(1) Reyes and Lanuza vs.

De Leon, L-22331

G.R. No. L-22331             June 6, 1967

IN RE: PETITION FOR CONSOLIDATION OF TITLE IN THE VENDEES OF A

HOUSE AND THE RIGHTS TO A LOT.
MARIA BAUTISTA VDA. DE REYES, ET AL., vendees-petitioners-appellees.
RODOLFO LANUZA, vendor,
vs.
MARTIN DE LEON, intervenor-appellant.

Erasmo R. Cruz and C. R. Pascual for intervenor-appellant.

Augusto J. Salas for vendees-petitioners-appellees.

REGALA, J.:

Rodolfo Lanuza and his wife Belen were the owners of a two-story house built on a lot of the
Maria Guizon Subdivision in Tondo, Manila, which the spouses leased from the Consolidated
Asiatic Co. On January 12, 1961, Lanuza executed a document entitled "Deed of Sale with Right
to Repurchase" whereby he conveyed to Maria Bautista Vda. de Reyes and Aurelia R. Navarro
the house, together with the leasehold rights to the lot, a television set and a refrigerator in
consideration of the sum of P3,000. The deed reads:

DEED OF SALE WITH RIGHT TO REPURCHASE KNOW ALL MEN BY

THESE PRESENTS:

That I, RODOLFO LANUZA, Filipino, of legal age, married to Belen Geronimo,

and residing at 783-D Interior 14 Maria Guizon, Gagalangin, Tondo, Manila,
hereby declare that I am the true and absolute owner of a new two storey house of
strong materials, constructed on a rented lot — Lot No. 12 of the Maria Guizon
Subdivision, owned by the Consolidated Asiatic Co. — as evidenced by the
attached Receipt No. 292, and the plan of the subdivision, owned by said
company.

That for and in consideration of the sum of THREE THOUSAND PESOS

(P3,000.00) which I have received this day from Mrs. Maria Bautista Vda. de
Reyes, Filipino, of legal age, widow; and Aurelia Reyes, married to Jose S.
Navarro, Filipinos, of legal ages, and residing at 1112 Antipolo St., Tondo,
Manila, I hereby SELL, CEDE, TRANSFER, AND CONVEY unto said Maria
Bautista Vda. de Reyes, her heirs, succesors, administrators and assigns said
house, including my right to the lot on which it was constructed, and also my
television, and frigidaire "Kelvinator" of nine cubic feet in size, under the
following conditions:

I hereby reserve for myself, my heirs, successors, administrators, and assigns the
right to repurchase the above mentioned properties for the same amount of
 P3,000.00, without interest, within the stipulated period of three (3) months from
the date hereof. If I fail to pay said amount of P3,000.00, within the stipulated
period of three months, my right to repurchase the said properties shall be
forfeited and the ownership thereto shall automatically pass to Mrs. Maria
Bautista Vda. de Reyes, her heirs, successors, administrators, and assigns, without
any Court intervention, and they can take possession of the same.1äwphï1.ñët

IN WITNESS WHEREOF, we have signed this contract in the City of Manila,

this 12th day of January, 1961.

s/t RODOLFO s/t MARIA BAUTISTA VDA. DE

LANUZA REYES
Vendor Vendee

s/t AURELIA REYES WITH MY MARITAL CONSENT:

Vendee s/t JOSE S. NAVARRO

When the original period of redemption expired, the parties extended it to July 12, 1961 by an
annotation to this effect on the left margin of the instrument. Lanuza's wife, who did not sign the
deed, this time signed her name below the annotation.

It appears that after the execution of this instrument, Lanuza and his wife mortgaged the same
house in favor of Martin de Leon to secure the payment of P2,720 within one year. This
mortgage was executed on October 4, 1961 and recorded in the Office of the Register of Deeds
of Manila on November 8, 1961 under the provisions of Act No. 3344.

As the Lanuzas failed to pay their obligation, De Leon filed in the sheriff's office on October 5,
1962 a petition for the extra-judicial foreclosure of the mortgage. On the other hand, Reyes and
Navarro followed suit by filing in the Court of First Instance of Manila a petition for the
consolidation of ownership of the house on the ground that the period of redemption expired on
July 12, 1961 without the vendees exercising their right of repurchase. The petition for
consolidation of ownership was filed on October 19. On October 23, the house was sold to De
Leon as the only bidder at the sheriffs sale. De Leon immediately took possession of the house,
secured a discharge of the mortgage on the house in favor of a rural bank by paying P2,000 and,
on October 29, intervened in court and asked for the dismissal of the petition filed by Reyes and
Navarro on the ground that the unrecorded pacto de retro sale could not affect his rights as a
third party.

The parties1 thereafter entered into a stipulation of facts on which this opinion is mainly based
and submitted the case for decision. In confirming the ownership of Reyes and Navarro in the
house and the leasehold right to the lot, the court said:
It is true that the original deed of sale with pacto de retro, dated January 12, 1961, was
not signed by Belen Geronimo-Lanuza, wife of the vendor a retro, Rodolfo Lanuza, at
the time of its execution. It appears, however, that on the occasion of the extension of the
period for repurchase to July 12, 1961, Belen Geronimo-Lanuza signed giving her
approval and conformity. This act, in effect, constitutes ratification or confirmation of the
contract (Annex "A" Stipulation) by Belen Geronimo-Lanuza, which ratification
validated the act of Rodolfo Lanuza from the moment of the execution of the said
contract. In short, such ratification had the effect of purging the contract (Annex "A"
Stipulation) of any defect which it might have had from the moment of its execution.
(Article 1396, New Civil Code of the Philippines; Tang Ah Chan and Kwong Koon vs.
Gonzales, 52 Phil. 180)

Again, it is to be noted that while it is true that the original contract of sale with right to
repurchase in favor of the petitioners (Annex "A" Stipulation) was not signed by Belen
Geronimo-Lanuza, such failure to sign, to the mind of the Court, made the contract
merely voidable, if at all, and, therefore, susceptible of ratification. Hence, the subsequent
ratification of the said contract by Belen Geronimo-Lanuza validated the said contract
even before the property in question was mortgaged in favor of the intervenor.

It is also contended by the intervenor that the contract of sale with right to repurchase
should be interpreted as a mere equitable mortgage. Consequently, it is argued that the
same cannot form the basis for a judicial petition for consolidation of title over the
property in litigation. This argument is based on the fact that the vendors a
retro  continued in possession of the property after the execution of the deed of sale
with pacto de retro. The mere fact, however, that the vendors a retro continued in the
possession of the property in question cannot justify an outright declaration that the sale
should be construed as an equitable mortgage and not a sale with right to repurchase. The
terms of the deed of sale with right to repurchase (Annex "A" Stipulation) relied upon by
the petitioners must be considered as merely an equitable mortgage for the reason that
after the expiration of the period of repurchase of three months from January 12, 1961.

Article 1602 of the New Civil Code provides:

"ART. 1602. The contract shall be presumed to be in equitable mortgage, in any

of the following cases;

xxx     xxx     xxx

"(3) When upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed.

xxx     xxx     xxx

In the present case, it appears, however, that no other instrument was executed between
the parties extending the period of redemption. What was done was simply to annotate on
the deed of sale with right to repurchase (Annex "A" Stipulation) that "the period to
 repurchase, extended as requested until July 12, 1961." Needless to say, the purchasers a
retro, in the exercise of their freedom to make contracts, have the power to extend the
period of repurchase. Such extension is valid and effective as it is not contrary to any
provision of law. (Umale vs. Fernandez, 28 Phil. 89, 93)

The deed of sale with right to repurchase (Annex "A" Stipulation) is embodied in a public
document. Consequently, the same is sufficient for the purpose of transferring the rights
of the vendors a retro over the property in question in favor of the petitioners. It is to be
noted that the deed of sale with right to repurchase (Annex "A" Stipulation) was executed
on January 12, 1961, which was very much ahead in point of time to the execution of the
real estate mortgage on October 4, 1961, in favor of intervenor (Annex "B" Stipulation).
It is obvious, therefore, that when the mortgagors, Rodolfo Lanuza and Belen Geronimo
Lanuza, executed the real estate mortgage in favor of the intervenor, they were no longer
the absolute owners of the property since the same had already been sold a retro to the
petitioners. The spouses Lanuza, therefore, could no longer constitute a valid mortgage
over the property inasmuch as they did not have any free disposition of the property
mortgaged. (Article 2085, New Civil Code.) For a valid mortgage to exist, ownership of
the property mortgaged is an essential requisite. A mortgage executed by one who is not
the owner of the property mortgaged is without legal existence and the registration cannot
validate. (Philippine National Bank vs. Rocha, 55 Phil. 497).

The intervenor invokes the provisions of article 1544 of the New Civil Code for the
reason that while the real estate mortgage in his favor (Annex "B" Stipulation) has been
registered with the Register of Deeds of Manila under the provisions of Act No. 3344 on
November 3, 1961, the deed of sale with right to repurchase (Annex "A" Stipulation)
however, has not been duly registered. Article 1544 of the New Civil Code, however,
refers to the sale of the same property to two or more vendees. This provision of law,
therefore, is not applicable to the present case which does not involve sale of the same
property to two or more vendees. Furthermore, the mere registration of the property
mortgaged in favor of the intervenor under Act No. 3344 does not prejudice the interests
of the petitioners who have a better right over the property in question under the old
principle of first in time, better in right. (Gallardo vs. Gallardo, C.B., 46 O.G. 5568)

De Leon appealed directly to this Court, contending (1) that the sale in question is not only
voidable but void ab initio for having been made by Lanuza without the consent of his wife; (2)
that the pacto de retro sale is in reality an equitable mortgage and therefore cannot be the basis
of a petition for consolidation of ownership; and (3) that at any rate the sale, being unrecorded,
cannot affect third parties.

We are in accord with the trial court's ruling that a conveyance of real property of the conjugal
partnership made by the husband without the consent of his wife is merely voidable. This is clear
from article 173 of the Civil Code which gives the wife ten years within which to bring an action
for annulment. As such it can be ratified as Lanuza's wife in effect did in this case when she gave
her conformity to the extension of the period of redemption by signing the annotation on the
margin of the deed. We may add that actions for the annulment of voidable contracts can be
brought only by those who are bound under it, either principally or subsidiarily (art. 1397), so
that if there was anyone who could have questioned the sale on this ground it was Lanuza's wife
alone.

We also agree with the lower court that between an unrecorded sale of a prior date and a
recorded mortgage of a later date the former is preferred to the latter for the reason that if the
original owner had parted with his ownership of the thing sold then he no longer had the
ownership and free disposal of that thing so as to be able to mortgage it again. Registration of the
mortgage under Act No. 3344 would, in such case, be of no moment since it is understood to be
without prejudice to the better right of third parties.2 Nor would it avail the mortgagee any to
assert that he is in actual possession of the property for the execution of the conveyance in a
public instrument earlier was equivalent to the delivery of the thing sold to the vendee.3

But there is one aspect of this case which leads us to a different conclusion. It is a point which
neither the parties nor the trial court appear to have sufficiently considered. We refer to the
nature of the so-called "Deed of Sale with Right to Repurchase" and the claim that it is in reality
an equitable mortgage. While De Leon raised the question below and again in this Court in his
second assignment of error, he has not demonstrated his point; neither has he pursued the logical
implication of his argument beyond stating that a petition for consolidation of ownership is an
inappropriate remedy to enforce a mortgage.

De Leon based his claim that the pacto de retro sale is actually an equitable mortgage on the fact
that, first, the supposed vendors (the Lanuzas) remained in possession of the thing sold and,
second, when the three-month period of redemption expired the parties extended it. These are
circumstances which indeed indicate an equitable mortgage.4 But their relevance emerges only
when they are seen in the perspective of other circumstances which indubitably show that what
was intended was a mortgage and not a sale.These circumstances are:

1. The gross inadequacy of the price. In the discussion in the briefs of the parties as well as in the
decision of the trial court, the fact has not been mentioned that for the price of P3,000, the
supposed vendors "sold" not only their house, which they described as new and as being made of
strong materials and which alone had an assessed value of P4,000, but also their leasehold right
television set and refrigerator, "Kelvinator of nine cubic feet in size." indeed, the petition for
consolidation of ownership is limited to the house and the leasehold right, while the stipulation
of facts of the parties merely referred to the object of the sale as "the property in question." The
failure to highlight this point, that is, the gross inadequacy of the price paid, accounts for the
error in determining the true agreement of the parties to the deed.

2. The non-transmission of ownership to the vendees. The Lanuzas, the supposed vendors did not
really transfer their ownership of the properties in question to Reyes and Navarro. What was
agreed was that ownership of the things supposedly sold would vest in the vendees only if the
vendors failed to pay P3,000. In fact the emphasis is on the vendors payment of the amount
rather than on the redemption of the things supposedly sold. Thus, the deed recites that —

If I (Lanuza) fail to pay said amount of P3,000.00 within the stipulated period of three
months, my right to repurchase the said properties shall be forfeited and the ownership
 thereto automatically pass to Mrs. Maria Bautista Vda. de Reyes . . . without any Court
intervention and they can take possession of the same.

This stipulation is contrary to the nature of a true pacto de retro sale under which a vendee
acquires ownership of the thing sold immediately upon execution of the sale, subject only to the
vendor's right of redemption.5 Indeed, what the parties established by this stipulation is an odious
pactum commissorium which enables the mortgages to acquire ownership of the mortgaged
properties without need of foreclosure proceedings. Needless to say, such a stipulation is a
nullity, being contrary to the provisions of article 2088 of the Civil Code.6 Its insertion in the
contract of the parties is an avowal of an intention to mortgage rather than to sell.7

3. The delay in the filing of the petition for consolidation. Still another point obviously
overlooked in the consideration of this case is the fact that the period of redemption expired on
July 12, 1961 and yet this action was not brought until October 19, 1962 and only after De Leon
had asked on October 5, 1962 for the extra-judicial for closure of his mortgage. All the while, the
Lanuzas remained in possession of the properties they were supposed to have sold and they
remained in possession even long after they had lost their right of redemption.

Under these circumstances we cannot but conclude that the deed in question is in reality a
mortgage. This conclusion is of far-reaching consequence because it means not only that this
action for consolidation of ownership is improper, as De Leon claims, but, what is more that
between the unrecorded deed of Reyes and Navarro which we hold to be an equitable mortgage,
and the registered mortgage of De Leon, the latter must be preferred. Preference of mortgage
credits is determined by the priority of registration of the mortgages,8 following the maxim
"Prior tempore potior jure" (He who is first in time is preferred in right.)9 Under article 2125 of
the Civil Code, the equitable mortgage, while valid between Reyes and Navarro, on the one
hand, and the Lanuzas, on the other, as the immediate parties thereto, cannot prevail over the
registered mortgage of De Leon.

Wherefore, the decision appealed from is reversed, hence, the petition for consolidation is
dismissed. Costs against Reyes and Navarro.

Concepcion, C.J., Dizon, Bengzon, J.P., Sanchez and Castro, JJ., concur.
Reyes, J.B.L., and Zaldivar, JJ., reserved their votes.
Makalintal, J., concurs in the result.

(2) Prudential Bank vs. Panis, G.R. No. L-50008

G.R. No. L-50008 August 31, 1987

PRUDENTIAL BANK, petitioner,
vs.
HONORABLE DOMINGO D. PANIS, Presiding Judge of Branch III, Court of First
Instance of Zambales and Olongapo City; FERNANDO MAGCALE & TEODULA
BALUYUT-MAGCALE, respondents.

PARAS, J.:

This is a petition for review on certiorari of the November 13, 1978 Decision * of the then Court
of First Instance of Zambales and Olongapo City in Civil Case No. 2443-0 entitled "Spouses
Fernando A. Magcale and Teodula Baluyut-Magcale vs. Hon. Ramon Y. Pardo and Prudential
Bank" declaring that the deeds of real estate mortgage executed by respondent spouses in favor
of petitioner bank are null and void.

The undisputed facts of this case by stipulation of the parties are as follows:

... on November 19, 1971, plaintiffs-spouses Fernando A. Magcale and Teodula

Baluyut Magcale secured a loan in the sum of P70,000.00 from the defendant
Prudential Bank. To secure payment of this loan, plaintiffs executed in favor of
defendant on the aforesaid date a deed of Real Estate Mortgage over the following
described properties:

l. A 2-STOREY, SEMI-CONCRETE, residential building with warehouse spaces

containing a total floor area of 263 sq. meters, more or less, generally constructed
of mixed hard wood and concrete materials, under a roofing of cor. g. i. sheets;
declared and assessed in the name of FERNANDO MAGCALE under Tax
Declaration No. 21109, issued by the Assessor of Olongapo City with an assessed
value of P35,290.00. This building is the only improvement of the lot.

2. THE PROPERTY hereby conveyed by way of MORTGAGE includes the right

of occupancy on the lot where the above property is erected, and more particularly
described and bounded, as follows:

A first class residential land Identffied as Lot No. 720, (Ts-308,

Olongapo Townsite Subdivision) Ardoin Street, East Bajac-Bajac,
Olongapo City, containing an area of 465 sq. m. more or less,
declared and assessed in the name of FERNANDO MAGCALE
under Tax Duration No. 19595 issued by the Assessor of Olongapo
City with an assessed value of P1,860.00; bounded on the

NORTH: By No. 6, Ardoin Street

SOUTH: By No. 2, Ardoin Street

EAST: By 37 Canda Street, and

WEST: By Ardoin Street.

 All corners of the lot marked by conc. cylindrical
monuments of the Bureau of Lands as visible limits.
( Exhibit "A, " also Exhibit "1" for defendant).

Apart from the stipulations in the printed portion of the aforestated

deed of mortgage, there appears a rider typed at the bottom of the
reverse side of the document under the lists of the properties
mortgaged which reads, as follows:

AND IT IS FURTHER AGREED that in the event

the Sales Patent on the lot applied for by the
Mortgagors as herein stated is released or issued by
the Bureau of Lands, the Mortgagors hereby
authorize the Register of Deeds to hold the
Registration of same until this Mortgage is
cancelled, or to annotate this encumbrance on the
Title upon authority from the Secretary of
Agriculture and Natural Resources, which title with
annotation, shall be released in favor of the herein
Mortgage.

From the aforequoted stipulation, it is obvious that the mortgagee

(defendant Prudential Bank) was at the outset aware of the fact that
the mortgagors (plaintiffs) have already filed a Miscellaneous
Sales Application over the lot, possessory rights over which, were
mortgaged to it.

Exhibit "A" (Real Estate Mortgage) was registered under the

Provisions of Act 3344 with the Registry of Deeds of Zambales on
November 23, 1971.

On May 2, 1973, plaintiffs secured an additional loan from

defendant Prudential Bank in the sum of P20,000.00. To secure
payment of this additional loan, plaintiffs executed in favor of the
said defendant another deed of Real Estate Mortgage over the same
properties previously mortgaged in Exhibit "A." (Exhibit "B;" also
Exhibit "2" for defendant). This second deed of Real Estate
Mortgage was likewise registered with the Registry of Deeds, this
time in Olongapo City, on May 2,1973.

On April 24, 1973, the Secretary of Agriculture issued Miscellaneous Sales Patent
No. 4776 over the parcel of land, possessory rights over which were mortgaged to
defendant Prudential Bank, in favor of plaintiffs. On the basis of the aforesaid
Patent, and upon its transcription in the Registration Book of the Province of
Zambales, Original Certificate of Title No. P-2554 was issued in the name of
 Plaintiff Fernando Magcale, by the Ex-Oficio Register of Deeds of Zambales, on
May 15, 1972.

For failure of plaintiffs to pay their obligation to defendant Bank after it became
due, and upon application of said defendant, the deeds of Real Estate Mortgage
(Exhibits "A" and "B") were extrajudicially foreclosed. Consequent to the
foreclosure was the sale of the properties therein mortgaged to defendant as the
highest bidder in a public auction sale conducted by the defendant City Sheriff on
April 12, 1978 (Exhibit "E"). The auction sale aforesaid was held despite written
request from plaintiffs through counsel dated March 29, 1978, for the defendant
City Sheriff to desist from going with the scheduled public auction sale (Exhibit
"D")." (Decision, Civil Case No. 2443-0, Rollo, pp. 29-31).

Respondent Court, in a Decision dated November 3, 1978 declared the deeds of Real Estate
Mortgage as null and void (Ibid., p. 35).

On December 14, 1978, petitioner filed a Motion for Reconsideration (Ibid., pp. 41-53), opposed
by private respondents on January 5, 1979 (Ibid., pp. 54-62), and in an Order dated January 10,
1979 (Ibid., p. 63), the Motion for Reconsideration was denied for lack of merit. Hence, the
instant petition (Ibid., pp. 5-28).

The first Division of this Court, in a Resolution dated March 9, 1979, resolved to require the
respondents to comment (Ibid., p. 65), which order was complied with the Resolution dated May
18,1979, (Ibid., p. 100), petitioner filed its Reply on June 2,1979 (Ibid., pp. 101-112).

Thereafter, in the Resolution dated June 13, 1979, the petition was given due course and the
parties were required to submit simultaneously their respective memoranda. (Ibid., p. 114).

On July 18, 1979, petitioner filed its Memorandum (Ibid., pp. 116-144), while private
respondents filed their Memorandum on August 1, 1979 (Ibid., pp. 146-155).

In a Resolution dated August 10, 1979, this case was considered submitted for decision (Ibid., P.
158).

In its Memorandum, petitioner raised the following issues:

1. WHETHER OR NOT THE DEEDS OF REAL ESTATE MORTGAGE ARE VALID; AND

2. WHETHER OR NOT THE SUPERVENING ISSUANCE IN FAVOR OF PRIVATE

RESPONDENTS OF MISCELLANEOUS SALES PATENT NO. 4776 ON APRIL 24, 1972
UNDER ACT NO. 730 AND THE COVERING ORIGINAL CERTIFICATE OF TITLE NO. P-
2554 ON MAY 15,1972 HAVE THE EFFECT OF INVALIDATING THE DEEDS OF REAL
ESTATE MORTGAGE. (Memorandum for Petitioner, Rollo, p. 122).

This petition is impressed with merit.

The pivotal issue in this case is whether or not a valid real estate mortgage can be constituted on
the building erected on the land belonging to another.

The answer is in the affirmative.

In the enumeration of properties under Article 415 of the Civil Code of the Philippines, this
Court ruled that, "it is obvious that the inclusion of "building" separate and distinct from the
land, in said provision of law can only mean that a building is by itself an immovable property."
(Lopez vs. Orosa, Jr., et al., L-10817-18, Feb. 28, 1958; Associated Inc. and Surety Co., Inc. vs.
Iya, et al., L-10837-38, May 30,1958).

Thus, while it is true that a mortgage of land necessarily includes, in the absence of stipulation of
the improvements thereon, buildings, still a building by itself may be mortgaged apart from the
land on which it has been built. Such a mortgage would be still a real estate mortgage for the
building would still be considered immovable property even if dealt with separately and apart
from the land (Leung Yee vs. Strong Machinery Co., 37 Phil. 644). In the same manner, this
Court has also established that possessory rights over said properties before title is vested on the
grantee, may be validly transferred or conveyed as in a deed of mortgage (Vda. de Bautista vs.
Marcos, 3 SCRA 438 [1961]).

Coming back to the case at bar, the records show, as aforestated that the original mortgage deed
on the 2-storey semi-concrete residential building with warehouse and on the right of occupancy
on the lot where the building was erected, was executed on November 19, 1971 and registered
under the provisions of Act 3344 with the Register of Deeds of Zambales on November 23,
1971. Miscellaneous Sales Patent No. 4776 on the land was issued on April 24, 1972, on the
basis of which OCT No. 2554 was issued in the name of private respondent Fernando Magcale
on May 15, 1972. It is therefore without question that the original mortgage was executed before
the issuance of the final patent and before the government was divested of its title to the land, an
event which takes effect only on the issuance of the sales patent and its subsequent registration in
the Office of the Register of Deeds (Visayan Realty Inc. vs. Meer, 96 Phil. 515; Director of
Lands vs. De Leon, 110 Phil. 28; Director of Lands vs. Jurado, L-14702, May 23, 1961; Pena
"Law on Natural Resources", p. 49). Under the foregoing considerations, it is evident that the
mortgage executed by private respondent on his own building which was erected on the land
belonging to the government is to all intents and purposes a valid mortgage.

As to restrictions expressly mentioned on the face of respondents' OCT No. P-2554, it will be
noted that Sections 121, 122 and 124 of the Public Land Act, refer to land already acquired under
the Public Land Act, or any improvement thereon and therefore have no application to the
assailed mortgage in the case at bar which was executed before such eventuality. Likewise,
Section 2 of Republic Act No. 730, also a restriction appearing on the face of private
respondent's title has likewise no application in the instant case, despite its reference to
encumbrance or alienation before the patent is issued because it refers specifically to
encumbrance or alienation on the land itself and does not mention anything regarding the
improvements existing thereon.
But it is a different matter, as regards the second mortgage executed over the same properties on
May 2, 1973 for an additional loan of P20,000.00 which was registered with the Registry of
Deeds of Olongapo City on the same date. Relative thereto, it is evident that such mortgage
executed after the issuance of the sales patent and of the Original Certificate of Title, falls
squarely under the prohibitions stated in Sections 121, 122 and 124 of the Public Land Act and
Section 2 of Republic Act 730, and is therefore null and void.

Petitioner points out that private respondents, after physically possessing the title for five years,
voluntarily surrendered the same to the bank in 1977 in order that the mortgaged may be
annotated, without requiring the bank to get the prior approval of the Ministry of Natural
Resources beforehand, thereby implicitly authorizing Prudential Bank to cause the annotation of
said mortgage on their title.

However, the Court, in recently ruling on violations of Section 124 which refers to Sections 118,
120, 122 and 123 of Commonwealth Act 141, has held:

... Nonetheless, we apply our earlier rulings because we believe that as in pari
delicto may not be invoked to defeat the policy of the State neither may the
doctrine of estoppel give a validating effect to a void contract. Indeed, it is
generally considered that as between parties to a contract, validity cannot be given
to it by estoppel if it is prohibited by law or is against public policy (19 Am. Jur.
802). It is not within the competence of any citizen to barter away what public
policy by law was to preserve (Gonzalo Puyat & Sons, Inc. vs. De los Amas and
Alino supra). ... (Arsenal vs. IAC, 143 SCRA 54 [1986]).

This pronouncement covers only the previous transaction already alluded to and does not pass
upon any new contract between the parties (Ibid), as in the case at bar. It should not preclude
new contracts that may be entered into between petitioner bank and private respondents that are
in accordance with the requirements of the law. After all, private respondents themselves declare
that they are not denying the legitimacy of their debts and appear to be open to new negotiations
under the law (Comment; Rollo, pp. 95-96). Any new transaction, however, would be subject to
whatever steps the Government may take for the reversion of the land in its favor.

PREMISES CONSIDERED, the decision of the Court of First Instance of Zambales & Olongapo
City is hereby MODIFIED, declaring that the Deed of Real Estate Mortgage for P70,000.00 is
valid but ruling that the Deed of Real Estate Mortgage for an additional loan of P20,000.00 is
null and void, without prejudice to any appropriate action the Government may take against
private respondents.

SO ORDERED.

(3) Ereña vs. Querrer-Kauffman, G.R. 165853

G.R. No. 165853             June 22, 2006

ROSANA EREÑA, Petitioner,
vs.
VIDA DANA QUERRER-KAUFFMAN, Respondent.

DECISION

CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in
CA-G.R. CV No. 67899. The assailed decision reversed the decision of the Regional Trial Court
(RTC) of Las Piñas City in Civil Case No. LP-98-0056.2

Vida Dana Querrer-Kauffman is the owner of a residential lot with a house constructed thereon
located at Block 3, Lot 13, Marcillo corner Planza Streets, BF Resort Village, Talon, Las Piñas
City. The property is covered by Transfer Certificate of Title (TCT) No. T-48521. The owner’s
duplicate copy of the title as well as the tax declaration 3 covering the property, were kept in a
safety deposit box in the house.

Sometime in February 1997, as she was going to the United States, Kauffman entrusted her
minor daughter, Vida Rose, to her live-in partner, Eduardo Victor. She also entrusted the key to
her house to Victor. She went back to the Philippines to get her daughter on May 13, 1997, and
again left for the U.S. on the same day. Later on, Victor also left for the U.S. and entrusted the
house and the key thereto to his sister, Mira Bernal.4

On October 25, 1997, Kauffman asked her sister, Evelyn Pares, to get the house from Bernal so
that the property could be sold. Pares did as she was told.5 Kauffman then sent the key to the
safety deposit box to Pares, but Pares did not receive it. Kauffman then asked Pares to hire a
professional locksmith who could open the safe.6 When the safe was broken open, however,
Pares discovered that the owner’s duplicate title and the tax declarations, including pieces of
jewelry were missing.7

Kauffman learned about this on October 29, 1997 and returned to the Philippines on November
9, 1997. She and Pares went to the Register of Deeds of Las Piñas City and found out that the lot
had been mortgaged to Rosana Ereña on August 1, 1997.8 It appeared that a "Vida Dana F.
Querrer" had signed the Real Estate Mortgage as owner-mortgagor,9 together with Jennifer V.
Ramirez, Victor’s daughter, as attorney-in-fact.10

Kauffman and Pares were able to locate Bernal who, when asked, confirmed that Ramirez had
taken the contents of the safety deposit box. When Kauffman told Bernal that she would file a
case against them, Bernal cried and asked for forgiveness. Bernal admitted that Jennifer Ramirez
had been in a tight financial fix and pleaded for time to return the title and the jewelry.11

On March 12, 1998, Kauffman filed a complaint against Ereña, Bernal and Jennifer Ramirez for
Nullification of Deed of Real Estate Mortgage and Damages with prayer for a Temporary
Restraining Order and Preliminary Mandatory Injunction12 in the RTC of Las Piñas City. The
complaint contained the following allegations:
2. The plaintiff is the owner of a property consisting of a lot with an area of One Hundred
Ten (110) square meters located at Blk. 3, Lot 13, Marcillo cor. Pianza Sts., BF Resort
Village, Talon, Las Piñas City, covered by Transfer Certificate of Title No. T-48521 of
the Register of Deeds of Las Piñas City, together with a residential house thereon, with a
combined assessed value of P40,500.00, and copies of said TCT, and tax declarations of
the lot and house x x x;

3. Sometime in February 1997, when the plaintiff left for the United States, she entrusted
the key of her said house to one Eduardo Victor who, in turn, when he himself went to
the United States, entrusted said key to his sister, the defendant Mira V. Bernal;

4. Sometime between May and July 1997, said defendant Mira V. Bernal, in conspiracy
with her niece, the defendant Jennifer V. Ramirez, who is the daughter of Eduardo
Victor, using the key in their possession, opened the locked and the unoccupied house of
the plaintiff, forced open the vault of the plaintiff and stole the owner’s copy of TCT No.
T-48521 and other articles contained therein valued at more than P60,000.00, all
belonging to the plaintiff;

5. Having in their possession the stolen TCT No. T-48521, defendants Mira V. Bernal
and Jennifer V. Ramirez, with the latter falsely representing herself to be the attorney-in-
fact of the plaintiff, mortgaged the property in question to the defendant Rosana L. Ereña
for the amount of P250,000.00, in Pasay City, for forging the signature of the plaintiff on
the corresponding Real Estate Mortgage, which appears to have been notarized by Notary
Public Alfredo M. Mendoza and registered as Doc. No. 43, Page No. 1, Book No. VII,
Series of 1997, x x x;

6. After the execution of the falsified Real Estate Mortgage, the defendants registered the
same with the Registry of Deeds of Las Piñas City and had it annotated on the TCT No.
T-48521 as Entry No. 7185-15;

7. When the defendant Rosana L. Ereña as mortgagee accepted the property in mortgage,
she knew fully well that the plaintiff-owner was in the United States at that time and the
defendants Mira V. Bernal and Jennifer V. Ramirez were not authorized to mortgage the
property as they claimed themselves to be, and this notwithstanding, the defendants who
were in bad faith conspired and confederated between and among themselves and
fraudulently executed the said document of mortgage for purposes of personal gain;

8. The plaintiff has been a victim of fraud as above narrated and the defendant Rosana L.
Ereña now being in unlawful possession of her torrens title, the plaintiff is not only in
constant apprehension as to what other fraudulent transactions the defendant might enter
into involving her title, but is also prevented from pursuing her intention to sell her
property, and by reason of which the plaintiff is entitled to recover possession of said title
and the cancellation of Entry No. 7185-15 thereon;

9. In view thereof, plaintiff is entitled to actual damages in the amount of P200,000.00;

 10. Likewise, plaintiff suffered moral damages in the form of mental anguish, wounded
feelings, serious anxiety and similar injuries in the amount of P200,000.00;

11. The plaintiff is also entitled to exemplary damages in the amount of P100,000.00
which plaintiff seeks to impose upon the defendants as a correction or example for the
public good, as a deterrent to people from committing fraudulent acts against their
fellowmen;

12. On account of defendants’ unwarranted acts aforecited, the plaintiff is furthermore

entitled to attorney’s fees in the amount of P50,000.00 as acceptance fee, plus P1,500.00
appearance fee every hearing, for which the defendants should be liable;13

The complaint also contained the following prayer:

(a) That upon the filing of this complaint and compliance with the pertinent rule, a
temporary mandatory order be issued requiring the defendant Rosana L. Ereña to turn
over to the plaintiff the possession of TCT No. T-48521;

(b) That after due hearing, a writ of preliminary mandatory injunction be issued making
permanent the temporary mandatory order;

(c) In case a temporary mandatory order or preliminary injunction be not issued, that the
defendant Rosana L. Ereña or whoever be in possession of TCT No. T-48521, be ordered,
after due hearing, to turn the same over to the plaintiff, that the Real Estate Mortgage
(Annex "D") of this complaint be declared null and void, and Entry No. 7185-15 on said
title be cancelled;

(d) That after hearing, the defendants be ordered to pay the plaintiff, jointly and severally,
the following amounts:

1. P200,000.00 as moral damages;

2. P200,000.00 as actual damages;

3. P100,000.00 as exemplary damages;

4. P50,000.00 as acceptance fee, plus P1,500.00 appearance fee every hearing, as

attorney’s fees, aside from costs.

Plaintiff further prays for such other relief that this Honorable Court may deem just and equitable
in the premises.14

Ereña interposed the defense of being a mortgagee in good faith. She likewise interposed a cross-
claim against Bernal and Jennifer Ramirez for the refund of the P250,000.00 she loaned to "Vida
Dana Querrer."15
Jennifer Ramirez and Bernal interposed the common defense that, on November 13, 1998, the
City Prosecutor approved a Resolution absolving them of the robbery and estafa cases through
falsification of a public document.16

During pre-trial, defendants Ramirez and Bernal failed to appear. On motion of the plaintiff, they
were thus declared in default.17

During trial, Socorro Ramos, Ereñas’ aunt, testified that, Richmond Ramirez, Jennifer’s husband,
and Angel Jose, her grandson and Ereñas’ nephew, had been classmates and were
compadres.18 The Ramirez spouses used to go to her house. In one occasion, the Ramirez spouses
arrived in her house with one "Vida Dana Querrer" whom Richmond introduced as his half-
sister.19 He also told Ramos that Querrer wanted to mortgage her house and lot as she was going
to the U.S.20 Richmond showed her a copy of TCT No. T-48521, Querrer’s identification (I.D.)
card, and pictures of the house and lot.21 Ramos then informed her niece, Rosana Ereña, and
asked if she would agree to mortgage the property. Ramos later brought the spouses

Ramirez and "Vida Dana Querrer" to Ereña who showed a copy of the title, tax declaration, a tax
clearance, all in the name of "Vida Dana Querrer." The spouses also showed an I.D. card of
"Vida Dana Querrer" as a worker in Japan, a police clearance, and the location plan of the
property.22 Jennifer Ramirez informed Ereña that Vida Dana was applying for a passport as she
was going to Japan and the U.S.23 "Vida Dana Querrer" likewise introduced herself as
Richmond’s sister.24

Ereña was able to verify from the Office of the Register of Deeds that the property was in the
name of Vida Dana Querrer and that it was free of any lien or encumbrance. Ereña and her
husband, Ramos, Richmond Ramirez, Angel Jose, and "Vida Dana Querrer" later inspected the
house and lot two times.25 Ereña finally agreed to a P250,000.00 mortgage loan, with the house
and lot as security therefor.

On August 1, 1997, Jennifer Ramirez, Rosana Ereña and a woman who identified herself as
"Vida Dana Querrer" arrived in the office Notary Public Alfredo M. Mendoza and asked him to
prepare a Special Power of Attorney to be executed by "Vida Dana Querrer," as principal, in
favor of Jennifer Ramirez, as attorney-in-fact; and a Real Estate Mortgage contract over the lot
covered by TCT No. 48521 to be executed by "Vida Dana Querrer" and Jennifer Ramirez as
mortgagors. Ereña and "Vida Dana Querrer" showed to him their respective residence
certificates. Mendoza prepared the documents after which the parties affixed their respective
signatures above their respective names26 and their submarkings on the deeds. The Real Estate
Mortgage was filed with the Office of the Register of Deeds and annotated at the dorsal portion
of TCT No. 48521 on November 7, 1997.27

On April 4, 2000, the RTC rendered judgment in favor of the defendants and ordered the
dismissal of the complaint. The court ruled that, although the plaintiff adduced proof that she
owned the property and that her signatures on the Special Power of Attorney and in the Real
Estate Mortgage were forged, nevertheless, defendant Ereña adduced evidence that she was a
mortgagee in good faith. The court declared that the woman who pretended to be the plaintiff
and lawful owner of the property had in her possession the original copy of the owner’s duplicate
of title. The defendant thus relied in good faith on the title after ascertaining with the Register of
Deeds the identity of Vida Dana Querrer as the registered owner of the property, who turned out
to be an impostor. In fact, the defendant still had possession of the owner’s duplicate of the title
when she received the complaint and summons.

The court cited the ruling of this Court in Cebu International Finance Corporation v. Court of
Appeals28 and Duran v. Intermediate Appellate Court.29 The fallo of the decision reads:

WHEREFORE, premises considered, the complaint filed by plaintiff VIDA DANA QUERRER-
KAUFFMAN is hereby DISMISSED for lack of merit and the questioned Deed of Real Estate
Mortgage dated 1 August 1997 is hereby declared VALID.

No pronouncement as to costs.

SO ORDERED.30

Kauffman filed a motion for reconsideration of the decision, alleging that the Cebu International
Finance Corporation case is not applicable as the facts therein are different. She insisted that
Solivel v. Francisco31 is the case in point.

The RTC denied the motion, prompting Kauffman to file an appeal with the CA where she made
the following allegations:

CONSIDERING THAT THE MORTGAGE CONTRACT IN QUESTION WAS EXECUTED

AND MADE POSSIBLE THROUGH THE FRAUDULENT MANIPULATION OF AN
IMPOSTOR, THE LOWER COURT ERRED IN FINDING THAT DEFENDANT-
APPELLANT ROSANA EREÑA WHO ACCEPTED THE MORTGAGE OFFERED BY SAID
IMPOSTOR IS A MORTGAGEE IN GOOD FAITH;

II

THE COURT A QUO ERRED IN CONCLUDING THAT THE DEED OF MORTGAGE IN

QUESTION IS VALID DESPITE ITS OWN FINDING THAT THE SUBJECT PROPERTY IS
OWNED BY THE PLAINTIFF-APPELLANT WHOSE SIGNATURE ON THE DEED WAS
FORGED;

III

THE LOWER COURT ERRED IN APPRECIATING THE JURISPRUDENCE CITED IN ITS

APPEALED DECISION AND IN APPLYING THE SAME TO THE CASE AT BAR;

IV
THE LOWER COURT ERRED IN UPHOLDING THE RIGHT OF DEFENDANT-
APPELLANT ROSANA EREÑA DERIVED FROM A FORGED MORTGAGE CONTRACT
AS AGAINST THE RIGHT OF THE PLAINTIFF, THE PROVEN TRUE OWNER OF THE
SUBJECT PROPERTY, WHO DID NOT IN ANY WAY CONTRIBUTE TO THE
COMMISSION OF THE FRAUD.32

On June 10, 2004, the CA rendered judgment in favor of Kauffman. It held that in ruling as it
did, the RTC disregarded the clear provisions of the Civil Code, particularly Articles 2085
(2)33 and 1409 (2)34 The appellate court relied on the Court’s ruling in Insurance Services &
Commercial Traders, Inc. v. Court of Appeals35 and ratiocinated, thus:

Thus, it has been uniformly held that (I)n 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. (Robles vs. Court of Appeals, G.R. No. 12309, Mar. 14, 2000). This was simply in line
with the basic requirement in our laws that the mortgagor be the absolute owner of the property
sought to be mortgaged (Lorbes vs. Court of Appeals, G.R No. 139884, Feb. 15, 2001). This is in
anticipation of a possible foreclosure sale should the mortgagor default in the payment of the
loan, and a foreclosure sale, though essentially a "forced sale," is still a sale in accordance with
Art. 1458 of the Civil Code. Being a sale, the rule that the seller must be the owner of the thing
sold also applies in a foreclosure sale (Cavite Development Bank vs. Cyrus Lim, G.R. No.
131679, Feb. 1, 2000).36

Ereña thus filed the instant petition contending that the following legal issues should be resolved:

THE COURT OF APPEALS HAS SERIOUSLY ERRED IN HOLDING THAT

RESPONDENT QUERRER-KAUFFMAN IS THE OWNER OF THE PROPERTY
MORTGAGED TO PETITIONER DESPITE THE ABSENCE OF SUBSTANTIAL
EVIDENCE TO SUPPORT SUCH A CONCLUSION OF FACT.

II

THE COURT OF APPEALS HAS SERIOUSLY ERRED IN HOLDING THAT THE

CONTRACT OF REAL ESTATE MORTGAGE EXECUTED ON 01 AUGUST 1997
BETWEEN ROSANA EREÑA AND VIDA DANA QUERRER IS A FORGED DEED OF
MORTGAGE WITHOUT SUBSTANTIAL EVIDENCE TO ESTABLISH SUCH FACT.

III

THE COURT OF APPEALS HAS SERIOUSLY ERRED IN HOLDING THAT THE

DOCTRINE OF A "MORTGAGE IN GOOD FAITH" DOES NOT APPLY TO PETITIONER
DESPITE SUBSTANTIAL AND UNDISPUTED EVIDENCE PROVING HER A
MORTGAGEE IN GOOD FAITH.37
Petitioner avers that respondent failed to prove that she is the owner of the property, and points
out that the documentary evidence shows that the negotiator over the property is Vida Dana
Querrer and not Vida Dana Querrer-Kaufffman. There is thus no factual basis for the CA’s
finding that the Real Estate Mortgage was a forged deed. Considering that respondent, as the
plaintiff below, failed to adduce clear and convincing evidence that the signature on the Real
Estate Mortgage is a forgery, the signature over the printed name in the said document must be
the genuine signature of Vida Dana Querrer, the registered owner of the property. Even assuming
that respondent was the lawful owner of the property and the signature in the Real Estate
Mortgage is a forgery, petitioner insists that she is a mortgagee in good faith as shown by the
following facts and circumstances:

1. Before the offer of mortgage was accepted by petitioner Rosana Ereña, she required
the production of the owner’s copy of TCT No. T-48521. The mortgagee took such step
to enable her to know the rights of the mortgagor over the property to be mortgaged. The
presentation of the desired certificate was complied with.

2. The identity of the mortgagor was ascertained from the personal interview of the
relatives of the mortgagor who were the spouses Jennifer and Richmond Ramirez, a
known compadre of Angel Jose, the grandson of Socorro Ramos, the aunt of the
petitioner. Richmond Ramirez with his wife introduced the mortgagor Vida Dana Querrer
as his half-sister who wanted to mortgage the property described in the certificate of title
which was registered in her name. The spouses of the mortgagor were accompanied to
the house of Rosana Erena by Socorro Ramos, her aunt who acknowledged to know
Richmond and Jennifer Ramirez for a period of five years, more or less. Aside from the
confirmation of her filial relation to the Ramirez couple by Richmond Ramirez, her
personal Identification Card showed the mortgagor’s name and proved her identity to be
Vida Dana Querrer. The Tax Declarations, tax clearance, the owner’s copy of TCT No.
T-48521, police clearance, survey plan attested to the fact that the owner of the property
subject of the mortgage was the mortgagor.

3. Further examination of the certificate of title in the Office of the Register of Deeds of
Las Piñas City proved the authenticity of the owner’s copy of the certificate.

4. The actual physical inspection of the house and lot covered by the certificate in the
given address for two (2) times, at least by the mortgagor and mortgagee together with
Soccoro Ramos, and the Ramirez couple strengthened her reasonable belief in good
faith that the mortgagor is the owner of the property covered by the certificate of title.

5. The aforesaid interviews/examination of records, and inspection of the premises

showed that earnest and diligent efforts were exerted by the petitioner to ascertain the
identity of the mortgagor and her ownership of the subject property. The aforestated steps
taken by her are visible proofs of the due diligence exercised by Rosana Erena to
ascertain the identity of the mortgagor and respondent’s capacity to convey the property
to her in a contract of mortgage with her.
 6. Without admitting on the allegation of a forged signature, the established facts
showing the exercise of due diligence and reasonable caution observed by petitioner
preparatory to the acceptance and execution of the mortgage contract BELIE the
accusation of bad faith to her. In truth, petitioner had been reasonably diligent to meet the
justification of a mortgagee in good faith.38

For her part, respondent avers that, contrary to petitioner’s claim, the issues raised in the instant
petition are factual in nature. Moreover, based on the evidence on record, both the trial and
appellate courts are one in declaring that she is the lawful registered owner of the property, and
that such findings are conclusive on this Court. Besides, the petitioner is proscribed from
assailing the findings of the trial and appellate courts since under Rule 45 of the Rules of Court,
only questions of law may be raised in this Court. She insists that petitioner failed to establish
special and important reasons for the Court to exercise its discretion to review the appellate
court’s decision.

The petition has no merit.

Indeed, the trial and appellate courts found that respondent, as plaintiff below, adduced clear and
convincing evidence that she is the owner of the property and that the signature on the Special
Power of Attorney and Real Estate Mortgage are not her genuine signatures. She purchased the
property from Edgardo C. Espiritu on June 21, 1997 via a Deed of Absolute Sale,39 on the basis
of which TCT No. 48521 under her name was issued by the Register of Deeds on June 25,
1997.40 Indeed, when respondent and her sister, Evelyn Pares, confronted Mira Bernal (Jennifer
Ramirez’s aunt), Bernal pleaded for mercy, on bended knees, after admitting that she and
Jennifer Ramirez stole the owner’s duplicate copy of the title and the tax declarations covering
the property, the air-conditioning unit, television, and the pieces of jewelry owned by
respondent, and, thus, impliedly admitted that they forged the respondent’s signature on the Real
Estate Mortgage:

Q Were you able to see Mira in Pasay, in her house?

A Yes, Sir. We saw her in Pasay, but in Biñan, she suddenly disappeared when we arrived.

Q What time did you see Mira in her house in Pasay?

A Between 11:00 to 12:00 P.M., Sir.

Q But you said you arrived there at 6:00 p.m.?

A Yes, Sir.

Q You mean you waited?

A We waited for her. Dana said, "Mabuti pang ilabas ninyo and mother ni’yo."

ATTY. CABARON:
The witness is narrating, Your Honor.

ATTY. MASANGKAY:

Q So, finally, you were able to talk to Mira in that house?

A Yes, Sir.

Q How about Jennifer?

A No, Sir.

Q Alright, what did you ask Mira?

A My sister asked Mira who destroyed my vault?

Q What was the answer of Mira?

A Mira answered, "Why did you not inform that you will be coming?"

ATTY. MASANGKAY:

Q And then?

A Dana said, what I am asking, you better answer.

Q What was the answer?

A According to her, it was Jennifer.

Q It was Jennifer who, what?

A She just said Jennifer.

Q What about the title?

A My sister was asking who destroyed the vault, then Mira answered, it was Jennifer. We did not
ask anymore because she continued on talking and she said Jennifer was short of funds.

She said, "Nagipit kasi ang bata, naawa ako kaya binigay ko ang titulo.

Q And, who is Jennifer? Is this Jennifer the same Jennifer Ramirez who is one of the defendants
here?

A Yes, Sir.
Q Who is she?

A According to my sister, she is the daughter of Eduardo Victor.

Q What else did she say?

WITNESS:

A When she said that Jennifer took it, Dana looked for jewelries. Then the daughter of Beth said,
"Tita Dana, sabi ni Tita Ellen, papalitan niya ang mga alahas na iyon."

ATTY. MASANGKAY:

Q And finally, what was the statement of Mira with respect to the transaction?

A When Dana learned about that, she said, we will file a case against them.

Q And so?

A Mira knelt down and began to cry and was begging.

Q What did she say?

A She said, "Parang awa mo na sa akin, Dana. Luluhod ako sa harapan ni’yo, patawarin mo lang
kami." She was crying and saying, "Gipit na gipit lang talaga kami. Bigyan mo kami ng konting
panahon at ibabalik naming iyon." 41

The trial court’s findings of fact as affirmed by the CA are conclusive on this Court absent
evidence that the trial court ignored, misapplied or misconstrued facts and circumstances of
substance which, if considered, would alter the outcome of the case.

Indeed, under Rule 45 of the Rules of Court, only questions of law may be raised. This is so
because this Court is not a trier of facts and is not to re-examine and re-evaluate the testimonial
and documentary evidence on record. While the findings and conclusion of the trial court and the
appellate court may be reversed in exceptional circumstances, the Court cannot do so in the
absence of any such justification or exceptional circumstance, such as in this case.

The ruling of the CA, that the Real Estate Mortgage executed in petitioner’s favor is null and
void, is correct. The registration thereof with the Register of Deeds and its annotation at the
dorsal portion of TCT No. 48521 is also null and void, as provided in the last paragraph of
Section 53, P.D. 1529 which reads:

Sec. 53. Presentation of owner’s duplicate upon entry of new certificate.–

xxxx
In all cases of registration procured by fraud, the owner may pursue all his legal and equitable
remedies against the parties to such fraud without prejudice, however, to the rights of any
innocent holder of the decree of registration on the original petition or application; any
subsequent registration procured by the presentation of a forged duplicate certificate of title, or a
forged deed or other instrument, shall be null and void (emphasis supplied).

One of the essential requisites of a mortgage contract is that the mortgagor must be the absolute
owner of the thing mortgaged.42 A mortgage is, thus, invalid if the mortgagor is not the property
owner.43 In this case, the trial court and the CA are one in finding that based on the evidence on
record the owner of the property is respondent who was not the one who mortgaged the same to
the petitioner.

The evidence shows that Mira Bernal and Jennifer Ramirez were able to open respondent’s vault
and steal the owner’s duplicate of TCT No. T-48521 and the tax declarations covering the
property; with the connivance of a woman who pretended to be the respondent, they were able
consummate the execution of the Real Estate Mortgage by forging the respondent’s signature on
said deed. We, thus, quote with approval the CA when it held:

As to the claim of Querrer-Kauffman that her purported signatures on the mortgage are forgeries,
the trial court believed her and held that there is "convincing proof to the contention of the
plaintiff that the signature of Vida Dana Querrer as appearing on the question[ed] contract was a
forgery because the real Vida Dana Querrer who is the plaintiff in this case was actually in the
United States at the time of the questioned contract on 1 August 1997" (Decision, p. 226,
record). And rightly so because of the immigration entries on her passport, her juxtaposed
sample signatures which are clearly different from those in the deed, and the comic incongruity
of Querrer-Kauffman as principal and Ramirez as her attorney-in-fact both signing the mortgage
deed, all prove and declare beyond reasonable doubt that the subject real estate mortgage is a
forgery.44

The evidence on record further shows that Jennifer Ramirez and her husband, Richmond
Ramirez, used a woman who introduced herself as Vida Dana Querrer to the petitioner and claim
as owner of the property. That woman, an impostor, signed the Real Estate Mortgage as
mortgagor and the Special Power of Attorney, as principal, and showed to petitioner the owner’s
duplicate copy of the title that was taken from the respondent’s vault, and succeeded in having
the Real Estate Mortgage annotated at the dorsal portion of the title. As correctly ruled by the
appellate court:

TCT No. T-48521 (Exh. "A") over the litigated lot was issued on June 26, 1995 in the name of
the owner of the covered lot: Vida Dana Querrer, single. That the appellant now goes by the
name and status of Vida Dana Querrer-Kauffman, married, has been well explained, and quibble
on this raised by Ereña about the identity and interest of the appellant in the suit has been
dismissed by the trial court as "of no moment as this discrepancy is negligible if no[t] bearing at
all to the issue of nullity of the questioned contract" and "has no legal anchorage to cling on."
The decision went on to state in no uncertain terms that the appellant Querrer-Kauffman "was
able to prove preponderantly that she is the real owner of the subject property."45
Indeed, case law is that a Torrens title is generally conclusive evidence of ownership of the land
referred to therein.46 While it serves as evidence of an indefeasible title to the property in favor of
the person whose name appears therein47 (and TCT No. T-48521 shows, on its face, that the
owner is the respondent), when the instrument presented for registration is forged, even if
accompanied by the owner’s duplicate certificate of title, the registered owner does not thereby
lose his title, and neither does the assignee or the mortgagee, for that matter, acquire any right or
title to the property.48 In such a case, the transferee or the mortgagee, based on a forged
instrument, is not even a purchaser or a mortgagee for value protected by law. Thus, in Joaquin
v. Madrid,49 the Court had the occasion to state:

In the first assignment of error, it is argued that since par. 2 of Sec. 55 of the Land Registration
Act expressly provides that "in all cases of registration of fraud, the owner may pursue all his
legal and equitable remedies against the parties to the fraud, without prejudice to the rights of
any innocent holder for value of a certificate of title," the second proviso in the same section
"that a registration procured by the presentation of a forged deed shall be null and void" should
be overlooked. There is no merit in this argument, which would have the effect of deleting the
last proviso. This last proviso is a limitation of the first part of par. 2 in the sense that in order
that the holder of a certificate for value issued by virtue of the registration of a voluntary
instrument may be considered a holder in good faith for value, the instrument registered should
not be forged. When the instrument presented is forged, even if accompanied by the owner’s
duplicate certificate of title, the registered owner does not thereby lose his title, and neither does
the assignee in the forged deed acquire any right or title to the property.

In the second assignment of error, it is further argued that as the petitioner is an innocent
purchaser for value, he should be protected as against the registered owner because the latter can
secure reparation from the assurance fund. The fact is, however, that petitioner herein is not the
innocent purchaser for value protected by law. The innocent purchaser for value protected by law
is one who purchases a titled land by virtue of a deed executed by the registered owner himself,
not by a forged deed, as the law expressly states. Such is not the situation of the petitioner, who
has been the victim of impostors pretending to be the registered owners but who are not said
owners.50

The Court cited this ruling in the Joaquin case in Solivel v. Francisco,51 to wit:

Even more in point and decisive of the issue here raised, however, is the much later case of
Joaquin v. Madrid, where the spouses Abundio Madrid and Rosalinda Yu, owners of a
residential lot in Makati, seeking a building construction loan from the then Rehabilitation
Finance Corporation, entrusted their certificate of title for surrender to the RFC to Rosalinda’s
godmother, a certain Carmencita de Jesus, who had offered to expedite the approval of the loan.
Later having obtained a loan from another source, the spouses decided to withdraw the
application they had filed with the RFC and asked Carmencita to retrieve their title and return it
to them Carmencita failed to do so, giving the excuse that the employee, in- charge of keeping
the title was on leave. It turned out, however, that through the machinations of Carmencita, the
property had been mortgaged to Constancio Joaquin in a deed signed by two persons posing as
the owners and that after said deed had been registered, the amount for which the mortgage was
constituted had been given to the person who had passed herself off as Rosalinda Yu. Constancio
Joaquin admitted that the spouses Madrid and Yu were, in fact, not the persons who had signed
the deed of mortgage.52

This ruling was later reiterated in Insurance Services & Commercial Traders, Inc. v. Court of
Appeals,53 where the Court stressed that in order that the holder of a certificate of value issued by
virtue of the registration of a voluntary instrument may be considered a holder in good faith and
for value, the instrument registered should not be forged.

In Cavite Development Bank v. Lim,54 the Court explained the doctrine of mortgagee in good
faith, thus:

There is, however, a situation where, 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 therefrom are given effect by reason of public policy. This is the doctrine of "mortgagee
in good faith" based on the rule that all persons dealing with the 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. The public interest in upholding the indefeasibility of a certificate of title, as
evidence of lawful ownership of the land or of any encumbrance thereon, protects a buyer or
mortgagee who, in good faith, relied upon what appears on the face of the certificate of title.55

Indeed, a mortgagee has a right to rely in good faith on the certificate of title of the mortgagor of
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.56 This doctrine presupposes, however, that the mortgagor, who
is not the rightful owner of the property, has already succeeded in obtaining a Torrens title over
the property in his name and that, after obtaining the said title, he succeeds in mortgaging the
property to another who relies on what appears on the said title. The innocent purchaser
(mortgagee in this case) for value protected by law is one who purchases a titled land by virtue of
a deed executed by the registered owner himself, not by a forged deed, as the law expressly
states. Such is not the situation of petitioner, who has been the victim of impostors pretending to
be the registered owners but who are not said owners.57 The doctrine of mortgagee in good faith
does not apply to a situation where the title is still in the name of the rightful owner and the
mortgagor is a different person pretending to be the owner. In such a case, the mortgagee is not
an innocent mortgagee for value and the registered owner will generally not lose his title. We
thus agree with the following discussion of the CA:

The trial court wrongly applied in this case the doctrine of "mortgagee in good faith" which has
been allowed in many instances but in a milieu dissimilar from this case. This doctrine is based
on the rule that persons dealing with properties covered by a Torrens certificate of title are not
required to go beyond what appears on the face of the title. But this is only in a situation where
the mortgagor has a fraudulent or otherwise defective title, but not when the mortgagor is an
impostor and a forger.

In a forged mortgage, as in this case, the doctrine of "mortgagee in good faith" cannot be applied
and will not benefit a mortgagee no matter how large is his or her reservoir of good faith and
diligence. Such mortgage is void and cannot prejudice the registered owner whose signature to
the deed is falsified. When the instrument presented is forged, even if accompanied by the
owner’s duplicate certificate of title, the registered owner does not lose his title, and neither does
the assignee in the forged deed acquire any right or title to the property. An innocent purchaser
for value is one who purchases a titled land by virtue of a deed executed by the registered owner
himself not a forged deed.58

As aforesaid, respondent’s signature on the Real Estate Mortgage was forged by an impostor.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The Decision of the Court of
Appeals dated June 10, 2004 and Resolution dated October 28, 2004 are AFFIRMED. Costs
against the petitioner.

SO ORDERED.

(4) Macapinlac vs. Gutierrez Repide, G.R. 18574

G.R. No. 18574           September 20, 1922

JOSE C. MACAPINLAC, plaintiff-appellant,
vs.
FRANCISCO GUTIERREZ REPIDE, ET AL., defendants
FRANCISCO GUTIERREZ REPIDE, defendant-appellee.
J. F. BOOMER, defendant-appellant.

J. F. Boomer in his own behalf.

Ramon Diokno and Jose Varela Calderon for appellant.
Eduardo Gutierrez Repide for appellee.

STREET, J.:

This action was instituted on June 27, 1921, in the Court of First Instance of the Province of
Pampanga by Jose C. Macapinlac, for the purpose of securing a decree declaratory of the rights
of the plaintiff as owner of a valuable estate located in the municipality of Porac, Pampanga,
known as the Hacienda Dolores; to nullify a transfer of the Torrens certificate now appearing in
the name of the Torrens certificate now appearing in the name of the defendant Francisco
Gutierrez Repide, with certain remedial measure incident to said to said relief; and to recover
said estate from the possession of said defendant, with damages; and to secure general relief. In
addition to Francisco Gutierrez Repide several other parties are named as defendants in the
complaint, for the alleged reason that they have been at one time or another holders of liens ,
now cancelled, upon said property, and it was deemed proper to join them as defendants in order
to give them an opportunity to show cause, if any they have, whey their respective liens should
not be cancelled in the registry. Soon after the action was instituted Francisco Gutierrez Repide
died; and his executrix, Da. Maria Sanz, was admitted as defendant in his stead.

To the original complaint the attorneys for the executrix in due time demurred, while the
defendant J. F. Boomer interposed an answer and a cross-complaint directed mainly against Jose
C. Macapinlac and his codefendant Repide. To this cross-complaint Jose C. Macapinlac
answered with a general denial, while the representation of Repide merely demurred. By this
means the case, as it reaches this court, presents itself in two branches, namely, first, that which
has relation to the controversy between the plaintiff and Francisco Gutierrez Repide and,
secondly, that which has relation to the controversy between the defendant Boomer and the two
principal litigants. For convenience of treatment in this opinion, we first give attention to the
controversy between the plaintiff and the defendant Repide, a course which is the more proper
for the reason that cause of action stated in Boomer's cross-bill in great measure depends upon
the questions arising upon the other controversy.

By an order of October 29, 1921, entered in the lower court the demurrer interposed to the
complaint in behalf of the defendant Repide was sustained, and at the same time the complaint
was dismissed with costs against the plaintiff. From this order the plaintiff appealed.

A preliminary point arises with respect to the conditions under which the appeal has been
prosecuted, which must be disposed of before we enter into a consideration of the legal questions
involved in the allowance of the demurrer; and in this connection it is suggested by the attorneys
for the appellee that the appeal is premature.

The point is clearly not well taken. While it is of course undeniable that an order merely
sustaining a demurrer is not forthwith appealable, and an appeal in such case is premature
(Serrano vs. Serrano, 9 Phil., 142), the same cannot be said of an order sustaining a demurrer and
at the same time actually dismissing the complaint. Such an order is definitive and "final" in the
sense necessary to justify the taking of an appeal, and if an appeal had not in fact been
prosecuted from the order in this case, the plaintiff would have been completely and forever out
of court. This is self-evident.

On the other hand, the trial court committed manifest error when it entered the order dismissing
the complaint at the same time that it sustained the demurer, without allowing the plaintiff an
opportunity to amend his complaint, if he had elected to amend. Section 101 of the Code of Civil
Procedure expressly provides that the plaintiff shall have this election; and it has been repeatedly
held to be reversible error on the part of a Court of First Instance to dismiss a cause immediately
upon sustaining a demurrer, without giving the plaintiff an opportunity to amend, it he so desires.
(Molina vs. La electricista, 6 Phil., 519; Ibañez de Aldecoa vs. Fortis, 17 Phil., 82.) To the action
thus taken by the trial court the plaintiff has duly assigned error, and said error (No. VIII, in the
appellant's assignment of errors) is without doubt well taken.

As to the extent of the review which may be had at the instance of the appellant in this court, it
should be noted that by the express terms of section 143 of the Code of Civil Procedure a party
appealing by bill of exceptions to this court is entitled to a review of all rulings, orders, and
judgments made in the action to which he has duly excepted; and this means, as applied to the
present case, that the appellant is entitled to a review of the decision of the lower court not only
upon the error committed in peremptorily dismissing the cause demurrer, without giving the
appellant opportunity to amend, but upon any error that may have been committed by said court
in sustaining the demurrer. (Cancino vs. Valdez, 3 Phil., 429; Balderrama vs. Compañia General
de Tabacos, 13 Phil., 609.) Of course if the only point subject to exception had been that which
relates to the right to amend, and the plaintiff had not here insisted upon the sufficiency of his
complaint in point of law, the appealed judgment would merely be reversed and the cause would
be remanded by us with direction that the plaintiff be allowed to amend, as was done in Molina
vs. La Electricista, supra. But such is not the situation now before us; and we accordingly
proceed to consider the question whether the trial judge erred in sustaining the demurrer.

Turning then to the complaint and assuming, for the purposes of this decision only, that all
material facts stated therein, and well pleaded, are true, we find that the case made in the
complaint is substantially this:

On and prior to August 22, 1916, the plaintiff was the owner of the Hacienda Dolores, a property
located in the municipality of Porac, Pampanga, and assessed upon the tax books at P288,000,
but having an actual value of no less than P800,00, encumbered, however, with certain debts and
charges which need not be here enumerated. This property had been registered under Act No.
496, as amended, and upon May 13, 1916, a Torrens certificate of title covering the same had
been issued to the plaintiff.

On the date above stated, or August 22, 1916, the said plaintiff was indebted to the Bachrach
Garage & Taxicab Company, of Manila, later organized under the name of Bacharch Motor
Company, for the price of an automobile, previously purchased upon credit, and certain
automobile accessories; and as evidence of this indebtedness the plaintiff executed on said dated
a series of fourteen promissory notes payable to the Bachrach Garage & Taxicab Company, and
amounting in all to the sum of P12,960, falling due respectively upon the second of each month
beginning on September 2, 1916, and ending on October 2, 1917. Each of these notes was drawn
in the amount of P1,000, except the last two which together amounted to P960. On September 1,
1916, eleven of these notes were discounted by the Bachrach Garage & Taxicab Company,
through its manager E. M. Bachrach, at the Philippine National Bank. The other three votes,
amounting to P2,277.70, remained in the hands of the payee corporation and were subsequently
paid in full by the plaintiff.

Contemporaneously with the delivery of said notes, or on August 16, 1916, and as a security or
guaranty for the payment of said notes, the plaintiff executed what on its face purports to be a
deed of sale, with privilege of repurchase, to be exercised on or before October 2, 1917. This
transfer comprises all the property covered by Torrens certificate No. 427 (which includes
the Hacienda Dolores), subjects to the encumbrances noted thereon; and the conveyance to
which reference is now made was itself extended on the back of said certificate. In this
conveyance E. M. Bachrach is named as transferee, instead of the alleged real creditor, the
Bachrach Garage & Taxicab Company. Upon the circumstance of the nonconformity of the
promissory notes and the deed of sale as regards creditor and beneficiary, the complaint alleges
that the deed of sale is void for lack of consideration as between the plaintiff and E. M.
Bachrach, the nominal beneficiary; but to this suggestion, for obvious reasons, we attach little
importance.

On November 8, 1917, Francisco Gutierrez Repide acquired, for the sum of P5,000, all the rights
of E. M. Bachrach in the property which had been thus conveyed to the later; and at this time
Francisco Gutierrez Repide, so that complaint alleges, was well aware that the transfer to
Bachrach had been made by the plaintiff for the purpose of securing a debt owing to the
Bachrach Company, and he was furthermore aware that part of said debt has been paid and that
the balance really due from the plaintiff to said company was less than one-half of the sum of
P12,960, expressed in the fourteen promissory notes.

After Francisco Gutierrez Repide had acquired the interest above described in the hacienda in
question, he addressed himself to the problem of procuring the certificate of title to be transferred
to this own name. To accomplish this is was necessary to make it appear that the contract of sale
with pacto de retro noted in the original Torrens certificate was really and truly what it appeared
to be, that is, a contract of sale, not a mere mortgage, and that the ownership had consolidated in
the purchaser by reason of the failure of the seller to repurchase the property before the
expiration of the time allowed for redemption. When this question was raised, it was referred for
decision to the judge of the Court of First Instance of Pampanga, who was of the opinion that the
conveyance to Bachrach was a straight contract of sale with pacto de retro; and inasmuch as it
appeared that the ownership had then consolidated in the purchaser, he directed the register of
deeds of Pampanga to register the property in the name of Francisco Gutierrez Repide and to
issue to him a new certificate of transfer, which was accordingly done. The order here referred to
was in fact entered in case No. 104 of the Court of First Instance of Pampanga, this being the
same land registration proceedings in which the title had been registered in the name of the
plaintiff, and in which judicial proceedings had already been terminated.

Though not plainly so stated in the complaint, it is to be inferred that one of the decisive
considerations that operated upon the mind of the judge of the Court of First Instance in making
the order above alluded to was the fact that the plaintiff himself had made an affidavit which
directly sustained the contention of Repide, and this affidavit was submitted to the court in
support of Repide's contention. Certain it is that the inscription of the property in the name of
Francisco Gutierrez Repide was accomplished with the external approval of the plaintiff and by
means of his assistance or collusion.

In the complaint now before us the plaintiff alleges that his apparent acquiescence in the transfer
of title to Francisco Gutierrez Repide, under the circumstances above set forth, was due to
fraudulent practices on the part of said Repide and to the undue influence exerted over the
plaintiff by that person. In this respect the complaint contains a very full and complete narrative
of facts, which, if true — as they must here be taken to be — would undoubtedly justify any
court in relieving a party from the effects of fraudulent practices, duress, or undue influence; and
it seems unnecessary for us here to recount these charges in detail, more especially for the reason
that the sufficiency of these allegations, considered as stating a case of fraud, has not bee
questioned, the defense at this point being rested on the ground that the Torrens certificate is
unimpeachable in the hands of Repide and that the plaintiff's remedy to obtain relief, supposing
the transfer of title to have been procured by fraud, has prescribed.
It appears from the complaint that, at the time of the filing of this complaint, the defendant
Repide was in actual possession of the property in question, and that he had in effect been
enjoying possession since august 24, 1917, to the alleged prejudice of the plaintiff in the sum of
no less than P200,000 per annum.

The sketch above given contains, we believe, the substance of the essential allegations of the
lengthy complaint in this cause, and it will at least serve as the necessary basis for a discussion of
the legal problems here requiring solution. In taking up these problems we begin with the
situation created by the execution of the contract of sale with pacto de retro between the
plaintiff, Jose C. Macapinlac, and E. M. Bachrach Company, assuming, as we do, that the
personality of the second party to that contract is a matter of indifference. In this connection the
first and most obvious proposition to be laid down is that inasmuch as said conveyance is alleged
to have been executed as security for a debt owing by the plaintiff to the Bachrach Company, it
follows that in equity said conveyance must be treated as a mere security or substantially as a
mortgage, that is, as creating a mere equitable charge in favor of the creditor or person named as
the purchaser therein. This conclusion is fully supported by the decision in Cuyugan vs.
Santos  (34 Phil., 100), where this court held that a conveyance in the form of a contract of sale
with pacto de retro will be treated as a ere mortgage, if really executed as security for a debt,
and that this fact can be shown by oral evidence apart from the instrument of conveyance, a
doctrine which has been followed in the later cases of Villa vs. Santiago (38 Phil., 157),
and Cuyugan vs. Santos (39 Phil., 970).

In view of the lengthy discussion contained in the first decision of Cuyugan vs. Santos, supra, it
might seem superfluous to add to what is there said, but the importance of the subject and the
paucity of our own jurisprudence on this topic — apart from that case and its two successors, —
must serve as our justification for here collating a few additional passages relative to the same
subject, taken from Mr. Pomeroy's treatise on Equity Jurisprudence, recognized as the leading
work on this subject in all jurisdiction where the common law prevails.

Speaking then with referrence to the conditions under which a conveyance absolute on its face
may be treated as a mortgage, this distinguished writer says:

Any conveyance of land absolute on its face, without anything in its terms to indicate that
it is otherwise than an absolute conveyance, and without any accompanying written
defeasance, contract of repurchase, or other agreement, may, in equity, by means of
extrinsic and parol evidence, be shown to be in a reality a mortgage as between the
original parties, and as against all those deriving title from or under the grantee, who are
not bona fide purchasers for value and without notice. The principle which underlies this
doctrine is the fruitful source of any other equitable rules; that it would be a virtual fraud
for the grantee to insist upon the deed as an absolute conveyance of the title, which had
been intentionally given to him, and which he had knowingly accepted, merely as a
security, and therefore in reality as a mortgage. The general doctrine is fully established,
and certainly prevails in a great majority of the states, that the granter and his
representatives are always allowed in equity to show, by parol evidence, that a deed
absolute on its face was only intended to be a security for the payment of a debt, and thus
to be a mortgage, although the parties deliberately and knowingly executed the
 instrument in its existing form, and without any allegations of fraud, mistake, or accident
in its mode of execution. As in the last preceding case, the sure test and the essential
requisite are the continued existence of a debt. (3 Pom. Eq. Jur., sec. 1196.)

And, Speaking particularly of the contract of sale with pacto de retro, he adds:

Whether any particular transaction does thus amount to a mortgage or to a sale with a
contract of repurchase must, to a large extent, depend upon its own special
circumstances; for the question finally turns, in all cases, upon the real intention of the
parties as shown upon the face of the writings, or as disclosed by extrinsic evidence. A
general criterion, however, has been established by an overwhelming consensus of
authorities, which furnishes a sufficient test in the great majority of cases; and whenever
the application of this test still leaves a doubt, the American courts, from obvious motives
of policy, have generally leaned in favor of the mortgage. This criterion is the continued
existence of a debt or liability between the parties, so that the conveyance is in reality
intended as a security for the debt or indemnity against the liability. If there is an
indebtedness or liability between the parties, either a debt existing prior to the
conveyance, or a debt arising from a loan made at the time of the conveyance, or from
any other cause, and this debt is still left subsisting, not being discharged or satisfied by
the conveyance, but the granter is regarded as still owing and bound to pay it at some
future time, so that the payment stipulated for in the agreement to reconvey is in reality
the payment of this existing debt, then the whole transaction amount to a mortgage,
whatever language the parties may have used, and whatever stipulations they may have
inserted in the instruments. (3 Pom. Eq. Jur., sec. 1195.)

Again says he:

. . . The doctrine has been firmly established from an early day that when the character of
a mortgage has attached at the commencement of the transaction, so that the instrument,
whatever be its form, is regarded in equity as a mortgage, that character of mortgage must
and will always continue. If the instrument is in its essence a mortgage, the parties cannot
by any stipulations, however express and positive, render it anything but a mortgage, or
deprive it of the essential attributes belonging to a mortgage in equity. The debtor or
mortgagor cannot, in the inception of the instrument, as a part of or collateral to its
execution, in any manner deprive himself of his equitable right to come in after a default
in paying the money at the stipulated time, and to pay the debt and interest, and thereby
to redeem the land from the lien and encumbrance of the mortgage; the equitable right of
redemption, after a default is preserved, remains in full force, and will be protected and
enforced by a court of equity, no matter what stipulations the parties may have made in
the original transaction purporting to cut off this right. (3 Pom. Eq. Jur., sec. 1193.)

And finally, concerning the legal effects of such contracts, the same author observes:

. . . Whenever a deed absolute on its face is thus treated as a mortgage, the parties are
clothed with all the rights, are subject to all the liabilities, and are entitled to all the
remedies of ordinary mortgagors and mortgagees. The grantee may maintain an action for
 the foreclosure of the grantor's equity of redemption; the grantor may maintain an action
to redeem and to compel a reconveyance upon his payment of the debt secured. If the
grantee goes into possession, he is in reality a mortgagee in possession, and as such is
liable to account for the rents and profits. (3 Pom. Eq. Jur., sec. 1196.)

In Cuyugan vs. Santos, supra, the action to enforce the right of redemption was brought was
brought directly against the immediate grantee in the conveyance there held to be a mortgage,
and no account had to be there taken of the situation resulting from a transfer of the property to a
stranger. In the present case the rights of the immediate grantee (E. M. Bachrach) passed by
transfer for a valuable consideration to Francisco Gutierrez Repide and this transfer had been
effected before the action in this case was began. But is obvious that this circumstance cannot be
any obstacle to the enforcement of any rights that the plaintiff my have had as against Bachrach
(or the Bachrach Company) since it is alleged that at the time Repide acquired the interest of
Bachrach, he was fully aware of the nature of the transaction between Bachrach and the plaintiff
and knew that part of the debt secured by the conveyance of August 22, 1916, had been paid.

In this connection the cardinal rule is that a party who acquires any interest in property with
notice of an existing equity takes subject to that equity. "The full meaning of this most just rule,"
says Mr. Pomeroy, "is, that the purchaser of an estate or interest, legal or equitable, even for a
valuable consideration, wit notice of any existing equitable estate, interest, claim, or right, in or
to the same subject-mater, held by a third person, is liable in equity to the same extend and in the
same manner as the person from whom he made the purchase; his conscience is equally bound
with that of his vendor, and he acquires only what his vendor can honestly transfer." (2 Pom. Eq.
Jur., sec. 688.)

In other words, having acquired the interest of Bachrach in the Hacienda Dolores, with
knowledge that the contract of August 22, 1916, has been executed as security for a debt,
Francisco Gutierrez Repide — or his estate, now that Repide is a dead — must be understood to
stand towards the present plaintiff in exactly the same position that would have been occupied by
Bachrach, if the transfer to Repide had never been effected.

But it is insisted that the title of Repide has become indefeasible, owing to the fact that the
conveyance of the land to him has been followed by the issuance of a transfer certificate of title
in his name, and the original certificate in the name of the plaintiff has been cancelled, — all of
which had been accomplished more than one year before the present action was begun. The
unsoundness of this contention can be easily demonstrated from several different points of view.

In the first place, it must be borne in mind that the equitable doctrine which has been so fully
stated above, to the effect that any conveyance intended as security for a debt will be held in
effect to be a mortgage, whether so actually expressed in the instrument or not, operates
regardless of the form of the agreement chosen by the contracting parties as the repository of
their will. Equity looks through the form and considers the substance; and no kind of engagement
can be adopted which will enable the parties to escape from the equitable doctrine to which
reference is made. In other words, a conveyance of land, accompanied by registration in the
name of the transferee and the issuance of a new certificate, is no more secured from the
operation of this equitable doctrine than the most informal conveyance that could be devised.
In the second place, the circumstance that the land has been judicially registered under the
Torrens system does not change or affect civil rights and liabilities with respect thereto except as
expressly provided in the Land Registration Act (see sec. 70); and as between the immediate
parties to any contract affecting such lands their rights will generally be determined by the same
rules of law that are applicable to unregistered land. A judicial decree of registration admittedly
has the effect of binding the land and quieting the title thereto, to the extent and with the
exceptions stated in section 38 of the Land Registration Act. But an ordinary transfer of land,
effected in any of the ways allowed by law, even when followed by registration and that issuance
of a new certificate, as contemplated in sections 50 to 55, inclusive, of the Land Registration Act,
has a different character.

One of the differences between an original decree of registration and the subsequent registration
by transfer of the certificate of title, pertinent to the present controversy, is that which may be
noted in regard to the period within which relief may be obtained from fraud. Thus, under section
38 of Act No. 496, any person deprived of land by a decree of registration procured by fraud is
limited to the period of one year after the entry of the decree within which to file a petition for
review, and even this remedy is unavailable if any innocent purchaser for value has acquired the
property; while under section 55, if a subsequent transfer is infected with fraud or the title is
procured by any fraudulent means to be registered in the name of the transferee, the injured party
may pursue all his legal and equitable remedies against the party, or parties, to such fraud, saving
the rights of any innocent holder of the tittle for value. This means of course that the person thus
defrauded may bring any appropriate action to be relieved within the ordinary period of
limitation applicable in other cases of fraud, or within the four-year period prescribed in
subsection 4, of section 43 of the Code of Civil Procedure.

Applying said provision to the facts of the present case it must follow that the cause of action of
the present plaintiff to annul the registration of this property in the name of Francisco Gutierrez
Repide did not prescribe at one year, as the trial judge erroneously supposed, and the plaintiff's
cause of action upon this branch of the case had not in fact been barred at all when the present
action was begun.

Before leaving the topic of this alleged fraud committed by Repide in procuring a Torrens
certificate to be issued in his own name, thereby making it appear that the absolute and
indefeasible title had become vested in himself, it will be well to point out that the complaint
reflect a mistaken point of view as to the consequences of that act. Upon perusal of the compliant
it will be noted that it proceeds upon the assumption that, if the alleged fraud should be proved,
the plaintiff will be entitled to have the premises at once restored to himself, with an accounting
for profits, and an award of damages adequate to compensate the plaintiff for the wrong
supposed to have been done. But the circumstance must not be overlooked that the supposed
fraud relates only to the registration of the title in the name of Repide, and even supposing that
this act had never been accomplished, the Repide estate would merely be in the position
occupied by Repide after he had acquired the interest of Bachrach in the property, without
prejudice to the rights acquired by that purchase. But of course in the case supposed the plaintiff
would be entitled to have the certificate of title cancelled and other issued in such form as to
show the correct state of facts with respect to the ownership and incumbrance of the property.
The preceding discussion conducts us to the conclusion that, so far as this case is concerned, the
estate of Francisco Gutierrez Repide occupies substantially the position of a mortgagee in
possession. The question then arises as to what are the legal rights of the plaintiff as against the
Repide estate, judged by the facts alleged and relief sought in the complaint as at present framed,
and in this connection the circumstances is not to be ignored that the complaint contains in usual
form the prayer for general.

The solution of this problem is to be found in the application of the doctrine formulated by this
court in Barretto vs. Barretto (37 Phil., 234). In that case the heirs of a mortgagee of an estate
were found in possession of mortgaged property more than thirty years after the mortgage had
been executed; and it was shown that the mortgage had never been foreclosed. Upon this state of
facts it was in effect held that the rights of the parties, heirs respectively of the mortgagor and
mortgagee, were essentially the same as under the contract of antichresis.

By reference to the appropriate provisions of the Civil Code (arts. 1881-1884), in the chapter
dealing with antichresis, it will be at once seen that while non-payment of the debt does not vest
the ownership of the property in the creditor, nevertheless the debtor cannot recover the
enjoyment of the property without first paying in full what he owes to his creditor. At the same
time, however, the creditor is under obligation to apply the fruits derived from the estate in
satisfaction, first, of the interest on the debt, if any, and, secondly, to the payment of the
principal. From this is necessarily deduced the obligation of the creditor to account to the debtor
for said fruits and the corresponding right of the debtor to have the same applied in satisfaction
of the mortgage debt, as recognized in Barretto vs. Barretto, supra.

The respective rights and obligations of the parties to a contract of antichresis, under the Civil
Code, appear to be similar and in many respects identical with those recognized in the equity
jurisprudence of England and American as incident to the position of a mortgagee in possession,
in reference to which the following propositions may be taken to be established, namely, that if
the mortgagee acquires possession in any lawful manner, he is entitled to retain such possession
until the indebtedness is satisfied and the property redeemed; that the non-payment of the debt
within the term agreed does not vest the ownership of the property in the creditor; that the
general duty of the mortgagee in possession towards the premises is that of the ordinary prudent
owner' that the mortgagee must account for the rents and profits of the land, or its value for
purposes of use and occupation, any amount thus realized going towards the discharge of the
mortgage debt; that if the mortgagee remains in possession after the mortgage debt has been
satisfied, he becomes a trustee for the mortgagor as to the excess of the rents and profits over
such debt; and, lastly, that the mortgagor can only enforce his rights to the land by an equitable
action for an account and to redeem. (3 Pom. Eq. Jur., sex. 1215-1218.)

From the complaint it appears that, even before acquiring the interest of Bachrach in
the Hacienda Dolores, the defendant Francisco Gutierrez Repide had taken over from the
Archbishop of Manila a mortgage on the property in favor of said Archbishop, paying therefor
the sum of P35,000; and we infer from the complaint that Repide had probably discharged other
liens on the property either before or after he acquired the interest of Bachrach. If so, his
executrix will be entitled to charge the plaintiff with the amount paid to free the property from
such liens, and to retain possession until all valid claims against the estate are satisfied, in
obedience to the maxim that he who seeks equity must do equity.

A question has been made as to whether, in an action like this, it is necessary for the plaintiff to
tender the amount necessary to effect the redemption of the property; and we note that in
paragraph XII of the complaint it is alleged that the plaintiff had made a written offer to the
defendant Repide to pay all debts and charges held by Repide against the property, which offer
said defendant had refused to accept. this paragraph of the complaint was doubtless inserted in
view of section 347 of the Code of Civil Procedure which declares that a written offer to pay a
particular sum of money is, if rejected, equivalent to the actual tender of the money. The
allegation contained in paragraph XII of the complaint is not sufficient to comply with the
provisions of the section cited, for the reason that it does not appear that the written offer
mentioned a particular sum as the amount to be paid. There was therefore no valid tender.

But the case is not one where a tender is necessary, because the amount actually due cannot be
known until an accounting is had and the extent of the plaintiff's indebtedness reduced to
certainty. When this had been accomplished, it will become the duty of the court, upon such
amendment of the complaint as may appear desirable, to make the proper decree, allowing the
plaintiff to redeem and requiring the executrix of Francisco Gutierrez Repide to surrender the
property in question to the plaintiff.

In what has preceded we have demonstrated the error of the trial judge in sustaining the demurrer
interposed to the original complaint on behalf of the Repide estate, and we have at the same time
indicated the character of the relief to which the plaintiff appears to be entitled on the showing
made in the complaint. It is hardly necessary to add that we must not be understood as defining
the rights of the parties further than is necessary to dispose of the case as presented to us upon
demurrer; and it is obvious that if the litigation proceeds further, many questions will be
presented which cannot and should not here be anticipated.

Directing our attention now to the appeal of the defendant Boomer, we not that this litigant by
way of cross-complaint a right to the Hacienda Dolores hostile to both Jose C. Macapinlac and
Francisco Gutierrez Repide, basing his claim upon a contract (Exhibit 1) between Macapinlac
and Boomer, of a date anterior to the contract of sale with pacto de retro of August 22, 1916. It
is unnecessary her to enter into the details of Boomers contention. Suffice it to say that, if the
allegations of the cross-complaint are true, as is to be assumed upon demurrer, it shows a cause
of action proper to be ventilated in this suit. The trial judge, however, sustained the demurrer to
the cross-complaint, apparently for the reason that this Honor believed that the transfer of
certificate of title to the name of Repide constituted an insuperable obstacle to the cross-action.
This point has been fully discussed by us in connection with the controversy between the two
principal litigants, and for the rest it may be said that the action of the trial judge in sustaining the
demurrer to Boomer's cross-complaint involves the same errors that were committed in the other
branch of the case.

From what has been said it follows that the action of the trial judge in sustaining the two
demurrers interposes in behalf of Francisco Gutierrez Repide to the original complaint and to
Boomer's cross-complaint must be reversed and said demurrers are hereby overruled, with costs;
and the cause will be returned to the lower court with directions to require the appellee to answer
within the time allowed by the rules. So ordered.

Araullo, C.J., Malcolm, Avanceña, Villamor, Ostrand, Johns and Romualdez, JJ., concur.
Johnson, J, dissents.

(5) Montoya vs. Ignacio, G.R. L-5868

G.R. No. L-5868        December 29, 1953

SANCHO MONTOYA, in his own behalf and as guardian ad litem of the minors ISMAEL,
FELICITAS, DIVINA and NAPOLEON, all surnamed MONTOYA, petitioners,
vs.
MARCELINO IGNACIO, respondent.

Tereso Ma. Montoya for petitioners.

Luis M. Buenaventura for respondent.

BAUTISTA, J.:

In the afternoon of January 5, 1949, Tomasita Arca boarded the jeepney driven by Leonardo de
Guzman at Tanza, Cavite in order to go to Cavite City. She paid the usual fare for the trip. While
the jeepney was on its way to its destination, and at a point between Tanza and Cavite City,
somewhere in barrio Ligton, municipality of Rosario, it collided with a bus of the Luzon Bus
Line causing as a result the death of Tomasita. Tomasita was then a school teacher of Tanza
Elementary School with an annual compensation of P1,320. Her death left a widower and four
minor children. Because of the jeepney's failure to transport Tomasita safely to her destination
and her resultant death, her widower and children instituted the present action praying that the
defendants, owners of the jeepney, be ordered to pay them an indemnity in the amount of
P31,000.

Defendants, set up as a special defense that the collision between the jeepney and the bus was
investigated by the Office of the Provincial Fiscal of Cavite and the result of the investigation
was that the one at fault was the driver of the bus and, as a consequence, said driver was charged
with triple homicide thru reckless imprudence in the Court of First Instance of Cavite (Criminal
Case No. 10771). Defendants claim that inasmuch as the present case involves the same issues as
those in the case filed against the driver of the bus, the same should be held in abeyance until
after the final termination of the criminal case. Defendant Cayetano Tahimik further claims that
he is not and has never been the owner of the jeepney and cannot therefore be held responsible
for the damages cause by it.
After the parties had presented their evidence, the lower court rendered decision dismissing the
case holding that defendants are not liable because it was not proven that the collision which
resulted in the death of Tomasita Arca was due to the negligence of the driver of the jeepney
whose ownership is attributed to defendants. From this decision plaintiffs have appealed.

The Court of Appeals affirmed the decision appealed from, but in so doing predicated its
affirmance not on plaintiffs' failure to prove that the collision was due to the negligence of the
driver but on the fact that Marcelino Ignacio was not the one operating the jeepney but one
Leoncio Tahimik who had leased the jeepney by virtue of a document duly executed by the
parties. And not agreeable to this findings, plaintiffs filed the present petition for review.

In their first assignment of errors, petitioners claim that the lower court erred in ruling that to
maintain an action for damages caused by the breach of a carrier's obligation to carry a passenger
safely to his destination it is necessary to prove that the damages were caused by the negligence
of the driver of said carrier in order that liability may attach which, they claim, is contrary to the
ruling of this court in the case of Castro vs. Acro Taxicab Co., 46 Off. Gaz., pp. 2028-2029. But
we notice that while such is the ruling entertained by the lower court it was not concurred in by
the Court of Appeals so much so that it made an express manifestation that it fully agreed with
the theory of petitioners. The ruling of the court below having been overruled, we see no reason
why the same issue should now be reiterated in this instance.

The second error refers to the person who was actually operating the jeepney at the time of
collision. It is claimed that while Marcelino Ignacio, owner of the jeepney, has leased the same
to one Leoncio Tahimik on June 8, 1948, and that at the time of collision it was the latter who
was actually operating it, the contract of lease was null and void because it was not approved by
the Public Service Commission as required by section 16, paragraph h, of the Public Service
Law.1awphil.net

There is merit in this contention. The law really requires the approval of the Public Service
Commission in order that a franchise, or any privilege pertaining thereto, may be sold or leased
without infringing the certificate issued to the grantee. The reason is obvious. Since a franchise is
personal in nature any transfer or lease thereof should be notified to the Public Service
Commission so that the latter may take proper safeguards to protect the interest of the public. In
fact, the law requires that, before the approval is granted, there should be a public hearing, with
notice to all interested parties, in order that the Commission may determine if there are good and
reasonable grounds justifying the transfer or lease of the property covered by the franchise, or if
the sale or lease is detrimental to public interest. Such being the reason and philosophy behind
this requirement, it follows that if the property covered by the franchise is transferred, or leased
to another without obtaining the requisite approval, the transfer is not binding against the Public
Service Commission and in contemplation of law the grantee continues to be responsible under
the franchise in relation to the Commission and to the public. Since the lease of the jeepney in
question was made without such approval, the only conclusion that can be drawn is that
Marcelino Ignacio still continues to be its operator in contemplation of law, and as such is
responsible for the consequences incident to its operation, one of them being the collision under
consideration.
It may be argued that section 16, paragraph (h) provides in its last part that "nothing herein
contained shall be construed to prevent the sale, alienation, or lease by any public utility of any
of its property in the ordinary course of business", which gives the impression that the approval
of the Public Service Commission is but a mere formality which does not affect the effectivity of
the transfer or lease of the property belonging to a public utility. But such provision only means
that even if the approval has not been obtained the transfer or lease is valid and binding between
parties although not effective against the public and the Public Service Commission. The
approval is only necessary to protect public interest.

Wherefore, the decision appealed from is reversed. Judgment is hereby rendered ordering the
defendant Marcelino Ignacio to pay the plaintiffs the sum of P31,000 as damages, with costs.

Paras, C.J., Pablo, Bengzon, Padilla and Jugo, JJ., concur.

Separate Opinions

REYES, J.,  concurring and dissenting:

I concur in the result, but must express my disconformity to that part of the majority opinion
which holds that the sale by a public utility of any of its property without the approval of the
Public Service Commission is binding between the parties though not effective against the
public. This, I believe, is a misconstruction of section 16 paragraph h, of the Public Service Law.

Tuason, J., concurs.