FACTS:

Corona Jimenez is the registered owner of a lot, which, upon her death on January 16,
2002 and during the settlement of her estate, was discovered to have been donated to
one of her children, Damian F. Jimenez, Jr. on September 7, 2000. On May 21, 2001,
Damian mortgaged the property to Calubad and Keh in consideration of a Php
7,000,000.00 loan. The mortgage was contested by Sonia, Damian’s sister, by an
Affidavit of Adverse Claim.

When Damian’s siblings were informed that the lot was scheduled for auction, they
filed a complaint with prayer for injunction for the annulment of the Deed of Donation
favouring Damian and the Deed of Real Estate Mortgage. With the denial of the
injunction by the Regional Trial Court, the extrajudicial pushed through and Calubad
and Keh emerged as highest bidders. Subsequently, the RTC found that Corona’s
signature in the Deed of Donation was forged. Thus, the Deed of Donation was also
declared void.

In relation to the transfer of the lot to Calubad and Keh, the RTC sustained the
validity of the transaction as Calubad and Keh were found to be innocent mortgagees
for value and good faith. The Court of Appeals affirmed the Decision of the RTC.

ISSUE:

Do Calubad and Keh have a right over the disputed property as mortgagees in good
faith?

RULING:

Yes. Calubad and Keh were mortgagees in good faith. The doctrine of mortgagees in
good faith applies when the following requisites concur, namely: (a) the
mortgagor is not the rightful owner of, or does not have valid title to, the
property; (b) the mortgagor succeeded in obtaining a Torrens title over the
property; (c) the mortgagor succeeded in mortgaging the property to another
person;(d) the mortgagee relied on what appears on the title and there exists no
facts and circumstances that would compel a reasonably cautious man to
inquire into the status of the property; and (e) the mortgage contract was
registered.

All these requisites were satisfied in this case, viz.: (a) Damian was found to have no
valid title to the property as his title was derived from a forged Deed of Donation; (b) he
was able to obtain a Torrens title over the property; (c) he succeeded in mortgaging the
property to Calubad and Keh; (d) Calubad and Keh found nothing on the title that
would have notified them of Damian's invalid title. In fact, Calubad and Keh even went
beyond the title and conducted an ocular inspection, whereby they confinned that
Damian was in possession and occupation of the property; and ( e) the mortgage
contract was registered.
The nullity of the mortgagor's certificate of title does not automatically carry with it the
nullity of a registered mortgage if the mortgagee acted in good faith. Once the
mortgagor defaulted in the fulfillment of his obligation, the mortgagee in good faith can
still cause the foreclosure of the mortgage. In such case, the purchaser in the
foreclosure sale acquires the right of the mortgagee in good faith, making the sale prior
in time as against any subsequent lien or encumbrance. Accordingly, Sonia's adverse
claim, which was annotated after the registered mortgage in favor of Calubad and Keh,
cannot prevail over Calubad and Keh's rights as mortgagees in good faith and
purchasers in the foreclosure sale. Being mortgagees in good faith, they have a
superior lien over that of Sonia, and their right to foreclose is reserved.