Doctrine: The
rule that a purchaser or mortgagee of land is not required to look further than
what appears on the face of the title does not apply to banks and other
financial institutions. These entities are required to exercise more
care and prudence in dealing even with registered lands for their business is
one affected with public interest. The ascertainment of the status and
condition of properties offered to it must be a standard and indispensable part
of its operations.
Facts: On March 15, 1977,
petitioner Romy Agag and Teresita Vda. De Castro executed a document
denominated as "Pinagtibay na Pagpapatibay" whereby
the latter sold to petitioner, in consideration of the amount of P36,120.00,
payable on installment basis, three parcels of land covered by Transfer
Certificate of Title. On the same date, petitioner took possession of and
occupied said lots after paying a down payment. He was able to pay a total
of P37,295.78. Meanwhile, he introduced improvements on the subject lots consisting
of fruit trees and a residential house worth more or less P500,000.00. He
repeatedly demanded from De Castro the delivery to him of the title of the lots
but the latter failed to do so.
On January 30, 1997, petitioner received
a letter from respondent Alpha Financing Corporation requesting him to vacate
the disputed lots. Respondent claimed that it is the lawful owner of the
subject parcels of land occupied by petitioner, having purchased the same in a
foreclosure sale after Teresita Vda. De Castro, the original owner thereof
failed to pay her loan with a mortgagee bank. Thereafter, the certificates of
title in the name of De Castro were cancelled, and a Certificate of Title were
issued in the name of respondent. In view of petitioner’s refusal to
vacate the premises, respondent filed an ejectment case with the Municipal
Trial Court.
The Municipal Trial Court rendered a
decision in favor of petitioner. It held that the mortgage and the foreclosure
sale from which respondent allegedly derived his rights are inferior to the
prior unregistered deed of absolute sale executed by De Castro, the original
owner in favor of petitioner. Since De Castro was no longer the owner of the
property at the time of the mortgage, respondent acquired no right from her.
However, the Court of Appeals reversed the decision of the Regional Trial Court
and ordered petitioner to vacate the lots in favor of respondent. It held that
the latter had a better right to possess the lots because the best proof of
ownership is the indefeasible and incontrovertible title registered in its
name.
Issue: Whether or not the respondent has a better
right to possess the disputed lots?
Held: In the case at bar, the resolution of the
issue of ownership is indispensable because respondent’s cause of action and
petitioner’s defense are both grounded on ownership of the questioned lots.
Respondent invokes good faith and the indefeasibility of the transfer
certificates of title issued in its name, while petitioner anchors his claim on
prior possession as well as on the unregistered sale in his favor of subject
lots as embodied in the "Pinagtibay na Pagpapatibay".
The Municipal Trial Court did not err in
sustaining the claim of petitioner that the sale of the questioned lots
preceded the mortgage and foreclosure sale claimed by respondent. Petitioner
had repeatedly challenged respondent to produce documentary evidence which
would substantiate the mortgage and foreclosure sale, but the latter failed to
produce any. Neither did respondent question the finding of the Municipal Trial
Court that the sale occurred prior to the mortgage, nor did it give the name of
the mortgagee bank which foreclosed and sold the lots at public auction,
assuming that the said bank exists. Finally, respondent failed to show that the
properties were indeed mortgaged, and that the mortgage was foreclosed and the
lots sold at public action.
As a general rule, where there is nothing
on the certificate of title to indicate any cloud or vice in the ownership of
the property, or any encumbrance thereon, the purchaser is not required to
explore further than what the Torrens Title indicates on its face, in quest for
any hidden defect or inchoate right that may subsequently defeat his right
thereto. This rule, however, applies only to innocent purchasers for value
and in good faith. An innocent purchaser for value or any equivalent phrase shall
be deemed, under Section 39 of Act 496 (Land Registration Act), to include
an innocent lessee, mortgagee or any other encumbrancer for value. It
excludes a purchaser or mortgagee who has knowledge of a defect or lack of
title in the vendor, or of facts sufficient to induce a reasonably prudent man
to inquire into the status of the property.
Respondent, being a financial
institution, cannot claim good faith considering that neither it nor the
alleged mortgagee bank was in possession of the lots prior and after the
foreclosure sale. Had respondent conducted an ocular inspection of the premises,
this being the standard practice in the real estate industry, it would have
discovered that the land is occupied by petitioner. The failure of respondent
to take such precautionary steps is considered negligence on its part and would
thereby preclude the defense of good faith.
WHEREFORE,
in view of all the foregoing, the instant petition is GRANTED. The decision of
the Court of Appeals is REVERSED and SET ASIDE.
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