GR 152266; (July, 2010) (Digest)
G.R. No. 152266 ; July 2, 2010
HEIRS OF PEDRO DE GUZMAN, Petitioners, vs. ANGELINA PERONA and HEIRS OF ROSAURO DE GUZMAN; BATAAN DEVELOPMENT BANK; and REPUBLIC PLANTERS BANK, Respondents.
FACTS
Pedro de Guzman filed a complaint for reconveyance of a 300-square-meter parcel of land in Bataan against respondents, alleging fraud in the cancellation of the original title (OCT No. 10075) and its subdivision into three Transfer Certificates of Title (TCTs) in the names of spouses Rosauro de Guzman and Angelina Perona. Pedro claimed to be a grandson of Zacarias de Guzman, a brother of Servando de Guzman (Rosauro’s grandfather) and Andrea de Guzman, who were co-owners of the original property. He asserted a right as an heir of Andrea, alleging he acquired the lot through oral partition and that his house stood thereon. Two of the TCTs (Nos. 78181 and 92048) were mortgaged to respondent banks, Bataan Development Bank and Republic Planters Bank, respectively.
The Regional Trial Court dismissed Pedro’s complaint. The Court of Appeals affirmed the dismissal, prompting Pedro’s heirs (petitioners) to elevate the case via a Rule 45 petition. They argued Pedro acquired the property through oral partition and that the respondent banks were mortgagees in bad faith.
ISSUE
The core issues were: (1) whether petitioners acquired ownership of the subject land through oral partition, and (2) whether the respondent banks were mortgagees in bad faith.
RULING
The Supreme Court denied the petition and affirmed the appellate court’s decision. On the first issue, the Court held that no valid oral partition was proven. Partition of registered land must be duly registered to be effective against third persons. The property in question was covered by TCTs under the Torrens system. Petitioners failed to present clear and convincing evidence of a prior oral agreement that would overcome the titles issued to the respondents. Mere allegation is insufficient; ownership must be proved by preponderance of evidence, which petitioners failed to do.
On the second issue, the banks were not mortgagees in bad faith. A mortgagee in good faith may rely on the face of a certificate of title. The banks exercised due diligence by verifying the mortgagors’ titles, which were clean and free from any lien or encumbrance on their faces. There was no annotation or any visible defect to alert the banks to Pedro’s claim. The Court emphasized that the Torrens system aims to guarantee the integrity of land titles. To hold the banks liable as mortgagees in bad faith, there must be proof that they had knowledge of a flaw in the title or failed to observe the required prudence. No such proof was presented. Therefore, the banks’ rights as innocent mortgagees for value must be protected.