[G.R. No.

L-64159 September 10, 1985]

CIRCE S. DURAN and ANTERO S. GASPAR, petitioners, vs. INTERMEDIATE

APPELLATE COURT, ERLINDA B. MARCELO TIANGCO and RESTITUTO
TIANGCO, respondents.

RELOVA, J.:

Facts:

On May 13, 1963, a Deed of Sale of the two lots mentioned above was made in
favor of Circe's mother, Fe S. Duran who, on December 3, 1965, mortgaged the
same property to private respondent Erlinda B. Marcelo-Tiangco. When petitioner
Circe S. Duran came to know about the mortgage made by her mother, she wrote
the Register of Deeds of Caloocan City informing the latter that she had not given
her mother any authority to sell or mortgage any of her properties in the
Philippines. Failing to get an answer from the registrar, she returned to the
Philippines. Meanwhile, when her mother, Fe S. Duran, failed to redeem the
mortgage properties, foreclosure proceedings were initiated by private respondent
Erlinda B. Marcelo Tiangco and, ultimately, the sale by the sheriff and the issuance
of Certificate of Sale in favor of the latter.

Petitioner Circe S. Duran claims that the Deed of Sale in favor of her mother Fe S.
Duran is a forgery, saying that at the time of its execution in 1963 she was in the
United States. On the other hand, the adverse party alleges that the signatures of
Circe S. Duran in the said Deed are genuine and, consequently, the mortgage made
by Fe S. Duran in favor of private respondent is valid.

Issue:

WON the mortgage was void for the mortgagor was not the absolute and true owner
of the property mortgaged

Held:

Under Art. 2085 of the Civil Code, it is essential that the mortgagor be the absolute
owner of the property mortgaged, and while as between the daughter and the
mother, it was the daughter who still owned the lots, STILL insofar as innocent
third persons are concerned the owner was already the mother (Fe S.
Duran) inasmuch as she had already become the registered owner (Transfer
Certificates of Title Nos. 2418 and 2419). The mortgagee had the right to rely upon
what appeared in the certificate of title, and did not have to inquire further. If the
rule were otherwise, the efficacy and conclusiveness of Torrens Certificate of Titles
would be futile and nugatory. Thus the rule is simple: the fraudulent and forged
document of sale may become the root of a valid title if the certificate has already
been transferred from the name of the true owner to the name indicated by the
forger.
What is important is that at the time the mortgage was executed, the
mortgagees in good faith actually believed Fe S. Duran to be the owner, as
evidenced by the registration of the property in the name of said Fe S.
Duran. A mortgagee has the right to rely on what appears in the
certificate of title and, in the absence of anything to excite suspicion, he is
under no obligation to look beyond the certificate and investigate the title
of the mortgagor appearing on the face of said certificate.

[G.R. No. 122425 September 28, 2001]

FLORDELIZA H. CABUHAT, petitioner, vs. THE HONORABLE COURT OF

APPEALS, SPECIAL FIFTH DIVISION and MERCEDES H. AREDE, respondents.

YNARES-SANTIAGO, J.:

Facts:

Mary Ann Arede was barely three days old when appellant Mercedes Arede
informally adopted her as the latter's own daughter. In December, 1972, appellant
purchased a parcel of land situated in Bagbag, Ligtong, Rosario, Cavite comprising
an area of 1,313 square meters. The said land was registered by appellant in Mary
Ann Arede's name and the corresponding title was issued by the Register of Deeds
of Cavite on December 9, 1972 as Transfer Certificate of Title No. T-56225.
According to appellant, the said title was always in her possession which she kept in
a locked drawer in her residence.

Upon reaching the age of majority and unknown to appellant, Mary Ann Arede
obtained a reconstituted owner's duplicate of TCT No. T -56225 thru the use of a
falsified court order supposedly issued by the Regional Trial Court of Cavite,
whereby the court purportedly directed the Register of Deeds of Cavite to issue
another owner's duplicate copy of TCT No. T-56225, which Mary Ann Arede claimed
to have lost. Using this reconstituted title, Mary Ann Arede mortgaged the land to
the Rural Bank, of Noveleta, Cavite on February 28, 1989. Upon release of the
mortgage, the land was again mortgaged by Mary Ann Arede on May 16, 1990, this
time to appellee FlordelizaCabuhat for the amount of P300,000.00, which mortgage
was registered by appellee on the following day at the Register of Deeds of Cavite.

It appeared however that prior to the second mortgage on May 16, 1990, the
subject lot was sold by Mary Ann Arede to appellant Mercedes Arede in
consideration of the sum of P100,000.00 as evidenced by a Deed of Sale dated
January 17, 1990 (Annex E, Record, p. 17). Unfortunately, this sale was not
registered by appellant.

Hence, upon knowledge of the mortgage to appellee Cabuhat, appellant was

prompted to commence the instant suit for annulment of title.
Mercedes argued that the mortgage lien was invalid because: (1) the registration
was procured through the presentation of a forged owner's duplicate certificate of
title, in violation of Section 53 of Presidential Decree 1529; and (2) the mortgage
constituted when Mary Ann was no longer the absolute owner of the subject
property contravened Article 2085 of the New Civil Code.

While the appeal was pending, Mercedes passed away, leaving no legal
representative or heirs qualified to take her place. On January 9, 1995, the Court of
Appeals rendered judgment granting the late Mercedes' appeal, reversing and
setting aside the trial court's decision upholding the mortgage lien in favor of
Flordeliza.

Hence, this petition for review.

Issue:

WON CA committed grave abuse of discretion in declaring the real estate mortgage
in favor of Cabuhat null and void.

Held:

After a careful and thorough disquisition of the established facts and issues raised in
the instant controversy, we find merit in this petition.

The Court of Appeals, in reversing the decision of the trial court, relied solely on the
provisions of Article 2085 of the New Civil Code, which states, in part, that for a
mortgage to be valid, the persons constituting the pledge or mortgage should have
the free disposal of their property, and in the absence thereof, they should be
legally authorized for the purpose. It also cited the 1954 case of Parqui v. PNB,3
wherein the mortgage was declared null and void since the registration thereof was
procured by the presentation of a forged deed.

A mortgagee has the right to rely on what appears in the title presented
to him, and in the absence of anything to excite suspicion, he is under no
obligation to look beyond the certificate and investigate the title of the
mortgagor appearing on the face of the said certificate. Furthermore, it is a
well-entrenched legal principle that when an innocent mortgagee who relies upon
the correctness of a certificate of title consequently acquires rights over the
mortgaged property, the courts cannot disregard such rights.

Article 2085 of the Civil Code, which requires that the mortgagor must have free
disposal of the property, or at least have legal authority to do so, admits of
exceptions. In quite a number of instances, this Court has ruled that the said
provision does not apply where the property involved is registered under the Torrens
System.
In the case at bar, there is no doubt that petitioner was an innocent mortgagee for
value. When Mary Ann mortgaged the subject property, she presented to petitioner
Flordeliza an owner's duplicate certificate of title that had been issued by the
Register of Deeds. The title was neither forged nor fake. Petitioner had every right
to rely on the said title which showed on its face that Mary Ann was the registered
owner. There was no reason to suspect that Mary Ann's ownership was defective.
Besides, even if there had been a cloud of doubt, Flordeliza would have found upon
verification with the Register of Deeds that Mary Ann was the titled owner and that
the original title on file with the said office was free from any lien or encumbrance,
and that no adverse claim of ownership was annotated thereon.

In fine, the prevailing jurisprudence is that a mortgagee has a right to rely in good
faith on the certificate of title of the mortgagor of the property given as security and
in the absence of any sign that might arouse suspicion, has no obligation to
undertake further investigation. Hence, even if the mortgagor is not the rightful
owner of, or does not have a valid title to, the mortgaged property, the mortgagee
in good faith is nonetheless entitled to protection.

[G.R. No. 125055 October 30, 1998]

A. FRANCISCO REALTY AND DEVELOPMENT CORPORATION, petitioner, vs.

COURT OF APPEALS and SPOUSES ROMULO S.A. JAVILLONAR and ERLINDA
P. JAVILLONAR, respondents.

MENDOZA, J.:

Facts:

Petitioner A. Francisco Realty and Development Corporation granted a loan of P7.5

Million to private respondents, the spouses Romulo and ErlindaJavillonar, in
consideration of which the latter executed the following documents: (a) a
promissory note, dated November 27, 1991, stating an interest charge of 4% per
month for six months; (b) a deed of mortgage over realty covered by TCT No.
58748, together with the improvements thereon; and (c) an undated deed of sale of
the mortgaged property in favor of the mortgagee, petitioner A. Francisco Realty.

The promissory note expressly provided that upon "failure of the MORTGAGOR
(private respondents) to pay the interest without prior arrangement with the
MORTGAGEE (petitioner), full possession of the property will be transferred and the
deed of sale will be registered. 3 For this purpose, the owner's duplicate of TCT No.
58748 was delivered to petitioner A. Francisco Realty.

Petitioner claims that private respondents failed to pay the interest and, as a
consequence, it registered the sale of the land in its favor on February 21, 1992. As
a result, TCT No. 58748 was cancelled and in lieu thereof TCT No. PT-85569 was
issued in the name of petitioner A. Francisco Realty.
Respondents admitted liability on the loan but alleged that it was not their intent to
sell the realty as the undated deed of sale was executed by them merely as an
additional security for the payment of their loan. Furthermore, they claimed that
they were not notified of the registration of the sale in favor of petitioner A.
Francisco Realty and that there was no interest then unpaid as they had in fact been
paying interest even subsequent to the registration of the sale.

Issue:

WON the court of appeals erred in ruling that the contractual documents subject of
the instant case are constitutive of pactum commissorium as defined under article
2088 of the civil code of the Philippines.

Held:

Yes. Petitioner's action could not succeed because the deed of sale on which it was
based was void, being in the nature of a pactum commissorium prohibited by Art.
2088 of the Civil Code which provides:

Art. 2088. The creditor cannot appropriate the things given by way to pledge or
mortgage, or dispose of them. Any stipulation to the contrary is null and void.

What is envisioned by Article 2088 of the Civil Code of the Philippines is a provision
in the deed of mortgage providing for the automatic conveyance of the mortgaged
property in case of the failure of the debtor to pay the loan (Tan v. West Coast Life
Assurance Co., 54 Phil. 361). A pactum commissorium is a forfeiture clause in a
deed of mortgage.

The prohibition on pactum commissorium stipulations is provided for by Article 2088

of the Civil Code:

The creditor cannot appropriate the things given by way of pledge or mortgage, or
dispose by them. Any stipulation to the contrary is null and void.

The act of applicant in registering the property in his own name upon mortgagor's
failure to redeem the property would to a pactum commissorium which is against
good morals and public policy.

Thus, in the case at bar, the stipulations in the promissory notes providing that,
upon failure of respondent spouses to pay interest, ownership of the property would
be automatically transferred to petitioner A. Francisco Realty and the deed of sale in
its favor would be registered, are in substance a pactum commissorium. They
embody the two elements of pactum commissorium:

(1)That there should be a pledge or mortgage wherein a property is

pledged or mortgaged by way of security for the payment of the
principal obligation; and
 (2)That there should be a stipulation for an automatic appropriation by
the creditor of the thing pledged or mortgaged in the event of non-
payment of the principal obligation within the stipulated period.

[G.R. No. 118342. January 5, 1998]

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF

APPEALS and LYDIA CUBA, respondents.

[G.R. No. 118367. January 5, 1998]

LYDIA P. CUBA, petitioner, vs. COURT OF APPEALS, DEVELOPMENT BANK OF

THE PHILIPPINES and AGRIPINA P. CAPERAL, respondents.

DAVIDE, JR., J.:

Facts:

Plaintiff Lydia P. Cuba is a grantee of a Fishpond Lease Agreement No. 2083 (new)
dated May 13, 1974 from the Government;

Plaintiff Lydia P. Cuba obtained loans from the Development Bank of the Philippines
in the amounts of P109,000.00; P109,000.00; and P98,700.00 under the terms
stated in the Promissory Notes dated September 6, 1974; August 11, 1975; and
April 4, 1977;

As security for said loans, plaintiff Lydia P. Cuba executed two Deeds of Assignment
of her Leasehold Rights; Plaintiff failed to pay her loan on the scheduled dates
thereof in accordance with the terms of the Promissory Notes; Without foreclosure
proceedings, whether judicial or extra-judicial, defendant DBP appropriated the
Leasehold Rights of plaintiff Lydia Cuba over the fishpond in question;

After defendant DBP has appropriated the Leasehold Rights of plaintiff Lydia Cuba
over the fishpond in question, defendant DBP, in turn, executed a Deed of
Conditional Sale of the Leasehold Rights in favor of plaintiff Lydia Cuba over the
same fishpond in question;

After the Deed of Conditional Sale was executed in favor of plaintiff Lydia Cuba, a
new Fishpond Lease Agreement No. 2083-A dated March 24, 1980 was issued by the
Ministry of Agriculture and Food in favor of plaintiff Lydia Cuba only, excluding her
husband;

Plaintiff Lydia Cuba failed to pay the amortizations stipulated in the Deed of
Conditional Sale;

Defendant DBP thereafter sent a Notice of Rescission thru Notarial Act dated March
13, 1984, and which was received by plaintiff Lydia Cuba; After the Notice of
Rescission, defendant DBP took possession of the Leasehold Rights of the fishpond
in question;

That after defendant DBP took possession of the Leasehold Rights over the fishpond
in question, DBP advertised in the SUNDAY PUNCH the public bidding dated June 24,
1984, to dispose of the property; That the DBP thereafter executed a Deed of
Conditional Sale in favor of defendant AgripinaCaperal on August 16, 1984;
Thereafter, defendant Caperal was awarded Fishpond Lease Agreement No. 2083-A
on December 28, 1984 by the Ministry of Agriculture and Food.

Issue:

Whether the act of DBP in appropriating to itself CUBAs leasehold rights over the
fishpond in question without foreclosure proceedings was contrary to Article 2088 of
the Civil Code and, therefore, invalid

WON condition no. 12 of the deed of assignment constitutes pactum commissorium

Said condition reads:

12. That effective upon the breach of any condition of this assignment,
the Assignor hereby appoints the Assignee his Attorney-in-fact with full
power and authority to take actual possession of the property above-
described, together with all improvements thereon, subject to the
approval of the Secretary of Agriculture and Natural Resources.

Held:

No. The elements of pactum commissorium are as follows: (1) there should be a
property mortgaged by way of security for the payment of the principal obligation,
and (2) there should be a stipulation for automatic appropriation by the creditor of
the thing mortgaged in case of non-payment of the principal obligation within the
stipulated period.

Condition no. 12 did not provide that the ownership over the leasehold rights would
automatically pass to DBP upon CUBAs failure to pay the loan on time. It merely
provided for the appointment of DBP as attorney-in-fact with authority, among other
things, to sell or otherwise dispose of the said real rights, in case of default by
CUBA, and to apply the proceeds to the payment of the loan. This provision is a
standard condition in mortgage contracts and is in conformity with Article 2087 of
the Civil Code, which authorizes the mortgagee to foreclose the mortgage and
alienate the mortgaged property for the payment of the principal obligation.

DBP, however, exceeded the authority vested by condition no. 12 of the deed of
assignment. As admitted by it during the pre-trial, it had [w]ithout foreclosure
proceedings, whether judicial or extrajudicial, appropriated the [l]easehold [r]ights
of plaintiff Lydia Cuba over the fishpond in question. Its contention that it limited
itself to mere administration by posting caretakers is further belied by the deed of
conditional sale it executed in favor of CUBA.

DBP cannot take refuge in condition no. 12 of the deed of assignment to justify its
act of appropriating the leasehold rights. As stated earlier, condition no. 12 did not
provide that CUBAs default would operate to vest in DBP ownership of the said
rights. Besides, an assignment to guarantee an obligation, as in the present case, is
virtually a mortgage and not an absolute conveyance of title which confers
ownership on the assignee.

At any rate, DBPs act of appropriating CUBAs leasehold rights was violative of
Article 2088 of the Civil Code, which forbids a creditor from appropriating, or
disposing of, the thing given as security for the payment of a debt.