The innocent mortgagee for value principle

By Atty. Eduardo T. Reyes III

In dealing with lands covered by a Torrens title, it is best to get legal advice.

The Torrens system of registration was adopted in the Philippines to promote efficiency in land transactions. It is the idea that when people can rely on a Torrens title, sales and/or mortgages can be entered into without the need to unnecessarily background check the history of the land.

This is known as the “mirror principle.” It means that a person needs only to check what are stated or inscribed on the Torrens title and any previous transaction which is not there cannot bind them. (The rule however does not apply to banking and financing institutions which are required to conduct a thorough investigation before accepting a property by way of mortgage as held in Dela Merced v. GSIS, September 11, 2001.)

Once a person relies on a Torrens title which is “clean” or free of encumbrances, they could be deemed as an innocent purchaser for value or mortgagee for value.

The elements were laid down by jurisprudence as follows:

“The recent case of Jimenez v. Jimenez reiterated that the doctrine only applies when the following requisites concur, viz.: (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.” (Merlinda Plana v. Lourdes Tan Chua and Heirs of Ramon Chiang, G.R. No. 250636. January 10, 2023).

Applying the principle, it is possible that while the one who obtained a loan and mortgaged the property is not the real owner of the land, yet, the sale or mortgage that they entered into may be deemed valid. This is to protect the buyer or mortgagee who relied on a Torrens title under the mirror principle.

The “mirror principle” therefore can be a “double-mirror” in that it can protect a buyer or mortgagee in good faith while at the same time it can deprive the true owner of the property who failed to insist on putting their name on the Torrens title.

            (The author is the senior partner of ET Reyes III & Associates– a law firm based in Iloilo City. He is a litigation attorney, a law professor, MCLE lecturer, bar reviewer and a book author. His website is etriiilaw.com).