G.R. No. 164693; March 23, 2011
JOSEFA S. ABALOS AND THE DEVELOPMENT BANK OF THE PHILIPPINES, Petitioners, vs. SPS. LOMANTONG DARAPA and SINAB DIMAKUTA, Respondents.

FACTS

On June 25, 1962, respondent spouses Lomantong Darapa and Sinab Dimakuta obtained a loan from petitioner Development Bank of the Philippines (DBP). To secure the loan, they executed a real and chattel mortgage covering, among other properties, their equity rights and interests in a 357-square-meter lot in Linamon, Lanao del Norte, identified by Tax Declaration No. A-148. The mortgage contract stipulated that the spouses would execute a real estate mortgage in favor of DBP upon acquiring absolute ownership of the lot. A Deed of Assignment of Rights and Interests over the lot was also executed simultaneously.
In 1970, the spouses applied for a loan renewal and increase, submitting Sinab Dimakuta’s Transfer Certificate of Title (TCT) No. T-1,997 as additional collateral. DBP disapproved the application but did not return the title. When the spouses defaulted on the loan, DBP extrajudicially foreclosed the mortgages on September 16, 1971, which, unknown to the spouses, included the land covered by TCT No. T-1,997. The spouses failed to redeem it, leading to the cancellation of TCT No. T-1,997 and the issuance of TCT No. T-7746 in DBP’s name.
The spouses discovered the foreclosure in 1984 and demanded reconveyance. DBP initially assured return of the land but later informed them it had been sold. On May 12, 1994, DBP sold the land to co-petitioner Josefa Abalos, and TCT No. T-16,280 was issued in her name. The spouses filed a complaint for Annulment of Title, Recovery of Possession, and Damages against DBP and Abalos, arguing that TCT No. T-1,997 was not part of the mortgaged properties and its foreclosure and sale were void.
DBP contended that TCT No. T-1,997 originated from the same land covered by Tax Declaration No. A-148, which was mortgaged in 1962. Abalos claimed she was an innocent purchaser for value. The Regional Trial Court (RTC) annulled the foreclosure sale and subsequent sale to Abalos, declared Dimakuta the lawful owner, awarded damages, and ordered DBP to pay Abalos the land’s value and damages. The Court of Appeals affirmed the RTC decision. DBP appealed to the Supreme Court.

ISSUE

Whether the Supreme Court can review the factual finding that the land covered by TCT No. T-1,997 was not the same property mortgaged under Tax Declaration No. A-148 and, consequently, whether DBP had the right to foreclose it.

RULING

The Supreme Court DENIED the petition and AFFIRMED the Court of Appeals decision.
The petition raised a question of fact, which is not permissible under a Rule 45 review limited to questions of law. A question of law exists when the doubt concerns the correct application of law to a set of undisputed facts, while a question of fact involves a dispute over the truth or falsity of alleged facts. DBP’s insistence that TCT No. T-1,997 is the same land as that in Tax Declaration No. A-148 required the Court to re-evaluate evidence, which is a factual inquiry outside the scope of Rule 45.
The Court found no compelling reason to deviate from the factual conclusions of the lower courts, as none of the established exceptions (e.g., findings grounded on speculation, grave abuse of discretion, or misapprehension of facts) applied. Upon review, the records confirmed that TCT No. T-1,997 was not included in the 1962 mortgage. The mortgage contract and Deed of Assignment specifically referred only to the spouses’ equity rights over the untitled lot under Tax Declaration No. A-148, not to a titled property. The subsequent inclusion of TCT No. T-1,997 in the foreclosure was invalid.
Furthermore, the Court noted that even if the properties were the same, the mortgage of an untitled interest under Act No. 3344 did not automatically attach to the titled property under the Torrens system (Presidential Decree No. 1529) without proper registration. DBP failed to register any mortgage lien on TCT No. T-1,997, thus the foreclosure based on an unregistered interest was void. The action to declare a void contract does not prescribe.
The Court upheld the annulment of the foreclosure sale, the cancellation of TCTs in DBP’s and Abalos’s names, the reinstatement of TCT No. T-1,997 in Dimakuta’s name, and the award of damages.