Case Summary (G.R. No. 215038)
Factual Background and Proceedings
On July 1, 1991, Susana Capelo executed a Real Estate Mortgage over a 418-square-meter parcel in Dagupan City (TCT No. 48754) to secure a P35,000 loan from respondent bank. However, Roque Magsano, her spouse, had died on April 17, 1991, before the execution of the mortgage. Upon default, the bank foreclosed the mortgage extra-judicially pursuant to Act No. 3135. The bank became the highest bidder in the foreclosure sale and eventually obtained TCT No. 65394. The property was later sold to Sps. Manuel, who secured TCT No. 67491. Petitioners, asserting possession and ownership interests, refused to vacate, prompting writs of possession and demolition against them. Petitioners sought annulment of the mortgage, foreclosure, sale, and related titles, alleging nullity due to Roque's prior death and lack of consent from co-owners.
Issues Presented
The pivotal issues for judicial resolution were:
(a) Whether or not the Real Estate Mortgage executed by Susana Capelo was valid considering Roque's prior death, dissolving the conjugal partnership and creating a co-ownership arrangement; and
(b) Whether respondents Sps. Manuel were innocent purchasers for value, thereby acquiring valid title to the property.
Regional Trial Court’s (RTC) Decision
The RTC dismissed the complaint, finding petitioners had no cause of action to annul the mortgage because they were not parties thereto and were bound by their mother Susana’s actions. The RTC also held the mortgage and foreclosure valid and legal; even if petitioners had cause, the action was barred by the prescriptive periods under Articles 1144, 1149, and 1150 of the Civil Code. The RTC awarded attorney’s fees and exemplary damages in favor of respondent bank.
Court of Appeals’ (CA) Ruling
The CA affirmed the RTC’s dismissal but deleted the award of attorney’s fees and damages for lack of basis. The CA acknowledged that the mortgage was void insofar as it affected Roque’s share, as he was deceased, rendering the bank a mortgagee in bad faith concerning that portion. However, it held Sps. Manuel as innocent purchasers for value with no fault, whose rights to the title should be respected. The CA denied petitioners’ motion for reconsideration, leading to this petition for review.
Supreme Court’s Analysis: Co-Ownership and Mortgage Validity
The Supreme Court determined that Roque’s death prior to the mortgage’s execution dissolved the conjugal partnership under Article 126(1) of the Family Code, converting Roque’s share into an undivided interest among his heirs and Susana as co-owners. Pursuant to Article 493 of the Civil Code, a co-owner may alienate or mortgage only his undivided share, and such alienation affects only the portion that may be allotted to him upon partition. Susana, therefore, lacked authority to mortgage the entire property without consent of the other co-owners (petitioners). The Real Estate Mortgage’s validity must be confined to Susana’s pro-rata undivided share in the property pending partition.
The Court emphasized that the bank, having failed to verify ownership and due diligence, was a mortgagee in bad faith concerning Roque’s share. Still, this did not extend to the entire subject property but only to Susana's undivided interest.
On the Status of Spouses Manuel as Purchasers for Value
Contrary to the CA’s ruling, the Court found that Sps. Manuel were not innocent purchasers for value with respect to the entire property. The Court reiterated that although title to registered land generally confers security to the purchaser, when the property is physically possessed by a person other than the vendor, the purchaser has the duty to inquire into the rights of the occupant. Here, petitioners possessed the property when Sps. Manuel acquired the title, but there was no showing that Sps. Manuel inspected the property or inquired about petitioners’ possessory rights. Their failure to exercise due diligence under the circumstances precludes them from claiming good faith.
Additionally, the burden to prove innocence as purchasers for value rests on those invoking this defense; mere presumption of good faith is insufficient to discharge evidentiary duties.
Implications on Ownership and Possession Rights
The Court cited prior rulings holding that foreclosure sale and subsequent consolidation of title do not affect existing co-ownership interests of other heirs who did not consent to the mortgage. The bank’s (and by extension Sps. Manuel’s) title over the property is subject to the rights of co-owners, who retain ownership over their respective shares. Titles issued to the bank or third parties thus embody a constructive trust in favor of non-consenting co-owners. Sps. Manuel, having stepped into the bank’s position, only acquired rights equal to those of the bank — i.e., limited to Susana’s undivided share pending partition.
Disposition and Remedial Measures
The Supreme Court partly granted the petition and reversed the CA decision and its denial of certain reliefs. It:
- Declared the Real Estate Mortgage void concerning deceased Roque Magsano’s share;
- Declared Sps. Manuel and petitioners as co-owners of the subject property with respect to Susana’s undivided share;
- Ordered cancellation of TCT No. 67491 issued to Sps. Manuel; and
- Remanded the case to the Regional Trial Court to determine and partition the exact interests and shares of all co-owners in the property.
The writ of possession issued in favor of respondent bank and related proceedings were set aside pending determination of possessory rights, emphasizing the need for equitable adjudication of co-ownership interests.
Concurring Opinion on Applicability of Article 493 of the Civil Code
Justice Caguioa concurred
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Case Syllabus (G.R. No. 215038)
Facts of the Case
- On July 1, 1991, spouses Roque Magsano (deceased on April 17, 1991) and Susana Capelo purportedly executed a Real Estate Mortgage in favor of respondent Pangasinan Savings and Loan Bank, Inc. (formerly Pangasinan Savings and Loan Association, Inc.) covering a 418 square-meter parcel of land in Dagupan City (subject property) covered by TCT No. 48754, as security for a P35,000 loan.
- Mortgagors defaulted on the loan, leading the bank to extrajudicially foreclose the property pursuant to Act No. 3135, with proper notice to the mortgagors.
- The bank emerged as the highest bidder in a public auction held March 21, 1994, with a bid of P65,826.69.
- The mortgagors failed to redeem during the statutory redemption period, resulting in the cancellation of TCT No. 48754 and issuance of TCT No. 65394 in the bank's name.
- The bank then sold the property to spouses Eddie V. Manuel and Milagros C. Ballesteros, who were issued TCT No. 67491.
- Despite demands, the mortgagors refused to vacate the premises, leading to issuance of writs of possession and demolition authorized by the court, resulting in the demolition of petitioners’ houses.
- On September 6, 2004, petitioners (children and heirs of Roque and Susana) filed a complaint for annulment of the Real Estate Mortgage, Certificate of Sale, Sheriff's Final Sale, Deed of Sale, and TCT No. 48754, later amended on September 3, 2007.
- Petitioners claimed the mortgage was void as Roque was deceased at the time of execution and that the property was the family home with no consent of majority beneficiaries. They also asserted that respondents were in bad faith as they knew of the invalid foreclosure and petitioners’ possession.
- Defendants denied knowledge of Roque’s death and contested petitioners’ cause of action and asserted prescription and estoppel defenses, emphasizing petitioners’ implicit approval through acts of their mother Susana and participation in possession proceedings.
Proceedings Before the RTC and CA
- The Regional Trial Court (RTC), in its decision dated April 27, 2012, dismissed the complaint for lack of merit. The RTC held:
- Petitioners had no cause of action as they were not parties to the mortgage and were bound by their mother’s signatures and acts.
- The action was barred by prescription under Articles 1144, 1149, and 1150 of the Civil Code.
- Granted attorneys’ fees, litigation expenses, exemplary damages and costs in favor of defendants.
- Petitioners appealed to the Court of Appeals (CA), which in a decision dated February 14, 2014:
- Affirmed the RTC’s dismissal of the complaint.
- Declared the Real Estate Mortgage void only as to Roque’s share, rendering the bank a mortgagee in bad faith.
- Held spouses Manuel as innocent purchasers for value whose rights should not be prejudiced.
- Deleted the award of damages and fees for lack of basis.
- Petitioners’ motion for reconsideration was denied via CA Resolution dated October 2, 2014, prompting elevation to the Supreme Court (SC).
Issues Before the Supreme Court
- Whether the Real Estate Mortgage executed on July 1, 1991 was void.
- Whether spouses Manuel are purchasers in good faith entitled to protection under the law.
Supreme Court’s Findings and Ruling
- The Court partially granted the petition, ruling notably:
Void Mortgage as to Deceased Roque’s Share
- It was undisputed Roque died on April 17, 1991, before the mortgage execution on July 1, 1991.
- Upon Roque’s death, the conjugal partnership terminated per Article 126(1) of the Family Code.
- An implied co-ownership arose among Susana and Roque’s heirs over undivided s