SECONDDIVISION

[G.R.No.189477,February26,2014]

HOMEOWNERSSAVINGSANDLOANBANK,PETITIONER
APPELLANT,VS.ASUNCIONP.FELONIAANDLYDIAC.DEGUZMAN,
REPRESENTEDBYMARIBELFRIAS,RESPONDENTSAPPELLEES.

MARIEMICHELLEP.DELGADO,REGISTEROFDEEDSOFLASPIAS
CITYANDRHANDOLFOB.AMANSEC,INHISCAPACITYASCLERK
OFCOURTEXOFFICIOSHERIFF,OFFICEOFTHECLERKOFCOURT,
LASPIASCITY,RESPONDENTSDEFENDANTS.

DECISION

PEREZ,J.:

AssailedinthisPetitionforReviewonCertiorariistheDecision[1] and Resolution[2] of

theCourtofAppeals(CA),inCAG.R.CVNo.87540,whichaffirmedwithmodifications,
the Decision[3] of the Regional Trial Court (RTC), reinstating the title of respondents
AsuncionFelonia(Felonia)andLydiadeGuzman(DeGuzman)andcancellingthetitle
ofMarieMichelleDelgado(Delgado).

Thefactsasculledfromtherecordsareasfollows:

FeloniaandDeGuzmanweretheregisteredownersofaparceloflandconsistingof532
square meters with a fivebedroom house, covered by Transfer of Certificate of Title
(TCT)No.T402issuedbytheregisterofdeedsofLasPiasCity.

SometimeinJune1990,FeloniaandDeGuzmanmortgagedthepropertytoDelgadoto
secure the loan in the amount of P1,655,000.00. However, instead of a real estate
mortgage,thepartiesexecutedaDeedofAbsoluteSalewithanOptiontoRepurchase.
[4]

On 20 December 1991, Felonia and De Guzman filed an action for Reformation of

Contract (Reformation case), docketed as Civil Case No. 9159654, before the RTC of
Manila. On the findings that it is very apparent that the transaction had between the
parties is one of a mortgage and not a deed of sale with right to repurchase,[5] the
RTC, on 21 March 1995 rendered a judgment favorable to Felonia and De Guzman.
Thus:

WHEREFORE, judgment is hereby rendered directing the [Felonia and De

Guzman] and the [Delgado] to execute a deed of mortgage over the
property in question taking into account the payments made and the
impositionofthelegalinterestsontheprincipalloan.
 Ontheotherhand,thecounterclaimisherebydismissedforlackofmerit.

Nopronouncementsastoattorneysfeesanddamagesinbothinstancesas
thepartiesmustbeartheirrespectiveexpensesincidenttothissuit.[6]

Aggrieved,DelgadoelevatedthecasetotheCAwhereitwasdocketedasCAG.R.CV
No. 49317. The CA affirmed the trial court decision. On 16 October 2000, the CA
decisionbecamefinalandexecutory.[7]

Inspite of the pendency of the Reformation case in which she was the defendant,
DelgadofiledaPetitionforConsolidationofOwnershipofPropertySoldwithanOption
to Repurchase and Issuance of a New Certificate of Title (Consolidation case) in the
RTCofLasPias,on20June1994.[8]Afteranexpartehearing,theRTCorderedthe
issuanceofanewtitleunderDelgadosname,thus:

WHEREFORE,judgmentisrendered

1.Declaring [DELGADO] as absolute owner of the subject parcel of land

covered by Transfer Certificate of Title No. T402 of the Register of
DeedsofLasPias,MetroManila

2.Ordering the Register of Deeds of Las Pias, Metro Manila to cancel

Transfer Certificate of Title No. T402 and issue in lieu thereof a new
certificate of title and owners duplicate copy thereof in the name of
[DELGADO].[9]

By virtue of the RTC decision, Delgado transferred the title to her name. Hence, TCT
No.T402,registeredinthenamesofFeloniaandDeGuzman,wascanceledandTCT
No.44848inthenameofDelgado,wasissued.

Aggrieved, Felonia and De Guzman elevated the case to the CA through a Petition for
AnnulmentofJudgment.[10]

Meanwhile, on 2 June 1995, Delgado mortgaged the subject property to Homeowners

SavingsandLoanBank(HSLB)usinghernewlyregisteredtitle.Three(3)dayslater,or
on5June1995,HSLBcausedtheannotationofthemortgage.

On 14 September 1995, Felonia and De Guzman caused the annotation of a Notice of

LisPendensonDelgadostitle,TCTNo.44848.TheNoticestates:

Entry No. 8219/T44848 NOTICE OF LIS PENDENS filed by Atty.

HumbertoA.Jambora,CounselforthePlaintiff,thatacasebeencommenced
intheRTC,Branch38,Manila,entitledASUNCIONP.FELONIAandLYDIADE
GUZMAN thru VERONICA P. BELMONTE, as Attyinfact (Plaintiffs) v.s.
MARIE MICHELLE DELGADO defendant in Civil Case No. 9159654 for
ReformationofInstrument.CopyonfileinthisRegistry.
DateofInstrumentSept.11,1995
DateofInscriptionSept.14,1995at9:55a.m.[11]
On 20 November1997, HSLB foreclosed the subject property and later consolidated
ownershipinitsfavor,causingtheissuanceofanewtitleinitsname,TCTNo.64668.

On27October2000,theCAannulledandsetasidethedecisionoftheRTC,LasPias
CityintheConsolidationcase.ThedecisionoftheCA,declaringFeloniaandDeGuzman
as the absolute owners of the subject property and ordering the cancellation of
Delgadostitle,becamefinalandexecutoryon1December2000.[12]Thus:

WHEREFORE,thepetitionisGRANTEDandthesubjectjudgmentofthecourt
aquoisANNULLEDandSETASIDE.[13]

On 29 April 2003, Felonia and De Guzman, represented by Maribel Frias (Frias),

claiming to be the absolute owners of the subject property, instituted the instant
complaintagainstDelgado,HSLB,RegisterofDeedsofLasPiasCityandRhandolfoB.
AmansecbeforetheRTCofLasPiasCityforNullityofMortgageandForeclosureSale,
AnnulmentofTitlesofDelgadoandHSLB,andfinally,ReconveyanceofPossessionand
Ownershipofthesubjectpropertyintheirfavor.

As defendant, HSLB asserted that Felonia and De Guzman are barred from laches as
theyhadsleptontheirrightstotimelyannotate,bywayofNoticeofLisPendens,the
pendency of the Reformation case. HSLB also claimed that it should not be bound by
thedecisionsoftheCAintheReformationandConsolidationcasesbecauseitwasnota
partytherein.Finally,HSLBassertedthatitwasamortgageeingoodfaithbecausethe
mortgage between Delgado and HSLB was annotated on the title on 5 June 1995,
whereastheNoticeofLisPendenswasannotatedonlyon14September1995.

Aftertrial,theRTCruledinfavorofFeloniaandDeGuzmanastheabsoluteownersof
thesubjectproperty.ThedispositiveportionoftheRTCdecisionreads:

WHEREFORE, premises considered, the Court hereby finds for the [Felonia
and De Guzman] with references to the decision of the Court of Appeals in
CAG.R. CV No. 49317 and CAG.R. SP No. 43711 as THESE TWO
DECISIONS CANNOT BE IGNORED and against [Delgado] and [HSLB],
RegisterofDeedsofLasPiasCityorderingthe(sic)asfollows:

1.The Register of Deeds of Las Pias City to cancel Transfer

CertificateofTitleNos.44848andT64668asnullandvoid
andreinstatingTransferCertificateofTitleNo.T402which
shall contain a memorandum of the fact and shall in all
respect be entitled to like faith and credit as the original
certificate of title and shall, thereafter be regarded as such
forallintentsandpurposesunderthelaw

2.Declaring the Mortgage Sheriffs Sale and the Certificate of

SaleissuedinfavorofHSLBnullandvoid,withoutprejudice
to whatever rights the said Bank may have against
[Delgado]
 3.Ordering [Delgado] to pay [Felonia and De Guzman] the
amountofPHP500,000.00forcompensatorydamages

4.Ordering [Delgado] to pay [Felonia and De Guzman] the

amountofPHP500,000.00forexemplarydamages

5.Ordering [Delgado] to pay [Felonia and De Guzman] the

amountofPHP500,000.00formoraldamages

6.Ordering [Delgado] to pay 20% of the total obligations as

andbywayofattorneysfees

7.Ordering[Delgado]topaycostofsuit.[14]

On appeal, the CA affirmed with modifications the trial court decision. The dispositive
portionoftheappealedDecisionreads:

WHEREFORE, in the light of the foregoing, the decision appealed from is

AFFIRMEDwiththeMODIFICATIONSthattheawardsofactualdamagesand
attorneys fees are DELETED, moral and exemplary damages are REDUCED
toP50,000.00each,andDelgadoisorderedtopaytheappelleesP25,000.00
asnominaldamages.[15]

Hence,thispetition.

Notably,HSLBdoesnotquestiontheaffirmancebytheCAofthetrialcourtsrulingthat
TCTNo.44848,thecertificateoftitleofitsmortgagorvendor,andTCTNo.64668,the
certificateoftitlethatwassecuredbyvirtueoftheSheriffssaleinitsfavor,shouldbe
cancelled as null and void and that TCT No. T402 in the name of Felonia and De
Guzmanshouldbereinstated.

Recognizing the validity of TCT No. T402 restored in the name of Felonia and De
Guzman,petitionerspraythatthedecisionoftheCAbemodifiedtotheeffectthatthe
mortgagelieninfavorofpetitionerHSLBannotatedasentryNo.470812onTCTNo.
44848be[ordered]carriedoveronTCTNo.T402afteritisreinstatedinthenameof
[FeloniaandDeGuzman].[16]

ProceedingfromtherulingoftheCAthatitisamortgageeingoodfaith,HSLBargues
that a denial of its prayer would run counter to jurisprudence giving protection to a
mortgageeingoodfaithbyreasonofpublicpolicy.

Wecannotgranttheprayerofpetitioner.ThepriorlyregisteredmortgagelienofHSLB
isnowworthless.

Arguably, HSLB was initially a mortgagee in good faith. In Bank of Commerce v. San
Pablo,Jr.,[17]thedoctrineofmortgageeingoodfaithwasexplained:

Thereis,however,asituationwhere,despitethefactthatthemortgagoris
not the owner of the mortgaged property, his title being fraudulent, the
 mortgage contract and any foreclosure sale arising there from are given
effect by reason of public policy. This is the doctrine of the mortgagee in
goodfaithbasedontherulethatallpersonsdealingwithpropertycovered
by the Torrens Certificates of Title, as buyers or mortgagees, are not
required to go beyond what appears on the face of the title. The public
interest in upholding indefeasibility of a certificate of title, as evidence of
lawful ownership of the land or of any encumbrance thereon, protects a
buyerormortgageewho,ingoodfaith,relieduponwhatappearsontheface
ofthecertificateoftitle.

When the property was mortgaged to HSLB, the registered owner of the subject
property was Delgado who had in her name TCT No. 44848. Thus, HSLB cannot be
faultedinrelyingonthefaceofDelgadostitle.TherecordsindicatethatDelgadowas
atthetimeofthemortgageinpossessionofthesubjectpropertyandDelgadostitledid
notcontainanyannotationthatwouldarouseHSLBssuspicion.HSLB,asamortgagee,
hadarighttorelyingoodfaithonDelgadostitle,andintheabsenceofanysignthat
might arouse suspicion, HSLB had no obligation to undertake further investigation. As
heldbythisCourtinCebuInternationalFinanceCorp.v.CA:[18]

Theprevailingjurisprudenceisthatamortgageehasarighttorelyingood
faith on the certificate of title of the mortgagor of the property given as
securityandintheabsenceofanysignthatmightarousesuspicion,hasno
obligationtoundertakefurtherinvestigation.Hence,evenifthemortgagoris
not the rightful owner of, or does not have a valid title to, the mortgaged
property,themortgageeortransfereeingoodfaithisnonethelessentitledto
protection.

However, the rights of the parties to the present case are defined not by the
determinationofwhetherornotHSLBisamortgageeingoodfaith,butofwhetheror
notHSLBisapurchaseringoodfaith.And,HSLBisnotsuchapurchaser.

A purchaser in good faith is defined as one who buys a property without notice that
someotherpersonhasarightto,orinterestin,thepropertyandpaysfullandfairprice
atthetimeofpurchaseorbeforehehasnoticeoftheclaimorinterestofotherpersons
intheproperty.[19]

When a prospective buyer is faced with facts and circumstances as to arouse his
suspicion,hemusttakeprecautionarystepstoqualifyasapurchaseringoodfaith.In
SpousesMathayv.CA,[20]wedeterminedthedutyofaprospectivebuyer:

Although it is a recognized principle that a person dealing on a registered

landneednotgobeyonditscertificateoftitle,itisalsoafirmlysettledrule
that where there are circumstances which would put a party on guard and
prompthimtoinvestigateorinspectthepropertybeingsoldtohim,suchas
the presence of occupants/tenants thereon, it is of course, expected from
the purchaser of a valued piece of land to inquire first into the status or
nature of possession of the occupants, i.e., whether or not the occupants
possessthelanden concepto de dueo, in the concept of the owner. As is
thecommonpracticeintherealestateindustry,anocularinspectionofthe
 premises involved is a safeguard a cautious and prudent purchaser usually
takes. Should he find out that the land he intends to buy is occupied by
anybody else other than the seller who, as in this case, is not in actual
possession, it would then be incumbent upon the purchaser to verify the
extentoftheoccupantspossessoryrights.Thefailureofaprospectivebuyer
to take such precautionary steps would mean negligence on his part and
would thereby preclude him from claiming or invoking the rights of a
purchaseringoodfaith.

In the case at bar, HSLB utterly failed to take the necessary precautions. At the time
thesubjectpropertywasmortgaged,therewasyetnoannotatedNoticeofLisPendens.
However, at the time HSLB purchased the subject property, the Notice of LisPendens
wasalreadyannotatedonthetitle.[21]

Lis pendens is a Latin term which literally means, a pending suit or a pending
litigationwhileanoticeoflispendens is an announcement to the whole world that a
realpropertyisinlitigation,servingasawarningthatanyonewhoacquiresaninterest
overthepropertydoessoathis/herownrisk,orthathe/shegamblesontheresultof
the litigation over the property.[22] It is a warning to prospective buyers to take
precautionsandinvestigatethependinglitigation.

Thepurposeofanoticeoflispendensistoprotecttherightsoftheregistrantwhilethe
caseispendingresolutionordecision.Withthenoticeoflispendensdulyrecordedand
remaining uncancelled, the registrant could rest secure that he/she will not lose the
propertyoranypartthereofduringlitigation.

Thedoctrineoflispendens is founded upon reason of public policy and necessity, the

purpose of which is to keep the subject matter of the litigation within the Courts
jurisdiction until the judgment or the decree have been entered otherwise, by
successive alienations pending the litigation, its judgment or decree shall be rendered
abortiveandimpossibleofexecution.[23]

Indeed, at the time HSLB bought the subject property, HSLB had actual knowledge of
theannotatedNoticeofLisPendens.Insteadofheedingthesame,HSLBcontinuedwith
thepurchaseknowingthelegalrepercussionsanoticeoflispendensentails.HSLBtook
upon itself the risk that the Notice of LisPendens leads to. As correctly found by the
CA, the notice of lis pendens was annotated on 14 September 1995, whereas the
foreclosure sale, where the appellant was declared as the highest bidder, took place
sometimein1997.Thereisnodoubtthatatthetimeappellantpurchasedthesubject
property,itwasawareofthependinglitigationconcerningthesamepropertyandthus,
thetitleissuedinitsfavorwassubjecttotheoutcomeofsaidlitigation.[24]

This ruling is in accord with Rehabilitation Finance Corp. v. Morales,[25] which

underscoredthesignificanceofalispendens,thendefinedinSec.24,Rule7nowSec.
14 of Rule 13 in relation to a mortgage priorly annotated on the title covering the
property.Thus:
 The notice of lis pendens in question was annotated on the back of the
certificate of title as a necessary incident of the civil action to recover the
ownershipofthepropertyaffectedbyit.Themortgageexecutedinfavorof
petitioner corporation was annotated on the same title prior to the
annotation of the notice of lis pendens but when petitioner bought the
propertyasthehighestbidderattheauctionsalemadeasanaftermathof
the foreclosure of the mortgage, the title already bore the notice of lis
pendens.Held:Whilethenoticeoflispendenscannotaffectpetitionersright
as mortgagee, because the same was annotated subsequent to the
mortgage,yetthesaidnoticeaffectsitsrightaspurchaserbecausenoticeof
lis pendens simply means that a certain property is involved in a litigation
andservesasanoticetothewholeworldthatonewhobuysthesamedoes
soathisownrisk.[26]

The subject of the lis pendens on the title of HSLBs vendor, Delgado, is the
Reformation case filed against Delgado by the herein respondents. The case was
decided with finality by the CA in favor of herein respondents. The contract of sale in
favorofDelgadowasorderedreformedintoacontractofmortgage.Byfinaldecisionof
theCA,HSLBsvendor,Delgado,isnotthepropertyownerbutonlyamortgagee.Asit
turnedout,Delgadocouldnothaveconstitutedavalidmortgageontheproperty.That
themortgagorbetheabsoluteownerofthethingmortgagedisanessentialrequisiteof
acontractofmortgage.Article2085(2)oftheCivilCodespecificallysaysso:

Art. 2085. The following requisites are essential to the contracts of pledge
andmortgage:

xxxx

(2) That the pledgor or mortagagor be the absolute owner of the thing
pledgedormortgaged.

Succinctly, for a valid mortgage to exist, ownership of the property is an

essentialrequisite.[27]

Reyes v. De Leon[28] cited the case of Philippine National Bank v. Rocha[29] where it
waspronouncedthatamortgageofrealpropertyexecutedbyonewhoisnotanowner
thereofatthetimeoftheexecutionofthemortgageiswithoutlegalexistence.Such
that, according to DBP v. Prudential Bank,[30] there being no valid mortgage, there
couldalsobenovalidforeclosureorvalidauctionsale.

WegobacktoBankofCommercev.SanPablo,Jr.[31]wherethedoctrineofmortgagee
in good faith, upon which petitioner relies, was clarified as based on the rule that all
personsdealingwithpropertycoveredbytheTorrensCertificateofTitle,asbuyersor
mortgagees, are not required to go beyond what appears on the face of the title. In
turn, the rule is based on x x x public interest in upholding the indefeasibility of a
certificate of title, as evidence of lawful ownership of the land or of any encumbrance
thereon.[32]
InsofarastheHSLBisconcerned,thereisnolongeranypublicinterestinupholdingthe
indefeasibility of the certificate of title of its mortgagor, Delgado. Such title has been
nullifiedinadecisionthathadbecomefinalandexecutory.Itsowntitle,derivedfrom
the foreclosure of Delgados mortgage in its favor, has likewise been nullified in the
verysamedecisionthatrestoredthecertificateoftitleinrespondentsname.Thereis
absolutely no reason that can support the prayer of HSLB to have its mortgage lien
carriedoverandintotherestoredcertificateoftitleofrespondents.

WHEREFORE,thePetitionisDENIED.TheDecisionoftheCourtofAppealsinCAG.R.
CVNo.87540isAFFIRMED.

SOORDERED.

Carpio,*(Chairperson),DelCastillo,PerlasBernabe,andLeonen,**JJ.,concur.

*PerSpecialOrderNo.1644dated26February2014.

**PerSpecialOrderNo.1636dated17February2014.

[1] CA rollo, pp. 8798 Penned by Associate Justice Apolinario D. Bruselas, Jr., with

Associate Justices Bienvenido L. Reyes (now a member of this Court) and Mariflor P.
PunzalanCastilloconcurring.

[2]Id.at112114.

[3]Rollo,pp.170177PennedbyPresidingJudgeLornaNavarroDomingo.

[4]Records,pp.779781.

[5]Id.at95.

[6]Id.at46.

[7]Id.at729742ExhibitsFH.

[8]Rollo,p.17LRCCaseNo.M3302,RTCLasPiasCity,Branch275.

[9]Records,p.49.

[10]Felonia,etal.v.Hon.AlfredoR.Enriquez,etal.,CAG.R.SPNo.43711,Courtof

Appeals,EightDivision.

[11]Records,p.114.

[12]Id.at752759ExhibitsNO.
[13]Id.at757.

[14]Rollo,pp.176177.

[15]CArollo,p.98.

[16]Rollo,p.15.

[17] G.R. No. 167848, 27 April 2007, 522 SCRA 713, 726 citing Cavite Development

Bankv.SpousesLim,381Phil.355,368(2000)ascitedinEreav.QuerrerKauffman,
G.R.No.165853,22June2006,492SCRA298,319.

[18]335Phil.643,655(1997).

[19]SeeSigayav.Mayuga,504Phil.600,613(2005)SanLorenzoDevelopmentCorp

v.CA,490Phil.7,24(2005)Occeav.Esponilla,G.R.No.156973,4June2004,431
SCRA 116, 124 Sps. Castro v. Miat, 445 Phil. 282, 298 (2003) AFP Mutual Benefit
Association, Inc. v. CA, G.R. No. 104769 (consolidated with Solid Homes, Inc. v.
Investco,Inc.,G.R.No.135016),417Phil.250,256(2001)RepublicofthePhilippines
v.CA,365Phil.522,529(1999)andSandovalv.CA,329Phil.48,62(1996).

[20]356Phil.870,892(1998).

[21]Records,p.744ExhibitsI3.

[22]Peoplev.RTCofManila,258APhil.68,75(1989)citingBaranda,etal.v.Gustilo,

248 Phil. 205 (1988) Tanchoco v. Judge Aquino, 238 Phil. 1 (1987) Marasigan v.
Intermediate Appellate Court, 236 Phil. 274 (1987) St. Dominic Corporation v.
IntermediateAppellateCourt,222Phil.540(1985)Constantinov.Espiritu,150APhil.
953(1972)Josev.Cayetano,149Phil.451(1971)Natao, et al. v. Esteban, et al.,
124Phil.1067(1966)SeealsoRehabilitationFinanceCorporationv.Morales,101Phil.
171(1957),andJamorav.Duran,69Phil.3(1939).

[23]Larozav.Guia,G.R.No.L45252,31January1985,134SCRA341,345.

[24]Rollo,p.83.

[25]101Phil.171(1957).

[26]Id.at171172.

[27]Reyesv.DeLeon,126Phil.710,716(1967).

[28]Id.

[29]55Phil.497(1930).

[30]512Phil.267,278(2005)citingCruzv.BancomFinanceCorporation,429Phil.225

(2002).

[31]Supranote17.

[32]Id.

Source:SupremeCourtELibrary
Thispagewasdynamicallygenerated
bytheELibraryContentManagementSystem(ELibCMS)