Lloyd Enterprises and Credit Corp v Dolleton

GR 171373
Facts
Herein respondents spouses Dolleton were the registered owners of a parcel
of land in Brgy Putatan, Muntinlupa City and an apartment was erected
therein. On August 1990, herein respondents entered into a contract of
mortgage to Joseph Patrick Santos over the said property to secure a loan in
the amount of 100,000. On August 15 1994, the loan was paid in full hence
Santos executed a release and cancellation of the mortgage.
However, on September 1994, the TCT supposed to be issued in the name of
herein respondents was canceled, and a new TCT was issued in the name of
Gagan on the basis of a Deed of Absolute Sale which was purportedly
executed by herein respondents in favor of Gagan on August 1994. Four days
after the issuance of the new TCT, a contract of loan secured by a real estate
mortgage over the said property was executed by herein petitioner company
to Gagan with the sum of 391,512. After payment of the load and the
cancellation of the first mortgage, Gagan entered into another contract of
lease secured by real estate mortgage over the said property to herein
petitioner company, with a bigger sum of 542,928. However, Gagan failed to
pay the second loan upon its maturity hence, upon the filing of the petitioner
of an extrajudicial foreclosure proceedings, the said property was made
subject to a public auction, the petitioner being the highest bidder with the
amount of 645,000. Gagan failed to redeem the said property after one year,
hence the petitioner acquired ownership of the said property.
Herein respondents filed a complaint in the RTC praying for the nullification of
the purported deed of sale between them and Gagan, and the real estate
mortgages entered by the latter with the petitioner , and the foreclosure
proceedings, and lastly, recover ownership of the said property. Herein
respondents aver that the contract they entered into with Gagan was a mere
contract to sell the property for 900,000 on installment basis in order for
them to be able to pay the loan they entered into with Joseph Santos. That
after Gagan initially paid them 200,000, the herein respondents entrusted the
original TCT to him. However, aside from the 185,000 paid by Gagan, the
latter failed to pay the remaining balance and he undertook the cancellation
of the mortgage between the respondents and joseph Santos, and that Gagan
fraudulently caused the cancellation of the original TCT, and a new TCT to be
issued in his name. Respondents also impugn negligence over herein
petitioner for failing to conduct necessary inquiries regarding the said
property considering all the suspicious circumstances which were present at
the time Gagan requested for a loan to the petitioner.

Issue:
Whether or not the petitioner is a mortgagee-purchaser in good faith

Held:
NO. Based on the factual findings of the RTC, which were further confirmed by
the Court of Appeals, herein petitioner was negligent. The petitioner, being a
company engaged in a business of extending credits to the public is obligated
to exercise a higher degree of diligence on their part as compared to ordinary
buyers, in order to prevent causing injuries to prior and future innocent
buyers. It was ruled in other cases decided by the Court that such degree of
diligence is indeed required of them. The contention of the petitioner that
they are not required to look further than what appears on the face of the
title is bereft of merit. The petitioner is required to conduct adequate inquiries
over said properties, being the subject of transaction and a registered lands,
when there is a sufficient reason for them to doubt their validity. In this case,
the Court avers that if the petitioner investigated the property with due
diligence, it would have noticed that the said property is currently being
leased hence should have raised sufficient doubt over its validity.
Furthermore, the fact that immediately after acquiring the new TCT issued in
Gagan's name, the latter offered such as a security for the loan, and
regarding the amount that Gagan paid which is 120,000 to herein
respondents for the purported sale is unconscionably low compared to its
prospective value which 900,000. These cirmcumstances should have
prompted herein petitioners to conduct an inquiry over the said property.