IX – Real Mortgage

Planters Development Bank Vs. Spouses Victoria and Melanie Ramos; G.R. No. 228617; September 20, 2017
DECISION

REYES, JR., J:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the
Decision[1]dated July 5, 2016 and Resolution[2] dated December 7, 2016 of the Court of Appeals (CA) in CA-G.R. SP
No. 140264.

Antecedent Facts

The facts show that in July 2012, Spouses Victoriano and Melanie Ramos (Spouses Ramos) applied for several
credit lines with Planters Development Bank (PDB) for the construction of a warehouse in Barangay Santo Tomas,
Nueva Ecija.[3] The said application was approved for P40,000,000.00, secured by Real Estate Mortgage[4] dated July
25, 2012 over properties owned by the spouses, particularly covered by Transfer Certificate of Title (TCT) Nos.
048-2011000874 and 048-2011000875.
Subsequently, Spouses Ramos requested for additional loan and PDB allegedly promised to extend them a further
loan of P140,000,000.00, the amount they supposed was necessary for the completion of the construction of the
warehouse with a capacity of 250,000 cavans of palay. [5] Despite the assurance of the bank, only P25,000,000.00 in
additional loan was approved and released by PDB, which was secured by a Real Estate Mortgage [6] over four (4)
real properties covered by TCT Nos. 048-2012000909, 048-2012000443, 048-2012000445, and 048-2012000446.

Due to financial woes, Spouses Ramos were not able to pay their obligations as they fell due. They appealed to PDB
for the deferment of debt servicing and requested for a restructuring scheme but the parties failed to reach an
agreement.

On April 23, 2014, PDB filed a Petition for Extra-judicial Foreclosure of Real Estate Mortgage under Act 3135, as
amended, before the Regional Trial Court of San Jose City, Nueva Ecija, which was docketed as EJF-2014-112-SJC. A
Notice to Parties of Sheriff’s Public Auction Sale dated May 7, 2014 was thereafter issued. [7]

On June 18, 2014, Spouses Ramos filed a Complaint[8] for Annulment of Real Estate Mortgages and Promissory
Notes, Accounting and Application of Payments, Injunction with Preliminary Injunction and Temporary Restraining
Order against PDB and its officers, namely, Ma. Agnes J. Angeles, Virgilio I. Libunao, Carmina S. Magallanes and
Norberto P. Siega, also before the RTC of San Jose City, Nueva Ecija, which was docketed as Civil Case No. 2014-485-
SJC.

Instead of filing an Answer, PDB filed an Urgent Motion[9] to Dismiss, alleging that the venue of the action was
improperly laid considering that the real estate mortgages signed by the parties contained a stipulation that any
suit arising therefrom shall be filed in Makati City only. [10] It further noted that the complaint failed to state a cause
of action and must therefore be dismissed.[11]

Ruling of the RTC

In an Omnibus Order[12] dated November 17, 2014, the RTC denied the Urgent Motion to Dismiss, the pertinent
portions of which read as follows:
I. The Venue is Improperly Laid

Pursuant to autonomy of contract, Venue can be waived. Rule 5, Section 4(d) of the 1997 Rules of Civil Procedure
allows parties to validly agree in writing before the filing of the action on the exclusive venue thereof. Indeed, on
the defendants they have the contract where the venue allegedly agreed upon by them with the plaintiffs is Makati
City. However, one of the contentions of the plaintiffs is that the contracts between them and the defendants take
the form of an adhesion contract (par. 20, Complaint). As such, this Court has to apply Section 1, Rule 4 of the 1997
Rules of Civil Procedure regarding the venue of real actions to avoid ruling on the merits without any evidence that
would sufficiently support the same.

II. The Complaint Fails to State a Cause of Action.

With such an issue raised, the Court examined the records and it has to tell the defendants that in civil cases before
the Court orders the issuance of summons, it looks on whether or not the facts alleged on the Complaint are
sufficient to constitute a cause of action and not whether the allegations of fact are true. Hence, as summons were
issued in this case, the Court had already found that the allegations in the Complaint are sufficient to constitute a
cause of action.

xxxx

FOREGOING CONSIDERED, the Motion to Dismiss is hereby DENIED.

xxxx

SO ORDERED.[13]

Unyielding, PDB filed a motion for reconsideration of the Omnibus Order dated November 17, 2014, instead of
filing an answer to the complaint. This prompted Spouses Ramos to file a motion to declare PDB in default.
Subsequently, in an Order[14] dated February 20, 2015, the RTC denied both motions, ratiocinating thus:

Necessarily, the defendants were allowed to Isle Motion to Dismiss before filing an Answer or responsive pleading.
As a consequence of the Motion to Dismiss that the defendants filed, the running of the period during which the
rules required her to file her Answer was deemed suspended. When the Court denied the Motion to Dismiss,
therefore the defendants had the balance of the period for filing an Answer under Section 4, Rule 16 within which
to file the same but in no case less than five days, computed from the receipt of the notice of denial of the Motion to
Dismiss. x x x x

xxxx

However, after the Court denied the Motion to Dismiss, the defendants filed Motion for Reconsideration which is
not precluded by the rules. Only after this Court shall have denied it would the defendants become bound to file the
Answer to the Complaint. It is only if the defendants failed to file Answer after the period given by the foregoing
rules would the plaintiff be entitled to have the defendants be declared in default. This was the same ruling of the
Supreme Court in the case of Narciso v. Garcia, G.R. No. 196877, November 12, 2012.

With regard to the Motion for Reconsideration of the Omnibus Order dated November 17, 2014, there being no new
arguments presented, the Court finds no cogent reason to reconsider and reverse the said Omnibus Order.

WHEREFORE, the Motion to Declare Defendants in Default and the Motion for Reconsideration are hereby DENIED.

SO ORDERED.[15]

Aggrieved, PDB filed a petition for certiorari with the CA, imputing grave abuse of discretion on the RTC for denying
its motion to dismiss, despite the fact that the venue was clearly improperly laid.
 Ruling of the CA

In a Decision[16] dated July 5, 2016, the CA denied the petition, the pertinent portion of which reads as follows:
The order of the public respondent in denying the motion to dismiss and the consequent denial of the motion for
reconsideration is correct and judicious. Petitioner anchors its claim on the validity of the mortgage, and thereby
the provisional therein on venue must be upheld. On the other hand, respondents anchor its claim on the invalidity
of the mortgage, and thereby the complaint is filed in the proper venue. Clearly, no valid judgment can be passed
upon the allegations of both parties.[17]

Thus, having found no grave abuse on the part of the public respondent in denying the motion to dismiss and the
resulting denial of the motion for reconsideration, We find no cogent reason to disturb or modify the assailed
Decision. What the petitioners should have done was to file an answer to the petition filed in the trial court,
proceed to the hearing and appeal the decision of the court if adverse to them. [18]

WHEREFORE, premises considered, the petition is DENIED. The Omnibus Order dated 17 November 2014 and the
Order dated 20 February 2015 is hereby AFFIRMED in TOTO.

IT IS SO ORDERED.[19]

PDB filed a motion for reconsideration but the CA denied the same in its Resolution dated December 7, 2016, the
dispositive portion of which reads, thus:

WHEREFORE, in view of the foregoing, the motion for reconsideration is hereby DENIED.

IT IS SO ORDERED.[20]

Unyielding, PDB filed the present petition with this Court, reiterating its claim that the CA erred in affirming the
order of the RTC, which denied the motion to dismiss despite the improper venue of the case. It argues that since
there is a stipulation on venue, the same should govern the parties.

Ruling of this Court

The petition is meritorious.

Rule 4 of the Rules of Civil Procedure provides the rules on venue in filing an action, to wit:

RULE 4
Venue of Actions
Section 1. Venue of real actions. — Actions affecting title to or possession of real property, or interest therein, shall
be commenced and tried in the proper court which has jurisdiction over the area wherein the real property
involved, or a portion thereof, is situated.
Forcible entry and detainer actions shall be commenced and tried in the municipal trial court of the municipality or
city wherein the real property involved, or a portion thereof, is situated.

Section 2. Venue of personal actions. — All other actions may be commenced and tried where the plaintiff or any of
the principal plaintiffs resides, or where the defendant or any of the principal defendants resides, or in the case of a
non-resident defendant where he may be found, at the election of the plaintiff.

xxxx

Section 4. When Rule not applicable. — This Rule shall not apply.
(a) In those cases where a specific rule or law provides otherwise; or

(b) Where the parties have validly agreed in writing before the filing of the action on the exclusive venue thereof

Based on the foregoing, the general rules on venue admit of exceptions in Section 4 thereof, i.e., where a specific
rule or law provides otherwise, or when the parties agreed in writing before the filing of the action on the exclusive
venue thereof.

Stipulations on venue, however, may either be permissive or restrictive. “Written stipulations as to venue may be
restrictive in the sense that the suit may be filed only in the place agreed upon, or merely permissive in that the
parties may file their suit not only in the place agreed upon but also in the places fixed by law. As in any other
agreement, what is essential is the ascertainment of the intention of the parties respecting the matter.” [21]

Further, in Unimasters Conglomeration, Inc. v. Court of Appeals,[22] the Court elaborated, thus:

Since convenience is the raison d’etre of the rules of venue, it is easy to accept the proposition that normally, venue
stipulations should be deemed permissive merely, and that interpretation should be adopted which most serves the
parties’ convenience. In other words, stipulations designating venues other than those assigned by Rule 4 should be
interpreted as designed to make it more convenient for the parties to institute actions arising from or in relation to
their agreements; that is to say, as simply adding to or expanding the venues indicated in said Rule 4.

On the other hand, because restrictive stipulations are in derogation of this general policy, the language of the
parties must be so clear and categorical as to leave no doubt of their intention to limit the place or places, or to fix
places other than those indicated in Rule 4, for their actions. x x x. [23]

In view of the predilection to view a stipulation on venue as merely permissive, the parties must therefore employ
words in the contract that would clearly evince a contrary intention. In Spouses Lantin v. Judge Lantion,[24] the Court
emphasized that “the mere stipulation on the venue of an action is not enough to preclude parties from bringing a
case in other venues. The parties must be able to show that such stipulation is exclusive. In the absence of qualifying
or restrictive words, the stipulation should be deemed as merely an agreement on an additional forum, not as
limiting venue to the specified place.”[25]

In the instant case, there is an identical stipulation in the real estate mortgages executed by the parties, pertaining
to venue. It reads as follows:

18. In the event of suit arising from out of or in connection with this mortgage and/or the promissory note/s
secured by this mortgage, the parties hereto agree to bring their causes of action exclusively in the proper court/s
of Makati, Metro Manila, the MORTGAGOR waiving for this purpose any other venue.[26] (Emphasis ours)

In Spouses Lantin, the Court ruled that “the words exclusively and waiving for this purpose any other venue are
restrictive.”[27] Therefore, the employment of the same language in the subject mortgages signifies the clear
intention of the parties to restrict the venue of any action or suit that may arise out of the mortgage to a particular
place, to the exclusion of all other jurisdictions.

In view of the foregoing, the RTC should have granted the Urgent Motion to Dismiss filed by PDB on the ground that
the venue was improperly laid. The complaint being one for annulment of real estate mortgages and promissory
notes is in the nature of a personal action, the venue of which may be fixed by the parties to the contract. In this
case, it was agreed that any suit or action that may arise from the mortgage contracts or the promissory notes must
be filed and tried in Makati only. Not being contrary to law or public policy, the stipulation on venue, which PDB
and Spouses Ramos freely and willingly agreed upon, has the force of law between them, and thus, should be
complied with in good faith.[28]
The CA, however, ruled that the RTC correctly denied the motion to dismiss in view of the contradicting claim of the
parties on the validity of the mortgage contracts, which, in turn, affects the enforceability of the stipulation on
venue. The CA agreed with the RTC that the ruling on the validity of the stipulation on venue depends on whether
the mortgage is valid which means there has to be full-blown hearing and presentation of evidence. It added that
what PDB should have done was to file an answer to the complaint, proceed to trial and appeal the decision, if
adverse to them.[29]

The ruling of the CA renders meaningless the very purpose of the stipulation on venue. In Unimasters, the Court
emphasized:

Parties may by stipulation waive the legal venue and such waiver is valid and effective being merely a personal
privilege, which is not contrary to public policy or prejudicial to third persons. It is a general principle that a person
may renounce any right which the law gives unless such renunciation would be against public policy. [30]

In the present case, Spouses Ramos had validly waived their right to choose the venue for any suit or action arising
from the mortgages or promissory notes when they agreed to the limit the same to Makati City only and nowhere
else. True enough, the stipulation on the venue was couched in a language showing the intention of the parties to
restrict the filing of any suit or action to the designated place only. It is crystal clear that the intention was not just
to make the said place an additional forum or venue but the only jurisdiction where any suit or action pertaining to
the mortgage contracts may be filed. There being no showing that such waiver was invalid or that the stipulation on
venue was against public policy, the agreement of the parties should be upheld. It is therefore a grave abuse of
discretion on the part of the RTC to deny the motion to dismiss filed by PDB on the ground of improper venue,
especially when the said issue had been raised at the most opportune time, that is, within the time for but before
the filing of an answer. The CA should have given this matter a more serious consideration and not simply brushed
it aside.

Moreover, Spouses Ramos never really assailed the validity of the mortgage contracts and promissory notes.
Apparently, what they were only claiming was that the said contracts contain stipulations which are illegal,
immoral and otherwise contrary to customs or public policy. [31] For instance, they alleged that the interest was
pegged at an excessive rate of 8% which the bank unilaterally increased to 9%. They likewise claimed that the
penalty interest rate of 3% was unconscionable. Further, they claimed that the escalation clause provided in the
mortgage contracts was violative of Presidential Decree No. 1684. [32] These matters, however, do not affect the
validity of the mortgage contracts. Thus, with all the more reason that the stipulation on venue should have been
upheld pursuant to the ruling of the Court in Briones v. Court of Appeals,[33] viz.:

[I]n cases where the complaint assails only the terms, conditions, and/or coverage of a written instrument and not
its validity, the exclusive venue stipulation contained therein shall still be binding on the parties, and thus, the
complaint may be properly dismissed on the ground of improper venue. Conversely, therefore, a complaint directly
assailing the validity of the written instrument itself should not be bound by the exclusive venue stipulation
contained therein and should be filed in accordance with the general rules on venue. To be sure, it would be
inherently consistent for a complaint of this nature to recognize the exclusive venue stipulation when it, in fact,
precisely assails the validity of the instrument in which such stipulation is contained. [34]

Spouses Ramos impliedly admitted the authenticity and due execution of the mortgage contracts. They do not claim
to have been duped into signing the mortgage contracts or that the same was not their free and voluntary act.
While they may have qualms over some of the terms stated therein, the same do not pertain to the lack of any of the
essential elements of a contract that would render it void altogether. Such being the case, the stipulation on venue
stands and should have been upheld by RTC and the CA.

WHEREFORE, the Decision dated July 5, 2016 and Resolution dated December 7, 2016 of the Court of Appeals in
CA-G.R. SP No. 140264 are REVERSED and SET ASIDE. Civil Case No. 2014-485-SJC is hereby DISMISSED on the
ground of improper venue.
SO ORDERED.

Municipal Rural Bank of Libmanan, Camarines Sur Vs. Virginia Ordoñez; G.R. No. 204663; September 27,
2017
DECISION

PERALTA, J.:**

Assailed in the instant petition for review on certiorari are the Decision[1] and Resolution[2] of the Court of Appeals
(CA), dated March 30, 2012 and October 17, 2012, respectively, in CA-G.R. CV No. 94947.

The pertinent factual and procedural antecedents of the case are as follows:

On June 20, 2000, herein respondent filed with the Regional Trial Court (RTC) of Libmanan, Camarines Sur a
Complaint[3] for Quieting of Title against herein petitioner bank. Subsequently, on September 2, 2002, the
Complaint was amended[4] where respondent alleged that: she is the owner of a 2,174 square meter parcel of land
in Fundado, Libmanan, Camarines Sur; she acquired the property through inheritance; she and her predecessors-
in-interest had been in open, peaceful, adverse, uninterrupted possession of the subject land in the concbpt of an
owner since time immemorial; and petitioner’s claim of ownership is unfounded, unmeritorious invalid and based
upon an instrument which is null and void or, otherwise, unenforceable. Respondent prayed that she be declared
the absolute owner and, thus, entitled to the lawful possession of the subject property. She also asked the trial court
to order petitioner to pay attorney’s fees and monthly rentals.

In its Answer with. Counterclaim,[5] herein petitioner denied the material allegations of respondent’s Amended
Complaint contending that it is, in fact, the true and absolute owner of the subject land; and the property was
previously owned by one Roberto Hermita (Roberto) who mortgaged the said land to petitioner but subsequently
failed to satisfy his obligation causing petitioner to foreclose the mortgage and subsequently acquire the property
and transfer title over it in its name. In its Counterclaim, petitioner prayed for the payment of moral damages and
attorney’s fees.

After the issues were joined, trial on the merits ensued.

On January 19, 2010, the RTC rendered its Decision[6] dismissing respondent’s Amended Complaint as well as
petitioner’s Counterclaim.

The RTC ruled that, before entering into the contract of mortgage with Roberto Hermita, petitioner, through its
manager, did its best to ascertain Roberto’s claim of ownership and possession by conducting the requisite
investigation. The RTC concluded that the weight of evidence preponderates in favor of herein petitioner.

Aggrieved, respondent filed an appeal with the CA.

On March 30, 2012, the CA promulgated its assailed Decision by ruling in respondent’s favor and disposing as
follows:

WHEREFORE, premises considered, the appealed decision is hereby REVERSED and SET ASIDE. The real estate
mortgage contract dated March 23, 1995, covering the disputed property is hereby declared NULL and VOID and
the plaintiff-appellant is declared owner thereof.

SO ORDERED.[7]
The CA held that: (1) respondent was able to prove that her predecessors-in-interest had possession of the subject
land prior to that of petitioner’s predecessor-in-interest; (2) they declared the property for tax purposes as early as
1949, as compared to petitioner’s predecessor-in-interest who paid taxes thereon beginning only in 1970; and (3)
contrary to the findings of the RTC, the evidence preponderates in favor of herein respondent. Thus, the CA
declared respondent as owner of the subject lot and nullified the real estate mortgage executed between petitioner
and Roberto.

Petitioner filed a Motion for Reconsideration, but the CA denied it in its Resolution dated October 17, 2012.

Hence, the present petition for review on certiorari with the following Assignment of Errors:

a) The Honorable Court of Appeals gravely erred when it held that respondent has prior possession over the
property through her caretaker Roman Zamudio.

b) The Honorable Court of Appeals gravely erred when it ruled that acquisitive prescription cannot be made to
apply to the possession of Roberto Hermita.

c) The Honorable Court of Appeals seriously erred when it pronounced that petitioner Municipal Rural Bank of
Libmanan, Camarines Sur was utterly remiss in its duty to establish who the true owners and possessors of the
subject property were.[8]

The petition is unmeritorious.

Before delving into the merits of the instant petition, the Court finds it apropos to restate the nature of an action for
quieting of title. Citing the case of Baricuatro, Jr. v. Court of Appeals,[9] this Court, in Herminio M. De Guzman, for
himself and as Attorney-in-fact of: Nilo M. De Guzman, et at. v. Tabangao Realty Inc.,[10] held, thus:

Regarding the nature of the action filed before the trial court, quieting of title is a common law remedy for the
removal of any cloud upon or doubt or uncertainty with respect to title to real property. Originating in equity
jurisprudence, its purpose is to secure “xxx an adjudication that a claim of title to or an interest in property, adverse
to that of the complainant, is invalid, so that the complainant and those claiming under him may be forever
afterward free from any danger of hostile claim.” In an action for quieting of title, the competent court is tasked to
determine the respective rights of the complainant and other claimants, “xxx not only to place things in their proper
place, to make the one who has no rights to said immovable respect and not disturb the other, but also for
the benefit of both, so that he who has the right would see every cloud of doubt over the property dissipated, and he
could afterwards without fear introduce the improvements he may desire, to use, and even to abuse the property as
he deems best xxx.” (Citation omitted.)”[11]

The Court, then, went on to discuss that:

Under the Civil Code, the remedy may be availed of under the following circumstances:

Art. 476. Whenever there is a cloud on title to real property or any interest therein, by reason of any instrument,
record, claim, encumbrance or proceeding which is apparently valid or effective but is in truth and in fact invalid,
ineffective, voidable, or unenforceable, and may be prejudicial to said title, an action may be brought to remove
such cloud or to quiet the title.

An action may also be brought to prevent a cloud from being cast upon title to real property or any interest therein.
Art. 478. There may also be an action to quiet title or remove a cloud therefrom when the contract, instrument or
other obligation has been extinguished or has terminated, or has been barred by extinctive prescription.

Article 477 of the Civil Code further provides that the plaintiff in an action to quiet title must have legal or equitable
title to or interest in the real property, which is the subject matter of the action, but need not be in possession of
said property.

For an action to quiet title to prosper, two indispensable requisites must concur: (1) the plaintiff or complainant
has a legal or equitable title or interest in the real property subject of the action; and (2) the deed, claim,
encumbrance, or proceeding claimed to be casting a cloud on his title must be shown to be in fact invalid or
inoperative despite its prima facie appearance of validity or legal efficacy.[12]

In Spouses Ragasa v. Spouses Roa,[13] this Court has, likewise, ruled that:

[I]t is an established rule of American jurisprudence (made applicable in this jurisdiction by Art. 480 of the New
Civil Code) that actions to quiet title to property in the possession of the plaintiff are imprescriptible.

The prevailing rule is that the right of a plaintiff to have his title to land quieted, as against one who is asserting
some adverse claim or lien thereon, is not barred while the plaintiff or his grantors remain in actual possession of
the land, claiming to be owners thereof, the reason for this rule being that while the owner in fee continues liable to
an action, proceeding, or suit upon the adverse claim, he has a continuing right to the aid of a court of equity to
ascertain and determine the nature of such claim and its effect on his title, or to assert any superior equity in his
favor. He may wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right.
But the rule that the statute of limitations is not available as a defense to an action to remove a cloud from title can
only be invoked by a complain[ant] when he is in possession. One who claims property which is in the possession
of another must, it seems, invoke his remedy within the statutory period. [14]

In the instant case, for reasons to be discussed hereunder, the Court agrees with the CA that herein respondent was
able to prove by preponderance of evidence that she has a legal or equitable title or interest in the real property
subject of the action and that the deed, claim, encumbrance, or proceeding claimed to be casting a cloud on her title
is, in fact, invalid or inoperative, despite its prima facie appearance of validity or legal efficacy.

In its first assigned error, petitioner argues that the CA erred in holding that: (1) respondent’s predecessors-in-
interest designated a certain Roman Zamudio (Zamudio) as caretaker of the subject lot; and (2) respondent has
prior possession over the said property through Zamudio.

The Court does not agree.

First, the Court finds no cogent reason to depart from the conclusion of the CA that the testimony of respondent’s
witness Perpetuo Parafina (Parafina), who is the owner of the land adjacent to the disputed property, is clear that
Zamudio was indeed the person assigned by respondent’s mother as caretaker of the questioned land. [15] In fact, the
RTC, in its Decision dated January 19, 2010, likewise made a positive finding that Zamudio was, in fact,
respondent’s caretaker. Moreover, Parafina testified that, since 1960, he knows the property as owned by
respondent’s mother.[16]

The question that follows is whether Zamudio’s occupation of the subject property as caretaker may be considered
as proof of respondent’s and her predecessors-in-interest’s prior possession of the said land.

The Court rules in the affirmative.

For one to be considered in possession, one need not have actual or physical occupation of every square inch of the
property at all times.[17] Possession can be acquired not only by material occupation, but also by the fact that a thing
is subject to the action of one’s will or by the proper acts and legal formalities established for acquiring such right.
[18]
Possession can be acquired by juridical acts. [19] These are acts to which the law gives the force of acts of
possession.[20] In one case,[21] this Court has considered a claimant’s act of assigning a caretaker over the disputed
land, who cultivated the same and built a hut thereon, as evidence of the claimant’s possession of the said land.

In the present case, it has been established that respondent and her predecessors-in-interest authorized Zamudio
as caretaker of the subject land. Thus, Zamudio’s occupation of the disputed land, as respondent’s caretaker, as
early as 1975, is considered as evidence of the latter’s occupation of the said property. Petitioner’s argument that
respondent’s possession must not be a mere fiction but must, in fact, be actual is unavailing as this requirement is
applicable only in proceedings for land registration under Presidential Decree 1529, otherwise known as the Land
Registration Decree, which is not the case here. On the other hand, it was only in 1986 that petitioner’s
predecessor-in-interest started occupying the same property.

Moreover, respondent and her predecessors-in-interest declared the disputed property for tax purposes and paid
the realty taxes thereon, as early as 1949. Settled is the rule that although tax declarations or realty tax payment of
property are not conclusive evidence of ownership, nevertheless, they are good indicia of possession in the concept
of owner for no one in his right mind would be paying taxes for a property that is not in his actual or at least
constructive possession.[22] On the other hand, it was only in 1970 that Roberto’s father declared the subject
property for taxation purposes.

As to petitioner’s contention, in its second assignment of error, that Roberto acquired ownership of the subject
property through prescription, the Court finds no cogent reason to depart from the ruling of the CA on this matter
and, thus, quotes the same with approval, to wit:

xxx Besides, Article 1134 of the Civil Code xxx states that “xxx (o)rdinary acquisitive prescription of
things requires possession in good faith and with just title for the time fixed by law.” In this case, however, it
cannot be said that the possession of Roberto Hermita was in good faith. This is clear from the testimony of
Roberto Hermita that, prior to mortgaging the subject property to the defendant-appellee bank, the mother of the
plaintiff-appellant approached him and claimed ownership over the subject land as well. xxx

xxxx

Neither can the Court agree with the trial court that extraordinary acquisitive prescription under Article 1137 of
the Civil Code can be appreciated in favor of Sofronio Hermita, predecessor-in-interest of Roberto Hermita. As
previously discussed, no evidence, testimonial or documentary, was ever presented by the defendant-appellee that
Sofronio Hermita was ever in possession of the subject land. The trial court’s conclusion that the uninterrupted
possession of Sofronio Hermita since 1970 already ripened into a title by prescription, is therefore without any
evidentiary basis. Hence, since it has not been shown that Sofronio Hermita acquired ownership over the subject
property, it follows that he did not have the power to transfer the ownership of the subject property to his son
Roberto Hermita when the latter allegedly bought the same.

In fine, it cannot be said that Roberto Hermita had already acquired ownership over the subject land when he
mortgaged the same to the defendant-appellee bank. [23]

Indeed, aside from tax declarations, petitioner failed to present evidence to prove that, prior to selling the subject
lot to Roberto, his father exercised acts of ownership over the said property.

As to the third assigned error, it is settled that a banking institution is expected to exercise due diligence before
entering into a mortgage contract.[24] 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. [25]
This Court has never failed to stress the remarkable significance of a banking institution to commercial
transactions, in particular, and to the country’s economy in general. [26] The banking system is an indispensable
institution in the modern world and plays a vital role in the economic life of every civilized nation. [27] Whether as
mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce,
banks have become an ubiquitous presence among the people, who have come to regard them with respect and
even gratitude and, most of all, confidence.[28] Consequently, the highest degree of diligence is expected, and high
standards of integrity and performance are even required of it. [29]

In the instant case, contrary to the findings of the RTC that petitioner’s manager did his best to ascertain Roberto’s
claim of ownership over the disputed land, the Court agrees with the findings of the CA that petitioner was, in fact ,
remiss in exercising the required degree of diligence, prudence, and care before it entered into a mortgage contract
with Roberto. With more reason should petitioner have practiced caution and mindfulness, considering that the
questioned lot is not titled. Thus, the Court agrees with the CA that a simple check with the proper authorities
would have shown that the same property has been previously declared as owned by respondent’s predecessors-
in-interest and that realty taxes had been paid thereon as early as 1949. Petitioner alleges in its present petition
that its bank manager consulted the local assessor’s office as to the existence of any other tax declaration covering
the subject lot but a careful reading of the testimony of petitioner’s manager shows that nothing therein would
prove such allegation. Moreover, if petitioner’s manager had indeed made an ocular inspection of the said property
to determine its actual condition and verify the identity of the true owner and possessor thereof, he should have
easily discovered that respondent’s caretaker was also in possession of the said property and is actually occupying
a portion of the same.

As to whether or not petitioner was in good faith, the issue of good faith or bad faith of a buyer is relevant only
where the subject of the sale is a registered land but not where the property is an unregistered land. [30] One who
purchases an unregistered land does so at his peril. [31] His claim of having bought the land in good faith, i.e., without
notice that some other person has a right to, or interest in, the property, would not protect him if it turns out that
the seller does not actually own the property. [32] In the instant case, there is no dispute that at the time that
petitioner entered into a contract of mortgage with Roberto and in subsequently buying the subject lot during the
auction sale, the same was still an unregistered land. Thus, petitioner may not claim good faith and due diligence in
dealing with Roberto. As a consequence, the CA did not commit error in nullifying the real estate mortgage contract
between petitioner and Roberto and in declaring respondent as the owner of the disputed lot.

WHEREFORE, the Court AFFIRMS the Decision of the Court of Appeals, promulgated on March 30, 2012, and its
Resolution dated October 17, 2012, in CA-G.R. CV No. 94947.

SO ORDERED.

PABLO P. GARCIA, Petitioner - versus - YOLANDA VALDEZ VILLAR, Respondent.

G.R. No. 158891 June 27, 2012
DECISION

LEONARDO-DE CASTRO, J.:

This is a petition for review on certiorari[1] of the February 27, 2003 Decision [2] and July 2, 2003
Resolution[3] of the Court of Appeals in CA-G.R. SP No. 72714, which reversed the May 27, 2002 Decision [4] of the
Regional Trial Court (RTC), Branch 92 of Quezon City in Civil Case No. Q-99-39139.

Lourdes V. Galas (Galas) was the original owner of a piece of property (subject property) located at
Malindang St., Quezon City, covered by Transfer Certificate of Title (TCT) No. RT-67970(253279). [5]
 On July 6, 1993, Galas, with her daughter, Ophelia G. Pingol (Pingol), as co-maker, mortgaged the subject
property to Yolanda Valdez Villar (Villar) as security for a loan in the amount of Two Million Two Hundred
Thousand Pesos (P2,200,000.00).[6]

On October 10, 1994, Galas, again with Pingol as her co-maker, mortgaged the same subject property to
Pablo P. Garcia (Garcia) to secure her loan of One Million Eight Hundred Thousand Pesos (P1,800,000.00).[7]

Both mortgages were annotated at the back of TCT No. RT-67970 (253279), to wit:

REAL ESTATE MORTGAGE

Entry No. 6537/T-RT-67970(253279) MORTGAGE In favor of Yolanda Valdez Villar m/to Jaime
Villar to guarantee a principal obligation in the sum of P2,200,000- mortgagees consent necessary
in case of subsequent encumbrance or alienation of the property; Other conditions set forth in Doc.
No. 97, Book No. VI, Page No. 20 of the Not. Pub. of Diana P. Magpantay

Date of Instrument: 7-6-93

Date of Inscription: 7-7-93

SECOND REAL ESTATE MORTGAGE

Entry No. 821/T-RT-67970(253279) MORTGAGE In favor of Pablo Garcia m/to Isabela Garcia to
guarantee a principal obligation in the sum of P1,800,000.00 mortgagees consent necessary in case
of subsequent encumbrance or alienation of the property; Other conditions set forth in Doc. No. 08,
Book No. VII, Page No. 03 of the Not. Pub. of Azucena Espejo Lozada

Date of Instrument: 10/10/94

Date of Inscription: 10/11/94
LRC Consulta No. 169[8]

On November 21, 1996, Galas sold the subject property to Villar for One Million Five Hundred Thousand
Pesos (P1,500,000.00), and declared in the Deed of Sale [9] that such property was free and clear of all liens and
encumbrances of any kind whatsoever.[10]

On December 3, 1996, the Deed of Sale was registered and, consequently, TCT No. RT-67970(253279) was
cancelled and TCT No. N-168361[11] was issued in the name of Villar. Both Villars and Garcias mortgages were
carried over and annotated at the back of Villars new TCT.[12]

On October 27, 1999, Garcia filed a Petition for Mandamus with Damages[13] against Villar before the RTC,
Branch 92 of Quezon City. Garcia subsequently amended his petition to a Complaint for Foreclosure of Real Estate
Mortgage with Damages.[14] Garcia alleged that when Villar purchased the subject property, she acted in bad faith
and with malice as she knowingly and willfully disregarded the provisions on laws on judicial and extrajudicial
foreclosure of mortgaged property.Garcia further claimed that when Villar purchased the subject property, Galas
was relieved of her contractual obligation and the characters of creditor and debtor were merged in the person of
Villar. Therefore, Garcia argued, he, as the second mortgagee, was subrogated to Villars original status as first
mortgagee, which is the creditor with the right to foreclose.Garcia further asserted that he had demanded payment
from Villar,[15] whose refusal compelled him to incur expenses in filing an action in court.[16]

Villar, in her Answer,[17] claimed that the complaint stated no cause of action and that the second mortgage
was done in bad faith as it was without her consent and knowledge. Villar alleged that she only discovered the
second mortgage when she had the Deed of Sale registered. Villar blamed Garcia for the controversy as he accepted
the second mortgage without prior consent from her. She averred that there could be no subrogation as the
assignment of credit was done with neither her knowledge nor prior consent. Villar added that Garcia should seek
recourse against Galas and Pingol, with whom he had privity insofar as the second mortgage of property is
concerned.

On May 23, 2000, the RTC issued a Pre-Trial Order [18] wherein the parties agreed on the following facts and
issue:

STIPULATIONS OF FACTS/ADMISSIONS
The following are admitted:

1. the defendant admits the second mortgage annotated at the back of TCT No. RT-67970 of
Lourdes V. Galas with the qualification that the existence of said mortgage was discovered only
in 1996 after the sale;

2. the defendant admits the existence of the annotation of the second mortgage at the back of the
title despite the transfer of the title in the name of the defendant;

3. the plaintiff admits that defendant Yolanda Valdez Villar is the first mortgagee;

4. the plaintiff admits that the first mortgage was annotated at the back of the title of the
mortgagor Lourdes V. Galas; and

5. the plaintiff admits that by virtue of the deed of sale the title of the property was transferred
from the previous owner in favor of defendant Yolanda Valdez Villar.

xxxx

ISSUE

Whether or not the plaintiff, at this point in time, could judicially foreclose the property in question.

On June 8, 2000, upon Garcias manifestation, in open court, of his intention to file a Motion for Summary
Judgment,[19] the RTC issued an Order[20] directing the parties to simultaneously file their respective memoranda
within 20 days.
 On June 26, 2000, Garcia filed a Motion for Summary Judgment with Affidavit of Merit [21] on the grounds
that there was no genuine issue as to any of the material facts of the case and that he was entitled to a judgment as
a matter of law.

On June 28, 2000, Garcia filed his Memorandum[22] in support of his Motion for Summary Judgment and in
compliance with the RTCs June 8, 2000 Order. Garcia alleged that his equity of redemption had not yet been
claimed since Villar did not foreclose the mortgaged property to satisfy her claim.

On August 13, 2000, Villar filed an Urgent Ex-Parte Motion for Extension of Time to File Her Memorandum.
[23]
This, however, was denied[24] by the RTC in view of Garcias Opposition.[25]

On May 27, 2002, the RTC rendered its Decision, the dispositive portion of which reads:

WHEREFORE, the foregoing premises considered, judgment is hereby rendered in favor of the
plaintiff Pablo P. Garcia and against the defendant Yolanda V. Villar, who is ordered to pay to the
former within a period of not less than ninety (90) days nor more than one hundred twenty (120)
days from entry of judgment, the sum of P1,800,000.00 plus legal interest from October 27, 1999
and upon failure of the defendant to pay the said amount within the prescribed period, the property
subject matter of the 2ndReal Estate Mortgage dated October 10, 1994 shall, upon motion of the
plaintiff, be sold at public auction in the manner and under the provisions of Rules 39 and 68 of the
1997 Revised Rules of Civil Procedure and other regulations governing sale of real estate under
execution in order to satisfy the judgment in this case. The defendant is further ordered to pay
costs.[26]

The RTC declared that the direct sale of the subject property to Villar, the first mortgagee, could not operate
to deprive Garcia of his right as a second mortgagee. The RTC said that upon Galass failure to pay her obligation,
Villar should have foreclosed the subject property pursuant to Act No. 3135 as amended, to provide junior
mortgagees like Garcia, the opportunity to satisfy their claims from the residue, if any, of the foreclosure sale
proceeds. This, the RTC added, would have resulted in the extinguishment of the mortgages. [27]

The RTC held that the second mortgage constituted in Garcias favor had not been discharged, and that
Villar, as the new registered owner of the subject property with a subsisting mortgage, was liable for it. [28]

Villar appealed[29] this Decision to the Court of Appeals based on the arguments that Garcia had no valid
cause of action against her; that he was in bad faith when he entered into a contract of mortgage with Galas, in light
of the restriction imposed by the first mortgage; and that Garcia, as the one who gave the occasion for the
commission of fraud, should suffer.Villar further asseverated that the second mortgage is a void and inexistent
contract considering that its cause or object is contrary to law, moral, good customs, and public order or public
policy, insofar as she was concerned.[30]

Garcia, in his Memorandum,[31] reiterated his position that his equity of redemption remained unforeclosed
since Villar did not institute foreclosure proceedings. Garcia added that the mortgage, until discharged, follows the
property to whomever it may be transferred no matter how many times over it changes hands as long as the
annotation is carried over.[32]

The Court of Appeals reversed the RTC in a Decision dated February 27, 2003, to wit:
WHEREFORE, the decision appealed from is REVERSED and another one
entered DISMISSING the complaint for judicial foreclosure of real estate mortgage with damages. [33]

The Court of Appeals declared that Galas was free to mortgage the subject property even without Villars
consent as the restriction that the mortgagees consent was necessary in case of a subsequent encumbrance was
absent in the Deed of Real Estate Mortgage. In the same vein, the Court of Appeals said that the sale of the subject
property to Villar was valid as it found nothing in the records that would show that Galas violated the Deed of Real
Estate Mortgage prior to the sale.[34]

In dismissing the complaint for judicial foreclosure of real estate mortgage with damages, the Court of
Appeals held that Garcia had no cause of action against Villar in the absence of evidence showing that the second
mortgage executed in his favor by Lourdes V. Galas [had] been violated and that he [had] made a demand on the
latter for the payment of the obligation secured by said mortgage prior to the institution of his complaint against
Villar.[35]

On March 20, 2003, Garcia filed a Motion for Reconsideration[36] on the ground that the Court of Appeals
failed to resolve the main issue of the case, which was whether or not Garcia, as the second mortgagee, could still
foreclose the mortgage after the subject property had been sold by Galas, the mortgage debtor, to Villar, the
mortgage creditor.

This motion was denied for lack of merit by the Court of Appeals in its July 2, 2003 Resolution.

Garcia is now before this Court, with the same arguments he posited before the lower courts. In his
Memorandum,[37] he added that the Deed of Real Estate Mortgage contained a stipulation, which is violative of the
prohibition on pactum commissorium.

Issues

The crux of the controversy before us boils down to the propriety of Garcias demand upon Villar to either
pay Galass debt of P1,800,000.00, or to judicially foreclose the subject property to satisfy the aforesaid debt. This
Court will, however, address the following issues in seriatim:

1. Whether or not the second mortgage to Garcia was valid;

2. Whether or not the sale of the subject property to Villar was valid;
3. Whether or not the sale of the subject property to Villar was in violation of the prohibition on pactum
commissorium;
 4. Whether or not Garcias action for foreclosure of mortgage on the subject property can prosper.

Discussion

Validity of second mortgage to Garcia

and sale of subject property to Villar

At the onset, this Court would like to address the validity of the second mortgage to Garcia and the sale of
the subject property to Villar. We agree with the Court of Appeals that both are valid under the terms and
conditions of the Deed of Real Estate Mortgage executed by Galas and Villar.

While it is true that the annotation of the first mortgage to Villar on Galass TCT contained a restriction on
further encumbrances without the mortgagees prior consent, this restriction was nowhere to be found in the Deed
of Real Estate Mortgage. As this Deed became the basis for the annotation on Galass title, its terms and conditions
take precedence over the standard, stamped annotation placed on her title. If it were the intention of the parties to
impose such restriction, they would have and should have stipulated such in the Deed of Real Estate Mortgage
itself.

Neither did this Deed proscribe the sale or alienation of the subject property during the life of the
mortgages. Garcias insistence that Villar should have judicially or extrajudicially foreclosed the mortgage to satisfy
Galass debt is misplaced.The Deed of Real Estate Mortgage merely provided for the options Villar may undertake in
case Galas or Pingol fail to pay their loan. Nowhere was it stated in the Deed that Galas could not opt to sell the
subject property to Villar, or to any other person. Such stipulation would have been void anyway, as it is not allowed
under Article 2130 of the Civil Code, to wit:

Art. 2130. A stipulation forbidding the owner from alienating the immovable mortgaged
shall be void.

Prohibition on pactum commissorium

Garcia claims that the stipulation appointing Villar, the mortgagee, as the mortgagors attorney-in-fact, to
sell the property in case of default in the payment of the loan, is in violation of the prohibition on pactum
commissorium, as stated under Article 2088 of the Civil Code, viz:

Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage,
or dispose of them. Any stipulation to the contrary is null and void.

The power of attorney provision in the Deed of Real Estate Mortgage reads:

5. Power of Attorney of MORTGAGEE. Effective upon the breach of any condition of this Mortgage,
and in addition to the remedies herein stipulated, the MORTGAGEE is likewise appointed attorney-
in-fact of the MORTGAGOR with full power and authority to take actual possession of the mortgaged
 properties, to sell, lease any of the mortgaged properties, to collect rents, to execute deeds of sale,
lease, or agreement that may be deemed convenient, to make repairs or improvements on the
mortgaged properties and to pay the same, and perform any other act which the MORTGAGEE may
deem convenient for the proper administration of the mortgaged properties. The payment of any
expenses advanced by the MORTGAGEE in connection with the purpose indicated herein is also
secured by this Mortgage. Any amount received from the sale, disposal or administration
abovementioned maybe applied by assessments and other incidental expenses and obligations and
to the payment of original indebtedness including interest and penalties thereon. The power herein
granted shall not be revoked during the life of this Mortgage and all acts which may be executed by
the MORTGAGEE by virtue of said power are hereby ratified.[38]

The following are the elements of pactum commissorium:

(1) There should be a property mortgaged by way of security for the payment of the principal obligation;
and

(2) There should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case
of non-payment of the principal obligation within the stipulated period.[39]

Villars purchase of the subject property did not violate the prohibition on pactum commissorium. The
power of attorney provision above did not provide that the ownership over the subject property would
automatically pass to Villar upon Galass failure to pay the loan on time. What it granted was the mere appointment
of Villar as attorney-in-fact, with authority to sell or otherwise dispose of the subject property, and to apply the
proceeds to the payment of the loan.[40] This provision is customary in mortgage contracts, and is in conformity
with Article 2087 of the Civil Code, which reads:

Art. 2087. It is also of the essence of these contracts that when the principal obligation
becomes due, the things in which the pledge or mortgage consists may be alienated for the payment
to the creditor.

Galass decision to eventually sell the subject property to Villar for an additional P1,500,000.00 was well
within the scope of her rights as the owner of the subject property. The subject property was transferred to Villar
by virtue of another and separate contract, which is the Deed of Sale. Garcia never alleged that the transfer of the
subject property to Villar was automatic upon Galass failure to discharge her debt, or that the sale was simulated to
cover up such automatic transfer.

Propriety of Garcias action

for foreclosure of mortgage

The real nature of a mortgage is described in Article 2126 of the Civil Code, to wit:

Art. 2126. The mortgage directly and immediately subjects the property upon which it is
imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it
was constituted.
 Simply put, a mortgage is a real right, which follows the property, even after subsequent transfers by the
mortgagor. A registered mortgage lien is considered inseparable from the property inasmuch as it is a right in rem.
[41]

The sale or transfer of the mortgaged property cannot affect or release the mortgage; thus the purchaser or
transferee is necessarily bound to acknowledge and respect the encumbrance. [42] In fact, under Article 2129 of the
Civil Code, the mortgage on the property may still be foreclosed despite the transfer, viz:

Art. 2129. The creditor may claim from a third person in possession of the mortgaged
property, the payment of the part of the credit secured by the property which said third person
possesses, in terms and with the formalities which the law establishes.

While we agree with Garcia that since the second mortgage, of which he is the mortgagee, has not yet been
discharged, we find that said mortgage subsists and is still enforceable. However, Villar, in buying the subject
property with notice that it was mortgaged, only undertook to pay such mortgage or allow the subject property to
be sold upon failure of the mortgage creditor to obtain payment from the principal debtor once the debt
matures. Villar did not obligate herself to replace the debtor in the principal obligation, and could not do so in law
without the creditors consent.[43] Article 1293 of the Civil Code provides:

Art. 1293. Novation which consists in substituting a new debtor in the place of the original
one, may be made even without the knowledge or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him the rights mentioned in articles 1236
and 1237.

Therefore, the obligation to pay the mortgage indebtedness remains with the original debtors Galas and
Pingol. [44]
The case of E.C. McCullough & Co. v. Veloso and Serna[45] is square on this point:

The effects of a transfer of a mortgaged property to a third person are well determined by the Civil
Code. According to article 1879[46] of this Code, the creditor may demand of the third person in
possession of the property mortgaged payment of such part of the debt, as is secured by the
property in his possession, in the manner and form established by the law. The Mortgage Law in
force at the promulgation of the Civil Code and referred to in the latter, provided, among other
things, that the debtor should not pay the debt upon its maturity after judicial or notarial demand,
for payment has been made by the creditor upon him. (Art. 135 of the Mortgage Law of the
Philippines of 1889.) According to this, the obligation of the new possessor to pay the debt
originated only from the right of the creditor to demand payment of him, it being necessary that a
demand for payment should have previously been made upon the debtor and the latter should have
failed to pay. And even if these requirements were complied with, still the third possessor might
abandon the property mortgaged, and in that case it is considered to be in the possession of the
debtor. (Art. 136 of the same law.) This clearly shows that the spirit of the Civil Code is to let the
obligation of the debtor to pay the debt stand although the property mortgaged to secure the
payment of said debt may have been transferred to a third person. While the Mortgage Law of 1893
eliminated these provisions, it contained nothing indicating any change in the spirit of the law in
this respect. Article 129 of this law, which provides the substitution of the debtor by the third
person in possession of the property, for the purposes of the giving of notice, does not show this
 change and has reference to a case where the action is directed only against the property burdened
with the mortgage. (Art. 168 of the Regulation.)[47]

This pronouncement was reiterated in Rodriguez v. Reyes[48] wherein this Court, even before quoting the
same above portion in E.C. McCullough & Co. v. Veloso and Serna, held:

We find the stand of petitioners-appellants to be unmeritorious and untenable. The

maxim caveat emptor applies only to execution sales, and this was not one such. The mere fact that
the purchaser of an immovable has notice that the acquired realty is encumbered with a mortgage
does not render him liable for the payment of the debt guaranteed by the mortgage, in the absence
of stipulation or condition that he is to assume payment of the mortgage debt. The reason is plain:
the mortgage is merely an encumbrance on the property, entitling the mortgagee to have the
property foreclosed, i.e., sold, in case the principal obligor does not pay the mortgage debt, and
apply the proceeds of the sale to the satisfaction of his credit. Mortgage is merely an accessory
undertaking for the convenience and security of the mortgage creditor, and exists independently of
the obligation to pay the debt secured by it. The mortgagee, if he is so minded, can waive the
mortgage security and proceed to collect the principal debt by personal action against the original
mortgagor.[49]

In view of the foregoing, Garcia has no cause of action against Villar in the absence of evidence to show that
the second mortgage executed in favor of Garcia has been violated by his debtors, Galas and Pingol, i.e., specifically
that Garcia has made a demand on said debtors for the payment of the obligation secured by the second mortgage
and they have failed to pay.

WHEREFORE, this Court hereby AFFIRMS the February 27, 2003 Decision and March 8, 2003 Resolution of
the Court of Appeals in CA-G.R. SP No. 72714.

SO ORDERED.

NICANORA G. BUCTON (DECEASED), SUBSTITUTED BY REQUILDA B. YRAY , Petitioner, v. RURAL BANK OF EL SALVADOR,
INC., MISAMIS ORIENTAL, AND REYNALDO CUYONG, RESPONDENTS, VS. ERLINDA CONCEPCION AND HER HUSBAND
AND AGNES BUCTON LUGOD, THIRD PARTY, Defendants.

G.R. No. 179625, February 24, 2014

DECISIO

DEL CASTILLO, J.:

A mortgage executed by an authorized agent who signed in his own name without indicating that he acted for and
on behalf of his principal binds only the agent and not the principal.

This Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court assails the August 17, 2005
Decision[2] and the June 7, 2007 Resolution[3] of the Court of Appeals (CA) in CA-G.R. CV No. 60841.

Factual Antecedents
On April 29, 1988, petitioner Nicanora G. Bucton filed with the Regional Trial Court (RTC) of Cagayan de Oro a
case[4] for Annulment of Mortgage, Foreclosure, and Special Power of Attorney (SPA) against Erlinda Concepcion
(Concepcion) and respondents Rural Bank of El Salvador, Misamis Oriental, and Sheriff Reynaldo Cuyong.[5]

Petitioner alleged that she is the owner of a parcel of land, covered by Transfer Certificate of Title (TCT) No. T-3838,
located in Cagayan de Oro City;[6] that on June 6, 1982, Concepcion borrowed the title on the pretext that she was
going to show it to an interested buyer;[7] that Concepcion obtained a loan in the amount of P30,000.00 from
respondent bank;[8] that as security for the loan, Concepcion mortgaged petitioner's house and lot to respondent
bank using a SPA[9] allegedly executed by petitioner in favor of Concepcion; [10] that Concepcion failed to pay the
loan;[11] that petitioner's house and lot were foreclosed by respondent sheriff without a Notice of Extra-Judicial
Foreclosure or Notice of Auction Sale;[12] and that petitioner's house and lot were sold in an auction sale in favor of
respondent bank.[13]

Respondent bank filed an Answer[14] interposing lack of cause of action as a defense.[15] It denied the allegation of
petitioner that the SPA was forged[16] and averred that on June 22, 1987, petitioner went to the bank and promised
to settle the loan of Concepcion before September 30, 1987.[17] As to the alleged irregularities in the foreclosure
proceedings, respondent bank asserted that it complied with the requirements of the law in foreclosing the house
and lot.[18] By way of cross-claim, respondent bank prayed that in the event of an adverse judgment against it,
Concepcion, its co-defendant, be ordered to indemnify it for all damages. [19]

However, since summons could not be served upon Concepcion, petitioner moved to drop her as a defendant,
[20]
which the RTC granted in its Order dated October 19, 1990. [21]

This prompted respondent bank to file a Third-Party Complaint[22] against spouses Concepcion and Agnes Bucton
Lugod (Lugod), the daughter of petitioner. Respondent bank claimed that it would not have granted the loan and
accepted the mortgage were it not for the assurance of Concepcion and Lugod that the SPA was valid.[23] Thus,
respondent bank prayed that in case it be adjudged liable, it should be reimbursed by third-party defendants. [24]

On January 30, 1992, spouses Concepcion were declared in default for failing to file a responsive pleading. [25]

During the trial, petitioner testified that a representative of respondent bank went to her house to inform her that
the loan secured by her house and lot was long overdue. [26] Since she did not mortgage any of her properties nor
did she obtain a loan from respondent bank, she decided to go to respondent bank on June 22, 1987 to inquire
about the matter.[27] It was only then that she discovered that her house and lot was mortgaged by virtue of a
forged SPA.[28] She insisted that her signature and her husband's signature on the SPA were forged[29] and that ever
since she got married, she no longer used her maiden name, Nicanora Gabar, in signing documents. [30] Petitioner
also denied appearing before the notary public, who notarized the SPA. [31] She also testified that the property
referred to in the SPA, TCT No. 3838, is a vacant lot and that the house, which was mortgaged and foreclosed, is
covered by a different title, TCT No. 3839.[32]

To support her claim of forgery, petitioner presented Emma Nagac who testified that when she was at Concepcion's
boutique, she was asked by the latter to sign as a witness to the SPA; [33] that when she signed the SPA, the
signatures of petitioner and her husband had already been affixed;[34] and that Lugod instructed her not to tell
petitioner about the SPA.[35]

Respondent bank, on the other hand, presented the testimonies of its employees [36]and respondent sheriff. Based
on their testimonies, it appears that on June 8, 1982, Concepcion applied for a loan for her coconut production
business[37] in the amount of P40,000.00 but only the amount of P30,000.00 was approved; [38] that she offered as
collateral petitioner's house and lot using the SPA;[39] and that the proceeds of the loan were released to Concepcion
and Lugod on June 11, 1982.[40]

Edwin Igloria, the bank appraiser, further testified that Concepcion executed a Real Estate Mortgage [41] over two
properties, one registered in the name of petitioner and the other under the name of a certain Milagros Flores. [42]
He said that he inspected petitioner's property; [43] that there were several houses in the compound;[44] and although
he was certain that the house offered as collateral was located on the property covered by TCT No. 3838, he could
not explain why the house that was foreclosed is located on a lot covered by another title, not included in the Real
Estate Mortgage.[45]

Ruling of the Regional Trial Court

On February 23, 1998, the RTC issued a Decision[46] sustaining the claim of petitioner that the SPA was forged as the
signatures appearing on the SPA are different from the genuine signatures presented by petitioner. [47] The RTC
opined that the respondent bank should have conducted a thorough inquiry on the authenticity of the SPA
considering that petitioner's residence certificate was not indicated in the acknowledgement of the SPA. [48] Thus,
the RTC decreed:

WHEREFORE, the court hereby declares null and void or annuls the following:

1. The special power of attorney which was purportedly executed by [petitioner] x x x;

2. The real estate mortgage x x x

3. The sheriff's sale of Lot No. 2078-B-1-E, and the certificate of title issued in favor of the Rural Bank of El
Salavador [by] virtue thereof, as well as the sheriff's sale of the two[-]story house described in the real
estate mortgage.

4. The certificate of title in the name of the Rural Bank of El Salvador if any, issued [by] virtue of the sheriff's
sale.

The court hereby also orders [respondent] bank to pay [petitioner] attorney's fees of P20,000 and moral damages
of P20,000 as well as the costs of the case.

SO ORDERED.[49]
On reconsideration,[50] the RTC in its May 8, 1998 Resolution[51] rendered judgment on the Third-Party Complaint
filed by respondent bank, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered under the third-party complaint and against third-party defendants
Erlinda Concepcion and her husband:

To indemnify or reimburse [respondent bank] all sums of money plus interests thereon or damages that
[respondent bank] has in this case been forced to pay, disburse or deliver to [petitioner] including the costs.

SO ORDERED.[52]
Ruling of the Court of Appeals

Dissatisfied, respondent bank elevated the case to the CA arguing that the SPA was not forged[53] and that being a
notarized document, it enjoys the presumption of regularity.[54] Petitioner, on the other hand, maintained that the
signatures were forged[55] and that she cannot be made liable as both the Promissory Note [56] and the Real Estate
Mortgage, which were dated June 11, 1982, were signed by Concepcion in her own personal capacity. [57]

On August 17, 2005, the CA reversed the findings of the RTC. The CA found no cogent reason to invalidate the SPA,
the Real Estate Mortgage, and Foreclosure Sale as it was not convinced that the SPA was forged. The CA declared
that although the Promissory Note and the Real Estate Mortgage did not indicate that Concepcion was signing for
and on behalf of her principal, petitioner is estopped from denying liability since it was her negligence in handing
over her title to Concepcion that caused the loss.[58] The CA emphasized that under the Principle of Equitable
Estoppel, where one or two innocent persons must suffer a loss, he who by his conduct made the loss possible must
bear it.[59] Thus:
WHEREFORE, the above premises considered, the Decision and the Resolution of the Regional Trial Court (RTC),
10th Judicial Region, Br. 19 of Cagayan de Oro City in Civil Case No. 88-113 is hereby REVERSED and SET ASIDE.
The Second Amended Complaint of Nicanora Bucton is DISMISSED. Accordingly, the following are declared VALID:

1. The Special Power of Attorney of Nicanora Gabar in favor of Erlinda Concepcion, dated June 7, 1982;

2. The Real Estate Mortgage, the foreclosure of the same, and the foreclosure sale to the Rural Bank of El
Salvador, Misamis Oriental; and

3. The certificate of title issued to the Rural Bank of El Salavador, Misamis Oriental as a consequence of the
foreclosure sale.

Costs against [petitioner].

SO ORDERED.[60]
Petitioner moved for reconsideration[61] but the same was denied by the CA in its June 7, 2007 Resolution. [62]

Issues

Hence, this recourse by petitioner raising the following issues:

FIRST

X X X WHETHER X X X THE [CA] WAS RIGHT IN DECLARING THE PETITIONER LIABLE ON THE LITIGATED
LOAN/MORTGAGE WHEN (i) SHE DID NOT EXECUTE EITHER IN PERSON OR BY ATTORNEY-IN-FACT SUBJECT
MORTGAGE; (ii) IT WAS EXECUTED BY CONCEPCION IN HER PERSONAL CAPACITY AS MORTGAGOR, AND (iii) THE
LOAN SECURED BY THE MORTGAGE WAS CONCEPCION'S EXCLUSIVE LOAN FOR HER OWN COCONUT
PRODUCTION

SECOND

X X X WHETHER X X X UNDER ARTICLE 1878 (NEW CIVIL CODE) THE [CA] WAS RIGHT IN MAKING PETITIONER A
SURETY PRIMARILY ANSWERABLE FOR CONCEPCION'S PERSONAL LOAN, IN THE ABSENCE OF THE REQUIRED
[SPA]

THIRD

WHETHER X X X THE [CA] WAS RIGHT WHEN IT RULED THAT PETITIONER'S DECLARATIONS ARE SELF-SERVING
TO JUSTIFY ITS REVERSAL OF THE TRIAL COURT'S JUDGMENT, IN THE FACE OF THE RESPONDENTS'
DOCUMENTARY EVIDENCES X X X, WHICH INCONTROVERTIBLY PROVED THAT PETITIONER HAS ABSOLUTELY
NO PARTICIPATION OR LIABILITY ON THE LITIGATED LOAN/MORTGAGE

FOURTH

WHETHER X X X THE [CA] WAS RIGHT WHEN IT FOUND THAT IT WAS PETITIONER'S NEGLIGENCE WHICH MADE
THE LOSS POSSIBLE, DESPITE [THE FACT] THAT SHE HAS NO PART IN [THE] SUBJECT LOAN/MORTGAGE, THE
BANK'S [FAILURE] TO CONDUCT CAREFUL EXAMINATION OF APPLICANT'S TITLE AS WELL AS PHYSICAL
INVESTIGATION OF THE LAND OFFERED AS SECURITY, AND TO INQUIRE AND DISCOVER UPON ITS OWN PERIL
THE AGENT'S AUTHORITY, ALSO ITS INORDINATE HASTE IN THE PROCESSING, EVALUATION AND APPROVAL OF
THE LOAN.
 FIFTH

WHETHER X X X THE [CA] WAS RIGHT WHEN IT DISREGARDED THE FALSE TESTIMONY OF THE [RESPONDENT]
BANK'S EMPLOYEE, [WHEN HE DECLARED] THAT HE CONDUCTED ACTUAL INSPECTION OF THE MORTGAGED
PROPERTY AND INVESTIGATION WHERE HE ALLEGEDLY VERIFIED THE QUESTIONED SPA.

SIXTH

WHETHER THE [CA] WAS RIGHT WHEN IT DISREGARDED ESTABLISHED FACTS AND CIRCUMSTANCES PROVING
THAT THE [SPA] IS A FORGED DOCUMENT AND/OR INFECTED BY INFIRMITIES DIVESTING IT OF THE
PRESUMPTION OF REGULARITY CONFERRED BY LAW ON NOTARIZED DEEDS, AND EVEN IF VALID, THE POWER
WAS NOT EXERCISED BY CONCEPCION.[63]
Petitioner's Arguments

Petitioner maintains that the signatures in the SPA were forged [64] and that she could not be held liable for the loan
as it was obtained by Concepcion in her own personal capacity, not as an attorney-in-fact of petitioner.[65] She
likewise denies that she was negligent and that her negligence caused the damage. [66] Instead, she puts the blame
on respondent bank as it failed to carefully examine the title and thoroughly inspect the property. [67] Had it done so,
it would have discovered that the house and lot mortgaged by Concepcion are covered by two separate titles. [68]
Petitioner further claims that respondent sheriff failed to show that he complied with the requirements of notice
and publication in foreclosing her house and lot.[69]

Respondent bank's Arguments

Respondent bank, on the other hand, relies on the presumption of regularity of the notarized SPA. [70] It insists that
it was not negligent as it inspected the property before it approved the loan, [71] unlike petitioner who was negligent
in entrusting her title to Concepcion.[72] As to the foreclosure proceedings, respondent bank contends that under
the Rural Bank Act, all loans whose principal is below P100,000.00 are exempt from publication. [73] Hence, the
posting of the Notice of Foreclosure in the places defined by the rules was sufficient. [74] Besides, respondent sheriff
is presumed to have regularly performed his work. [75]

Our Ruling

The Petition is meritorious.

The Real Estate Mortgage was entered

into by Concepcion in her own personal
capacity.

As early as the case of Philippine Sugar Estates Development Co. v. Poizat, [76] we already ruled that "in order to bind
the principal by a deed executed by an agent, the deed must upon its face purport to be made, signed and sealed in
the name of the principal."[77] In other words, the mere fact that the agent was authorized to mortgage the property
is not sufficient to bind the principal, unless the deed was executed and signed by the agent for and on behalf of his
principal. This ruling was adhered to and reiterated with consistency in the cases of Rural Bank of Bombon
(Camarines Sur), Inc. v. Court of Appeals, [78] Gozun v. Mercado,[79] and Far East Bank and Trust Company (Now Bank of
the Philippine Island) v. Cayetano.[80]

In Philippine Sugar Estates Development Co., the wife authorized her husband to obtain a loan and to secure it with
mortgage on her property. Unfortunately, although the real estate mortgage stated that it was executed by the
husband in his capacity as attorney-in-fact of his wife, the husband signed the contract in his own name without
indicating that he also signed it as the attorney-in-fact of his wife.
In Rural Bank of Bombon, the agent contracted a loan from the bank and executed a real estate mortgage. However,
he did not indicate that he was acting on behalf of his principal.

In Gozun, the agent obtained a cash advance but signed the receipt in her name alone, without any indication that
she was acting for and on behalf of her principal.

In Far East Bank and Trust Company, the mother executed an SPA authorizing her daughter to contract a loan from
the bank and to mortgage her properties. The mortgage, however, was signed by the daughter and her husband as
mortgagors in their individual capacities, without stating that the daughter was executing the mortgage for and on
behalf of her mother.

Similarly, in this case, the authorized agent failed to indicate in the mortgage that she was acting for and on behalf
of her principal. The Real Estate Mortgage, explicitly shows on its face, that it was signed by Concepcion in her own
name and in her own personal capacity. In fact, there is nothing in the document to show that she was acting or
signing as an agent of petitioner. Thus, consistent with the law on agency and established jurisprudence, petitioner
cannot be bound by the acts of Concepcion.

In light of the foregoing, there is no need to delve on the issues of forgery of the SPA and the nullity of the
foreclosure sale. For even if the SPA was valid, the Real Estate Mortgage would still not bind petitioner as it was
signed by Concepcion in her personal capacity and not as an agent of petitioner. Simply put, the Real Estate
Mortgage is void and unenforceable against petitioner.

Respondent bank was negligent.

At this point, we find it significant to mention that respondent bank has no one to blame but itself. Not only did it
act with undue haste when it granted and released the loan in less than three days, it also acted negligently in
preparing the Real Estate Mortgage as it failed to indicate that Concepcion was signing it for and on behalf of
petitioner. We need not belabor that the words "as attorney-in-fact of," "as agent of," or "for and on behalf of," are
vital in order for the principal to be bound by the acts of his agent. Without these words, any mortgage, although
signed by the agent, cannot bind the principal as it is considered to have been signed by the agent in his personal
capacity.

Respondent bank is liable to pay

petitioner attorney's fees, and the costs
of the suit.

Considering that petitioner was compelled to litigate or to incur expenses to protect her interest, [81] the RTC was
right when it ruled that respondent bank is liable to pay petitioner attorney's fees in the amount of P20,000.00.
However, we are not convinced that petitioner is entitled to an award of moral damages as it was not satisfactorily
shown that respondent bank acted in bad faith or with malice. Neither was it proven that respondent bank's acts
were the proximate cause of petitioner's wounded feelings. On the contrary, we note that petitioner is not entirely
free of blame considering her negligence in entrusting her title to Concepcion. In any case, the RTC did not fully
explain why petitioner is entitled to such award.

Concepcion is liable to pay respondent

bank her unpaid obligation and
reimburse it for all damages, attorney's
fees and costs of suit.

Concepcion, on the other hand, is liable to pay respondent bank her unpaid obligation under the Promissory Note
dated June 11, 1982, with interest. As we have said, Concepcion signed the Promissory Note in her own personal
capacity; thus, she cannot escape liability. She is also liable to reimburse respondent bank for all damages,
attorneys' fees, and costs the latter is adjudged to pay petitioner in this case.
WHEREFORE, the Petition is hereby GRANTED. The assailed August 17, 2005 Decision and the June 7, 2007
Resolution of the Court of Appeals in CA-G.R. CV No. 60841 are hereby REVERSED and SET ASIDE.

The February 23, 1998 Decision of the Regional Trial Court of Cagayan de Oro, Branch 19, in Civil Case No. 88-113
is hereby REINSTATED, insofar as it (a) annuls the Real Estate Mortgage dated June 11, 1982, the Sheriff's Sale of
petitioner Nicanora Bucton's house and lot and the Transfer Certificate of Title issued in the name of respondent
Rural Bank of El Salvador, Misamis Oriental; and (b) orders respondent bank to pay petitioner attorney's fees in the
amount of P20,000.00 and costs of suit with MODIFICATION that the award of moral damages in the amount of
P20,000.00 is deleted for lack of basis.

Likewise, the May 8, 1998 Resolution of the Regional Trial Court of Cagayan de Oro, Branch 19, in Civil Case No. 88-
113 ordering the Third-Party Defendants, Erlinda Concepcion and her husband, to indemnify or reimburse
respondent bank damages, attorneys' fees, and costs the latter is adjudged to pay petitioner, is
hereby REINSTATED.

Finally, Third-Party Defendants, Erlinda Concepcion and her husband, are hereby ordered to pay respondent bank
the unpaid obligation under the Promissory Note dated June 11, 1982 with interest.

SO ORDERED.

HOMEOWNERS SAVINGS AND LOAN BANK, Petitioner-Appellant, vs. ASUNCION P. FELONIA and LYDIA C. DE
GUZMAN, represented by MARIBEL FRIAS, Respondents-Appellees. MARIE MICHELLE P. DELGADO, REGISTER
OF DEEDS OF LAS PINAS CITY and RHANDOLFO B. AMANSEC, in his capacity as Clerk of Court Ex-Officio
Sheriff, Office of the Clerk of Court, Las Piñas City, Respondents-Defendants.

G.R. No. 189477 February 26, 2014

DECISION

PEREZ, J.:

Assailed in this Petition for Review on Certiorari is the Decision 1 and Resolution2 of the Court of Appeals (CA), in
CA-G.R. CV No. 87540, which affirmed with modifications, the Decision 3 of the Regional Trial Court (RTC),
reinstating the title of respondents Asuncion Felonia (Felonia) and Lydia de Guzman (De Guzman) and cancelling
the title of Marie Michelle Delgado (Delgado).

The facts as culled from the records are as follows:

Felonia and De Guzman were the registered owners of a parcel of land consisting of 532 square meters with a five-
bedroom house, covered by Transfer of Certificate of Title (TCT) No. T-402 issued by the register of deeds of Las
Pinñ as City.

Sometime in June 1990, Felonia and De Guzman mortgaged the property to Delgado to secure the loan in the
amount of ₱1,655,000.00. However, instead of a real estate mortgage, the parties executed a Deed of Absolute Sale
with an Option to Repurchase.4

On 20 December 1991, Felonia and De Guzman filed an action for Reformation of Contract (Reformation case),
docketed as Civil Case No. 91-59654, 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 imposition of the
legal interests on the principal loan.

On the other hand, the counterclaim is hereby dismissed for lack of merit.

No pronouncements as to attorney’s fees and damages in both instances as the parties must bear their respective
expenses incident to this suit.6

Aggrieved, Delgado elevated the case to the CA where it was docketed as CA-G.R. CV No. 49317. The CA affirmed the
trial court decision. On 16 October 2000, the CA decision became final and executory. 7

Inspite of the pendency of the Reformation case in which she was the defendant, Delgado filed a "Petition for
Consolidation of Ownership of Property Sold with an Option to Repurchase and Issuance of a New Certificate of
Title" (Consolidation case) in the RTC of Las Pinñ as, on 20 June 1994. 8 After an ex-parte hearing, the RTC ordered the
issuance of a new title under Delgado’s name, thus:

WHEREFORE, judgment is rendered-

1. Declaring [DELGADO] as absolute owner of the subject parcel of land covered by Transfer Certificate of
Title No. T-402 of the Register of Deeds of Las Pinñ as, Metro Manila;

2. Ordering the Register of Deeds of Las Pinñ as, Metro Manila to cancel Transfer Certificate of Title No. T-402
and issue in lieu thereof a new certificate of title and owner’s 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. T-402, registered in the
names of Felonia and De Guzman, was canceled and TCT No. 44848 in the name of Delgado, was issued.

Aggrieved, Felonia and De Guzman elevated the case to the CA through a Petition for Annulment of Judgment.10

Meanwhile, on 2 June 1995, Delgado mortgaged the subject property to Homeowners Savings and Loan Bank
(HSLB) using her newly registered title. Three (3) days later, or on 5 June 1995, HSLB caused the annotation of the
mortgage.

On 14 September 1995, Felonia and De Guzman caused the annotation of a Notice of Lis Pendens on Delgado’s title,
TCT No. 44848. The Notice states:

Entry No. 8219/T-44848 – NOTICE OF LIS PENDENS – filed by Atty. Humberto A. Jambora, Counsel for the Plaintiff,
that a case been commenced in the RTC, Branch 38, Manila, entitled ASUNCION P. FELONIA and LYDIA DE GUZMAN
thru VERONICA P. BELMONTE, as Atty-in-fact (Plaintiffs) v.s. MARIE MICHELLE DELGADO defendant in Civil Case
No. 91-59654 for Reformation of Instrument.

Copy on file in this Registry.

Date of Instrument – Sept. 11, 1995

Date of Inscription – Sept. 14, 1995 at 9:55 a.m.11

On 20 November1997, HSLB foreclosed the subject property and later consolidated ownership in its favor, causing
the issuance of a new title in its name, TCT No. 64668.
On 27 October 2000, the CA annulled and set aside the decision of the RTC, Las Pinñ as City in the Consolidation case.
The decision of the CA, declaring Felonia and De Guzman as the absolute owners of the subject property and
ordering the cancellation of Delgado’s title, became final and executory on 1 December 2000. 12 Thus:

WHEREFORE, the petition is GRANTED and the subject judgment of the court a quo is ANNULLED and SET ASIDE. 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 complaint against Delgado, HSLB, Register of Deeds of Las Pinñ as City
and Rhandolfo B. Amansec before the RTC of Las Pinñ as City for Nullity of Mortgage and Foreclosure Sale,
Annulment of Titles of Delgado and HSLB, and finally, Reconveyance of Possession and Ownership of the subject
property in their favor.

As defendant, HSLB asserted that Felonia and De Guzman are barred from laches as they had slept on their rights to
timely annotate, by way of Notice of Lis Pendens, the pendency of the Reformation case. HSLB also claimed that it
should not be bound by the decisions of the CA in the Reformation and Consolidation cases because it was not a
party therein.

Finally, HSLB asserted that it was a mortgagee in good faith because the mortgage between Delgado and HSLB was
annotated on the title on 5 June 1995, whereas the Notice of Lis Pendens was annotated only on 14 September
1995.

After trial, the RTC ruled in favor of Felonia and De Guzman as the absolute owners of the subject property. The
dispositive portion of the RTC decision reads:

WHEREFORE, premises considered, the Court hereby finds for the [Felonia and De Guzman] with references to the
decision of the Court of Appeals in CA-G.R. CV No. 49317 and CA-G.R. SP No. 43711 as THESE TWO DECISIONS
CANNOT BE IGNORED and against [Delgado] and [HSLB], Register of Deeds of Las Pinñ as City ordering the (sic) as
follows:

1. The Register of Deeds of Las Pinñ as City to cancel Transfer Certificate of Title Nos. 44848 and T-64668 as
null and void and reinstating Transfer Certificate of Title No. T-402 which 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 for all intents and purposes under the law;

2. Declaring the Mortgage Sheriff’s Sale and the Certificate of Sale issued in favor of HSLB null and void,
without prejudice to whatever rights the said Bank may have against [Delgado];

3. Ordering [Delgado] to pay [Felonia and De Guzman] the amount of PH₱500,000.00 for compensatory
damages;

4. Ordering [Delgado] to pay [Felonia and De Guzman] the amount of PH₱500,000.00 for exemplary
damages;

5. Ordering [Delgado] to pay [Felonia and De Guzman] the amount of PH₱500,000.00 for moral damages;

6. Ordering [Delgado] to pay 20% of the total obligations as and by way of attorney’s fees;

7. Ordering [Delgado] to pay cost of suit. 14

On appeal, the CA affirmed with modifications the trial court decision. The dispositive portion of the appealed
Decision reads:
WHEREFORE, in the light of the foregoing, the decision appealed from is AFFIRMED with the MODIFICATIONS that
the awards of actual damages and attorney’s fees are DELETED, moral and exemplary damages are REDUCED to
₱50,000.00 each, and Delgado is ordered to pay the appellees ₱25,000.00 as nominal damages. 15

Hence, this petition.

Notably, HSLB does not question the affirmance by the CA of the trial court’s ruling that TCT No. 44848, the
certificate of title of its mortgagor-vendor, and TCT No. 64668, the certificate of title that was secured by virtue of
the Sheriff’s sale in its favor, should be cancelled "as null and void" and that TCT No. T-402 in the name of Felonia
and De Guzman should be reinstated.

Recognizing the validity of TCT No. T-402 restored in the name of Felonia and De Guzman, petitioners pray that the
decision of the CA be modified "to the effect that the mortgage lien in favor of petitioner HSLB annotated as entry
No. 4708-12 on TCT No. 44848 be [ordered] carried over on TCT No. T-402 after it is reinstated in the name of
[Felonia and De Guzman]."16

Proceeding from the ruling of the CA that it is a mortgagee in good faith, HSLB argues that a denial of its prayer
would run counter to jurisprudence giving protection to a mortgagee in good faith by reason of public policy.

We cannot grant the prayer of petitioner. The priorly registered mortgage lien of HSLB is now worthless.

Arguably, HSLB was initially a mortgagee in good faith. In Bank of Commerce v. San Pablo, Jr., 17 the doctrine of
mortgagee in good faith was explained:

There is, however, a situation where, despite the fact that the mortgagor is 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 good faith" based on the rule that all
persons dealing with property covered 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 buyer or
mortgagee who, in good faith, relied upon what appears on the face of the certificate of title.

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 faulted in relying on the face of Delgado’s title. The records indicate
that Delgado was at the time of the mortgage in possession of the subject property and Delgado’s title did not
contain any annotation that would arouse HSLB’s suspicion. HSLB, as a mortgagee, had a right to rely in good faith
on Delgado’s title, and in the absence of any sign that might arouse suspicion, HSLB had no obligation to undertake
further investigation. As held by this Court in Cebu International Finance Corp. v.

CA:18

The prevailing jurisprudence is that a mortgagee has a right to rely in good faith on the certificate of title of the
mortgagor of 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 or transferee in good faith is nonetheless entitled to
protection.

However, the rights of the parties to the present case are defined not by the determination of whether or not HSLB
is a mortgagee in good faith, but of whether or not HSLB is a purchaser in good faith. And, HSLB is not such a
purchaser.

A purchaser in good faith is defined as one who buys a property without notice that some other person has a right
to, or interest in, the property and pays full and fair price at the time of purchase or before he has notice of the
claim or interest of other persons in the property. 19
When a prospective buyer is faced with facts and circumstances as to arouse his suspicion, he must take
precautionary steps to qualify as a purchaser in good faith. In Spouses Mathay v. CA,20 we determined the duty of a
prospective buyer:

Although it is a recognized principle that a person dealing on a registered land need not go beyond its certificate of
title, it is also a firmly settled rule that where there are circumstances which would put a party on guard and
prompt him to investigate or inspect the property being sold to him, such as 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 possess the land en concepto de duenñ o, in
the concept of the owner. As is the common practice in the real estate industry, an ocular inspection of the
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 extent of the occupant’s possessory rights. The failure
of a prospective buyer to take such precautionary steps would mean negligence on his part and would thereby
preclude him from claiming or invoking the rights of a purchaser in good faith.

In the case at bar, HSLB utterly failed to take the necessary precautions.1âwphi1 At the time the subject property
was mortgaged, there was yet no annotated Notice of Lis Pendens. However, at the time HSLB purchased the
subject property, the Notice of Lis Pendens was already annotated on the title.21

Lis pendens is a Latin term which literally means, "a pending suit or a pending litigation" while a notice of lis
pendens is an announcement to the whole world that a real property is in litigation, serving as a warning that
anyone who acquires an interest over the property does so at his/her own risk, or that he/she gambles on the
result of the litigation over the property. 22 It is a warning to prospective buyers to take precautions and investigate
the pending litigation.

The purpose of a notice of lis pendens is to protect the rights of the registrant while the case is pending resolution
or decision. With the notice of lis pendens duly recorded and remaining uncancelled, the registrant could rest
secure that he/she will not lose the property or any part thereof during litigation.

The doctrine of lis pendens is founded upon reason of public policy and necessity, the purpose of which is to keep
the subject matter of the litigation within the Court’s jurisdiction until the judgment or the decree have been
entered; otherwise, by successive alienations pending the litigation, its judgment or decree shall be rendered
abortive and impossible of execution.23

Indeed, at the time HSLB bought the subject property, HSLB had actual knowledge of the annotated Notice of Lis
Pendens. Instead of heeding the same, HSLB continued with the purchase knowing the legal repercussions a notice
of lis pendens entails. HSLB took upon itself the risk that the Notice of Lis Pendens leads to.1âwphi1 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 sometime in 1997. There is no doubt that at the
time appellant purchased the subject property, it was aware of the pending litigation concerning the same property
and thus, the title issued in its favor was subject to the outcome of said litigation." 24

This ruling is in accord with Rehabilitation Finance Corp. v. Morales, 25 which underscored the significance of a lis
pendens, then defined in Sec. 24, Rule 7 now Sec. 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 ownership of the property affected by it. The mortgage executed in favor of petitioner
corporation was annotated on the same title prior to the annotation of the notice of lis pendens; but when
petitioner bought the property as the highest bidder at the auction sale made as an aftermath of the foreclosure of
the mortgage, the title already bore the notice of lis pendens. Held: While the notice of lis pendens cannot affect
petitioner’s right as mortgagee, because the same was annotated subsequent to the mortgage, yet the said notice
affects its right as purchaser because notice of lis pendens simply means that a certain property is involved in a
litigation and serves as a notice to the whole world that one who buys the same does so at his own risk. 26
The subject of the lis pendens on the title of HSLB’s 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 favor of Delgado was ordered reformed into a contract of mortgage. By final decision of the CA,
HSLB’s vendor, Delgado, is not the property owner but only a mortgagee. As it turned out, Delgado could not have
constituted a valid mortgage on the property. That the mortgagor be the absolute owner of the thing mortgaged is
an essential requisite of a contract of mortgage. Article 2085 (2) of the Civil Code specifically says so:

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

xxxx

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

Succinctly, for a valid mortgage to exist, ownership of the property is an essential requisite.27

Reyes v. De Leon28 cited the case of Philippine National Bank v. Rocha29 where it was pronounced that "a mortgage
of real property executed by one who is not an owner thereof at the time of the execution of the mortgage is
without legal existence." Such that, according to DBP v. Prudential Bank, 30 there being no valid mortgage, there
could also be no valid foreclosure or valid auction sale.

We go back to Bank of Commerce v. San Pablo, Jr. 31 where the doctrine of mortgagee in good faith, upon which
petitioner relies, was clarified as "based on the rule that all persons dealing with property covered by the Torrens
Certificate of Title, as buyers or 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

Insofar as the HSLB is concerned, there is no longer any public interest in upholding the indefeasibility of the
certificate of title of its mortgagor, Delgado. Such title has been nullified in a decision that had become final and
executory. Its own title, derived from the foreclosure of Delgado's mortgage in its favor, has likewise been nullified
in the very same decision that restored the certificate of title in respondents' name. There is absolutely no reason
that can support the prayer of HSLB to have its mortgage lien carried over and into the restored certificate of title of
respondents.

WHEREFORE, the Petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 87540 is AFFIRMED.

SO ORDERED.

[G.R. No. 123509. March 14, 2000]

LUCIO ROBLES, EMETERIA ROBLES, ALUDIA ROBLES and EMILIO ROBLES, petitioners, vs. COURT OF
APPEALS, Spouses VIRGILIO SANTOS and BABY RUTH CRUZ, RURAL BANK OF CARDONA, Inc., HILARIO
ROBLES, ALBERTO PALAD JR. in his capacity as Director of Lands, and JOSE MAULEON in his capacity as
District Land Officer of the Bureau Of Lands, respondents.

DECISION

PANGANIBAN, J.:

To be entitled to the remedy of quieting of title, petitioners must show that they have title to the real property at
issue, and that some deed or proceeding beclouds its validity or efficacy. Buyers of unregistered real property,
especially banks, must exert due diligence in ascertaining the titles of mortgagors and sellers, lest some innocent
parties be prejudiced. Failure to observe such diligence may amount to bad faith and may result in the nullity of the
mortgage, as well as of the subsequent foreclosure and/or auction sale. Unless the co-ownership is clearly
repudiated, a co-owner cannot, by prescription, acquire title to the shares of the other co-owners.Mesm
 The Case

Before us is a Petition for Review under Rule 45, assailing the June 15, 1995 Decision and the January 15, 1996
Resolution of the Court of Appeals[1] (CA) in CA-GR CV No. 34213.[2] In its Decision, the CA ruled:[3]

"WHEREFORE, the trial courts June 17, 1991 decision is REVERSED and SET ASIDE, and in lieu
thereof a new one is hereby entered ordering the dismissal of the plaintiffs-appellees['] second
amended complaint."

Earlier, the trial court had disposed as follows: Spped jo

"WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Declaring free patent Title No. IV-1-010021 issued by the Bureau of Lands as null and
void;

2. Ordering the defendant spouses Vergel Santos and Ruth Santos to deliver the property
subject of this case to the plaintiff; and

3. Declaring the heirs of Silvino Robles as the absolute owner of the land in controversy."

The January 15, 1996 CA Resolution denied petitioners' Motion for Reconsideration.

The Facts

The present Petition is rooted in a case for quieting of title before the Regional Trial Court of Morong, Rizal, filed on
March 14, 1988,[4] by Petitioners Lucio Robles, Emeteria Robles, Aludia Robles and Emilio Robles. The facts were
narrated by the trial court in this wise:

"There seems to be no dispute that Leon Robles primitively owned the land situated in Kay Taga,
Lagundi, Morong, Rizal with an area of 9,985 square meters. He occupied the same openly and
adversely. He also declared the same in his name for taxation purposes as early as 1916 covered by
Tax Declaration No. 17865 (Exh. "I") and paid the corresponding taxes thereon (Exh. "B"). When
Leon Robles died, his son Silvino Robles inherited the land, who took possession of the land,
declared it in his name for taxation purposes and paid the taxes thereon. Rtc-spped

"Upon the death of Silvino Robles in 1942, his widow Maria de la Cruz and his children inherited the
property. They took adverse possession of said property and paid taxes thereon. The task of
cultivat[ing] the land was assigned to plaintiff Lucio Robles who planted trees and other crops. He
also built a nipa hut on the land. The plaintiffs entrusted the payment of the land taxes to their co-
heir and half-brother, Hilario Robles.

"In 1962, for unknown reasons, the tax declaration of the parcel of land in the name of Silvino
Robles was canceled and transferred to one Exequiel Ballena (Exh. "19"), father of Andrea Robles
who is the wife of defendant Hilario Robles. Thereafter, Exequiel Ballena secured a loan from the
Antipolo Rural Bank, using the tax declaration as security. Somehow, the tax declaration was
transferred [to] the name of Antipolo Rural Bank (Exh. "17") and later on, was transferred [to] the
name of defendant Hilario Robles and his wife (Exh. "16"). Calrky

"In 1996, Andrea Robles secured a loan from the Cardona Rural Bank, Inc., using the tax declaration
as security. Andrea Robles testified without contradiction that somebody else, not her husband
Hilario Robles, signed the loan papers because Hilario Robles was working in Marinduque at that
time as a carpenter.
 "For failure to pay the mortgage debt, foreclosure proceedings were had and defendant Rural Bank
emerged as the highest bidder during the auction sale in October 1968.

"The spouses Hilario Robles failed to redeem the property and so the tax declaration was
transferred in the name of defendant Rural Bank. On September 25, 1987, defendant Rural Bank
sold the same to the Spouses Vergel Santos and Ruth Santos. Jo spped

"In September 1987, plaintiff discovered the mortgage and attempted to redeem the property, but
was unsuccessful. On May 10,1988, defendant spouses Santos took possession of the property in
question and was able to secure Free Patent No. IV-1-010021 in their names."[5]

On the other hand, the Court of Appeals summarized the facts of the case as follows:

"The instant action for quieting of title concerns the parcel of land bounded and more particularly
described as follows:Sd-aad-sc

"A parcel of land located at Kay Taga, Lagundi, Morong, Rizal. Bounded [i]n the north by the
property of Venancio Ablay y Simeon Ablay; [i]n the east by the property of Veronica Tulak y
Dionisio Ablay; [i]n the south by the property of Simeon Ablay y Dionisio Ablay; and [i]n the
west by the property of Dionisio Ablay y Simeon Ablay, with an area of 9,985 square meters,
more or less, assessed in the year 1935 at P60.00 under Tax Declaration No. 23219.

"As the heirs of Silvino Robles who, likewise inherited the above-described parcel from Leon Robles,
the siblings Lucio, Emeteria, Aludia and Emilio, all surnamed Robles, commenced the instant suit
with the filing of their March 14, 1988 complaint against Spouses Virgilio and Ruth Santos, as well
as the Rural Bank of Cardona, Inc. Contending that they had been in possession of the land since
1942, the plaintiff alleged, among other matters, that it was only in September of 1987 that they
came to know of the foreclosure of the real estate mortgage constituted thereon by the half-brother,
Hilario Robles, in favor of defendant Rural Bank; and that they likewise learned upon further
inquiry, that the latter had already sold the self-same parcel in favor of the Santos spouses (pp. 1-3,
orig. rec.). Twice amended to implead Hilario Robles (pp. 76-80, orig. rec) and, upon subsequent
discovery of the issuance of Free Patent No. IV-I-010021 in favor of the defendant spouses, the
Director of Lands and the District Land Officer of the Bureau of Lands as parties-defendants (pp.
117-121, orig. rec). The plaintiffs complaint sought the following reliefs on the theory that the
encumbrance of their half-brother, constituted on the land, as well as all proceedings taken
subsequent thereto, were null and void, to wit:

"Wherefore, it is respectfully prayed that (a) a preliminary mandatory injunction be issued

forthwith restoring plaintiffs to their possession of said parcel of land; (b) an order be
issued annulling said Free Patent No. IV-I-010021 in the name of defendants spouses Vergel
Santos and Ruth C. Santos, the deed of sale aforementioned and any tax declaration which
have been issued in the name of defendants; and (c) ordering defendants jointly and
severally, to pay plaintiffs the sum of P10,000.00 as attorneys fees.

"Plaintiffs pray for other relief as [may be] just and equitable under the premises." (pp. 120-
121, orig. rec.)

xxxxxxxxx

"With the termination of the pre-trial stage upon the parties-litigants agreement (p. 203, orig. rec.)
the trial court proceeded to try the case on the merits. It thereafter rendered the challenged June
17, 1991 decision upon the following findings and conclusions:
 "The real estate mortgage allegedly executed by Hilario Robles is not valid because his
signature in the mortgage deed was forged. This fact, which remains unrebutted, was
admitted by Andrea Robles.

"Inasmuch as the real estate mortgage executed allegedly by Hilario Robles in favor of the
defendant Cardona Rural Bank, Inc. was not valid, it stands to reason that the foreclosure
proceedings therein were likewise not valid. Therefore, the defendant bank did not acquire
any right arising out of the foreclosure proceedings. Consequently, defendant bank could not
have transferred any right to the spouses Santos.

"The fact that the land was covered by a free patent will not help the defendant Santos any.

"There can be no question that the subject [property was held] in the concept of owner by
Leon Robles since 1916. Likewise, his successor-in-interest, Silvino Robles, his wife Maria de
la Cruz and the plaintiffs occupied the property openly, continuously and exclusively until
they were ousted from their possession in 1988 by the spouses Vergel and Ruth Santos.

"Under the circumstances, therefore, and considering that "open, exclusive and undisputed
possession of alienable public lands for the period prescribed by law (30 years), creates the
legal fiction whereby the land, upon completion of the requisite period, ipso jure and
without the need of judicial or other action, ceases to be public land and becomes private
property. Possession of public land x x x which is [of] the character and duration prescribed
by the statute is the equivalent of an express grant from the State, considering the dictum of
the statute itself[:]; "The possessor x x x shall be conclusively presumed to have performed
all the conditions essential to a government grant and shall be entitled to a certificate of title
x x x." No proof is admissible to overcome a conclusive presumption[,] and confirmation
proceedings would be a little more than a formality, at the most limited to ascertaining
whether the possession claimed is of the required character and length of time. Registration
thereunder would not confer title, but simply recognize a title already vested. (Cruz v. IAC,
G.R. No. 75042, November 29, 1988) The land in question has become private land.

"Consequently, the issuance of [a] free patent title to the Spouses Vergel Santos and Ruth C.
Santos is not valid because at the time the property subject of this case was already private
land, the Bureau of Lands having no jurisdiction to dispose of the same." (pp. 257-259, orig.
rec.)"

"Dissatisfied with the foregoing decision, the Santos spouses and the defendant Rural Bank jointly
filed their July 6, 1991 Notice of Appeal (p.260, orig. rec.) x x x." [6]

Ruling of the Court of Appeals

In reversing the trial court, the Court of Appeals held that petitioners no longer had any title to the subject property
at the time they instituted the Complaint for quieting of title. The CA ratiocinated as follows: Mis spped

"As correctly urged by the appellants, the plaintiff-appellees no longer had any title to the property
at the time of the institution of the instant complaint. (pp. 25-27, rec.) The latters claim of
continuous possession notwithstanding (pp. 3-5, TSN, July 5, 1990; p. 12, TSN, July 12, 1990), the
aforesaid loss of title is amply evidenced by the subsequent declaration of the subject realty for
taxation purposes not only in the name of Exequiel Ballena (Exhibits "1" and "2", pp. 23-24, orig.
rec.) but also in the name of the Rural Bank of Antipolo (Exhibit 17, vol. II, orig. rec.). On the theory
that tax declarations can be evincive of the transfer of a parcel of land or a portion thereof (Gacos v.
Court of Appeals, 212 SCRA 214), the court a quo clearly erred in simply brushing aside the
apparent transfers [which] the land in litigation had undergone. Whether legal or equitable, it
cannot, under the circumstances, be gainsaid that the plaintiff-appellees no longer had any title to
speak of when Exequiel Ballena executed the November 7, 1966 Deed of Absolute Sale transferring
the land in favor of the spouses Hilario and Andrea Robles (Exhibit "3", p. 25, orig. rec.)

"Even on the theory that the plaintiffs-appellees and their half-brother, Hilario Robles, are co-
owners of the land left behind by their common father, Silvino Robles, such title would still be
effectively discounted by what could well serve as the latters acts of repudiation of the co-
ownership, i.e., his possession (p. 22, TSN, November 15, 1990) and declaration thereof for taxation
purposes in his own name (Exhibit "4", p. 26, orig. rec.). In view of the plaintiffs-appellees inaction
for more than twenty (20) years from the time the subject realty was transferred in favor of Hilario
Robles, the appellants correctly maintain that prescription had already set in. While it may be
readily conceded that an action to quiet title to property in the possession of the plaintiff is
imprescriptible (Almanza vs. Arguelles, 156 SCRA 718; Coronel vs. Intermediate Appellate Court,
155 SCRA 270; Caragay-Layno vs. Court of Appeals, 133 SCRA 718; Charon Enterprises vs. Court of
Appeals, 124 SCRA 784; Faja vs. Court of Appeals, 75 SCRA 441; Burton vs. Gabar, 55 SCRA 4999), it
equally bears emphasis that a co-owner or, for that matter, the said co-owner[']s successors-in-
interest who occupy the community property other than as co-owner[s] can claim prescription as
against the other co-owners (De Guzman vs. Austria, 148 SCRA 75; Ramos vs. Ramos, 45 Phil. 362;
Africa vs. Africa, 42 Phil. 902; Bargayo vs. Camumot, 40 Phil. 857; De Castro vs. Echarri, 20 Phil. 23).
If only in this latter sense, the appellants correctly argue that the plaintiffs-appellees have lost their
cause of action by prescription.

"Over and above the foregoing considerations, the court a quo gravely erred in invalidating the real
estate mortgage constituted on the land solely on the basis of Andrea Robles testimony that her
husbands signature thereon was forged (p. 257, orig. rec.),

xxx xxx xxx

"In according to the foregoing testimony x x x credibility which, while admittedly unrebutted, was
altogether uncorroborated, the trial court lost sight of the fact that the assailed deed of real estate
mortgage (Exhibit "5", Vol. II, orig. rec.) is a public document, the acknowledgment of which is
a prima facie evidence of its due execution (Chua vs. Court of Appeals, 206 SCRA 339). As such, it
retains the presumption of validity in the absence of a full, clear and convincing evidence to
overcome such presumption (Agdeppa vs. Ibe, 220 SCRA 584). Maniks

"The foregoing principles take even more greater [sic] when it is, moreover, borne in mind that
Hilario Robles made the following admissions in his March 8, 1989 answer, viz:

"3. The complaint filed against herein answering defendant has no legal basis considering
that as the lawful owner of the subject real property, defendant Hilario Robles has the right
to mortgage the said real property and could dispose the same in whatever manner he
wishe[s] to do." (p. 96, orig. rec.)

"Appropriately underscored by the appellants, the foregoing admission is binding against Hilario
[Robles]. Judicial admissions, verbal or written, made by the parties in the pleadings or in the
course of the trial or other proceedings in the same case are conclusive, no evidence being required
to prove the same. They cannot be contradicted unless shown to have been made through [a]
palpable mistake or [unless] no such admission was actually made (Philippine American General
Insurance, Inc. vs. Sweet Lines, Inc., 212 SCRA 194).

"It does not help the plaintiffs-appellees cause any that, aside from complying with the
requirements for the foreclosure of the subject real estate mortgage (Exhibits "6", "7", "8" and "10",
Volume II[)], the appellant Rural Bank had not only relented to the mortgagors request to postpone
the (Exhibit "g", Vol. II, orig. rec.) but had likewise granted the latters request for an extension of the
redemption period therefor (Exhibits "11" and "12", pp. 35-36, orig. rec.). Without going into
minute detail in discussing the Santos spouses rights as purchasers for value and in good faith
 (Exhibit "21", Vol. II, orig. rec.), the mortgagor and the plaintiffs-appellees cannot now be heard to
challenge the validity of the sale of the land after admittedly failing to redeem the same within the
extension the appellant Rural Bank granted (pp. 10-11, TSN, November 15, 1990).

"Being dependent on the supposed invalidity of the constitution and foreclosure of the subject real
estate mortgage, the plaintiffs-appellees attack upon x x x Free Patent No. IV-I must necessarily fail.
The trial court, therefore, misread, and ignored the evidence o[n] record, to come up with
erroneous conclusion." Manikx

Contending that such ruling was contrary to law and jurisprudence, Petitioners Lucio, Emeteria, Aludia and Emilio
-- all surnamed Robles -- filed this Petition for Review. [7]

The Assigned Error

Petitioners ascribe the following error to the respondent court:

"Respondent Court of Appeals grievously erred in ruling that with the transfers of the tax
declaration over the parcel of land in question from Silvino Robles to Exequiel Ballena, then to the
Rural Bank of Antipolo, then to Respondent Hilario Robles, then to Respondent Rural Bank of
Cardona Inc., and then finally to Respondent Spouses Santos, petitioners, who by themselves and
their predecessors in interest have been in open, actual and adverse possession of said parcel of
land since 1916 up to their forced removal therefrom in 1988, have lost their title to said property
by prescription to their half-brother, Respondent Hilario Robles, and then finally, to Respondent
Spouses Santos."[8]

For a better understanding of the case, the above issue will be broken down into three points: first, the nature of the
remedy of quieting of title; second, the validity of the real estate mortgage; and third, the efficacy of the free patent
granted to the Santos spouses. Spped

First Issue: Quieting of Title

Article 476 of the Civil Code provides:

"Whenever there is cloud on title to real property or any interest therein, by reason of any
instrument, record, claim, encumbrance or proceeding which is apparently valid or effective but is
in truth and in fact invalid, ineffective, voidable or unenforceable, and may be prejudicial to said
title, an action may be brought to remove such cloud or to quiet title.

"An action may also be brought to prevent a cloud from being cast upon title to real property or any
interest therein."

Based on the above definition, an action to quiet title is a common-law remedy for the removal of any cloud or
doubt or uncertainty on the title to real property. [9] It is essential for the plaintiff or complainant to have a legal or
an equitable title to or interest in the real property which is the subject matter of the action.[10] Also, the deed,
claim, encumbrance or proceeding that is being alleged as a cloud on plaintiffs title must be shown to be in fact
invalid or inoperative despite its prima facie appearance of validity or legal efficacy.[11]

That there is an instrument or a document which, on its face, is valid and efficacious is clear in the present case.
Petitioners allege that their title as owners and possessors of the disputed property is clouded by the tax
declaration and, subsequently, the free patent thereto granted to Spouses Vergel and Ruth Santos. The more
important question to be resolved, however, is whether the petitioners have the appropriate title that will entitle
them to avail themselves of the remedy of quieting of title. Nexold
Petitioners anchor their claim to the disputed property on their continued and open occupation and possession as
owners thereof. They allege that they inherited it from their father, Silvino, who in turn had inherited it from his
father, Leon. They maintain that after their fathers death, they agreed among themselves that Petitioner Lucio
Robles would be tending and cultivating it for everyone, and that their half-brother Hilario would be paying the
land taxes.

Petitioners insist that they were not aware that from 1962 until 1987, the subject property had been declared in
the names of Exequiel Ballena, the Rural Bank of Antipolo, Hilario Robles, the Rural Bank of Cardona, Inc., and
finally, Spouses Vergel and Ruth Santos. Maintaining that as co-owners of the subject property, they did not agree to
the real estate mortgage constituted on it, petitioners insist that their shares therein should not have been
prejudiced by Hilarios actions. Miso

On the other hand, Private Respondents Vergel and Ruth Santos trace their claim to the subject property to
Exequiel Ballena, who had purportedly sold it to Hilario and Andrea Robles. According to private respondents, the
Robles spouses then mortgaged it to the Rural Bank of Cardona, Inc. -- not as co-owners but as absolute owners --
in order to secure an agricultural loan worth P2,000. Upon their failure to pay their indebtedness, the mortgage
was foreclosed and the property sold to the bank as the highest bidder. Thereafter, private respondents purchased
the property from the bank. Sppedjo

Undisputed is the fact that the land had previously been occupied by Leon and later by Silvino Robles, petitioners
predecessors-in-interest, as evidenced by the different tax declarations issued in their names. Also undisputed is
the fact that the petitioners continued occupying and possessing the land from the death of Silvino in 1942 until
they were allegedly ousted therefrom in 1988. In 1962, the subject property was declared in the name of Exequiel
for taxation purposes. On September 30, 1965, it was again declared in the same name; on October 28, 1965, in the
name of the Rural Bank of Antipolo; on November 7, 1966, in the name of Hilario and Andrea; and thereafter, in the
name of the Rural Bank of Cardona and, finally, in the name of the Santos spouses.

Ostensibly, the Court of Appeals failed to consider irregularities in the transactions involving the disputed
property. First, while it was declared in the name of Exequiel in 1962, there was no instrument or deed of
conveyance evidencing its transfer from the heirs of Silvino to him. This fact is important, considering that the
petitioners are alleging continued possession of the property. Second, Exequiel was the father-in-law of Hilario, to
whom petitioners had entrusted the payment of the land taxes. Third, considering that the subject property had
been mortgaged by Exequiel to the Rural Bank of Antipolo, and that it was foreclosed and in fact declared in the
banks name in 1965, why was he able to sell it to Spouses Hilario and Andrea in 1966? Lastly, inasmuch as it was
an unregistered parcel of land, the Rural Bank of Cardona, Inc., did not observe due diligence in determining
Hilarios title thereto.Jospped

The failure to show the indubitable title of Exequiel to the property in question is vital to the resolution of the
present Petition. It was from him that Hilario had allegedly derived his title thereto as owner, an allegation which
thereby enabled him to mortgage it to the Rural Bank of Cardona. The occupation and the possession thereof by the
petitioners and their predecessors-in-interest until 1962 was not disputed, and Exequiels acquisition of the said
property by prescription was not alleged. Thus, the deed of conveyance purportedly evidencing the transfer of
ownership and possession from the heirs of Silvino to Exequiel should have been presented as the best proof of that
transfer. No such document was presented, however. Scmis

Therefore, there is merit to the contention of the petitioners that Hilario mortgaged the disputed property to the
Rural Bank of Cardona in his capacity as a mere co-owner thereof. Clearly, the said transaction did not divest them
of title to the property at the time of the institution of the Complaint for quieting of title.

Contrary to the disquisition of the Court of Appeals, Hilario effected no clear and evident repudiation of the co-
ownership. It is a fundamental principle that a co-owner cannot acquire by prescription the share of the other co-
owners, absent any clear repudiationof the co-ownership. In order that the title may prescribe in favor of a co-
owner, the following requisites must concur: (1) the co-owner has performed unequivocal acts of repudiation
amounting to an ouster of the other co-owners; (2) such positive acts of repudiation have been made known to the
other co-owners; and (3) the evidence thereof is clear and convincing. [12]
In the present case, Hilario did not have possession of the subject property; neither did he exclude the petitioners
from the use and the enjoyment thereof, as they had indisputably shared in its fruits. [13] Likewise, his act of entering
into a mortgage contract with the bank cannot be construed to be a repudiation of the co-ownership. As absolute
owner of his undivided interest in the land, he had the right to alienate his share, as he in fact did. [14] Neither should
his payment of land taxes in his name, as agreed upon by the co-owners, be construed as a repudiation of the co-
ownership. The assertion that the declaration of ownership was tantamount to repudiation was belied by the
continued occupation and possession of the disputed property by the petitioners as owners. Mis sc

Second Issue: Validity of the Real Estate Mortgage

In a real estate mortgage contract, it is essential that the mortgagor be the absolute owner of the property to be
mortgaged; otherwise, the mortgage is void. [15] In the present case, it is apparent that Hilario Robles was not the
absolute owner of the entire subject property; and that the Rural Bank of Cardona, Inc., in not fully ascertaining his
title thereto, failed to observe due diligence and, as such, was a mortgagee in bad faith.

First, the bank was utterly remiss in its duty to establish who the true owners and possessors of the subject
property were. It acted with precipitate haste in approving the Robles spouses loan application, as well as the real
estate mortgage covering the disputed parcel of land. [16] Had it been more circumspect and assiduous, it would have
discovered that the said property was in fact being occupied by the petitioners, who were tending and cultivating it.

Second, the bank should not have relied solely on the Deed of Sale purportedly showing that the ownership of the
disputed property had been transferred from Exequiel Ballena to the Robles spouses, or that it had subsequently
been declared in the name of Hilario. Because it was dealing with unregistered land, and the circumstances
surrounding the transaction between Hilario and hisfather-in-law Exequiel were suspicious, the bank should have
exerted more effort to fully determine the title of the Robleses. Rural Bank of Compostela v. Court of
Appeals[17] invalidated a real estate mortgage after a finding that the bank had not been in good faith. The Court
explained: "The rule that persons dealing with registered lands can rely solely on the certificate of title does not
apply to banks." In Tomas v. Tomas, the Court held: Sc-slx

"x x x. Banks, indeed, should exercise more care and prudence in dealing even with registered lands,
than private individuals, for their business is one affected with public interest, keeping in trust
money belonging to their depositors, which they should guard against loss by not committing any
act of negligence which amounts to lack of good faith by which they would be denied the protective
mantle of land registration statute, Act 496, extended only to purchasers for value and in good faith,
as well as to mortgagees of the same character and description. x x x." [18]

Lastly, the Court likewise finds it unusual that, notwithstanding the banks insistence that it had become the owner
of the subject property and had paid the land taxes thereon, the petitioners continued occupying it and harvesting
the fruits therefrom.[19]

Considering that Hilario can be deemed to have mortgaged the disputed property not as absolute owner but only as
a co-owner, he can be adjudged to have disposed to the Rural Bank of Cardona, Inc., only his undivided share therein.
The said bank, being the immediate predecessor of the Santos spouses, was a mortgagee in bad faith. Thus, justice
and equity mandate the entitlement of the Santos spouses, who merely stepped into the shoes of the bank, only to
what legally pertains to the latter -- Hilarios share in the disputed property. Missc

Third Issue: Efficacy of Free Patent Grant

Petitioners repeatedly insist that the disputed property belongs to them by private ownership and, as such, it could
not have been awarded to the Santos spouses by free patent. They allege that they possessed it in the concept of
owners -- openly, peacefully, publicly and continuously as early as 1916 until they were forcibly ousted therefrom in
1988. They likewise contend that they cultivated it and harvested its fruits. Lucio Robles testified:

"xxx xxx xxx

 Q By the way, why do you know this parcel of land?

A Because before my father died, he showed me all the documents.

Q Before the death of your father, who was the owner of this parcel of land?

A My father, sir. Spped

Q How did your father acquire this parcel of land?

A My father knew that it [was] by inheritance, sir.

Q From whom?

A From his father, Leon Robles, sir.

Q And do you know also [from] whom Leon Robles acquired this land?

A It was inherited from his father, sir.

Q What is the nature of this parcel of land?

A Its an agricultural land, sir,

Q Now, at the time of the death of your father, this land was planted with what crops?

A Mango trees, santol trees, and I was the one who planted those trees, sir.

Q When did you plant those trees?

A Before the death of my father, sir. M-issdaa

Q Now, after the death of your father, who cultivated this parcel of land?

A I took charge of the land after the death of my father, sir.

Q Up to when?

A Up to the present, sir, after this case was already filed." [20]

The preceding claim is an assertion that the subject property is private land. The petitioners do not concede, and
the records do not show, that it was ever an alienable land of the public domain. They allege private ownership
thereof, as evidenced by their testimonies and the tax declarations issued in the names of their predecessors-in-
interest. It must be noted that while their claim was not corroborated by other witnesses, it was not controverted
by the other parties, either. Kycalr

Carlos Dolores insisted that the Rural Bank of Cardona, Inc., of which he was the manager, had acquired and
possessed the subject property. He did not, however, give any reason why the petitioners had continued occupying
it, even as he admitted on the stand that he had visited it twice.[21]

In the light of their open, continuous, exclusive and notorious possession and occupation of the land, petitioners
are "deemed to have acquired, by operation of law, a right to a grant, a government grant, without the necessity of a
certificate of title being issued."[22] The land was "segregated from the public domain." Accordingly, the director of
lands had no authority to issue a free patent thereto in favor of another person. Verily, jurisprudence holds that a
free patent covering private land is null and void.[23]

Worth quoting is the disquisition of the Court in Agne v. Director of Lands, [24] in which it held that a riparian owner
presently in possession had a better right over an abandoned river bed than had a registered owner by virtue of a
free patent.

"Under the provisions of Act 2874 pursuant to which the title of private respondents predecessor-
in-interest was issued, the President of the Philippines, or his alter ego, the Director of Lands, has no
authority to grant a free patent for land that has ceased to be a public land and has passed to private
ownership and a title so issued is null and void.The nullity arises, not from fraud or deceit, but from
the fact that the land is not under the jurisdiction of the Bureau of Lands. The jurisdiction of the
Director of Lands is limited only to public lands and does not cover lands publicly owned. The
purpose of the Legislature in adopting the former Public Land Act, Act No. 2874, was and is to limit
its application to lands of the public domain, and lands held in private ownership are not included
therein and are not affected in any manner whatsoever thereby. Land held in freehold or fee title, or
of private ownership, constitutes no part of the public domain, and cannot possibly come within the
purview of said act 2874, inasmuch as the subject of such freehold or private land is not embraced
in any manner in the title of the Act and the same is excluded from the provisions of the text
thereof. Kyle

"We reiterate that private ownership of land is not affected by the issuance of the free patent over
the same land because the Public Land Act applies only to lands of the public domain. Only public
land may be disposed of by the Director of Lands. Since as early as 1920, the land in dispute was
already under the private ownership of herein petitioners and no longer a part of the lands of the
public domain, the same could not have been the subject matter of a free patent. The patentee and
his successors-in-interest acquired no right or title to said land. Necessarily, Free Patent No. 23263
issued to Herminigildo Agpoon is null and void and the subsequent titles issued pursuant thereto
cannot become final and indefeasible. Hence we ruled in Director of Lands v. Sicsican, et al. that if at
the time the free patents were issued in 1953 the land covered therein were already private
property of another and, therefore, not part of the disposable land of the public domain, then
applicants patentees acquired no right or title to the land.

"Now, a certificate of title fraudulently secured is null and void ab initio if the fraud consisted in
misrepresenting that the land is part of the public domain, although it is not. As earlier stated, the
nullity arises, not from the fraud or deceit, but from the fact that the land is not under the
jurisdiction of the Bureau of Lands. Being null and void, the free patent granted and the subsequent
titles produce no legal effect whatsoever. Quod nullum est, nullum producit effectum.

"A free patent which purports to convey land to which the government did not have any title at the
time of its issuance does not vest any title in the patentee as against the true owner. The Court has
previously held that the Land Registration Act and the Cadastral Act do not give anybody who
resorts to the provisions thereof a better title than what he really and lawfully has. Exsm

xxx xxx xxx

"We have, therefore, to arrive at the unavoidable conclusion that the title of herein petitioners over the
land in dispute is superior to the title of the registered owner which is a total nullity. The long and
continued possession of petitioners under a valid claim of title cannot be defeated by the claim of a
registered owner whose title is defective from the beginning."

The Santos spouses argue that petitioners do not have the requisite personality to question the free patent granted
them, inasmuch as "it is a well-settled rule that actions to nullify free patents should be filed by the Office of the
Solicitor General at the behest of the Director of Lands." [25]
Private respondents reliance on this doctrine is misplaced. Indeed, the Court held in Peltan Development, Inc. v.
Court of Appeals[26]that only the solicitor general could file an action for the cancellation of a free patent. Ruling
that the private respondents, who were applicants for a free patent, were not the proper parties in an action to
cancel the transfer certificates covering the parcel of land that was the subject of their application, the Court
ratiocinated thus: Sl-xm-is

"The Court also holds that private respondents are not the proper parties to initiate the present suit.
The complaint, praying as it did for the cancellation of the transfer certificates of title of petitioners
on the ground that they were derived from a "spurious" OCT No. 4216, assailed in effect the validity
of said title. While private respondents did not pray for the reversion of the land to the government,
we agree with the petitioners that the prayer in the complaint will have the same result of reverting
the land to the government under the Regalian Doctrine. Gabila v. Barinaga[27] ruled that only the
government is entitled to this relief. x x x."

Because the cancellation of the free patent as prayed for by the private respondents in Peltan would revert the
property in question to the public domain, the ultimate beneficiary would be the government, which can be
represented by the solicitor general only. Therefore, the real party-in-interest is the government, not the private
respondents.

This ruling does not, however, apply to the present case. While the private respondents in Peltan recognized that
the disputed property was part of the public domain when they applied for free patent, [28] herein petitioners
asserted and proved private ownership over the disputed parcel of land by virtue of their open, continued and
exclusive possession thereof since 1916. Msesm

Neither does the present case call for the reversion of the disputed property to the State. By asking for the
nullification of the free patent granted to the Santos spouses, the petitioners are claiming the property which, they
contend, rightfully belongs to them.

Indeed, the same issue was resolved by this Court in Heirs of Marciano Nagano v. Court of Appeals. [29] In that case,
the trial court dismissed a Complaint seeking the declaration of nullity of an Original Certificate of Title issued
pursuant to a free patent, reasoning that the action should have been instituted by the solicitor general. In
reversing the trial court, the Supreme Court held: Sl-xsc

"It is settled that a Free Patent issued over private land is null and void, and produces no legal effect
whatsoever. Quod nullum est, nullum producit effectum. Moreover, private respondents claim of
open, peaceful, continuous and adverse possession of the 2,250 square meter portion since 1920,
and its illegal inclusion in the Free Patent of petitioners and in their original certificate of title, gave
private respondents a cause of action for quieting of title which is imprescriptible." Scmis

In any event, the Office of the Solicitor General was afforded an opportunity to express its position in these
proceedings. But it manifested that it would not file a memorandum, because "this case involves purely private
interests."[30]

The foregoing considered, we sustain the contention of petitioners that the free patent granted to the Santos
spouses is void. It is apparent that they are claiming ownership of the disputed property on the basis of their
possession thereof in the concept of owners -- openly, peacefully, publicly, continuously and adversely since 1916.
Because they and their predecessors-in-interest have occupied, possessed and cultivated it as owners for more than
thirty years,[31] only one conclusion can be drawn -- it has become private land and is therefore beyond the
authority of the director of lands. Misspped

Epilogue

We recognize that both the petitioners and the Santos spouses fell victim to the dubious transaction between
Spouses Hilario and Andrea Robles and the Rural Bank of Cardona, Inc. However, justice and equity mandate that
we declare Petitioners Lucio, Emerita, Aludia and Emilio Robles to have the requisite title essential to their suit for
quieting of title. Considering the circumstances peculiar to this complicated problem, the Court finds this
conclusion the logical and just solution. Sc

The claim that petitioners were guilty of laches in not asserting their rights as owners of the property should be
viewed in the light of the fact that they thought their brother was paying the requisite taxes for them, and more
important, the fact that they continued cultivating it and harvesting and gaining from its fruits.

From another viewpoint, it can even be said that it was the Rural Bank of Cardona, Inc., which was guilty of laches
because, granting that it had acquired the subject property legally, it failed to enforce its rights as owner. It was
oblivious to the petitioners continued occupation, cultivation and possession thereof. Considering that they had
possessed the property in good faith for more than ten years, it can even be argued that they thus regained it by
acquisitive prescription. In any case, laches is a remedy in equity, and considering the circumstances in this case,
the petitioners cannot be held guilty of it. Jurismis

In sum, the real estate mortgage contract covering the disputed property a contract executed between Spouses
Hilario and Andrea on the one hand and the Rural Bank of Cardona, Inc., on the other -- is hereby declared null and
void insofar as it prejudiced the shares of Petitioners Lucio, Emerita, Aludia and Emilio Robles; it is valid as to
Hilario Robles share therein. Consequently, the sale of the subject property to the Santos spouses is valid insofar as
it pertained to his share only. Likewise declared null and void is Free Patent No. IV-1-010021 issued by the Bureau
of Lands covering the subject property. Jjjuris

WHEREFORE, the Petition is hereby GRANTED. The assailed Decision is REVERSED and SET ASIDE. Except as
modified by the last paragraph of this Decision, the trial courts Decision is REINSTATED. No costs.

SO ORDERED.

7. GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner, vs. EDUARDO M. SANTIAGO, substituted by his
widow ROSARIO ENRIQUEZ VDA. DE SANTIAGO, respondent.
[G.R. No. 155206. October 28, 2003]

DECISION
CALLEJO, SR., J.:

Before the Court is the petition for review on certiorari filed by the Government Service Insurance System
(GSIS), seeking to reverse and set aside the Decision [1] dated February 22, 2002 of the Court of Appeals (CA) in CA-
G.R. CV No. 62309 and its Resolution dated September 5, 2002 denying its motion for reconsideration.
The antecedent facts of the case, as culled from the assailed CA decision and that of the trial court, are as
follows:

Deceased spouses Jose C. Zulueta and Soledad Ramos obtained various loans from defendant GSIS for (the) period
September, 1956 to October, 1957 in the total amount of P3,117,000.00 secured by real estate mortgages over
parcels of land covered by TCT Nos. 26105, 37177 and 50365.The Zuluetas failed to pay their loans to defendant
GSIS and the latter foreclosed the real estate mortgages dated September 25, 1956, March 6, 1957, April 4, 1957
and October 15, 1957.

On August 14, 1974, the mortgaged properties were sold at public auction by defendant GSIS submitting a bid price
of P5,229,927.84. Not all lots covered by the mortgaged titles, however, were sold. Ninety-one (91) lots were
expressly excluded from the auction since the lots were sufficient to pay for all the mortgage debts. A Certificate
of Sale (Annex F, Records, Vol. I, pp. 23-28) was issued by then Provincial Sheriff Nicanor D. Salaysay.

The Certificate of Sale dated August 14, 1974 had been annotated and inscribed in TCT Nos. 26105, 37177 and
50356, with the following notations: (T)he following lots which form part of this title (TCT No. 26105) are not
covered by the mortgage contract due to sale to third parties and donation to the government: 50-H-5-C-9-J-65-H-
8, 50-H-5-C-9J-M-7; 50-H-5-C-9-J-65-H-5; 1 lots Nos. 1 to 13, Block No. 1 -6,138 sq.m. 2. Lots Nos. 1 to 11, Block No.
2 4,660 sq.m. 3. Lot No. 15, Block No. 3 487 sq.m. 4. Lot No. 17, Block No. 4 263 sq.m. 5. Lot No. 1, Block No. 7 402
sq.m. 6. Road Lots Nos. 1, 2, 3, & 4 2,747 sq.m.

In another NOTE: The following lots in the Antonio Subdivision were already released by the GSIS and therefore are
not included in this sale, namely: LOT NO. 1, 6, 7, 8, 9, 10, and 13 (Old Plan) Block I; 1, 3, 4, 5, 7, 8 and 10 (Old Plan)
Block II; 3, 10, 12 and 13 (New Plan) Block I (Old Plan) Block III; 7, 14 and 20 (New Plan) Block III (Old Plan) Block
V; 13 and 20 (New Plan) Block IV (Old Plan) Block VI; 1, 2, 3 and 10 (New Plan) Block V (Old Plan) Block VII; 1, 5, 8,
15, 26 and 27 (New Plan) Block VI (Old Plan) Block VIII; 7, 12 and 20 (New Plan) Block VII (Old Plan) Block II; 1, 4
and 6 (New Plan) Block VIII (Old Plan) Block X; 5 (New Plan) Block X (Old Plan) Block ZXII; 6 (New Plan) Block XI
(Old Plan) Block XII; 1, Block 9; 12 Block 1; 11 Block 2; 19 Block 1; 10 Block 6; 23 Block 3.

And the lots on ADDITIONAL EXCLUSION FROM PUBLIC SALE are LOTS NO. 6 Block 4; 2 Block 2; 5 Block 5; 1, 2 and
3 Block 11, 1, 2, 3 and 4 Block 10; 5 Block 11 (New); 1 Block 3; 5 Block 1; 15 Block 7; 11 Block 9; 13 Block 5; 12
Block 5; 3 Block 10; 6.

On November 25, 1975, an Affidavit of Consolidation of Ownership (Annex G, Records, Vol. I, pp. 29-31) was
executed by defendant GSIS over Zuluetas lots, including the lots, which as earlier stated, were already excluded
from the foreclosure.

On March 6, 1980, defendant GSIS sold the foreclosed properties to Yorkstown Development Corporation which
sale was disapproved by the Office of the President of the Philippines. The sold properties were returned to
defendant GSIS.

The Register of Deeds of Rizal cancelled the land titles issued to Yorkstown Development Corporation. On July 2,
1980, TCT No. 23552 was issued cancelling TCT No. 21926; TCT No. 23553 cancelled TCT No. 21925; and TCT No.
23554 cancelling TCT No. 21924, all in the name of defendant GSIS.

After defendant GSIS had re-acquired the properties sold to Yorkstown Development Corporation, it began
disposing the foreclosed lots including the excluded ones.

On April 7, 1990, representative Eduardo Santiago and then plaintiff Antonio Vic Zulueta executed an agreement
whereby Zulueta transferred all his rights and interests over the excluded lots. Plaintiff Eduardo Santiagos lawyer,
Atty. Wenceslao B. Trinidad, wrote a demand letter dated May 11, 1989 (Annex H, Records, Vol. I, pp. 32-33) to
defendant GSIS asking for the return of the eighty-one (81) excluded lots. [2]

On May 7, 1990, Antonio Vic Zulueta, represented by Eduardo M. Santiago, filed with the Regional Trial Court
(RTC) of PasigCity, Branch 71, a complaint for reconveyance of real estate against the GSIS. Spouses Alfeo and
Nenita Escasa, Manuel III and Sylvia G. Urbano, and Marciana P. Gonzales and the heirs of Mamerto Gonzales moved
to be included as intervenors and filed their respective answers in intervention. Subsequently, the petitioner, as
defendant therein, filed its answer alleging inter alia that the action was barred by the statute of limitations and/or
laches and that the complaint stated no cause of action. Subsequently, Zulueta was substituted by Santiago as the
plaintiff in the complaint a quo. Upon the death of Santiago on March 6, 1996, he was substituted by his widow,
Rosario Enriquez Vda. de Santiago, as the plaintiff.
After due trial, the RTC rendered judgment against the petitioner ordering it to reconvey to the respondent,
Rosario Enriquez Vda. de Santiago, in substitution of her deceased husband Eduardo, the seventy-eight lots
excluded from the foreclosure sale. The dispositive portion of the RTC decision reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendant:

1. Ordering defendant to reconvey to plaintiff the seventy-eight (78) lots released and excluded from the
foreclosure sale including the additional exclusion from the public sale, namely:

a. Lot Nos. 1, 6, 7, 8, 0, 10, 13, Block I (Old Plan).

b. Lot Nos. 1, 3, 4, 5, 7, 8 and 10, Block II (Old Plan).
c. Lot Nos. 3, 10, 12, and 13, Block I (New Plan), Block III (Old Plan),
d. Lot Nos. 7, 14 and 20, Block III (New Plan), Block V (Old Plan).
e. Lot Nos. 13 and 20, Block IV (New Plan), Block VI (Old Plan).
f. Lot Nos. 1, 2, 3 and 10, Block V (New Plan), Block VII (Old Plan).
g. Lot Nos. 1, 5, 8, 15, 26 and 27, Block VI (New Plan), Block VIII (Old Plan).
h. Lot Nos. 7 and 12, Block VII (New Plan), Block II (Old Plan).
i. Lot Nos. 1, 4 and 6, Block VIII (New Plan), Block X (Old Plan).
j. Lot 5, Block X (New Plan), Block XII (Old Plan).
k. Lot 6, Block XI (New Plan), Block XII (Old Plan).
l. Lots 2, 5, 12 and 15, Block I.
m. Lots 6, 9 and 11, Block 2.
n. Lots 1, 5, 6, 7, 16 and 23, Block 3.
o. Lot 6, Block 4.
p. Lots 5, 12, 13 and 24, Block 5.
q. Lots 10 and 16, Block 6.
r. Lots 6 and 15, Block 7.
s. Lots 13, 24, 28 and 29, Block 8.
t. Lots 1, 11, 17 and 22, Block 9.
u. Lots 1, 2, 3 and 4, Block 10.
v. Lots 1, 2, 3 and 5 (New), Block 11.

2. Ordering defendant to pay plaintiff, if the seventy-eight (78) excluded lots could not be reconveyed, the fair
market value of each of said lots.

3. Ordering the Registry of Deeds of Pasig City to cancel the land titles covering the excluded lots in the name of
defendant or any of its successors-in-interest including all derivative titles therefrom and to issue new land titles in
plaintiffs name.

4. Ordering the Registry of Deeds of Pasig City to cancel the Notices of Lis Pendens inscribed in TCT No. PT-80342
under Entry No. PT-12267/T-23554; TCT No. 81812 under Entry No. PT-12267/T-23554; and TCT No. PT-84913
under Entry No. PT-12267/T-23554.

5. Costs of suit.[3]

The petitioner elevated the case to the CA which rendered the assailed decision affirming that of the RTC. The
dispositive portion of the assailed decision reads:

WHEREFORE, premises considered, the herein appeal is DISMISSED for lack of merit. The Decision of December 17,
1997 of Branch 71 of the Regional Trial Court of Pasig City is hereby AFFIRMED.[4]

The petitioner moved for a reconsideration of the aforesaid decision but the same was denied in the assailed
CA Resolution of September 5, 2002.
The petitioner now comes to this Court alleging that:

THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT A) PETITIONER WAS GUILTY OF
BAD FAITH WHEN IN TRUTH AND IN FACT, THERE WAS NO SUFFICIENT GROUND TO SUPPORT SUCH
CONCLUSION; AND B) THERE WAS NO PRESCRIPTION IN THIS CASE. [5]
 In its petition, the petitioner maintains that it did not act in bad faith when it erroneously included in its
certificate of sale, and subsequently consolidated the titles in its name over the seventy-eight lots (subject lots) that
were excluded from the foreclosure sale. There was no proof of bad faith nor could fraud or malice be attributed to
the petitioner when it erroneously caused the issuance of certificates of title over the subject lots despite the fact
that these were expressly excluded from the foreclosure sale.
The petitioner asserts that the action for reconveyance instituted by the respondent had already prescribed
after the lapse of ten years from November 25, 1975 when the petitioner consolidated its ownership over the
subject lots. According to the petitioner, an action for reconveyance based on implied or constructive trust
prescribes in ten years from the time of its creation or upon the alleged fraudulent registration of the property. In
this case, when the action was instituted on May 7, 1990, more than fourteen years had already lapsed. Thus, the
petitioner contends that the same was already barred by prescription as well as laches.
The petitioner likewise takes exception to the holding of the trial court and the CA that it (the petitioner) failed
to apprise or return to the Zuluetas, the respondents predecessors-in-interest, the seventy-eight lots excluded from
the foreclosure sale because the petitioner had no such obligation under the pertinent loan and mortgage
agreement.
The petitioners arguments fail to persuade.
At the outset, it bears emphasis that the jurisdiction of this Court in a petition for review on certiorari under
Rule 45 of the Rules of Court, as amended, is limited to reviewing only errors of law. This Court is not a trier of
facts. Case law has it that the findings of the trial court especially when affirmed by the CA are binding and
conclusive upon this Court. Although there are exceptions to the said rule, we find no reason to deviate therefrom.
[6]
By assailing the findings of facts of the trial court as affirmed by the CA, that it acted in bad faith, the petitioner
thereby raised questions of facts in its petition.
Nonetheless, even if we indulged the petition and delved into the factual issues, we find the petition barren of
merit.
That the petitioner acted in bad faith in consolidating ownership and causing the issuance of titles in its name
over the subject lots, notwithstanding that these were expressly excluded from the foreclosure sale was the
uniform ruling of the trial court and appellate court. As declared by the CA:

The acts of defendant-appellant GSIS in concealing from the Zuluetas [the respondents predecessors-in-interest]
the existence of these lots, in failing to notify or apprise the spouses Zulueta about the excluded lots from the time
it consolidated its titles on their foreclosed properties in 1975, in failing to inform them when it entered into a
contract of sale of the foreclosed properties to Yorkstown Development Corporation in 1980 as well as when the
said sale was revoked by then President Ferdinand E. Marcos during the same year demonstrated a clear effort on
its part to defraud the spouses Zulueta and appropriate for itself the subject properties. Even if titles over the lots
had been issued in the name of the defendant-appellant, still it could not legally claim ownership and absolute
dominion over them because indefeasibility of title under the Torrenssystem does not attach to titles secured by
fraud or misrepresentation. The fraud committed by defendant-appellant in the form of concealment of the
existence of said lots and failure to return the same to the real owners after their exclusion from the foreclosure
sale made defendant-appellant holders in bad faith. It is well-settled that a holder in bad faith of a certificate of title
is not entitled to the protection of the law for the law cannot be used as a shield for fraud. [7]

The Court agrees with the findings and conclusion of the trial court and the CA. The petitioner is not an
ordinary mortgagee. It is a government financial institution and, like banks, is expected to exercise greater care and
prudence in its dealings, including those involving registered lands. [8] The Courts ruling in Rural Bank of Compostela
v. CA[9] is apropos:

Banks, indeed, should exercise more care and prudence in dealing even with registered lands, than private
individuals, for their business is one affected with public interest, keeping in trust money belonging to their
depositors, which they should guard against loss by not committing any act of negligence which amounts to lack of
good faith by which they would be denied the protective mantle of land registration statute, Act [No.] 496, extended
only to purchasers for value and in good faith, as well as to mortgagees of the same character and description. [10]
 Due diligence required of banks extend even to persons, or institutions like the petitioner, regularly engaged in
the business of lending money secured by real estate mortgages. [11]
In this case, the petitioner executed an affidavit in consolidating its ownership and causing the issuance of
titles in its name over the subject lots despite the fact that these were expressly excluded from the foreclosure
sale. By so doing, the petitioner acted in gross and evident bad faith. It cannot feign ignorance of the fact that the
subject lots were excluded from the sale at public auction.At the least, its act constituted gross negligence
amounting to bad faith. Further, as found by the CA, the petitioners acts of concealing the existence of these lots, its
failure to return them to the Zuluetas and even its attempt to sell them to a third party is proof of the petitioners
intent to defraud the Zuluetas and appropriate for itself the subject lots.
On the issue of prescription, generally, an action for reconveyance of real property based on fraud prescribes in
four years from the discovery of fraud; such discovery is deemed to have taken place upon the issuance of the
certificate of title over the property.Registration of real property is a constructive notice to all persons and, thus,
the four-year period shall be counted therefrom. [12] On the other hand, Article 1456 of the Civil Code provides:

Art. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a
trustee of an implied trust for the benefit of the person from whom the property comes.

An action for reconveyance based on implied or constructive trust prescribes in ten years from the alleged
fraudulent registration or date of issuance of the certificate of title over the property. [13]
The petitioners defense of prescription is untenable. As held by the CA, the general rule that the discovery of
fraud is deemed to have taken place upon the registration of real property because it is considered a constructive
notice to all persons does not apply in this case. The CA correctly cited the cases of Adille v. Court of
Appeals[14] and Samonte v. Court of Appeals,[15] where this Court reckoned the prescriptive period for the filing of the
action for reconveyance based on implied trust from the actual discovery of fraud.
In ruling that the action had not yet prescribed despite the fact that more than ten years had lapsed between
the date of registration and the institution of the action for reconveyance, the Court in Adille ratiocinated:

It is true that registration under the Torrens system is constructive notice of title, but it has likewise been our
holding that the Torrens title does not furnish a shield for fraud. It is therefore no argument to say that the act of
registration is equivalent to notice of repudiation, assuming there was one, notwithstanding the long-standing rule
that registration operates as a universal notice of title.

For the same reason, we cannot dismiss private respondents claims commenced in 1974 over the estate registered
in 1955. While actions to enforce a constructive trust prescribes in ten years, reckoned from the date of the
registration of the property, we, as we said, are not prepared to count the period from such a date in this case. We
note the petitioners sub rosa efforts to get hold of the property exclusively for himself beginning with his fraudulent
misrepresentation in his unilateral affidavit of extrajudicial settlement that he is the only heir and child of his
mother Feliza with the consequence that he was able to secure title in his name [alone]. Accordingly, we hold that
the right of the private respondents commenced from the time they actually discovered the petitioners act of
defraudation. According to the respondent Court of Appeals, they came to know [of it] apparently only during the
progress of the litigation. Hence, prescription is not a bar.[16]

The above ruling was reiterated in the more recent case of Samonte. In this case, as established by the CA, the
respondent actually discovered the fraudulent act of the petitioner only in 1989:

... [T]he prescriptive period of the action is to be reckoned from the time plaintiff-appellee (then Eduardo M.
Santiago) had actually discovered the fraudulent act of defendant-appellant which was, as borne out by the records,
only in 1989. Plaintiff-appellee Eduardo M. Santiago categorically testified (TSN of July 11, 1995, pp. 14-15) that he
came to know that there were 91 excluded lots in Antonio Village which were foreclosed by the GSIS and included
in its consolidation of ownership in 1975 when, in 1989, he and Antonio Vic Zulueta discussed it and he was given
by Zulueta a special power of attorney to represent him to recover the subject properties from GSIS. The complaint
for reconveyance was filed barely a year from the discovery of the fraud. [17]
 Following the Courts pronouncements in Adille and Samonte, the institution of the action for reconveyance in
the court a quo in 1990 was thus well within the prescriptive period. Having acted in bad faith in securing titles
over the subject lots, the petitioner is a holder in bad faith of certificates of title over the subject lots. The petitioner
is not entitled to the protection of the law for the law cannot be used as a shield for frauds. [18]
Contrary to its claim, the petitioner unarguably had the legal duty to return the subject lots to the
Zuluetas. The petitioners attempts to justify its omission by insisting that it had no such duty under the mortgage
contract is obviously clutching at straw.Article 22 of the Civil Code explicitly provides that every person who,
through an act of performance by another, or any other means, acquires or comes into possession of something at
the expense of the latter without just or legal ground, shall return the same to him.
WHEREFORE, the petition is DENIED for lack of merit. The assailed Decision dated February 22, 2002 and
Resolution dated September 5, 2002 of the Court of Appeals in CA-G.R. CV No. 62309 are AFFIRMED IN TOTO. Costs
against the petitioner.
SO ORDERED.