SUNSHINE FINANCE AND INVESTMENT CORPORATION, PETITIONER, VS. THE INTERMEDIATE APPELLATE COURT AND RODOLFO RUBIDIZO AND ALFREDO DE GUZMAN, RESPONDENTS.

The petitioner claims the rights of an innocent purchaser for
value of registered land and asks for the reversal of the decision of the respondent
court denying it such status.

The subject of the dispute is a parcel of land with a total area of 222 square meters and
covered by OCT No. 114 in the name of Benito Vega. Vega sold the property to the spouses Romeo Nolasco and Erlinda
de Belen, to whom TCT No. 22198 was issued on March 26, 1980. On February 13, 1981, they mortgaged the
land to Sunshine Finance and Investment Corporation to secure a loan of P52,466.34. The loan not having been paid, the mortgage
was foreclosed and the land sold to Sunshine as the highest bidder at the
auction sale. The certificate of sale
was annotated on the Nolasco certificate of title. On May 26, 1982, after the mortgagors had failed to exercise
their right of redemption, TCT No. 37772 was issued in the name of
Sunshine. Sunshine then filed with the
Regional Trial Court of Rizal, in LRC Case No. R-3205, a petition for a writ of possession. After hearing, the writ was granted on June
20, 1983.

The conflict arose when on August 23, 1983, Rodolfo Rubidizo and
Alfredo de Guzman filed in the same case a third party claim to 112 square
meters of the subject land which they alleged they had purchased from the
Nolasco spouses on May 18, 1979, for P19,960.00. They made the same claim in a separate complaint filed with the
same court, in Civil Case No. 50179, for recovery of ownership of the said
portion of land and annulment of the sheriff’s sale and certificate of title
with respect thereto.

The two cases were consolidated and joint hearings were held
where the complainants explained that they could not have the sale in their
favor registered immediately because the land was still in the name of Benito
Vega at that time. Sunshine, for its
part, denied any knowledge of the claimed transaction and submitted that it was
an innocent mortgagee and later purchaser for value and was entitled to the
ownership and possession of the disputed land.

On September 21, 1984, the trial court^[1]
issued an omnibus order reading as follows:

In view of the foregoing, the
Court dismisses the complaint in Civil
Case No. 50179, for failure of the plaintiffs to establish a cause of action against the
defendants. Without pronouncement as to costs.

In L.R.C. No. R-3205, the Court reconsider and sets aside the Order
dated October 13, 1983, denies the third-party claim, and orders the
enforcement of the writ of possession against third party claimants Rodolfo
Rubidizo and Alfredo de Guzman, who are ordered to remove their houses and/or
improvements in the parcel of land covered by TCT No. 37772 subject of the
aforesaid writ of possession within sixty (60) days from receipt of this Order.

SO ORDERED.

The order was based on the following justification:

A person dealing with registered land is not required to go beyond
the register to determine the condition of the property. He is only charged with notice of the
burdens on the property which are noted on the face of the register or the
certificate of title. To require him to
do more is to defeat one of the primary objects of the Torrens System. A bona fide purchaser for
value of such property at an auction
sale acquires good title as against
a prior transferee of the same property where such transfer was unrecorded at
the time of the auction sale. (Castillo
vs. Sian, et al., L-11291, April 30, 1959; 105 Phil. 622, 632).

On appeal, however, the order was reversed by the then Intermediate Appellate Court.^[2]
Its decision dated March 18, 1986, applied the exception to the above-quoted
rationale, citing the following jurisprudence:

It has been held that where, as in this case, the land sold is in
the possession of a person
other than the vendor, the purchaser is
required to go beyond the certificate of title and make inquiries
concerning the rights of the actual possessors. Failure to do so would make
him a purchaser in bad faith. (Macala vs. Mendoza, CA-G.R. NO. 13677-R, Nov. 9, 1965; De Jesus vs.
Revilla, CA-G.R. No. 13562-R, Oct. 5, 1965)

One who purchases real property which is in the actual possession
of another should at least make some inquiry concerning the right of those in
possession. The actual possession by
other than the vendor should at least put the purchaser upon inquiry. He can scarcely, in the absence of such inquiry, be regarded as a bona fide
purchaser as against such possessor. (Conspecto vs. Fruto, 31 Phil. 144)

As the respondent court observed:

It is not also seriously controverted that plaintiffs have
immediately occupied the property from the time of their purchase in May, 1979,
building their own house thereon. The
commencement of LRC Case No. R-3205 to secure the issuance of a writ of
possession is a clear admission of the corporation’s failure to take over the
property after the foreclosure proceedings.

Although it alleged by way of defense that it is a mortgagee and purchaser in good
faith and for value, it did not adduce evidence that it had sent
representatives to the land in question to ascertain the identity of the land
and the lack of adverse claimants or possessors (Gatioan vs. Gaffud, 27 SCRA
714), which was incumbent upon a mortgagee-pleader of good faith to do and
establish (Tomas vs. Tomas, 98 SCRA 285).

It thus disposed as follows:

WHEREFORE, the decision appealed from is hereby reversed and
another one is rendered: (1) dismissing
LRC Case No. R-3205, (2) declaring plaintiffs Alfredo de Guzman, married to
Gloria Geronimo, and Rodolfo Rubidizo, married
to Lourdes Geronimo, the pro-indiviso owners in equal shares of an area of 112
square meters of that portion of 222 square meters of land covered by TCT No. 22198 and now by TCT No. 37772 in the name of defendant Sunshine
Finance & Investment Corporation; and (3) ordering the Register of Deeds of
Pasig, Metro Manila, to register and annotate upon final judgment this decision
on TCT No. 37772 upon payment of
the required fees therefor by plaintiffs-appellants. No damages and costs.

In the case now before us, the petitioner insists that it had a
right to rely solely on the certificate of title and was under no obligation to
go beyond it to look for encumbrances. It submits that the two cases cited by the respondent court, to wit,
Gatioan v. Gaffud^[3]
and Tomas v. Tomas,^[4]
are not applicable because these involved spurious or fake certificates of
title, unlike the present dispute, where only one perfectly valid certificate
of title was involved. It also rejects Macala v. Mendoza^[5]
because “while there was an
obligation on the part of the vendee to go behind the title because of actual
possession at the time of the sale by somebody other than the vendee, no such
possession was in existence at
the time of the mortgage in this case.”^[6]

A study of the record shows that the petitioner has not adduced
evidence to support this contention. By
contrast, private respondents De Guzman testified that immediately upon their
purchase of the disputed lot in 1979, they built their house thereon,^[7]
from which averment it may be presumed that they remained in possession of the
lot at the time it was mortgaged to Sunshine in 1981. Sunshine never offered any evidence to refute this testimony. Neither has it shown that it made an ocular
inspection of the subject land before it was mortgaged, to ascertain whether
there were adverse claimants occupying it.

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

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

The Court does not intend to disregard the long line of its
decisions holding that “where innocent third persons, relying on the
correctness of the certificate of title thus issued, acquire rights over the
property, the court cannot disregard such rights and order the total
cancellation of the certificate.”^[8] It is
true that “the effect of such cancellation would be to impair public
confidence in the certificate of title, for everyone dealing with property
registered under the Torrens system would have to inquire in every instance as
to whether the title has been regularly or irregularly issued. This is contrary to the evident purpose of
Act 496, Sec. 39, as “innocent purchasers for value” or any equivalent
phrase shall be deemed under Section 38 of that law to include an innocent
lessee, mortgagee or other encumbrances for value. A mortgagee has the right to rely on what appears in the
certificate title, and in the absence of anything to excite suspicion, is under
no obligation to look beyond the certificate and investigate the title of the
mortgagor appearing on the face of the certificate.^[9]

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

Curiously, the petitioner
merely relied on the certificate of title to persuade it that the security offered
was acceptable. It would have been so
simple for it to send one of its trained investigators to make an ocular
inspection of the land which, after all, was not in some remote or forbidding
wilderness. In fact, the lot is
situated in the Municipality of Pasig, a
few kilometers away from the petitioner’s offices at Shaw Boulevard in
Mandaluyong,^[10]
also in Metro Manila. In this context, the petitioner was negligent. It must bear the consequences of that
negligence.

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

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

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

WHEREFORE, the decision of the respondent court dated
March 18, 1968, is AFFIRMED in toto and the petition is DENIED,
with costs against the petitioner. It
is so ordered.

Narvasa, (Chairman), Griño-Aquino,
and Medialdea, JJ., concur.

^[1]
Presided by Judge Celso L. Magsino; Original Records, p. 1.

^[2]
Penned by Justice Sison, P., J., Bidin, Veloso, Britanico &
Bellosillo, JJ., concurring.

^[3]
27 SCRA 706.

^[4]
98 SCRA 706.

^[5]
CA-G.R. No. 13677-R, November 9, 1965.

^[6]
Memorandum for Petitioner, p. 10.

^[7]
TSN, April 26, 1984, pp. 7 & 10.

^[8]
Blanco v. DBP, 58 O.G. 18, p. 2889; Duran v. IAC, 138 SCRA 489;
Penullar v. PNB, 120 SCRA 171; Campillo v. CA, 129 SCRA 519; PNB v.
CA, 187 SCRA 735.

^[9]
De Lara, et al. v. Ayroso, 95 Phil. 185; 50 O.G. (10) 4838; Joaquin v.
Madrid, et al., 106 Phil. 1060 cited in Blanco, et al. v. Esquierdo, et al.,
110 Phil. 2195; Penullar v. PNB, 120 SCRA 171; Phil. National Cooperative
Bank v. Carandang-Villalon, 139 SCRA 570; Gonzales v. IAC, 157
SCRA 595.

^[10]
Rollo, p. 6.