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G.R. No. 183774 : Philippine Banking Corporation v. Arturo Dy, et al.

G.R. No. 183774 : Philippine Banking Corporation v. Arturo Dy, et al.



G.R. No. 183774 : November 14, 2012




This Petition for Review on Certiorari assails the January 30, 2008 Decision1ςrνll of the Court of Appeals (CA) in CA-G.R. CV No. 51672, which set aside the October 5, 1994 Decision2ςrνll of the Regional Trial Court of Cebu City, Branch 22 (RTC) and directed the Register of Deeds of Cebu City to cancel Transfer Certificate of Title (TCT) Nos. 517683ςrνll and 519014ςrνll in the names of respondents Arturo Dy and Bernardo Dy (Dys) and to issue the corresponding TCTs in the name of respondent Cipriana Delgado (Cipriana).

The Factual Antecedents

Cipriana was the registered owner of a 58,129-square meter (sq.m.) lot, denominated as Lot No. 6966, situated in Barrio Tongkil, Minglanilla, Cebu, covered by TCT No. 18568. She and her husband, respondent Jose Delgado (Jose), entered into an agreement with a certain Cecilia Tan (buyer) for the sale of the said property for a consideration of P10.00/sq.m. It was agreed that the buyer shall make partial payments from time to time and pay the balance when Cipriana and Jose (Sps. Delgado) are ready to execute the deed of sale and transfer the title to her.

At the time of sale, the buyer was already occupying a portion of the property where she operates a noodle (bihon) factory while the rest was occupied by tenants which Sps. Delgado undertook to clear prior to full payment. After paying the total sum of P147,000.00 and being then ready to pay the balance, the buyer demanded the execution of the deed, which was refused. Eventually, the buyer learned of the sale of the property to the Dys and its subsequent mortgage to petitioner Philippine Banking Corporation (Philbank), prompting the filing of the Complaint5ςrνll for annulment of certificate of title, specific performance and/or reconveyance with damages against Sps. Delgado, the Dys and Philbank.

In their Answer, Sps. Delgado, while admitting receipt of the partial payments made by the buyer, claimed that there was no perfected sale because the latter was not willing to pay their asking price of P17.00/sq.m. They also interposed a cross-claim against the Dys averring that the deeds of absolute sale in their favor dated June 28, 19826ςrνll and June 30, 19827ςrνll covering Lot No. 6966 and the adjoining Lot No. 4100-A (on which Sps. Delgado's house stands), were fictitious and merely intended to enable them (the Dys) to use the said properties as collateral for their loan application with Philbank and thereafter, pay the true consideration of P17.00/sq.m. for Lot No. 6966. However, after receiving the loan proceeds, the Dys reneged on their agreement, prompting Sps. Delgado to cause the annotation of an adverse claim on the Dys' titles and to inform Philbank of the simulation of the sale. Sps. Delgado, thus, prayed for the dismissal of the complaint, with a counterclaim for damages and a cross-claim against the Dys for the payment of the balance of the purchase price plus damages.

For their part, the Dys denied knowledge of the alleged transaction between cross-claimants Sps. Delgado and buyer. They claimed to have validly acquired the subject property from Sps. Delgado and paid the full consideration therefor as the latter even withdrew their adverse claim and never demanded for the payment of any unpaid balance.

On the other hand, Philbank filed its Answer8ςrνll asserting that it is an innocent mortgagee for value without notice of the defect in the title of the Dys. It filed a cross-claim against Sps. Delgado and the Dys for all the damages that may be adjudged against it in the event they are declared seller and purchaser in bad faith, respectively.

In answer to the cross-claim, Sps. Delgado insisted that Philbank was not a mortgagee in good faith for having granted the loan and accepted the mortgage despite knowledge of the simulation of the sale to the Dys and for failure to verify the nature of the buyers physical possession of a portion of Lot No. 6966. They thereby prayed for the cancellation of the mortgage in Philbank's favor.

Subsequently, Sps. Delgado amended their cross-claim against the Dys to include a prayer for the nullification of the deeds of absolute sale in the latter's favor and the corresponding certificates of title, and for the consequent reinstatement of Ciprianas title.9ςrνll

The complaints against the Dys and Philbank were subsequently withdrawn. On the other hand, both the buyer and Sps. Delgado never presented any evidence in support of their respective claims. Hence, the RTC limited itself to the resolution of the claims of Sps. Delgado, Philbank and the Dys against one another.

The RTC Ruling

In the Decision10ςrνll dated October 5, 1994, the RTC dismissed the cross-claims of Sps. Delgado against the Dys and Philbank. It noted that other than Sps. Delgado's bare allegation of the Dys' supposed non-payment of the full consideration for Lot Nos. 6966 and 4100-A, they failed to adduce competent evidence to support their claim. On the other hand, the Dys presented a cash voucher11ςrνll dated April 6, 1983 duly signed by Sps. Delgado acknowledging receipt of the total consideration for the two lots.

The RTC also observed that Sps. Delgado notified Philbank of the purported simulation of the sale to the Dys only after the execution of the loan and mortgage documents and the release of the loan proceeds to the latter, negating their claim of bad faith. Moreover, they subsequently notified the bank of the Dys' full payment for the two lots mortgaged to it.

The CA Ruling

However, on appeal, the CA set aside12ςrνll the RTC's decision and ordered the cancellation of the Dys' certificates of title and the reinstatement of Cipriana's title. It ruled that there were no perfected contracts of sale between Sps. Delgado and the Dys in view of the latter's admission that the deeds of sale were purposely executed to facilitate the latter's loan application with Philbank and that the prices indicated therein were not the true consideration. Being merely simulated, the contracts of sale were, thus, null and void, rendering the subsequent mortgage of the lots likewise void.

The CA also declared Philbank not to be a mortgagee in good faith for its failure to ascertain how the Dys acquired the properties and to exercise greater care when it conducted an ocular inspection thereof. It thereby canceled the mortgage over the two lots.

The Petition

In the present petition, Philbank insists that it is a mortgagee in good faith. It further contends that Sps. Delgado are estopped from denying the validity of the mortgage constituted over the two lots since they participated in inducing Philbank to grant a loan to the Dys.

On the other hand, Sps. Delgado maintain that Philbank was not an innocent mortgagee for value for failure to exercise due diligence in transacting with the Dys and may not invoke the equitable doctrine of estoppel to conceal its own lack of diligence.

For his part, Arturo Dy filed a Petition-in-Intervention13ςrνll arguing that while the deeds of absolute sale over the two properties were admittedly simulated, the simulation was only a relative one involving a false statement of the price. Hence, the parties are still bound by their true agreement. The same was opposed/objected to by both Philbank14ςrνll and Sps. Delgado15ςrνll as improper, considering that the CA judgment had long become final and executory as to the Dys who neither moved for reconsideration nor appealed the CA Decision.

The Ruling of the Court

The petition is meritorious.

At the outset, the Court takes note of the fact that the CA Decision nullifying the questioned contracts of sale between Sps. Delgado and the Dys had become final and executory. Accordingly, the Petition-in-Intervention filed by Arturo Dy, which seeks to maintain the subject contracts' validity, can no longer be entertained. The cancellation of the Dys' certificates of title over the disputed properties and the issuance of new TCTs in favor of Cipriana must therefore be upheld.

However, Philbank's mortgage rights over the subject properties shall be maintained. While it is settled that a simulated deed of sale is null and void and therefore, does not convey any right that could ripen into a valid title,16ςrνll it has been equally ruled that, for reasons of public policy,17ςrνll the subsequent nullification of title to a property is not a ground to annul the contractual right which may have been derived by a purchaser, mortgagee or other transferee who acted in good faith.18ςrνll

The ascertainment of good faith or lack of it, and the determination of whether due diligence and prudence were exercised or not, are questions of fact19ςrνll which are generally improper in a petition for review on certiorari under Rule 45 of the Rules of Court (Rules) where only questions of law may be raised. A recognized exception to the rule is when there are conflicting findings of fact by the CA and the RTC,20ςrνll as in this case.

Primarily, it bears noting that the doctrine of "mortgagee in good faith" is based on the rule that all persons dealing with property covered by a Torrens Certificate of Title are not required to go beyond what appears on the face of the title. This is in deference to the public interest in upholding the indefeasibility of a certificate of title as evidence of lawful ownership of the land or of any encumbrance thereon.21ςrνll In the case of banks and other financial institutions, however, greater care and due diligence are required since they are imbued with public interest, failing which renders the mortgagees in bad faith. Thus, before approving a loan application, it is a standard operating practice for these institutions to conduct an ocular inspection of the property offered for mortgage and to verify the genuineness of the title to determine the real owner(s) thereof.22ςrνll The apparent purpose of an ocular inspection is to protect the "true owner" of the property as well as innocent third parties with a right, interest or claim thereon from a usurper who may have acquired a fraudulent certificate of title thereto.23ςrνll

In this case, while Philbank failed to exercise greater care in conducting the ocular inspection of the properties offered for mortgage,24ςrνll its omission did not prejudice any innocent third parties. In particular, the buyer did not pursue her cause and abandoned her claim on the property. On the other hand, Sps. Delgado were parties to the simulated sale in favor of the Dys which was intended to mislead Philbank into granting the loan application. Thus, no amount of diligence in the conduct of the ocular inspection could have led to the discovery of the complicity between the ostensible mortgagors (the Dys) and the true owners (Sps. Delgado). In fine, Philbank can hardly be deemed negligent under the premises since the ultimate cause of the mortgagors' (the Dys') defective title was the simulated sale to which Sps. Delgado were privies.

Indeed, a finding of negligence must always be contextualized in line with the attendant circumstances of a particular case. As aptly held in Philippine National Bank v. Heirs of Estanislao Militar,25ςrνll "the diligence with which the law requires the individual or a corporation at all times to govern a particular conduct varies with the nature of the situation in which one is placed, and the importance of the act which is to be performed."26ςrνll Thus, without diminishing the time-honored principle that nothing short of extraordinary diligence is required of banks whose business is impressed with public interest, Philbank's inconsequential oversight should not and cannot serve as a bastion for fraud and deceit.

To be sure, fraud comprises "anything calculated to deceive, including all acts, omissions, and concealment involving a breach of legal duty or equitable duty, trust, or confidence justly reposed, resulting in damage to another, or by which an undue and unconscientious advantage is taken of another."27ςrνll In this light, the Dys' and Sps. Delgado's deliberate simulation of the sale intended to obtain loan proceeds from and to prejudice Philbank clearly constitutes fraudulent conduct. As such, Sps. Delgado cannot now be allowed to deny the validity of the mortgage executed by the Dys in favor of Philbank as to hold otherwise would effectively sanction their blatant bad faith to Philbank's detriment.

Accordingly, in the interest of public policy, fair dealing, good faith and justice, the Court accords Philbank the rights of a mortgagee in good faith whose lien to the securities posted must be respected and protected. In this regard, Philbank is entitled to have its mortgage carried over or annotated on the titles of Cipriana Delgado over the said properties.

WHERFORE, the assailed January 30, 2008 Decision of the Court of Appeals in CA-G.R. CV No. 51672 is hereby AFFIRMED with MODIFICATION upholding the mortgage rights of petitioner Philippine Banking Corporation over the subject properties.ςrαlαωlιbrαr



1ςrνll Rollo, pp. 28-43. Penned by Associate Justice Antonio L. Villamor, with Associate Justices Stephen C. Cruz and Amy C. Lazaro-Javier, concurring.

2ςrνll Id. at 45-55. Penned by Judge Pampio A. Abarintos.

3ςrνll Id. at 62.

4ςrνll Id. at 63.

5ςrνll Id. at 82-87.

6ςrνll Id. at 60-61.

7ςrνll Id. at 58-59.

8ςrνll Id. at 88-92.

9ςrνll Id. at 94-99.

10ςrνll Supra note 3.

11ςrνll "Exhibit 7," List of Exhibits for the Defendants, RTC Records, p. 537.

12ςrνll Supra note 1.

13ςrνll Rollo, pp. 238-253.

14ςrνll Id. at 258-260.

15ςrνll Id. at 330-332.

16ςrνll Cruz v. Bancom Finance Corporation, G.R. No. 147788, March 19, 2002, 379 SCRA 490, 509.

17ςrνll Ere v. Querrer-Kauffman, G.R. No. 165853, June 22, 2006, 492 SCRA 298, 319, citing Cavite Development Bank v. Lim, 324 SCRA 346, 358 (2000).

18ςrνll Premiere Development Bank v. Court of Appeals, G.R. Nos. 128122, 128184 & 128229, March 18, 2005, 453 SCRA 630, 654.

19ςrνll Vide Philippine National Bank v. Heirs of Estanislao Militar, G.R. Nos. 164801 & 165165, June 30, 2006, 494 SCRA 308, 319.

20ςrνll Canadian Opportunities Unlimited, Inc. v. Dalangin, Jr., G.R. No. 172223, February 6, 2012, 665 SCRA 21, 31.

21ςrνll Ere v. Querrer-Kauffman, supra note 17.

22ςrνll Alano v. Planter's Development Bank, G.R. No. 171628, June 13, 2011, 651 SCRA 766, 774.

23ςrνll The fact that petitioners were able to secure titles in their names did not operate to vest upon them ownership over the subject properties. Registration under the Torrens system does not create or vest title, but only confirms and records title already existing and vested. It does not protect a usurper from the true owner, and cannot be a shield for the commission of fraud. See Campos v. Pastrana, G.R. No. 175994, December 8, 2009, 608 SCRA 55, 68.

24ςrνll Assailed January 30, 2008 Decision, rollo, p. 40.

25ςrνll Supra note 19.

26ςrνll Id. at 317.

27ςrνll Galvez v. Court of Appeals, G.R. Nos. 187919, 187979 & 188030, April 25, 2012.

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