SECOND DIVISION
G.R. No. 193551, November 19, 2014
HEIRS OF GREGORIO LOPEZ, REPRESENTED BY ROGELIA LOPEZ, ET AL., Petitioners, v. DEVELOPMENT BANK OF THE PHILIPPINES [NOW SUBSTITUTED BY PHILIPPINE INVESTMENT TWO (SPV-AMC), INC.], Respondents.
D E C I S I O N
LEONEN, J.:
This case involves the application of the doctrine on innocent purchaser or mortgagee for value. It also involves the application of the doctrines on sales by persons who are not owners of the property.
This is a Rule 45 petition1 filed on October 15, 2010, assailing the Court of Appeals May 8, 2009 decision2 and August 16, 2010 resolution.3 The Court of Appeals reversed and set aside the Regional Trial Court’s December 27, 2005 decision,4 which ordered the nullification of the affidavit of self-adjudication executed by Enrique Lopez, and the documents relating to the sale and mortgage of the property to respondent Development Bank of the Philippines.
Gregoria Lopez owned a 2,734-square-meter property in Bustos, Bulacan.5 She died on March 19, 19226 and was survived by her three sons: Teodoro Lopez, Francisco Lopez, and Carlos Lopez.7 Tax Declaration No. 613 was issued under the names of Teodoro, Francisco, and Carlos.8
Teodoro, Francisco, and Carlos died.9 Only Teodoro was survived by children: Gregorio, Enrique, Simplicio, and Severino.10
Petitioners in this case are Simplicio substituted by his daughter Eliza Lopez, and the heirs of Gregorio and Severino.11 Enrique is deceased.12
Petitioners discovered that on November 29, 1990, Enrique executed an affidavit of self-adjudication declaring himself to be Gregoria Lopez’s only surviving heir, thereby adjudicating upon himself the land in Bulacan.13 He sold the property to Marietta Yabut.14
Petitioners demanded from Marietta the nullification of Enrique’s affidavit of self-adjudication and the deed of absolute sale.15 They also sought to redeem Enrique’s one-fourth share.16 Marietta, who was already in possession of the property, refused.17
Sometime in 1993, Marietta obtained a loan from Development Bank of the Philippines (DBP) and mortgaged the property to DBP as security.18 At the time of the loan, the property was covered by Tax Declaration No. 18727, with the agreement that the land shall be brought under the Torrens system.19 On July 26, 1993, an original certificate of title was issued in Marietta’s name.20 Marietta and DBP “executed a supplemental document dated 28 February 1995 placing the subject [property] within the coverage of the mortgage.”21 The mortgage was annotated to the title.22
Sometime between 1993 and 1994, petitioners filed a complaint23 and an amended complaint24 with the Regional Trial Court for the annulment of document, recovery of possession, and reconveyance of the property. They prayed that judgment be rendered, ordering the annulment of Enrique’s affidavit of self-adjudication, the deed of sale executed by Enrique and Marietta, and the deed of real estate mortgage executed by Marietta in favor of DBP.25 Petitioners also prayed for the reconveyance of their three-fourth share in the property, their exercise of their right of redemption of Enrique’s one-fourth share, as well as attorney’s fees and costs of suit.26
Petitioners caused the annotation of a notice of lis pendens at the back of the original certificate of title.27 The annotation was inscribed on June 27, 1994.28
Marietta failed to pay her loan to DBP.29 “DBP instituted foreclosure proceedings on the . . . land.”30 It was “awarded the sale of the [property] as the highest bidder.”31 “The Certificate of Sale was registered with the Register of Deeds . . . on 11 September 1996.”32 Marietta failed to redeem the property.33 The title to the property was “consolidated in favor of DBP.”34
On December 27, 2005, the Regional Trial Court ruled in favor of petitioners.35 The Regional Trial Court found that the affidavit of self-adjudication and the deed of absolute sale did not validly transfer to Marietta the title to the property.36 Enrique could not transfer three-fourths of the property since this portion belonged to his co-heirs.37 The Regional Trial Court also found that Marietta was not an innocent purchaser for value because when the deed of absolute sale was executed, the property was only covered by a tax declaration in the name of the heirs of Gregoria Lopez,38 thus:
[Marietta] should have looked further into the veracity of vendor Enrique Lopez’ claim of ownership over the subject property considering that he has not presented her any other proof of his ownership when the said Deed of Absolute Sale was executed other than his mere allegation of ownership thereof.39
[W]ith the absence of any evidence to show that the DBP was ever privy to the fraudulent execution of the late Enrique Lopez’ [sic] affidavit of Adjudication over the subject land, the right of the former over the same must be protected and respected by reason of public policy.49
WHEREFORE, the appeal is GRANTED. The 27 December 2005 Decision of the Regional Trial Court is hereby REVERSED and SET ASIDE as to defendant-appellant Development Bank of the Philippines and dismissing the complaint against the latter [now substituted by Philippine Investment Two (SPV-AMC), Inc.]50
Art. 1458. By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.
Art. 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered.
Art. 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute another person in its enjoyment, except when personal rights are involved. But the effect of the alienation or the mortgage, with respect to the co-owners, shall be limited to the portion which may be allotted to him in the division upon the termination of the co-ownership.
Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:
(1) That they be constituted to secure the fulfilment of a principal obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose.
Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property.
Under this doctrine, even if the mortgagor is not the owner of the mortgaged property, the mortgage contract and any foreclosure sale arising therefrom are given effect by reason of public policy. This principle is based on the rule that all persons dealing with property covered by a Torrens Certificate of Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title. This is the same rule that underlies the principle of "innocent purchasers for value." The prevailing jurisprudence is that a mortgagee has a right to rely in good faith on the certificate of title of the mortgagor to the property given as security and in the absence of any sign that might arouse suspicion, has no obligation to undertake further investigation. Hence, even if the mortgagor is not the rightful owner of, or does not have a valid title to, the mortgaged property, the mortgagee in good faith is, nonetheless, entitled to protection.79
Respondent . . . is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike private individuals, it is expected to exercise greater care and prudence in its dealings, including those involving registered lands. A banking institution is expected to exercise due diligence before entering into a mortgage contract. The ascertainment of the status or condition of a property offered to it as security for a loan must be a standard and indispensable part of its operations.83 (Citations omitted)
The trial court, in the decision complained of, made no finding that the defendant mortgagee bank was a party to the fraudulent transfer of the land to Fructuosa Esquierdo. Indeed, there is nothing alleged in the complaint which may implicate said defendant mortgagee in the fraud, or justify a finding that it acted in bad faith. On the other hand, the certificate of title was in the name of the mortgagor Fructuosa Esquierdo when the land was mortgaged by her to the defendant bank. Such being the case, the said defendant bank, as mortgagee, had the right to rely on what appeared in the certificate and, in the absence of anything to excite suspicion, was under no obligation to look beyond the certificate and investigate the title of the mortgagor appearing on the face of said certificate. (De Lara, et al. vs. Ayroso, 95 Phil., 185; 50 Off. Gaz., 10 4838; Joaquin vs. Madrid, et al., 106 Phil., 1060). Being thus an innocent mortgagee for value, its right or lien upon the land mortgaged must be respected and protected, even if the mortgagor obtained her title thereto thru fraud.87
Endnotes:
1Rollo, pp. 11–34.
2 Id. at 61–69.
3 Id. at 77–78.
4 Id. at 55–60.
5 Id. at 56 and 62.
6 Id. at 62.
7 Id. at 56 and 62.
8 Id. at 56.
9 Id. at 56. Teodoro died on December 10, 1933.
10 Id. at 56 and 63.
11 Id. at 57 and 63.
12 Id.
13 Id.
14 Id.
15 Id. at 57.
16 Id.
17 Id.
18 Id. at 57 and 64.
19 Id. at 64.
20 Id.
21 Id.
22 Id. at 45 and 64. The annotation was inscribed on March 8, 1994.
23 Id. at 64–65.
24 Id. at 39–43.
25 Id. at 55.
26 Id.
27 Id. at 57.
28 Id. at 68.
29 Id. at 64.
30 Id.
31 Id.
32 Id.
33 Id.
34 Id.
35 Id. at 55–60.
36 Id. at 58–59.
37 Id.
38 Id. at 58.
39 Id.
40 Id. at 59.
41 Id.
42 Id. at 59–60.
43 Id. at 60.
44 Id. at 58.
45 Id. at 60.
46 Id.
47 Id. at 65.
48 Id. at 61–69.
49 Id. at 68.
50 Id. at 68–69.
51 Id. at 77.
52 Id. at 11–38.
53 Id. at 21–29.
54 Id. at 27–28.
55 Id. at 30.
56 Id. at 30–31.
57 110 Phil. 494 (1960) [Per J. Gutierrez David, En Banc].
58Rollo, pp. 93–94.
59 Id. at 94.
60 Id. at 95.
61 “Nemo dat quod non habet”; Daclag v. Macahilig, 582 Phil. 138, 153 (2008) [Per J. Austria-Martinez, Third Division]; Segura v. Segura, 247-A Phil. 449, 458 (1988) [Per J. Cruz, First Division].
62Daclag v. Macahilig, 582 Phil. 138, 153 (2008) [Per J. Austria-Martinez, Third Division].
63 CIVIL CODE, art. 777. The rights to the succession are transmitted from the moment of the death of the decedent. Bonilla v. Barcena, 163 Phil. 516, 520 (1976) [Per J. Martin, First Division], citing Baun v. Heirs of Baun, 53 Phil. 654, 658 (1929) [Per J. Johnson, En Banc].
64Bonilla v. Barcena, 163 Phil. 516, 520 (1976) [Per J. Martin, First Division], citing Morales, et al. v. Yañez, 98 Phil. 677, 679 (1956) [Per J. Bengzon, En Banc].
65 CIVIL CODE, art. 1078.
66 CIVIL CODE, arts. 961, 962, 978, and 979.
67 CIVIL CODE, arts. 961, 962, 978, 979, and 1003–1010.
68 CIVIL CODE, arts. 961, 962, 978, and 979.
69Naval v. Court of Appeals, 518 Phil. 271, 282–283 (2006) [Per J. Ynares-Santiago, First Division], citing Heirs of Clemente Ermac v. Heirs of Vicente Ermac, 451 Phil. 368, 377 (2003) [Per J. Panganiban, Third Division].
70 Id.; Carino v. Insular Government, 212 U.S. 449, 463 (1909).
71 Id.
72 See also Green Acres Holdings, Inc. v. Cabral, G.R. No. 175542, June 5, 2013, 697 SCRA 266, 285–286 [Per J. Villarama, Jr., First Division].
73 Id.
74 See also San Roque Realty v. Republic, 559 Phil. 264, 280 (2007) [Per J. Nachura, Third Division].
75 Id.
76Daclag v. Macahilig, 582 Phil. 138, 157 (2008) [Per J. Austria-Martinez, Third Division].
77Torbela v. Rosario, G.R. No. 140528, December 7, 2011, 661 SCRA 633, 667 [Per J. Leonardo-De Castro, First Division].
78 Id.
79 Id. at 667–668; See also Bank of Commerce v. San Pablo, Jr., 550 Phil. 805, 820–821 (2007) [Per J. Chico-Nazario, Third Division], citing Cavite Development Bank v. Spouses Lim, 381 Phil. 355, 368 (2000) [Per J. Mendoza, Second Division] as cited in Ereña v. Querrer-Kauffman, 525 Phil. 381, 401–402 (2006) [Per J. Callejo, Sr., First Division].
80 See also Bank of Commerce v. San Pablo, Jr., 550 Phil. 805, 821 (2007) [Per J. Chico-Nazario, Third Division]. In this case, the mortgagor mortgaged another’s property based on a special power of attorney. The certificate of title was not under his name. Hence, the mortgagee never dealt with the registered owner of the property.
81 Id.
82 429 Phil. 225 (2002) [Per J. Panganiban, Third Division].
83 Id. at 239.
84Blanco v. Esquierdo, 110 Phil. 494, 496 (1960) [Per J. Gutierrez David, En Banc].
85 Id.
86 Id. at 497.
87 Id. at 497–498.