Case Digest: Sunshine Finance and Investment Corp. v. Intermediate Appellate Court G.R. Nos. 74070-71. October 28, 1991

Commercial Law | Mortgagee in good faith and bad faith

Facts:  

• Benito Vega originally owned a 222 square meter parcel of land (OCT No. 114).
• Vega sold the property to the spouses Romeo Nolasco and Erlinda de Belen, who received TCT No. 22198 on March 26, 1980. 
• On February 13, 1981, the Nolasco spouses mortgaged the land to Sunshine Finance and Investment Corporation to secure a loan of P52,466.34. 
• After failing to repay the loan, the mortgage was foreclosed, and Sunshine bought the land as the highest bidder at the auction sale. 
• The certificate of sale was annotated on the Nolasco title. 
• On May 26, 1982, after the Nolasco spouses failed to redeem the property, TCT No. 37772 was issued to Sunshine.
• Sunshine filed a petition for a writ of possession and the writ was granted on June 20, 1983.
• On August 23, 1983, Rodolfo Rubidizo and Alfredo de Guzman filed a third-party claim to 112 square meters of the land, alleging they had purchased this portion from the Nolasco spouses on May 18, 1979, for P19,960.00. 
• They filed a separate complaint (Civil Case No. 50179) for ownership recovery and annulment of the sheriff's sale and certificate of title. 
• The two cases were consolidated and heard jointly.
• Rubidizo and De Guzman explained that they could not register their purchase immediately because the land was still in Vega's name. 
• Sunshine denied knowledge of the transaction and asserted it was an innocent mortgagee and later purchaser for value.
• RTC-Rizal: Dismissed Civil Case No. 50179 for lack of cause of action and denied the third-party claim, enforcing the writ of possession against Rubidizo and De Guzman and ordering them to remove their houses within 60 days.
• IAC: Reversed the trial court's decision.

Issue: 

• Whether the Sunshine Finance and Investment Corp. can be considered a mortgagee in good faith.  NO

Held:

In the case now before us, the petitioner insists that it had a right to rely solely on the certificate of title and was under no obligation to go beyond it to look for encumbrances. 

It submits that the two cases cited by the respondent court, to wit, Gatioan v. Gaffud and Tomas v. Tomas, are not applicable because these involved spurious or fake certificates of title, unlike the present dispute, where only one perfectly valid certificate of title was involved. 

It also rejects Macala v. Mendoza because "while there was an obligation on the part of the vendee to go behind the title because of actual possession at the time of the sale by somebody other than the vendee, no such possession was in existence at the time of the mortgage in this case."  

A study of the record shows that the petitioner has not adduced evidence to support this contention. By contrast, private respondents De Guzman testified that immediately upon their purchase of the disputed lot in 1979, they built their house thereon, from which averment it may be presumed that they remained in possession of the lot at the time it was mortgaged to Sunshine in 1981. Sunshine never offered any evidence to refute this testimony. Neither has it shown that it made an ocular inspection of the subject land before it was mortgaged, to ascertain whether there were adverse claimants occupying it.

The finding of the respondent court was that the private respondents were actually in possession of the property at the time. A similar conclusion may be derived from the omnibus order of the trial court granting the writ of possession sought by the petitioner and ordering the third party claimants "to remove their houses and/or improvements" in the disputed lot. These factual determinations are binding on this Court, there being no showing that they were reached arbitrarily.

It is true that the factual antecedents of Gatioan and Tomas are different from the case at bar, but this does not preclude application here of the doctrine announced in those cases.

The court does not intend to disregard the long line of its decisions holding that "where innocent third persons, relying on the correctness of the certificate of title thus issued, acquire rights over the property, the court cannot disregard such rights and order the total cancellation of the certificate."  

It is true that "the effect of such cancellation would be to impair public confidence in the certificate of title, for everyone dealing with property registered under the Torrens System would have to inquire in every instance as to whether the title has been regularly or irregularly issued. This is contrary to the evident purpose of Act 496, Sec 39, as "innocent purchasers for value" or any equivalent phrase shall be deemed under Section 38 of that law to include an innocent lessee, mortgagee or other encumbrances for value. A mortgagee has the right to rely on what appears in the certificate of title, and in the absence of anything to excite suspicion, is under no obligation to look beyond the certificate and investigate the title of the mortgagor appearing on the face of the certificate. 

Nevertheless, we have to deviate from the general rule because of the failure of the petitioner in this case to take the necessary precautions to ascertain if there was any flaw in the title of the Nolascos and to examine the condition of the property they sought to mortgage. The petitioner is an investment and financing corporation. We presume it is experienced in its business. Ascertainment of the status and condition of properties offered to it as security for the loans it extends must be a standard and indispensable part of its operations. Surely, it cannot simply rely on an examination of a Torrens certificate to determine what the subject property looks like as its condition is not apparent in the document. The land might be in a depressed area. There might be squatters on it. It might be easily inundated. It might be an interior lot, without convenient access. These and other similar factors determine the value of the property and so should be of practical concern to the petitioner.

Curiously, the petitioner merely relied on the certificate of title to persuade it that the security offered was acceptable. It would have been so simple for it to send one of its trained investigators to make an ocular inspection of the land which, after all, was not in some remote or forbidding wilderness. In fact, the lot is situated in the Municipality of Pasig, a few kilometers away from the petitioner’s offices at Shaw Boulevard in Mandaluyong,   also in Metro Manila. In this context, the petitioner was negligent. It must bear the consequences of that negligence.

Our conclusion might have been different if the mortgagee were an ordinary individual or company without the expertise of the petitioner in the mortgage and sale of registered land or if the land mortgaged were some distance from the mortgagee and could not be conveniently inspected. But there were no such impediments in this case. The facilities of the petitioner were not so limited as to prevent it from making a more careful examination of the land to assure itself that there were no unauthorized persons in possession.

It is argued that it was the private respondents who were lacking in diligence for not having immediately registered their sale and securing their own certificate of title. As already observed, however, they could not do so immediately because the land was still covered by the certificate of title in the name of Benito Vega, from whom the Nolascos had bought the property. Moreover, it must be borne in mind that the private respondents are ordinary and practically unlettered persons not familiar with the rules on land registration like the petitioner. Assuming that both parties were negligent, the Court feels that more responsibility should attach to the petitioner. Its superior knowledgeability in the matter should have moved it to take more precautions in the protection of its rights as purchaser of the foreclosed property. Tricycle drivers like De Guzman cannot be expected to be as vigilant.

Our ruling then, given the particular circumstances of this case, is that the private respondents should not be made to suffer for the failure of the petitioner to first verify the status and actual condition of the subject land before accepting it as a security for the mortgage loan and buying it later at the foreclosure sale. The petitioner must bear its own loss. What it might do now is go after the Nolascos, against whom a criminal charge for estafa has been filed at the instance of the private respondents — another indication, incidentally, of their anxiety to protect their interest, as meager as it might appear to others. It is for the petitioner now to exert its own efforts, if it is so minded, for the apprehension of the errant couple, who have disappeared after causing all this trouble and are now fugitives from justice.

WHEREFORE, the decision of the respondent court dated March 18, 1908, is AFFIRMED in toto and the petition is DENIED, with costs against the petitioner. It is so ordered.