G.R. No. 150730 - Llanto vs. Alzona

Case Summary (G.R. No. 150730)

Origin of the Dispute and Material Facts

Bernardo Sales and Maria Sales were husband and wife. They had twelve children: eleven were petitioners, and the remaining child, Estela Sales Pelongco, was a respondent. Maria Sales was the registered owner of the subject land, which she acquired under a free patent, and she held OCT No. P-3225. Until their deaths, Maria and Bernardo, together with some of their children, lived on the property and used it as their residence.

Maria Sales died on August 27, 1986, and Bernardo Sales died on January 1, 1997. On January 29, 1990, a real estate mortgage contract was purportedly executed by Maria and Bernardo in favor of Dominador Alzona. At that time, Maria was already deceased. Estela Sales Pelongco signed the mortgage contract as an instrumental witness. Ernesto Alzona admitted that he was a co-mortgagee of Dominador, but his name did not appear in the mortgage contract.

The mortgage was allegedly foreclosed for failure to settle the obligation secured by it. On December 20, 1990, a mortgage sale was conducted, and Ernesto Alzona was the highest bidder. A certificate of sale was awarded to Ernesto on December 20, 1990, and on January 22, 1992, he executed a Consolidation of Ownership. As a result, Transfer Certificate of Title No. T-261853 was issued in Ernesto’s name, and the original title of Maria Sales was cancelled.

On December 17, 1992, petitioners caused the inscription of an adverse claim on the property’s title. On October 15, 1993, petitioners filed with the RTC a complaint for Annulment of Mortgage and of Auction Sale, with Reconveyance of Title and Damages.

RTC Proceedings and Ruling

Respondents Ernesto and Dominador Alzona and the Register of Deeds of Calamba, Laguna filed their respective answers. However, respondent Estela Sales Pelongco failed to file an answer and was declared in default.

After trial, the RTC ruled in favor of Dominador Alzona and Ernesto Alzona and against Estela Sales, dismissing petitioners’ complaint as to Estela. It dismissed petitioners’ complaint against the Register of Deeds for lack of evidence. It also awarded attorneys’ fees and moral damages against Estela Sales, but, due to “paucity of evidence,” it declined to grant other reliefs sought in multiple aspects of the case.

Court of Appeals Proceedings and Disposition

Petitioners appealed to the Court of Appeals. On March 19, 2001, the CA issued a decision affirming the RTC judgment but deleting the attorneys’ fees awarded to petitioners. The CA later denied petitioners’ motion for reconsideration on October 26, 2001.

Petitioners’ Theory and Issues Raised

In their petition to the Supreme Court, petitioners challenged the CA’s application of the principle that a purchaser or mortgagee of land is not obligated to look beyond the certificate of title. They argued that this doctrine should not apply because there was supposedly no issue as to the title of the mortgagor and because a different person allegedly mortgaged the property. They further contended that a mortgagee, particularly one in the lending business, must take precautions expected of prudence before entering into a mortgage contract.

Petitioners emphasized that the mortgagors were not the owners of the property subject of the mortgage, and they framed the remaining question as whether Ernesto and Dominador were mortgagees in good faith. They asserted that the doctrine of innocent purchasers for value, as applied by the CA, was inapplicable because in the cited cases there was no question that the mortgagors were the real owners. Petitioners insisted that here, the mortgagors were impostors who pretended to be the owners.

Legal Framework Applied by the Supreme Court

The Court held that the Civil Code requires that, as an essential requisite, the mortgagor must be the absolute owner of the property to be mortgaged; otherwise, the mortgage is generally null and void under Article 2085. Nonetheless, the Court recognized an exception: the doctrine of mortgagee in good faith. Under this doctrine, the mortgage contract and any foreclosure sale arising therefrom are given effect based on public policy, even if the mortgagor is not the owner. This rests on the rule in Torrens land dealings that persons dealing with property covered by a Torrens certificate—whether as buyers or mortgagees—are not required to look beyond the face of the title.

The Court further reiterated that jurisprudence requires a mortgagee in good faith, especially one engaged in real estate or financing, to take the necessary precautions expected of a prudent person to verify the identity of the persons with whom they transact and to ascertain the status of the property offered as collateral.

Findings on Good Faith and Due Diligence

The CA affirmed the RTC’s conclusion that Ernesto and Dominador were mortgagees in good faith. The trial court had found credible Ernesto’s testimony that he conducted a credit investigation before approving the loan and the mortgage. The Supreme Court stressed that the assessment of witness credibility belongs to the trial court, which is best positioned to observe demeanor. It also stated that such findings merit great respect and are binding unless arbitrary or affected by overlooked, misunderstood, or misapplied facts or circumstances, particularly when affirmed by the appellate court.

In reviewing the evidence, the Court found no cogent reason to depart from the lower courts’ findings. It considered Ernesto’s testimony during cross-examination, in which he described how he visited the property location, relied on a sketch given to him, inquired from neighbors about the property’s location, and attempted to verify the identity and relationship of persons connected to the property. Ernesto testified that he inquired from neighbors and that the neighbors related that the person applying for the loan was connected to Bernardo and Maria Sales. The testimony also indicated that Ernesto met multiple members of the Sales family at the property, including Yolanda, Gloria, and Conrado, together with Estela, and that the mortgage discussion occurred in the presence of those persons.

The Court noted that petitioners had not disputed Ernesto’s claims at trial in a manner that directly contradicted the material points. It observed that petitioners’ disputation appeared only in their motion for reconsideration before the CA, where their denial focused mainly on the alleged presence of Gloria Sales inside the house; it did not contradict Ernesto’s broader claim that he met Conrado and Yolanda inside the house. The Court further found that Francisco and Gloria Sales had testified that Estela, Yolanda, Gloria, and Conrado were living in the house built on the property during the relevant period between 1989 and 1990, which supported the likelihood that Ernesto’s encounter took place as he described.

The Court also observed that the RTC credited Ernesto’s testimony that he was shown a copy of the OCT and the tax dec

Case Syllabus (G.R. No. 150730)

Parties and Procedural Posture

Mila Sales Llanto, Yolanda Sales Cabillo, Oscar Sales, Aquilina Sales, Francisco Sales, Alberto Sales, Gloria Sales Alipio, Eduardo Sales, Emerencia-na Sales Algire, Elenita Sales Serrano, and Conrado Sales filed a petition for review on certiorari under Rule 45 assailing a Court of Appeals decision.
The respondents were Ernesto Alzona, Dominador Alzona, Estela Sales Pelongco, and the Register of Deeds of Calamba, Laguna.
The Court of Appeals affirmed with modification the Regional Trial Court decision and later denied petitioners’ motion for reconsideration.
The case originated from petitioners’ complaint for Annulment of Mortgage and of Auction Sale, with Reconveyance of Title and Damages filed before the RTC of San Pedro, Laguna (Branch 31).
The RTC declared Estela Sales Pelongco in default for failure to file an answer.
After trial, the RTC largely dismissed petitioners’ complaint as to Dominador and Ernesto Alzona and the Register of Deeds, while awarding attorney’s fees and moral damages against Estela.

Key Factual Allegations

The property involved was a 202-square-meter parcel of land in Banlic, Cabuyao, Laguna, covered by OCT No. P-3225 in the name of Maria Sales, acquired under a free patent.
Maria Sales died on August 27, 1986, and Bernardo Sales died on January 1, 1997.
Despite Maria’s prior death, a real estate mortgage contract was purportedly executed on January 29, 1990 by Maria and Bernardo in favor of Dominador Alzona.
Estela Sales Pelongco signed as an instrumental witness to the mortgage contract.
Ernesto Alzona admitted he was a co-mortgagee with Dominador but stated his name did not appear in the mortgage contract.
The mortgage was foreclosed due to alleged failure of Bernardo and Maria to settle their obligation secured by the mortgage.
A mortgage sale occurred on December 20, 1990, where Ernesto Alzona was the highest bidder.
After the sale, Ernesto received a certificate of sale, and on January 22, 1992, he executed a Consolidation of Ownership.
Transfer Certificate of Title No. T-261853 was issued in Ernesto’s name, and OCT No. P-3225 was cancelled.
Petitioners later inscribed an adverse claim on December 17, 1992.
Petitioners’ theory was that the mortgagors in the mortgage deed were not the real owners because the mortgage was executed by impostors impersonating Bernardo and Maria Sales.

Statutory and Jurisprudential Framework

The essential requirement under Art. 2085 of the Civil Code was that the mortgagor must be the absolute owner of the property to be mortgaged.
The Court recognized that when the mortgagor is not the absolute owner, the mortgage is generally null and void under Art. 2085.
The Court also recognized the doctrine of mortgagee in good faith, under which a mortgage contract and foreclosure arising therefrom may be given effect even if the mortgagor is not the owner, based on public policy.
The doctrine is anchored on the rule that parties dealing with land under the Torrens system are not required to go beyond what appears on the face of the title.
The Court held that jurisprudence treats the protection of good-faith mortgagees as analogous to the principle of innocent purchasers for value.
The Court cited that for one engaged in real estate or financing business, good faith requires taking the necessary precautions expected of a prudent man to ascertain the collateral’s status and to verify the identity of persons transacting as claimed property owners.
The Court relied on prevailing jurisprudence requiring due diligence by mortgagees when verifying the identity and status of the property offered as collateral, including Cavite Development Bank vs. Lim, Cebu International Finance Corporation vs. Court of Appeals, Cabuhat vs. Court of Appeals, and Adriano vs. Pangilinan.
The Court also cited decisions on respect for trial court credibility findings, including Rodriguez vs. Court of Appeals and Dela Cruz vs. Court of Appeals.

Issues Raised on Appeal

Petitioners argued that the rule protecting purchasers or mortgagees who rely on the certificate of title should not apply because there was allegedly no good faith issue for the real owner.
Petitioners contended that the principle of innocent purchasers for value cited by the CA was inapplicable because the mortgagors were allegedly impostors rather than the true owners.
Petitioners asserted that a mortgagee, particularly one in the lending business, was legally required to take precautions which prudence would dictate before entering into a mortgage contract.
Petitioners focused the remaining controversy on whether Ernesto and Dominador could be con