Lloyd’s Enterprises & Credit Corp v. Dolleton

Facts:

Respondents were the registered owners of a parcel of land situated in Barangay Putatan, Muntinlupa City and covered by TCT No. 153554. Erected on the 166- sq m property is a four-door apartment building being leased by respondents to various tenants. Respondents mortgaged the property to a certain Joseph Patrick Santos to secure a loan in the amount of P100,000.00. Upon payment of the loan, Santos executed a release and cancellation of the mortgage. The same was annotated on the TCT.

TCT No. 153554 in the name of respondents was cancelled and a new TCT No. 197220 was issued in the name of Gagan on the basis of a Deed of Absolute Sale whereby respondents purportedly sold to Gagan the subject property for the sum of P120,000.00.

Petitioner lent to Gagan and her live-in partner, Guevarra, the sum of P391,512.00. The loan was secured by a real estate mortgage on the subject property. After payment of the loan, petitioner executed a Cancellation of Mortgage. Petitioner granted another loan to Gagan and Guevarra for a bigger sum of P542,928.00. A new real estate mortgage was constituted over the property. This undated mortgage deed appears to have been notarized in 1995. The second real estate mortgage was likewise annotated.

Gagan and Guevarra failed to pay the second loan upon its maturity. Thus, petitioner instituted extrajudicial foreclosure proceedings on the subject property.

Petitioner sent notices to the apartment tenants informing them about the transfer of the property to petitioner and allowing them the option either to vacate the apartment or to pay a monthly rental of P2,000.00. Thus, the apartment tenants did not remit the rentals to respondents anymore, prompting the latter to cause the annotation of an adverse claim on TCT No.

Respondents filed a complaint, praying among others for the nullification of the Deed of Absolute Sale, the two real estate mortgage contracts and the extrajudicial foreclosure proceedings; the cancellation of TCT Nos. 197220 and 210363; and the restoration of TCT No. 153554 in the name of respondents.

Respondents denied having executed the Deed of Absolute Sale and alleged that they had merely offered to sell to defendant Gagan the subject property for P900,000.00 on installment basis so that they could pay their loan obligation to Santos.

The summons on defendants Gagan and Guevarra were returned unserved as their whereabouts were unknown. Upon motion by respondents, the RTC directed the issuance and service of alias summons by publication. Subsequently, defendants Gagan and Guevarra were declared in default for failure to file their responsive pleading to the complaint that was published in a newspaper of general circulation.

In its answer with counterclaim, petitioner raised the defense of lack of cause of action, asserting that it exercised due diligence in verifying the status of the subject property and that it would not have accepted the same as security for the loan if the title were not clean. It also claimed that respondents were guilty of estoppel by laches as they failed to take the necessary measures to protect their rights and interest.

RTC rendered judgment declaring the Deed of Absolute Sale dated 5 August 1994 as spurious.

Issues:

I. Whether or not CA committed a reversible error in law when it failed to declare petitioner as mortgagee in good faith as the latter took the necessary steps which an ordinary and prudent man would have taken before buying the property in question;

II. Whether or not CA erred when it ruled that the petitioner is liable for damages when the respondent is not entirely without fault;

III. Whether or not CA erred when it failed to rule on the liability of the Gagans in this case;

IV. Whether or not the amount of damages awarded by the honorable court of appeals is consistent with the existing jurisprudence and norms of morality.

Held:

RTC and the Court of Appeals concur that petitioner did not exercise due diligence in ascertaining the true ownership of the subject property, notwithstanding the existence of circumstances which should have impelled it to investigate further. Well-settled is the rule that factual findings of the RTC, when affirmed by the Court of Appeals, are accorded great weight and respect by the Court.

The Court cannot sustain petitioners claim that it should not be required to look beyond the certificate of title for flaws in the ownership of the property in view of the presumption that a Torrens title is regularly issued and that the burden is on respondents to rebut the presumption of good faith.

Petitioner is engaged in the business of extending credit to the public and is, thus, expected to exercise due diligence in dealing with properties offered as security.

The Court explicitly declared that when the purchaser or mortgagee is a financing institution, the general rule that a purchaser or mortgagee of land is not required to look further than what appears on the face of the title does not apply.

Applying the principle in Adriano, petitioner must bear the loss of the property because of its failure to ascertain the true ownership of the subject property, notwithstanding the fact that it is engaged in the business of offering real estate loans to the public and is, therefore, required to exercise a higher degree of diligence in investigating the status and condition of the properties offered as securities.

Petitioner, however, is not without relief even at this juncture. It correctly filed a cross-claim against defendants Gagan and Guevarra for the purchase price of the foreclosed property in the amount of P645,000.00 plus other expenses of transfer and litigation, the actual damages it incurred at the foreclosure sale, and all other expenses for which petitioner may be held liable. Although the RTC and the Court of Appeals failed to resolve the cross-claim, to avoid further delay, this Court can very well adjudicate upon the liabilities of defendants Gagan and Guevara to petitioner. Petitioner submitted in evidence a copy of the sheriff’s certificate of sale, evincing that petitioner paid the amount of P645,000.00 at the foreclosure sale of the subject property. However, as to other alleged actual expenses incurred by petitioner as a result of the filing of the case, no evidence was offered to prove the same. Defendants Gagan and Guevara should ultimately bear the damages incurred by petitioner at the foreclosure sale, considering that no evidence was presented to prove petitioner’s complicity in the forgery of the Deed of Absolute Sale and that the instant controversy arose because of the acts of defendants Gagan and Guevara.

Except for the modified award of moral and exemplary damages due the respondents, the Court of Appeals decision affirmed, albeit impliedly, the RTC decision in all other respects including the award of actual litigation expenses and attorney’s fees.

WHEREFORE, the instant petition for review on certiorari is PARTIALLY GRANTED and the Decision of the Court of Appeals in CA-G.R. CV No. 82017 is AFFIRMED IN ALL RESPECTS with the following MODIFICATIONS: (1) the other monetary awards granted by the Regional Trial Court, Branch 276, Muntinlupa City are RESTORED and petitioner is accordingly ORDERED to pay respondents moral damages of P300,000.00, exemplary damages of P300,000.00, actual litigation expenses of P50,000.00 and attorneys fees of P100,000.00; and (2) defendants Blesilda Gagan and Feliciano Fajardo Guevarra are ORDERED to pay jointly and severally petitioner Lloyds Enterprises and Credit Corporation on its cross-claim the amount.