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LAND BANK OF PHILIPPINES v. BELLE CORPORATION

FACTS:

The respondent, Belle Corporation, filed a complaint for quieting of title and damages against Florosa A. Bautista and the Register of Deeds of Tagaytay City. Respondent claimed to be the registered owner of four parcels of land known as Lots 1 to 4, under Transfer Certificate of Title (TCT) Nos. P-1863 to P-1866. Respondent sought to cancel the free patent granted to Bautista and asserted its own title which originated from an earlier registration. Bautista filed an answer and counterclaims, arguing that respondent's title overlapped with her property and that respondent's title originated from a free patent. During the trial, it was discovered that Bautista's property had already been foreclosed by Land Bank of the Philippines and a new title was issued in the bank's name. Respondent then filed a motion to amend the petition to include Land Bank as a party.

The petitioner, Belle Corporation, acquired ownership of the disputed land through foreclosure and a new title was issued in its name. The petitioner believed it was an innocent mortgagee, while the respondent claimed that the petitioner should have noticed the overlapping portion with another property. The trial court initially ruled in favor of the respondent, but its decision was later reversed by the Court of Appeals. The Court of Appeals recognized the petitioner as the legitimate owner of the disputed property and declared the respective titles of Bautista and the Land Bank of the Philippines as void. The court also ordered the cancellation of entries in the petitioner's title.

The disputed property was sold at a public auction to Land Bank of the Philippines. The Court of Appeals opined that the respondent was able to prove its mother title and the incorrect title entry in the petitioner's title. The court also noted that there was no proof of the respondent waiving its right to contest the result of the verification survey. The Court of Appeals denied the petitioner's claim of being a mortgagee in good faith and concluded that the bank's negligence was the primary reason for the loss of the property. The court denied the respondent's prayer for damages but granted its claim for attorney's fees. The Court of Appeals declared the petitioner as the legitimate owner of the disputed property, voided the titles of Bautista and Land Bank, and ordered the cancellation of their respective titles.

ISSUES:

  1. A. Whether or not Belle Corporation is bound by the findings and conclusions of the expert witness who conducted a joint verification survey of the disputed property.

  2. B. Whether or not the Court of Appeals failed to apply Section 44, Rule 130 of the Rules of Court on the title covering the disputed property.

  3. C. Whether or not Land Bank is a mortgagee in good faith.

  4. D. Whether or not the Court of Appeals correctly awarded attorney's fees to the respondent.

  5. Whether the Register of Deeds erroneously recorded the cancellation and source of the titles.

  6. Whether the respondent is the rightful owner of the 7,693 sq. m. portion of the lot covered by TCT No. P-1863.

  7. Whether the petitioner is a mortgagee in good faith and for value.

  8. Whether the petitioner is a mortgagee in good faith.

  9. Whether the petitioner is an innocent purchaser for value.

  10. Whether a third-party mortgagor who secures the fulfillment of another's obligation by mortgaging his own property is solidarily bound with the principal obligor.

  11. Whether the liability of the third-party mortgagor extends only to the property mortgaged.

RULING:

  1. The petition is unmeritorious. The Supreme Court agrees with the respondent that the entries written in the Transfer Certificates of Title (TCTs) failed to accurately record the origin of said titles. The verification survey conducted by the expert witness commissioned by Belle Corporation and Bautista, which relied on erroneous entries in the TCTs, resulted in a mistake regarding the precedence between TCT No. T-1863 and TCT No. P-671.

  2. The testimonies of witnesses and the certificates of title admitted as evidence established that the origin of respondent's title could be traced back to OCT No. 0-216 and OCT No. 55, and not OCT No. OP-287 as argued by Belle Corporation. Therefore, Belle Corporation is not bound by the findings and conclusions of the expert witness who conducted the verification survey.

  3. The Court of Appeals correctly ruled that Section 44, Rule 130 of the Rules of Court, which pertains to the entries in official records, does not apply in this case since the disputed property's TCTs contained erroneous entries that did not accurately record the origin of said titles.

  4. The Court of Appeals also correctly found that Land Bank is not a mortgagee in good faith, as it had knowledge of the ongoing dispute over the ownership of the disputed property.

  5. The Court of Appeals' award of attorney's fees to the respondent is also correct, considering that the case has dragged on for years and the respondent has spent a considerable amount of money to protect its interest in the case.

  6. Yes, the Register of Deeds erroneously recorded the cancellation and source of the titles. The titles and their corresponding sources were mixed up, resulting in incorrect registration. The Court affirmed the respondent's claim that there was an error in the entries made by the Register of Deeds.

  7. Yes, the respondent is the rightful owner of the 7,693 sq. m. portion of the lot covered by TCT No. P-1863. The respondent's title traced its origin to OCT Nos. 0-216 and 55, which were registered much earlier than the petitioner's title. Therefore, the respondent's title prevails.

  8. No, the petitioner is not a mortgagee in good faith and for value. Banks, like the petitioner, are expected to exercise a higher degree of diligence, care, and prudence in their dealings, especially when extending loans secured by real estate mortgage. The petitioner failed to verify the title and inspect the properties offered as collateral. Therefore, the petitioner cannot claim to be a mortgagee in good faith.

  9. The petitioner is not a mortgagee in good faith. A person who deliberately ignores a significant fact that could create suspicion in an otherwise reasonable person is not a mortgagee in good faith. The petitioner failed to inquire further on the identity of possible adverse claimants and the status of their occupancy, disregarding circumstances that should have aroused its suspicion. This constitutes gross negligence amounting to bad faith.

  10. The petitioner is not an innocent purchaser for value. A purchaser in good faith is one who buys a property without notice that some other person has a right to, or interest in, the property and pays a full and fair price at the time of purchase or before having notice of another person's claim or interest. Even if there was no annotated notice of lis pendens at the time the property was mortgaged, the notice already existed when the petitioner purchased the property during the foreclosure sale. Therefore, the petitioner cannot be considered an innocent purchaser for value.

  11. No, a third-party mortgagor who secures the fulfillment of another's obligation by mortgaging his own property is not solidarily bound with the principal obligor. The signatory to the principal contract remains primarily bound. The liability of the third-party mortgagor extends only to the property mortgaged. In case of default by the principal debtor, the creditor may have recourse on the mortgaged properties instead of an action for the recovery of the loan amount. Any deficiency would be the responsibility of the principal debtor.

  12. Yes, the liability of the third-party mortgagor extends only to the property mortgaged. If there is any deficiency, the creditor has recourse on the principal debtor.

PRINCIPLES:

  • Entries written in Transfer Certificates of Title that fail to accurately record the origin of said titles may result in a mistake regarding the precedence between TCTs.

  • Section 44, Rule 130 of the Rules of Court on entries in official records does not apply when the entries in the TCTs contain erroneous information.

  • A mortgagee cannot be considered a mortgagee in good faith if it has knowledge of an ongoing dispute over the property being mortgaged.

  • Attorney's fees may be awarded when a case has dragged on for years and a party has spent a considerable amount of money to protect its interest in the case.

  • The Register of Deeds should accurately record the cancellation and source of titles to ensure proper registration.

  • Titles with earlier registration prevail over those with later registration.

  • Banks are expected to exercise a higher degree of diligence and prudence in their dealings, especially in verifying the status and condition of properties offered as collateral for loans.

  • A mortgagee cannot close his eyes to facts that should put a reasonable person on guard and claim that he acted in good faith.

  • A prospective buyer has a duty to inquire into the status or nature of possession of the occupants of a property being sold to determine their possessory rights.

  • Failure to take precautionary steps to investigate or inspect the property being sold, especially in the presence of occupants/tenants, would preclude a prospective buyer from claiming the rights of a purchaser in good faith.

  • The presence of a notice of lis pendens at the time of purchase precludes a buyer from being considered an innocent purchaser for value.

  • The Supreme Court has authority to review an issue, even if not assigned as an error on appeal, if its consideration is necessary to arrive at a just decision or to serve the interests of justice.

  • A third-party mortgagor who secures the fulfillment of the obligation by mortgaging his own property is not solidarily bound with the principal obligor.

  • The liability of a third-party mortgagor extends only to the property mortgaged.

  • A corporation is a juridical entity separate and distinct from individuals acting on its behalf. The individuals are generally not personally liable for the obligations incurred by the corporation unless there is justification to pierce the veil of corporate fiction, such as when it is used to perpetrate fraud, evade obligations, or circumvent statutes.