when granting a mortgage, acts without knowledge of any defect in the mortgagor’s title or authority to mortgage the property. They rely on the face of the title and have no obligation to investigate further, unless there are suspicious circumstances.
Why were the Spouses De Guzman not considered mortgagees in good faith?	The Spouses De Guzman were not considered mortgagees in good faith because they had knowledge of facts (Delfin’s absence) that should have prompted them to investigate the SPA’s authenticity further. Their failure to do so constituted negligence and prevented them from claiming good faith.
What evidence proved that the SPA was forged?	Delfin Dadis presented his passport entries showing he was in the United States when the SPA was allegedly executed, along with witness testimony confirming his absence. This evidence successfully rebutted the presumption of regularity of the notarized SPA.
What is the significance of the property being conjugal?	Because the property was conjugal, the lack of Delfin’s consent, due to the forged SPA, rendered the mortgage void under Article 124 of the Family Code. This article requires both spouses’ consent for the valid disposition or encumbrance of conjugal property.
Can a void contract be ratified?	No, a void contract, such as a sale or mortgage of conjugal property without the consent of both spouses, cannot be ratified. It is considered equivalent to nothing and has no legal effect.
What is the practical implication of this ruling for lenders?	This ruling emphasizes the importance of due diligence for lenders when dealing with representatives acting under an SPA. Lenders must go beyond the face of the document and investigate the representative’s authority, especially if there are any red flags or suspicious circumstances.
What steps should lenders take to ensure due diligence in real estate transactions?	Lenders should verify the identity and authority of the person they are dealing with, examine the SPA closely, inquire into any inconsistencies or suspicious circumstances, and, if possible, contact the property owner directly to confirm the transaction.

This case serves as a reminder to exercise caution and conduct thorough due diligence in real estate transactions, especially when dealing with representatives. Failure to do so can have significant legal and financial consequences.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: DELFIN DOMINGO DADIS vs. SPOUSES MAGTANGGOL DE GUZMAN, G.R. No. 206008, June 07, 2017