To reiterate, the protection accorded to mortgagees in good faith cannot be extended to mortgagees of properties that are not yet registered or registered but not under the mortgagor’s name.

 "Validity of the mortgage

One of the requisites of a valid mortgage contract is ownership of the property being mortgaged.[77] Article 2085 of the Civil Code enumerates the requisites of a mortgage contract:

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

(1) That they be constituted to secure the fulfilment of a principal obligation;

(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;

(3) That the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property.

Applying this provision and having established that Marietta acquired no valid title or ownership from Enrique over the undivided portions of the property, this court finds that no valid mortgage was executed over the same property in favor of DBP. Without a valid mortgage, there was also no valid foreclosure sale and no transfer of ownership of petitioners’ undivided portions to DBP.

In other words, DBP acquired no right over the undivided portions since its predecessor-in-interest was not the owner and held no authority to convey the property.

As in sales, an exception to this rule is if the mortgagee is a “mortgagee in good faith.”[78] This exception was explained in Torbela v. Rosario:

Under this doctrine, even if the mortgagor is not the owner of the mortgaged property, the mortgage contract and any foreclosure sale arising therefrom are given effect by reason of public policy. This principle is based on the rule that all persons dealing with property covered by a Torrens Certificate of Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title. This is the same rule that underlies the principle of "innocent purchasers for value." The prevailing jurisprudence is that a mortgagee has a right to rely in good faith on the certificate of title of the mortgagor to 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 in good faith is, nonetheless, entitled to protection.[79]

DBP claims that it is covered by this exception. DBP is mistaken. The exception applies when, at the time of the mortgage, the mortgagor has already obtained a certificate of title under his or her name.[80] It does not apply when, as in this case, the mortgagor had yet to register the property under her name.[81]

The facts show that DBP disregarded circumstances that should have aroused suspicion. For instance, at the time of the mortgage with DBP, Marietta only had a tax declaration under her name to show that she was the owner of the property. A tax declaration, by itself, neither proves ownership of property nor grants title. Yet, DBP agreed to accept the property as security even though Marietta’s claim was supported only by the tax declaration, and a certificate of title was yet to be issued under her name.

Granting that Marietta was in possession of the property, DBP should have inquired further as to Marietta’s rights over the property since no certificate of title was issued to her. DBP took the risks attendant to the absence of a certificate of title. It should bear the burden of checking the ownership as well as the validity of the deed of sale. This is despite the eventual issuance of a certificate of title in favor of Marietta.

The rule on “innocent purchasers or [mortgagees] for value” is applied more strictly when the purchaser or the mortgagee is a bank. Banks are expected to exercise higher degree of diligence in their dealings, including those involving lands. Banks may not rely simply on the face of the certificate of title.

Thus, in Cruz v. Bancom Finance Corporation,[82] this court ruled that:

Respondent . . . is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike private individuals, it is expected to exercise greater care and prudence in its dealings, including those involving registered lands. 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.[83] (Citations omitted)

DBP failed to exercise the degree of diligence required of banks when it accepted the unregistered property as security for Marietta’s loan despite circumstances that should have aroused its suspicion.

Citing Blanco v. Esquierdo, DBP argued that since it did not participate in the dealings between Enrique and Marietta, it should be considered as an innocent mortgagee for value.

Blanco involves an alleged widow of the deceased who adjudicated to herself the deceased’s property and thereafter mortgaged the property to DBP.[84] The brothers and sisters of the deceased filed an action for the annulment of the affidavit executed by the alleged widow and the cancellation of the certificate of title under her name.[85] The trial court ordered the cancellation of the certificate of title issued to the alleged widow, including the registration of the mortgage deed.[86]

In Blanco, this court declared that DBP was a mortgagee in good faith, thus:

The trial court, in the decision complained of, made no finding that the defendant mortgagee bank was a party to the fraudulent transfer of the land to Fructuosa Esquierdo. Indeed, there is nothing alleged in the complaint which may implicate said defendant mortgagee in the fraud, or justify a finding that it acted in bad faith. On the other hand, the certificate of title was in the name of the mortgagor Fructuosa Esquierdo when the land was mortgaged by her to the defendant bank. Such being the case, the said defendant bank, as mortgagee, had the right to rely on what appeared in the certificate and, in the absence of anything to excite suspicion, was under no obligation to look beyond the certificate and investigate the title of the mortgagor appearing on the face of said certificate. (De Lara, et al. vs. Ayroso, 95 Phil., 185; 50 Off. Gaz., [10] 4838; Joaquin vs. Madrid, et al., 106 Phil., 1060). Being thus an innocent mortgagee for value, its right or lien upon the land mortgaged must be respected and protected, even if the mortgagor obtained her title thereto thru fraud.[87]

DBP’s reliance on Blanco is misplaced. In Blanco, the certificate of title had already been issued under the name of the mortgagor when the property was mortgaged to DBP. This is not the situation in this case.

To reiterate, the protection accorded to mortgagees in good faith cannot be extended to mortgagees of properties that are not yet registered or registered but not under the mortgagor’s name.

Therefore, the Regional Trial Court did not err in ordering the nullification of the documents of sale and mortgage. Contracts involving the sale or mortgage of unregistered property by a person who was not the owner or by an unauthorized person are void."

SECOND DIVISION

[ G.R. No. 193551. November 19, 2014 ]

HEIRS OF GREGORIO LOPEZ, REPRESENTED BY ROGELIA LOPEZ, ET AL., PETITIONERS, VS. DEVELOPMENT BANK OF THE PHILIPPINES [NOW SUBSTITUTED BY PHILIPPINE INVESTMENT TWO (SPV-AMC), INC.], RESPONDENTS.

https://elibrary.judiciary.gov.ph/thebookshelf/showdocs/1/59904

“The defense of having purchased the property in good faith may be availed of only where registered land is involved and the buyer had relied in good faith on the clear title of the registered owner.”[76] It does not apply when the land is not yet registered with the Registry of Deeds.

"We have consistently upheld the principle that “no one can give what one does not have.”[61] A seller can only sell what he or she owns, or that which he or she does not own but has authority to transfer, and a buyer can only acquire what the seller can legally transfer. [62]

This principle is incorporated in our Civil Code. It provides that in a contract of sale, the seller binds himself to transfer the ownership of the thing sold, thus:

Art. 1458. By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

The seller cannot perform this obligation if he or she does not have a right to convey ownership of the thing. Hence, Article 1459 of the Civil Code provides:

Art. 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered.

Title or rights to a deceased person’s property are immediately passed to his or her heirs upon death.[63] The heirs’ rights become vested without need for them to be declared “heirs.”[64] Before the property is partitioned, the heirs are co-owners of the property.[65]

In this case, the rights to Gregoria Lopez’s property were automatically passed to her sons — Teodoro, Francisco, and Carlos — when she died in 1922.[66] Since only Teodoro was survived by children, the rights to the property ultimately passed to them when Gregoria Lopez’s sons died.[67] The children entitled to the property were Gregorio, Simplicio, Severino, and Enrique.

Gregorio, Simplicio, Severino, and Enrique became co-owners of the property, with each of them entitled to an undivided portion of only a quarter of the property. Upon their deaths, their children became the co-owners of the property, who were entitled to their respective shares, such that the heirs of Gregorio became entitled to Gregorio’s one-fourth share, and Simplicio’s and Severino’s respective heirs became entitled to their corresponding one-fourth shares in the property.[68]

The heirs cannot alienate the shares that do not belong to them. Article 493 of the Civil Code provides:

Art. 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute another person in its enjoyment, except when personal rights are involved. But the effect of the alienation or the mortgage, with respect to the co-owners, shall be limited to the portion which may be allotted to him in the division upon the termination of the co-ownership.

Since Enrique’s right to the property was limited to his one-fourth share, he had no right to sell the undivided portions that belonged to his siblings or their respective heirs. Any sale by one heir of the rest of the property will not affect the rights of the other heirs who did not consent to the sale. Such sale is void with respect to the shares of the other heirs.

Regardless of their agreement, Enrique could only convey to Marietta his undivided one-fourth share of the property, and Marietta could only acquire that share. This is because Marietta obtained her rights from Enrique who, in the first place, had no title or interest over the rest of the property that he could convey.

This is despite Enrique’s execution of the affidavit of self-adjudication wherein he declared himself to be the only surviving heir of Gregoria Lopez. The affidavit of self-adjudication is invalid for the simple reason that it was false. At the time of its execution, Enrique’s siblings were still alive and entitled to the three-fourth undivided share of the property. The affidavit of self-adjudication did not have the effect of vesting upon Enrique ownership or rights to the property.

The issuance of the original certificate of title in favor of Marietta does not cure Enrique’s lack of title or authority to convey his co-owners’ portions of the property. Issuance of a certificate of title is not a grant of title over petitioners’ undivided portions of the property.[69] The physical certificate of title does not vest in a person ownership or right over a property.[70] It is merely an evidence of such ownership or right.[71]

Marietta could acquire valid title over the whole property if she were an innocent purchaser for value. An innocent purchaser for value purchases a property without any notice of defect or irregularity as to the right or interest of the seller.[72] He or she is without notice that another person holds claim to the property being purchased.[73]

As a rule, an ordinary buyer may rely on the certificate of title issued in the name of the seller.[74] He or she need not look “beyond what appears on the face [of the certificate of title].”[75] However, the ordinary buyer will not be considered an innocent purchaser for value if there is anything on the certificate of title that arouses suspicion, and the buyer failed to inquire or take steps to ensure that there is no cloud on the title, right, or ownership of the property being sold.

Marietta cannot claim the protection accorded by law to innocent purchasers for value because the circumstances do not make this available to her.

In this case, there was no certificate of title to rely on when she purchased the property from Enrique. At the time of the sale, the property was still unregistered. What was available was only a tax declaration issued under the name of “Heirs of Lopez.”

“The defense of having purchased the property in good faith may be availed of only where registered land is involved and the buyer had relied in good faith on the clear title of the registered owner.”[76] It does not apply when the land is not yet registered with the Registry of Deeds.

At the very least, the unregistered status of the property should have prompted Marietta to inquire further as to Enrique’s right over the property. She did not. Hence, she was not an innocent purchaser for value. She acquired no title over petitioners’ portions of the property."

SECOND DIVISION

[ G.R. No. 193551. November 19, 2014 ]

HEIRS OF GREGORIO LOPEZ, REPRESENTED BY ROGELIA LOPEZ, ET AL., PETITIONERS, VS. DEVELOPMENT BANK OF THE PHILIPPINES [NOW SUBSTITUTED BY PHILIPPINE INVESTMENT TWO (SPV-AMC), INC.], RESPONDENTS.

https://elibrary.judiciary.gov.ph/thebookshelf/showdocs/1/59904