STATE INVESTMENT HOUSE INC vs.

COURT OF APPEALS Case Digest

G.R. No. 115548 March 5, 1996
STATE INVESTMENT HOUSE INC vs. COURT OF APPEALS

FACTS:

On October 15, 1969, Contract to Sell No. 36 was executed by the Spouses Canuto and Ma. Aranzazu
Oreta, and the Solid Homes, Inc. (SOLID), involving a parcel of land identified as Block No. 8, Lot No.
1, Phase of the Capitol Park Homes Subdivision, Quezon City, containing
511 square meters for a consideration of P39,347.00. Upon signing of the contract, the spouses Oreta
made payment amounting to P7,869.40, with the agreement that the balance shall be payable in
monthly installments of P451.70, at 12% interest per annum.

On November 4, 1976, SOLID executed several real estate mortgage contracts in favor of
State Investment Homes, (sic) Inc. (STATE) over its subdivided parcels of land, one of which is
the subject lot.

For Failure of SOLID to comply with its mortgage obligations contract, STATE extrajudicially foreclosed
the mortgaged properties including the subject lot on April 6, 1983, with the corresponding certificate
of sale issued therefor to STATE annotated at the back of the titles covering the said properties on
October 13, 1983.

On June 23, 1984; SOLID thru a Memorandum of Agreement negotiated for the deferment of
consolidation of ownership over the foreclosed properties by committing to redeem the properties from
STATE.

On August 15, 1988, the spouses filed a complaint before the Housing and Land Use Regulatory
Board, HLRB, against the developer SOLID and STATE for failure on the part of SOLID "to execute
the necessary absolute deed of sale as well as to deliver title to said property . . . in violation of the
contract to sell . . .," despite full payment of the purchase price as of January 7, 1981. In its Answer,
SOLID, by way of alternative defense, alleged that the obligations under the Contract to Sell has
become so difficult . . . the herein respondents be partially released from said obligation by substituting
subject lot with another suitable residential lot from another subdivision which respondents
own/operates". Upon the other hand, STATE, to which the subject lot was mortgaged, averred that
unless SOLID pays the redemption price of P125,1955.00, (sic) it has "a right to hold on and not
release the foreclosed
properties.

ISSUES:

1.) WON Sps. Oreta’s unregistered rights over the subject property are superior to the registered
mortgage rights of petitioner State Investment House, Inc. (STATE)
2.) WON the CA erred in not applying the settled rule that persons dealing with property covered by
torrens certificate of title are not required to go beyond what appears on the face of the title.

HELD:

1.) YES! STATE's registered mortgage right over the property is inferior to that of respondents
spouses' unregistered right. The unrecorded sale between respondents-spouses and SOLID is
preferred for the reason that if the original owner (SOLID, in this case) had parted with his ownership
of the thing sold then he no longer had ownership and free disposal of that thing so as to be able to
mortgage it again. Registration of the mortgage is of no moment since it is understood to be without
prejudice to the better right of third parties.

2.) NO! As a general rule, where there is nothing in the certificate of title to indicate any cloud or vice
in the ownership of the property, or any encumbrance thereon, the purchaser is not required to explore
further than what the Torrens Title upon its face indicates in quest for any hidden defect or inchoate
right that may subsequently defeat his right thereto. This rule, however, admits of an exception as
where the purchaser or mortgagee, has knowledge of a defect or lack of title in his vendor, or that he
was aware of sufficient facts to induce a reasonably prudent man to inquire into the status of the title
of the property in litigation. 7 In this case, petitioner was well aware that it was dealing with SOLID, a
business entity engaged in the business of selling subdivision lots. In fact, the OAALA found that at
the time the lotwas mortgaged, respondent State Investment House Inc., [now petitioner] had been
aware of the lot's location and that the said lot formed part of Capital Park/Homes Subdivision."

In Sunshine Finance and Investment Corp. v. Intermediate Appellate Court, the Court noting
petitioner therein to be a financing corporation, deviated from the general rule that a purchaser
or mortgagee of a land is not required to look further that what appears on theface of the Torrens Title.

The above-enunciated rule should apply in this case as petitioner admits of being a financing
institution. We take judicial notice of the uniform practice of financing institutions to investigate,
examine and assess the real property offered as security for any loan application especially where, as
in this case, the subject property is a subdivision lot located at Quezon City, M.M. It is a settled rule
that a purchaser or mortgagee cannot close its eyes to facts which should put a reasonable man upon
his guard, and then claim that he acted in good faith under the belief that there was no defect in the
title of the vendor or mortgagor. Petitioner's constructive knowledge of the defect in the title of the
subject property, or lack of such knowledge due to its negligence, takes the place of registration of the
rights of respondents-spouses. Respondent Court thus correctly ruled that petitioner was not a
purchaser or mortgagee in good faith; hence petitioner can not solely rely on what merely appears on
the face of the
Flancia vs. Court of Appeals, G.R. No. 146997
FACTS: This is an action to declare null and void the mortgage executed by defendant Oakland
Development Resources Corp. xxx in favor of defendant William Ong Genato over the house and lot
plaintiffs spouses Godofredo and Dominica Flancia purchased from defendant corporation. The
plaintiffs allege that they purchased from defendant corporation a parcel of land known as Lot 12, Blk3,
Phase III-A containing an area of 128.75 square meters situated in Prater Village Subd.; that by virtue
of the contract of sale, defendant corporation authorized plaintiffs to transport all their personal
belongings to their house at the aforesaid lot; that on 24 December 1992, plaintiffs received a copy of
the execution foreclosing the mortgage several lots formerly owned by defendant corporation including
subject lot of plaintiffs; that the alleged mortgage of subject lot is null and void as it is not authorized
by plaintiffs pursuant to Article 2085 of the Civil Code which requires that the mortgagor must be the
absolute owner of the mortgaged property; that as a consequence of the nullity of said mortgage, the
execution foreclosing the mortgage is likewise null and void; that plaintiffs advised defendants to
exclude subject lot from the auction sale but the latter refused. Defendant Genato, on the other hand,
averred that co-defendant Oakland Development Resources Corporation mortgaged to Genato two
parcels of land covered as security and guaranty for the payment of a loan in the sum of P2M; that
said real estate mortgage has been duly annotated at the back of its Transfer Certificate of Title; that
for nonpayment of the loan of 2M defebdabt Genato filed an action for foreclosure of real estate
mortgage against co-defendant corporation; that after trial, decision was granted to foreclose the said
mortgage; that the alleged plaintiffs’ Contract to Sell does not appear to have been registered with the
Register of Deeds to affect defendant Genato and the latter is thus not bound by the plaintiffs’ Contract
to Sell.

ISSUES: (1) whether or not the registered mortgage constituted over the property was valid;
(2) whether or not the registered mortgage was superior to the contract to sell; and
(3) whether or not the mortgagee was in good faith.

HELD:

FIRST ISSUE: WAS THE REGISTERED MORTGAGE VALID?

The contract between Spouses Flancia and Oakland, aside from the fact that it was denominated as
a contract to sell, the intention of Oakland not to transfer ownership to petitioners until full payment
of the purchase price was very clear. Acts of ownership over the property were expressly withheld by
Oakland from petitioner. All that was granted to them by the occupancy permit was the right to
possess it.
Clearly, when the property was mortgaged to Genato in May 1989, what was in e ect between
Oakland and Spouses Flancia was a contract to sell, not a contract of sale. Oakland retained
absolute ownership over the property.
Ownership is the independent and general power of a person over a thing for purposes recognized
by law and within the limits established thereby. According to Art. 428 of the Civil Code, this means
that:
The owner has the right to enjoy and dispose of a thing, without other limitations than those
established by law. Aside from the jus utendi and the jus abutendi inherent in the right to enjoy the
thing, the right to dispose, or the jus disponendi, is the power of the owner to alienate, encumber,
transform and even destroy the thing owned.
Because Oakland retained all the foregoing rights as owner of the property,
it was entitled absolutely to mortgage it to Genato. Hence, the mortgage was valid.

SECOND ISSUE: WAS THE REGISTERED MORTGAGE SUPERIOR TO THE CONTRACT TO

SELL?
An unregistered sale is preferred over a registered mortgage over the same property yet this
inapplicable to the case at bar. A contract of sale and a contract to sell are worlds apart. In the case
before us, Oakland retained absolute ownership over the property under the contract to sell and
therefore had every right to mortgage it. Genatos registered mortgage was superior to petitioners
contract to sell, subject to any liabilities Oakland may have incurred in favor of Spouses Flancia by
irresponsibly mortgaging the property to Genato despite its commitments under their contract to sell.

THIRD ISSUE: WAS THE MORTGAGE IN GOOD FAITH?

The third issue involves a factual matter which should not be raised in this petition. Only questions of
law may be raised in a Rule 45 petition. This Court is not a trier of facts. Just as an innocent
purchaser for value may rightfully rely on what appears in the certi cate of title, a mortgagee has the
right to rely on what appears in the title presented to him. In the absence of anything to arouse
suspicion, he is under no obligation to look beyond the certi cate and investigate the title of the
mortgagor appearing on the face of the said certicate.
Title: LEONARDO CASTILLO vs. SECURITY BANK CORPORATION, et.al Source, Date: G.R. No.
196118. 30 July 2014

Facts:
In 1994, the Spouses Castillo obtained a loan from respondent SBC in
the amount of P45,000,000.00. To secure said loan, they executed a real estate mortgage on
August 5, 1994 over eleven (11) parcels of land belonging to di erent members of the Castillo family
and which are all located in San Pablo City. They also procured a second loan amounting to
P2,500,000.00, which was covered by a mortgage on a land in Pasay City. The Spouses Castillo
failed to settle the loan, prompting SBC to proceed with the foreclosure of the properties. SBC was
then adjudged as the winning bidder in the foreclosure sale. On January 30, 2002, Leonardo Castillo
led a complaint for the partial annulment of the real estate mortgage alleging that he owns one of the
properties and that the Spouses Castillo used it as one of the collaterals for a loan without his
consent. He said the date of issuance of his Community Tax Certi cate (CTC) is January 11, 1993,
when he only secured the same on May 17, 1993. He also assailed the foreclosure of the lots which
were still registered in the name of their deceased father. Spouses Castillo meanwhile insisted on
the validity of Leonardo’s Special Power of Attorney (SPA). They alleged that they incurred the loan
not only for themselves, but also for the other members of the Castillo family who needed money at
that time. However, when the loan became due, their relatives failed to pay their respective shares
such that Leon was forced to use his own money until SBC had to nally foreclose the mortgage over
the lots. The trial court ruled in Leonardo’s favor, and the Court of Appeals a rmed the decision.
Hence, this petition.

Issue:
Whether or not the real estate mortgage constituted over the property
is valid and binding

Held:
Yes. Petition denied.

Ruling:
Art. 2085 of the Civil Code states that the following are the legal
requisites for a mortgage to be valid: (1) It must be constituted to secure the ful llment of a principal
obligation; (2) The mortgagor must be the absolute owner of the thing mortgaged; (3) The persons
constituting the mortgage must have the free disposal of their property, and in the absence thereof,
they should be legally authorized for the purpose.

Leonardo asserts that his signature in the SPA authorizing his brother Leon to mortgage his property
was falsi ed, claiming that he was in America when this happened. But there was no corroborative
evidence that supports this. There is reasonable ground to believe that, as the CA correctly
observed, the CTC could have been issued with the space for the date left blank and Leonardo
merely lled it up to accommodate his assertions. Also, upon careful examination, the handwriting
appearing on the space for the date of issuance is di erent from that on the computation of fees,
which in turn was consistent with the rest of the writings on the document. Even if assuming
Leonardo was right in that he secured his CTC only on May 17, 1993, the SPA is not automatically
invalid. Defective notarization will simply strip the document of its public character and reduce it to a
private instrument, but nonetheless, binding, provided its validity is established by preponderance of
evidence (Art. 1358 of the CC)
Leonardo was aware of the mortgage and he indeed executed the SPA to entrust Leon with the
mortgage of his property. Leon had in his possession all the titles covering the eleven (11) properties
mortgaged, including that of Leonardo. Leonardo and the rest of their relatives could not have just
blindly ceded their respective TCTs to Leon, and it is likewise ridiculous that Leonardo would have
been oblivious to the status of his property for eight (8) years and would only nd out about the
foreclosure from his nephew who also consented to the mortgage. Leonardo himself admitted on
cross- examination that he granted Leon authority to mortgage, only that, according to him, he
thought it was going to be with China Bank, and not SBC but no speci c bank was mentioned in the
SPA.
PATERNO R. CANLAS, petitioner,vs.HON. COURT OF APPEALS, and FRANCISCO
HERRERA,respondents.

G.R. No. L-77691 August 8, 1988

SARMIENTO,J .:

Facts:
The private respondent own several parcels of land located in Quezon City for which he is the
registered owner. He secured loans from L and R corporations and executed deeds of mortgage over
the parcels of land for the security of the same. Upon the maturity of said loans, the firm initiated an
extrajudicial foreclosure of the properties in question after private respondent failed to pay until
maturity. The private respondent filed a complaint for injunction over the said foreclosure and for
redemption of the parcels of land. Two years after the filing of the petition, private respondent and L
and R corporation entered into a compromise agreement that renders the former to be insured another
year for the said properties. Included in the stipulations were the attorney’s fees amounting to Php
100,000.00. The private respondent however, remained to be in turmoil when it came to finances and
was apparently unable to pay and secure the attorney’s fees, more so the redemption liability. Relief
was discussed by petitioner and private respondent executed a document to redeem the parcels of
land and to register the same to his name. Allegations were made by the private respondent claiming
the parcels of land to his name but without prior notice, the properties were already registered under
the petitioner’s name. The private respondent calls for a review and for the court to act on the said
adverse claim by petitioner on said certificates for the properties consolidated by the redemption price
he paid for said properties. The private respondent filed a suit for the annulment of judgment in the
Court of appeals which ruled over the same.

Issue: whether the petitioner is on solid ground on the reacquisition over the said properties.

Ruling:

By Atty. Canlas' own account, "due to lack of paying capacity of respondent Herrera, no financing
entity was willing to extend him any loan with which to pay the redemption price of his mortgaged
properties and petitioner's P100,000.00 attorney's fees awarded in the Compromise Judgment," a
development that should have tempered his demand for his fees. For obvious reasons, he placed his
interests over and above those of his client, in opposition to his oath to "conduct himself as a lawyer ...
with all good fidelity ... to [his] clients." The Court finds the occasion fit to stress that lawyering is not a
moneymaking venture and lawyers are not merchants, a fundamental standard that has, as a matter
of judicial notice, eluded not a few law advocates. The petitioner's efforts partaking of a shakedown"
of his own client are not becoming of a lawyer and certainly, do not speak well of his fealty to his oath
to "delay no man for money." We are not, however, condoning the private respondent's own
shortcomings. In condemning Atty. Canlas monetarily, we cannot overlook the fact that the private
respondent has not settled his liability for payment of the properties. To hold Atty. Canlas alone liable
for damages is to enrich said respondent at the expense of his lawyer. The parties must then set off
their obligations against the other.