IX.

Real Mortgage

16. PLANTERS DEVELOPMENT BANK V. SPOUSES VICTORIANO AND MELANIE RAMOS

FACTS:

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. The said application was approved for P40,000,000.00,
secured by Real Estate Mortgage over properties owned by the spouses.

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.
Despite the assurances, only P25,000,000.00 in additional loan was approved and released by
PDB, which was secured by a Real Estate Mortgage over four (4) other real properties.

Spouses Ramos was not able to pay obligations. They appealed to PDB for the deferment of
debt servicing and requested for a restructuring scheme but the parties failed to reach an
agreement.

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. A Notice to Parties of
Sheriff’s Public Auction Sale was thereafter issued.

Spouses Ramos filed a Complaint 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 also before the RTC of San Jose
City, Nueva Ecija by which PDB, instead of filing answer, filed a motion to dismiss complaint
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 and that complaint failed to state a cause of action and must therefore
be dismissed.

RTC Ruling: Denied the Urgent Motion to Dismiss. Venue can be waived. (2) Allegations in the
Complaint are sufficient to constitute a cause of action.

PDB filed MR instead of filing an answer to the complaint. This prompted Spouses Ramos to file
a motion to declare PDB in default. Subsequently, RTC denied both motions. RTC declared that
“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.”

PDB filed petition for certiorari with the CA for grave abuse of discretion of RTC. CA denied the
petition.

Hence this present petition for certiorari under Rule 45.

ISSUE: Whether or not venue is improperly laid?

HELD:

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.

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.

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. “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.” (Spouses Lantin v. Judge Lantion).

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.

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 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.

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. 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. 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, viz.: “In 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.”

17. MUNICIPAL V. LIBMANAN

FACTS:

On June 20, 2000, respondent filed complaint for Quieting of Title against petitioner
bank. Complaint was amended on September 2, where respomdednt alleged that she is the
owner of a parcel of land in Fundado, Limbanan, Camarines Sur which she acquired through
inheritance and that she, her predecessors-in-interest had been in open, peaceful, adverse,
uninterrupted, possession of the land, and that petitoner's claim is unfounded,
unmeritorious, invalid, and based upon instrument which is null, and void or otherwise,
unenforceable. The herein respondent prayed that she be declared the absolute owner, and
thus, entitled to the lawful possession of the property.

Petitioner denied the allegations contending it is the true and absolute owber of the
property, and it was pteviously owbed by Hermita wjo mortgaged the said land to petitioner but
failed to satisfy his obligation causing petitioner to foreclose the mortgage and acquire the
property transfer title in its name.
ISSUE: WON petitioner is the true owner of the disputed land?

HELD: NO.

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. 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. On the other hand, it
was only in 1970 that Roberto's father declared the subject property for taxation purposes.
Furthermore, , it is settled that a banking institution is expected to exercise due diligence before
entering into a mortgage contract. The ascertainment of the status or condition of a property
offered to it as security for a loan must be a standard and indispensable part of its operations.

17. MUNICIPAL RURAL BANK V. ORDONEZ

FACTS:

On June 20, 2000, respondent filed complaint for Quieting of Title against petitioner
bank. Complaint was amended on September 2, where respomdednt alleged that she is the
owner of a parcel of land in Fundado, Limbanan, Camarines Sur which she acquired through
inheritance and that she, her predecessors-in-interest had been in open, peaceful, adverse,
uninterrupted, possession of the land, and that petitoner's claim is unfounded,
unmeritorious, invalid, and based upon instrument which is null, and void or otherwise,
unenforceable. The herein respondent prayed that she be declared the absolute owner, and
thus, entitled to the lawful possession of the property.

Petitioner denied the allegations contending it is the true and absolute owber of the
property, and it was pteviously owbed by Hermita wjo mortgaged the said land to petitioner but
failed to satisfy his obligation causing petitioner to foreclose the mortgage and acquire the
property transfer title in its name.

ISSUE: WON petitioner is the true owner of the disputed land.

HELD: NO.

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. 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. On the other hand, it
was only in 1970 that Roberto's father declared the subject property for taxation purposes.
Furthermore, , it is settled that a banking institution is expected to exercise due diligence before
entering into a mortgage contract. The ascertainment of the status or condition of a property
offered to it as security for a loan must be a standard and indispensable part of its operations.

18. GARCIA V. VILLAR

FACTS:

Lourdes V. Galas was the original owner of a piece of property located at Malindang St.,
Quezon City, which she, with her daughter, Ophelia G. Pingol, as co-maker, mortgaged to
Yolanda Valdez Villar as security for a loan in the amount of Two Million Two Hundred
Thousand Pesos (P2,200,000.00), and again to Pablo P. Garcia to secure her loan of One
Million Eight Hundred Thousand Pesos (P1,800,000.00). Both mortgages were annotated at the
back of the TCT.

Galas thereafter sold the subject property to Villar for One Million Five Hundred Thousand
Pesos (P1,500,000.00), and declared in the Deed of Sale that such property was free and clear
of all liens and encumbrances of any kind whatsoever. The Deed of Sale was registered and,
consequently, a new TCT was issued in the name of Villar. Both Villars and Garcias mortgages
were carried over and annotated at the back of Villars new TCT.

Garcia filed a Petition for Mandamus with Damages against Villar before the RTC. Garcia
subsequently amended his petition to a Complaint for Foreclosure of Real Estate Mortgage with
Damages. 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.

The RTC rendered its Decision in favor of Garcia and declared that he 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.

Villar appealed to the CA 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.
The CA reversed the RTC and declared that Galas was free to mortgage the subject property
even without Villar’s consent as the restriction that the mortgagee’s 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.

ISSUES:

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 Garcia’s action for foreclosure of mortgage on the subject property can
prosper.

RULING:

1. Affirmative.
2. Affirmative.

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.

3. Negative.

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.

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 Galas’ 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. 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 Galas’ failure to discharge her debt, or that the sale was simulated to cover up such
automatic transfer.

4. Negative.

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.

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. 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. 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.

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.

19. NICAMORA BUCTON V. RURAL BANK OF EL SALVADOR

FACTS:

Petitioner is the owner of a parcel of land located in Cagayan de Oro. Concepcion

borrowed the title of the land on the pretext that she is going to show it to an interested buyer.
Concepcion obtained a loan from respondent bank and as a security for the loan, Concepcion
mortgaged the property of petitioner using a SPA which was allegedly executed in favor of
Concepcion. When Concepcion failed to pay the loan, the house and lot of petitioner were
foreclosed. Petitioner insisted that she did not obtain any loan from the bank and that her
signature was forged by Concepcion that the loan was entered into by the latter in her own
personal capacity. The bank on the other hand maintains that it was not negligent in inspecting
the properties and relied on the presumption of regularity of the notarized SPA.

ISSUE:

I.Whether or not the Real Estate Mortgage was entered into by Concepcion in her personal
capacity? YES.
II.Whether or not respondent bank is liable to pay petitioner attorney’s fees, and the costs of the
suit? YES.
III.Whether or not Concepcion is liable to pay respondent bank her unpaid obligation and
reimburse it for all damages, attorney’s fees and costs of suit? YES.

HELD:

I.CIVIL LAW: For the principal to be bound by a deed executed by an agent, the deed must be
signed by the agent for and in behalf of his principal.

As early as the case of Philippine Sugar Estates Development Co. v. Poizat, 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. 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.

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.
 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 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.

II. 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 ₱20,000.00. 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.

III.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.

20. HOMEOWNERS SAVINGS AND LOAN BANK V. ASUNCION P. FELONIA and LYDIA C.
DE GUZMAN

FACTS:

Felonia and de Guzman are owners of a parcel of land. In 1990, they mortgaged it to
Delgado. But instead of executing a real estate mortgage, the parties executed a deed of
absolute sale with a right to repurchase.

In 1991, Felonia and de Guzman filed an action for reformation of contract which was
subsequently granted. However, in 1995, while the reformation case was still pending, Delgado
filed a "Petition for Consolidation of Ownership of Property Sold with an Option to Repurchase
and Issuance of a New Certificate of Title". Delgado's petition was granted thus the trial court
issued a TCT in her name. This allowed Delgado to mortgage such property to HSLB.
 A few days later, Felonia and de Guzman learned of Delgado's mortgage, thus they
made an annotation in the title of the aforementioned property of the notice of lis pendens.
In 1997, HSLB foreclosed the property and eventually purchased it.
In 2000, the CA reversed the decision of the RTC regarding the consolidation case of Delgado
and declared Felonia and de Guzman as absolute owners of the said property. HSLB prayed
that the mortgage lien in their favor be annotated as entry and be carried over to the TCT-402
on the ground that they are a mortgagee in good faith.

ISSUE: Whether or not HSLB is entitled to the annotation of their mortgage lien in TCT-402.

RULING:

The Supreme Court ruled that HSLB is no longer entitled to have its mortgage lien
annotated in TCT-402. In Bank of Commerce v. San Pablo, Jr., the doctrine of mortgagee in
good faith was explained - 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. In the case at bar, since at the time the subject
property was mortgaged, there was yet no annotated Notice of Lis Pendens, it can be
concluded that HSLB is a mortgagee in good faith.

However, the Supreme Court believes that 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. HSLB is not such a purchaser in good faith.
According to the law, 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. In the case at bar, HSLB utterly failed to take the necessary precautions. At the
time HSLB purchased the subject property, the Notice of Lis Pendens was already annotated on
the title. Therefore, 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.

21. ROBLES V. CA

FACTS: Petitioners, siblings Lucio, Emeteria, Aludia and Emilio, all surnamed Robles, as heirs
of Silvino Robles, commenced the instant suit with the filing of complaint against Spouses
Virgilio and Ruth Santos, as well as the Rural Bank of Cardona, Inc.

Leon Robles primitively owned the disputed land. He occupied the same openly and
adversely. He also declared the same in his name for taxation purposes as early as 1916 and
paid the corresponding taxes thereon. When Leon Robles died, his son Silvino Robles inherited
the land, took possession of the land, declared it in his name for taxation purposes and paid the
taxes thereon.

Upon the death of Silvino Robles, 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
cultivating the land was assigned to plaintiff Lucio Robles while 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, 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 and later on, was transferred [to] the name
of defendant Hilario Robles and his wife.

In 1996, Andrea Robles secured a loan from the Cardona Rural Bank, Inc., using the tax
declaration as security. They then failed to pay and the property was foreclosed. 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.

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.
The petitioners then filed a case for quieting of title before the Regional Trial Court.

RTC – in favor of petitioners

CA – reversed and set aside decision of RTC

ISSUE: Whether or not the real estate mortgage is valid?

RULING: YES but only as to the share of Hilario.

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. 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. 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 his father-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
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: "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."
 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.

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.

22. GSIS V. SANTIAGO

FACTS:

 Deceased spouses Zulueta and Ramos obtained various loans from present petitioner
GSIS. Said loans was secured by real estate mortgages over parcels of land covered by
TCT Nos. 26105, 37177 and 50365.
 Due to the spouses failure to pay said loans, GSIS moved to foreclose said mortgages
and the same were sold in public auction. 78 lots were expressly excluded because the
sold lots were enough to cover for the debt.
 However, an Affidavit of Consolidation of Ownership was executed by GSIS which
includes the lots that were supposedly excluded from the foreclosure. GSIS tried to sell
said properties to Yorktown Corporation but the same was disapproved by the Office of
the President. Subsequently, the foreclosed properties were slowly disposed by GSIS
including the lots supposedly excluded by said foreclosure.
 On April 7, 1990, Zulueta transferred all his rights and interest over the excluded lots to
present respondent Santiago. Subsequently, Zulueta, as represented by Santiago filed
a complaint for reconveyance of real estate against the GSIS. - 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. (Petitioner's Defense) -
Petitioner argued that prescription has already set in and the complaint stated no cause
if action.
 Both the RTC and CA ruled in favor if present respondent Santiago.

ISSUES:

1. Whether or not GSIS is guilty of bad faith with regards to the excluded lots in question;
2. Whether or not respondent's cause of action has already prescribed.
3. Whether or not GSIS is legally obligated to return said lots to the respondent.

HELD:

1. YES, GSIS is guilty of bad faith with regards to the excluded lots in question; It is settled that
a government financial institution and, like banks, is expected to exercise greater care and
prudence in its dealings, including those involving registered lands.

The Court held in Rural Bank of Compostela v. CA that a bank must exercise more care
in dealing with registered lands, than private individuals and the same must not commit any act
of negligence which amounts to lack of good faith. In the present case, the Court held that the
acts of defendant-appellant GSIS in concealing from the Zuluetas, 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. The execution of the affidavit of
ownership over the excluded lots is an act of 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. 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 Torrens system does not
attach to titles secured by fraud or misrepresentation.

2. NO, respondent's cause of action has not prescribed. 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. On the other hand, 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. In the present case, GSIS claims that
the present action has prescribed as more than 10 years has elapsed since the registration of
the lots in question and the same constitutes as constructive notice to all persons. However, the
Court stated that prescription only began to run upon actual discovery of the fraud (Samonte v.
CA). That the Torrens System does not furnish a shield for fraud and the constructive notice rule
shall not be applied in such cases. In the present case, the complaint for reconveyance was
filed barely a year from the discovery of the fraud.

3. YES, GSIS is legally obligated to return said lots to the respondent. 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. In the present case, GSIS claimed that
it has no obligation to return the properties in question as the mortgage contract does not
provide for such. However, such argument is untenable as the Civil Code calls for the return of
such property acquired without just or legal ground and it has already been established that
GSIS is guilty of bad faith in the present case.