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SECOND DIVISION

G. R. No. 150730 - January 31, 2005

MILA SALES LLANTO, YOLANDA SALES CABILLO, OSCAR SALES, ACQUILINA ¹ SALES, FRANCISCO SALES, ALBERTO SALES, GLORIA SALES ALIPIO, EDUARDO SALES, EMERCIA-NA ² SALES ALGIRE, ELENITA SALES SERRANO, and CONRADO SALES, petitioners, vs. ERNESTO ALZONA, dominador alzona, ESTELA SALES PELONGCO, ³ and the REGISTER OF DEEDS OF CALAMBA, LAGUNA, Respondents.

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the Decision ⁴ of the Court of Appeals (CA) promulgated on March 19, 2001 in CA-G.R. CV No. 52951, ⁵ which affirmed with modification the decision dated May 30, 1996 of the Regional Trial Court (RTC) of San Pedro, Laguna (Branch 31); and the Resolution dated October 26, 2001, denying petitioners motion for reconsideration.

The facts of the case are as follows:

Bernardo Sales and Maria Sales were husband and wife. They have twelve children, eleven of whom are the present petitioners while the remaining child, Estela Sales Pelongco, is one of herein respondents. Maria was the registered owner of a certain parcel of land with an area of 202 square meters and covered by Original Certificate of Title (OCT) No. P-3225 which she acquired under a free patent. ⁶ The property is located at Banlic, Cabuyao, Laguna. ⁷ Until they died, Maria and Bernardo, together with some of their children, lived on said land and in the house which they constructed thereon. Maria died on August 27, 1986 ⁸ while Bernardo died on January 1, 1997.

On January 29, 1990, a real estate mortgage contract was purportedly executed by Maria, who was already deceased at that time, and Bernardo in favor of herein respondent Dominador Alzona. ⁹ Respondent Estela Sales Pelongco signed as an instrumental witness to the mortgage contract. ¹⁰ Respondent Ernesto Alzona admitted that while he was a co-mortgagee of his brother, Dominador, his name does not appear in the mortgage contract. The mortgage was subsequently foreclosed for alleged failure of Bernardo and Maria to settle their obligation secured by the said mortgage. The property was thereafter sold in a mortgage sale conducted on December 20, 1990 wherein Ernesto Alzona was the highest bidder. Consequently, a certificate of sale was awarded to Ernesto on December 20, 1990, ¹¹ and on January 22, 1992, he executed a Consolidation of Ownership over the property. ¹² Accordingly, Transfer Certificate of Title No. T-261853 was issued in his name while OCT No. P-3225 in the name of Maria Sales was cancelled. ¹³

On December 17, 1992, herein petitioners caused the inscription of an adverse claim on the title to the property. ¹⁴

On October 15, 1993, herein petitioners filed before the RTC of San Pedro, Laguna a complaint for Annulment of Mortgage and of Auction Sale, with Reconveyance of Title and Damages. ¹⁵ Respondents Ernesto and Dominador Alzona and the Register of Deeds of Calamba, Laguna filed their answers, respectively. However, respondent Estela Sales Pelongco failed to file her answer; as a consequence of which, she was declared in default.

After trial, the RTC rendered judgment, the dispositive portion of which reads as follows:

WHEREFORE, judgment is hereby rendered in favor of defendants Dominador Alzona and Ernesto Alzona and against Estela Sales dismissing plaintiffs complaint with costs against plaintiffs, and ordering plaintiffs to pay defendants Dominador Alzona and Ernesto Alzona the sum of P50,000 plus P1,000 per court appearance for and as attorneys fees.

For paucity of evidence, no judgment can be rendered by this Court on the other reliefs prayed for by defendants Dominador Alzona and Ernesto Alzona in their counterclaim against the plaintiffs and in their crossclaim against defendant Estela Sales.

Relative to plaintiffs complaint against defendant Estela Sales, judgment is hereby rendered in favor of the plaintiffs and against defendant Estela Sales by ordering the latter to pay the plaintiffs the amount of P30,000 for and as attorneys fees plus P1,000 per court appearance and P200,000 for moral damages.

For paucity of evidence, no judgment can be rendered on the other reliefs prayed for by plaintiffs in their complaint against defendant Estela Sales.

For lack of evidence, the complaint of plaintiffs against defendant Register of Deeds of Laguna, Calamba Branch, is as it is, hereby DISMISSED.

SO ORDERED. ¹⁶

Aggrieved by the trial courts decision, petitioners filed an appeal with the CA.

On March 19, 2001, the CA rendered a decision affirming the judgment of the RTC but deleting the attorneys fees awarded to petitioners. ¹⁷

Petitioners motion for reconsideration was denied in a resolution issued by the Court of Appeals on October 26, 2001. ¹⁸

Hence, herein petitioners filed the present petition on the following grounds:

GROUNDS FOR THE PETITION

A. THE RULE THAT A PURCHASER OR MORTGAGEE OF LAND IS NOT OBLIGATED TO LOOK BEYOND THE CERTIFICATE OF TITLE CANNOT BE APPLIED WHERE THERE IS NO QUESTION AS TO THE TITLE OF THE MORTGAGOR AND WHERE A DIFFERENT PERSON MORTGAGED THE PROPERTY.

B. A MORTGAGEE, SPECIALLY ONE WHO IS IN THE LENDING BUSINESS, IS LEGALLY REQUIRED TO TAKE THE NECESSARY PRECAUTIONS WHICH PRUDENCE WOULD DICTATE, BEFORE ENTERING INTO A MORTGAGE CONTRACT. ¹⁹

In the present case, since it is no longer disputed that the mortgagors were not the owners of the property subject of the petition the question that remains is whether Ernesto and Dominador are mortgagees in good faith.

Petitioners contend that the principle regarding innocent purchasers for value enunciated by the CA in its decision is not applicable to the present case because in the cases cited by the CA there was no question that the mortgagors were the real owners of the property that was mortgaged, while in the instant case, the mortgagors were impostors who pretended as the real owners of the property.

We do not agree. The principle of "innocent purchasers for value" is applicable to the present case.

Under Article 2085 of the Civil Code, one of the essential requisites of the contract of mortgage is that the mortgagor should be the absolute owner of the property to be mortgaged; otherwise, the mortgage is considered null and void. ²⁰ However, an exception to this rule is the doctrine of "mortgagee in good faith." Under this doctrine, even if the mortgagor is not the owner of the mortgaged property, the mortgage contract and any foreclosure sale arising therefrom are given effect by reason of public policy. ²¹ This principle is based on the rule that all persons dealing with property covered by a Torrens Certificate of Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title. ²² This is the same rule that underlies the principle of "innocent purchasers for value" cited by the CA in its decision. The prevailing jurisprudence is that a mortgagee has a right to rely in good faith on the certificate of title of the mortgagor to the property given as security and in the absence of any sign that might arouse suspicion, has no obligation to undertake further investigation. ²³ 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. ²⁴

For persons, more particularly those who are engaged in real estate or financing business like herein respondents Ernesto and Dominador Alzona, to be considered as mortgagees in good faith, jurisprudence requires that they should take the necessary precaution expected of a prudent man to ascertain the status and condition of the properties offered as collateral and to verify the identity of the persons they transact business with, particularly those who claim to be the registered property owners. ²⁵

In the instant case, the CA affirmed the ruling of the trial court that Ernesto and Dominador are mortgagees in good faith. The trial court gave credence to Ernestos testimony that he conducted a credit investigation before he approved the loan sought and the property mortgaged. It is well settled in our jurisdiction that the determination of credibility of witnesses is properly within the domain of the trial court as it is in the best position to observe their demeanor and bodily movements. ²⁶ Further, findings of the trial court with respect to the credibility of witnesses and their testimonies are entitled to great respect, and even finality, unless said findings are arbitrary, or facts and circumstances of weight and influence have been overlooked, misunderstood, or misapplied by the trial judge which, if considered, would have affected the case. ²⁷ These findings are binding on this Court especially when affirmed by the appellate court. ²⁸ After a re-examination of the evidence presented, we find no cogent reason to depart from this rule.

Indeed, a perusal of the testimony of Ernesto proves that he exercised the necessary precautions to ascertain the status of the property sought to be mortgaged and the identity of the mortgagors. During his cross-examination he testified as follows:

q. And according to you, you made a credit investigation of the property in question?

a. Yes, sir.

q. And you went to the place because according to you of a sketch given to you by Estela?

a. Yes, sir.

q. Where in Brgy. Banlic is the property specifically located in relation to any landmark?

Pampolina: The question is rather vague, Your Honor.

You mentioned perhaps a place that is known that is near the place.

Court: Witness may answer. Where in Brgy. Banlic is the property located, Mr. Witness?

a. It is about five (5) houses away before reaching the junction going to Brgy. Mamatid and in the corner, there is the Rural Bank of Cabuyao, sir.

Mendoza: You were only equipped with a sketch given to you by Estela. How were you able to see specifically the property?

a. I inquired from the neighbors, sir.

q. Who among the neighbors did you inquire?

a. The first one is a male residing..

Court: The question is who?

a. Felix Icepel and the second one is Auring Sales, wife of Francisco Sales, sir.

q. When you asked these persons, did you ask where was Maria Sales?

a. No, sir.

q. Did this Felix Icepel pointed to you the house of Bernardo Sales and Maria Sales?

a. Yes, sir.

q. Did you also ask Auring Sales about the house of Maria Sales?

a. Yes, sir.

q. Why did you ask again Auring Sales about the house of Maria Sales considering that youve asked Felix Icepel about this.

a. Because I would like to have two witnesses, sir.

q. Aside from asking their houses, did you ask whether Maria Sales and Bernardo Sales were there?

a. I did not ask, sir.

Court: Considering that Aurings surname is Sales and the one applying for a loan from you is also surnamed Sales, did you ask her if she has any relation with the Saleses?

a. Yes, maam. She even volunteered.

q. What was the answer?

a. That she is the daughter-in-law of Bernardo Sales and Maria Sales, sir.

q. You also said that Auring is the wife of Francisco Sales?

a. Yes, maam.

q. And Francisco Sales is one of the children of Maria Sales and Bernardo Sales?

a. Yes, maam.

q. For which reason she is claiming that she is the daughter-in-law of Bernardo Sales and Maria Sales?

a. Yes, maam.

Court: Continue.

Mendoza: You pointed to two persons earlier whom you said went to your house?

a. Yes, sir.

q. And who were they when you said them?

a. They are Estela, the couple, Yolanda, Gloria, Conrado and three other women, sir.

q. Where did you meet these persons?

a. Inside the house of Bernardo Sales and Maria Sales, sir.

q. And you were able to talk to Maria Sales at that time?

a. Yes, sir.

q. And when the couple went to you in November, 1989, they were the same couple whom you met in the house of Bernardo Sales?

a. Yes, sir.

q. And when you saw Bernardo Sales, he can walk?

a. He was sitting down at that time, sir.

q. At that time you went to their house, did he stand up?

a. Yes, sir. I think he stood up.

q. And Maria Sales offered you a coffee at that time?

a. No, sir.

q. What time did you go there when you made a credit investigation?

a. It was in the morning, sir.

q. And for how long did you talk with the couple, Yolanda, Gloria and Estela?

a. It lasted for 30 minutes, sir.

q. You pointed earlier the person of Yolanda whom you said you saw on January 26, 1990 inside the house of the Saleses?

a. Yes, sir.

q. And you also mentioned of Gloria Sales whom you said is not in court today?

a. Yes, sir.

q. And you saw this woman when she testified in court?

a. Yes, sir.

q. And you saw her several times before she testified in court until she completed her testimony?

a. Yes, sir. When she came to my house.

Mendoza: We would like to make it on record that Gloria Sales Alipio is now present in court.

Pampolina: But with eyeglasses, Your Honor. She was not wearing an eyeglass when she took the witness stand.

Mendoza: I would like to manifest Your Honor that even a person is wearing eyeglasses, if you saw her several times, you know her.

Court: Alright. Gloria Sales is there. Continue.

Mendoza: During that meeting with the couple, Estela, Gloria, Yolanda and Conrado in January 1990 at the house of the Saleses, were they together inside the house?

a. Yes, sir.

q. Who among the group greeted you?

a. Estela, sir.

q. And Estela told you the property they were mortgaging?

a. Yes, sir. Their house.

q. And again the couple was introduced to you by Estela?

a. No, sir. I was introduced to the brother and sisters.

q. When you went to the place, Estela, Yolanda, Gloria, Conrado and the couple did not know that you would go to their place on January 26, 1990?

Court: He will be incompetent.

Mendoza: Why did you say that Yolanda, Gloria, Conrado were expecting you when in fact you have not met them?

a. Because Estela asked when I am going to visit their place, she even made a sketch of their place, and I said, probably on January 26, 1990 because that is the feast day of St. Policarp and its

Mendoza: Okay, thats it. ²⁹

The CA affirmed the findings of the trial court that petitioners never disputed Ernestos claim that when he inspected the subject property on January 26, 1990, he met petitioners Yolanda, Gloria and Conrado together with Estela and the persons whom he knew as Bernardo and Maria Sales at the house built inside the premises of the said property. A further reading of the transcript of stenographic notes reveals that Ernesto even went inside the house and, in the presence of the aforementioned persons, discussed with Estela the matter regarding the loan they were seeking and the mortgage of the subject property. ³⁰ It was only in their motion for reconsideration filed with the CA did petitioners dispute the foregoing claims of Ernesto. However, their disputation merely consisted in denying that Ernesto met Gloria Sales inside the house of Bernardo and Maria. They did not contradict Ernestos claim that he also met Conrado and Yolanda inside the said house. On the contrary, the truth of the abovementioned claims of Ernesto is bolstered by the testimonies of Francisco and Gloria Sales to the effect that during the period between 1989 and 1990, Estela, Yolanda, Gloria and Conrado were all living in the house built on the subject property. ³¹ The trial court also gave credence to Ernestos testimony that prior to the execution of the contract of mortgage, he was even shown a copy of the OCT and the tax declaration in the name of Maria Sales. ³²

From the foregoing, we find no error in the ruling of the CA that Ernesto sufficiently established that he acted in good faith by exercising due diligence in ascertaining the status of the property mortgaged and the identity of the owners and occupants of the said property; that it was Estela and the persons who represented themselves as Bernardo and Maria who perpetrated the fraud. Hence, Ernesto can no longer be faulted if he was led into believing that the old man and woman whom he met in November 1989 and January 1990 are Bernardo and Maria Sales when, in fact, they are not.

While it was also established that petitioners Yolanda, Gloria and Conrado were present at the time Ernesto conducted his credit investigation on January 26, 1990, no direct and conclusive evidence was presented to show that they had sufficient knowledge of the fraud that was perpetrated by their sister Estela and the persons posing as Bernardo and Maria as to hold them equally guilty of such fraud.

In fine, we hold that respondents Ernesto and Dominador Alzona are mortgagees in good faith and, as such, they are entitled to the protection of the law.

WHEREFORE, the instant petition is DENIED and the assailed decision and resolution of the Court of Appeals in CA-G.R. CV No. 52951 are AFFIRMED in toto.

SO ORDERED.

Puno, (Chairman), Callejo, Sr., Tinga, and Chico-Nazario, JJ., concur.

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Endnotes:

¹ Spelled as Aquilina in other parts of the record and TSN.

² Spelled as Emerenciana in other parts of the record and TSN.

³ Spelled as Pillongco in other portions of the record and TSN.

⁴ Penned by Justice Eloy R. Bello, Jr. and concurred in by Justices Eugenio S. Labitoria and Perlita J. Tria Tirona.

⁵ Entitled, "Bernardo Sales, et. [sic] al., plaintiffs-appellants, vs. Ernesto Alzona, et. [sic] al., defendants-appellees."

⁶ Exhibit "B", Original Records, p. 151.

⁷ Ibid.

⁸ Exhibit "A", OR, p. 262.

⁹ Exhibit "C", OR, pp. 267-268.

¹⁰ Ibid.

¹¹ Exhibit "11", OR, p. 352.

¹² Exhibit "21", OR, pp. 361-362.

¹³ Exhibit "22", OR, p. 363.

¹⁴ Exhibit "B-3", OR, pp. 264-266.

¹⁵ OR, p. 1.

¹⁶ The dispositive portion of the decision was amended on June 6, 1996 per RTC Order of even date, OR, p. 489.

¹⁷ CA Rollo, pp. 83-89.

¹⁸ CA Rollo, p. 123.

¹⁹ Rollo, pp. 20-21.

²⁰ Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:

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

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

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

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

²¹ Cavite Development Bank vs. Lim , February 1, 2000, 324 SCRA 346, 358.

²² Ibid.

²³ Cebu International Finance Corporation vs. Court of Appeals , February 13, 1997, 268 SCRA 178, 188-189.

²⁴ Cabuhat vs. Court of Appeals , September 28, 2001, 366 SCRA 176, 186.

²⁵ Adriano vs. Pangilinan , January 16, 2002, 373 SCRA 544, 553.

²⁶ Rodriguez vs. Court of Appeals , June 17, 1997, 273 SCRA 607, 616; Dela Cruz vs. Court of Appeals , July 20, 2001, 361 SCRA 636, 645.

²⁷ Ibid.

²⁸ Ibid.

²⁹ TSN, July 6, 1995, pp. 45-54.

³⁰ TSN, July 6, 1996, pp. 25-27.

³¹ TSN, Testimony of Francisco Sales, December 1, 1994, pp. 28-29; TSN, Testimony of Gloria Sales Alipio, March 24, 1995, p. 10.

³² TSN, June 16, 1995, p. 15.