G.R. No. 205271 - Land Bank of the Philippines vs. Belle Corporation

Case Summary (G.R. No. 205271)

Factual Background

Respondent Belle Corporation alleged ownership in possession of four parcels known as Lots 1 to 4 of consolidation and subdivision plan Pcs‑04‑010666, aggregate area 317,918 square meters, under TCT Nos. P‑1863 to P‑1866. On October 31, 1996 Belle received a demand from Florosa A. Bautista claiming that an entrance road constructed by Belle intruded upon property covered by TCT No. P‑671. Bautista caused posting of a notice asserting that a geodetic re‑survey showed the entrance road to be inside the perimeter of land under TCT No. P‑671, which descended from OCT No. OP‑283 issued pursuant to Free Patent No. (IV‑4) 12573 in 1977. Belle maintained that its title traced instead to earlier OCT Nos. 0‑216 and 55, registered respectively in 1959 and 1941, and thus that Bautista’s free patent constituted a cloud on Belle’s title.

Trial Court Proceedings

Respondent filed a complaint for quieting of title and damages on November 20, 1996. A joint request produced a DENR verification survey by Engr. Robert C. Pangyarihan. During trial Belle discovered that Bautista’s title had been foreclosed and that Petitioner Land Bank held TCT No. P‑3663 issued after a public auction. Belle moved to implead the bank as an indispensable party; the RTC granted leave and had Land Bank answer with special defenses, a compulsory counterclaim, and a third‑party complaint against Liezel’s Garments, Inc. Trial evidence included testimonies and certificates of title addressing the chain of registrations from OCTs to the contested TCTs. On April 12, 2004 the RTC declared TCT No. P‑1863 void insofar as the 7,693 square meters that overlapped Bautista’s property, ordered cancellation of that portion, and directed issuance of a corrected title.

Court of Appeals Ruling

On appeal the CA annulled and set aside the RTC decision in its November 23, 2011 judgment. The CA declared Petitioner‑appellant Belle Corporation the legitimate owner of the disputed property and held TCT No. P‑671 issued to Florosa A. Bautista and derivative TCT No. P‑3663 issued to Land Bank of the Philippines void ab initio. The CA ordered the Register of Deeds of Tagaytay City to cancel the respondents’ certificates of title and to correct entries in TCT No. P‑1863. The CA also ordered Bautista and Liezel’s Garments, Inc. to jointly pay Land Bank P16,327,991.40, and ordered Bautista and Land Bank to jointly and severally pay Belle Corporation P100,000.00 as attorney’s fees. In a January 17, 2013 resolution denying reconsideration, the CA clarified that the voiding of TCT Nos. P‑671 and P‑3663 applied insofar as the seven thousand six hundred ninety‑three square meter portion which overlapped Belle’s land.

Issues Presented to the Supreme Court

Petitioner raised four assignments of error: (A) whether Belle was bound by the findings of the jointly commissioned expert and the DENR verification survey; (B) whether the CA erred in failing to apply Section 44, Rule 130 on entries in official records; (C) whether the CA erred in finding Land Bank not a mortgagee in good faith; and (D) whether the CA properly awarded attorney’s fees to Belle.

Supreme Court Disposition

The petition was denied. The Supreme Court affirmed the CA Decision and Resolution with modification. The Court confirmed that Belle Corporation was the rightful owner of the contested 7,693 square meter portion. The Court reversed the CA’s order jointly charging Bautista and Liezel’s Garments, Inc. to pay Land Bank P16,327,991.40 and modified liability so that only Liezel’s Garments, Inc. was held liable to pay that amount. All other portions of the CA judgment were affirmed.

Legal Basis for Title Priority and DENR Survey Error

The Court found error in the reliance upon the DENR verification survey’s conclusion as to priority of registration because the surveyer used erroneous entries appearing on the face of certain TCTs. The evidentiary record established that the origins of TCT Nos. P‑1863 to P‑1867 derived from OCT Nos. 0‑216 and 55, registered in 1959 and 1941 respectively, rather than OCT No. OP‑287 or OP‑283 dated 1977. The Register of Deeds had conflated and misrecorded title sources and land areas when several titles were simultaneously registered on December 12, 1995. Because OCT Nos. 0‑216 and 55 predated Bautista’s OCT No. OP‑283, Belle’s title to the overlapping area prevailed. The Court therefore held that the DENR survey’s opposite conclusion was a consequence of relying on inaccurate title entries.

Standards for Mortgagees and the Court’s Finding on Good Faith

The Court applied the established rule that banks, as institutional mortgagees, are held to a heightened standard of diligence. The Court reiterated that banking institutions cannot rest solely on the facial appearance of a certificate of title. Instead, they must take customary and reasonable steps to verify the genuineness of the title and the actual condition and possession of the mortgaged property. Land Bank’s representatives had noted on appraisal that an access road traversed the mortgaged lot but ceased inquiry when DENR and the Tax Mapping Section produced no survey record. The Court found that Land Bank failed to inquire further of apparent and readily ascertainable facts, such as speaking with adjacent owners or occupants, and thus closed its eyes to a suspicion that a prudent bank must investigate. The Court concluded that Land Bank’s negligence in accepting as collateral a property visibly traversed by an improvement benefitting Belle constituted bad faith or gross negligence sufficient to defeat its claim as an innocent mortgagee or purchaser for value. The Court also observed that a notice of lis pendens had been annotated on TCT P‑671 on November 20, 1996, prior to the public auction of September 10, 1997.

Liability for Proceeds of Foreclosure Sale

The Court corrected the CA’s award that had made Bautista jointly liable with Liezel’s Garments, Inc. to reimburse Land Bank for the auction price. The Court explained that Bautista acted as a third‑party or accommodation mortgagor who mortgaged her property to secure Liezel’s Garments’ indebtedness. Under governing authority, including Cerna v. Court of Appeals, a third‑party mortgagor is not solidarily bound with the principal debtor; the creditor’s primary recourse is first upon the

Case Syllabus (G.R. No. 205271)

Parties and Procedural Posture

Belle Corporation filed Civil Case No. TG-1672 for quieting of title and damages and sought injunctive relief against Florosa A. Bautista and the Register of Deeds of Tagaytay City.
Florosa A. Bautista asserted ownership over a portion of the access road and held title under TCT No. P-671 derived from OCT No. OP-283 pursuant to a free patent.
Land Bank of the Philippines was impleaded by Belle Corporation as an indispensable party after Land Bank foreclosed Bautista’s mortgage and obtained TCT No. P-3663.
Liezel’s Garments, Inc. was impleaded as third-party defendant by Land Bank under its Omnibus Credit Line Agreement and promissory notes.
The present petition was brought under Rule 45 of the 1997 Rules of Civil Procedure to review the Court of Appeals decisions annulling the Regional Trial Court judgment.

Key Factual Allegations

Belle Corporation possessed TCT Nos. P-1863 to P-1867 covering consolidated and subdivided lots formed from earlier OCT Nos. 0-216 and 55 and developed an entrance road through the disputed area.
Bautista claimed that a portion of that entrance road intruded into her property under TCT No. P-671 and posted a sign and sent a demand in late 1996 asserting exclusive control of the access.
A joint DENR verification survey by Engr. Pangyarihan, commissioned by the parties, initially concluded that the dates shown on the mother titles favored Bautista.
Bautista mortgaged TCT No. P-671 to Land Bank in August 1994 and later defaulted, after which Land Bank foreclosed and obtained TCT No. P-3663 by registration on June 9, 1999.
Belle Corporation alleged that the face entries of TCT Nos. P-1863 to P-1867 erroneously recorded their origin and that their true mother titles were OCT Nos. 0-216 and 55, which predated OCT No. OP-283.

Procedural History

The Regional Trial Court, Branch 18, Tagaytay City, issued a decision dated April 12, 2004 declaring TCT No. P-1863 void insofar as the overlapping 7,693 square meters and ordered cancellation and reissuance of title entries.
The Court of Appeals, by decision dated November 23, 2011 and resolution dated January 17, 2013, reversed the RTC and declared Belle Corporation the legitimate owner of the disputed property while ordering cancellation or correction of Bautista’s and Land Bank’s titles in respect of the overlapping portion.
The Court of Appeals further ordered Bautista and Liezel’s Garments, Inc. to pay Land Bank the sum of P16,327,991.40 and ordered respondents to pay Belle Corporation P100,000.00 as attorney’s fees.
Land Bank filed the present petition under Rule 45 to challenge the Court of Appeals rulings asserting errors of law and fact.

Issues Presented

Whether the Court of Appeals erred in holding that Belle Corporation was not bound by the findings of the joint expert who conducted the verification survey.
Whether the Court of Appeals erred in failing to apply Section 44, Rule 130 of the Rules of Court on entries in official records.
Whether the Court of Appeals erred in finding that Land Bank was not a mortgagee in good faith.
Whether the Court of Appeals correctly awarded attorney’s fees to Belle Corporation.

Trial Court Ruling

The RTC credited the DENR verification survey and found that the dates of registration shown on the face of titles established that Bautista’s title predated Belle Corporation’s title.
The RTC declared TCT No. P-1863 void insofar as the overlapping 7,693 square meters and ordered the Register of Deeds to ca