G.R. No. 205271 , September 02, 2015
LAND BANK OF THE PHILIPPINES, PETITIONER, VS. BELLE CORPORATION, RESPONDENT.

FACTS

Respondent Belle Corporation, a publicly-listed company developing leisure projects in Tagaytay City, filed a Complaint for quieting of title and damages against Florosa A. Bautista and the Register of Deeds. Belle Corporation claimed to be the registered owner of four parcels of land under TCT Nos. P-1863 to P-1866. It alleged that Bautista, claiming ownership under TCT No. P-671 which emanated from a Free Patent, demanded Belle Corporation to stop using a portion of the land where it had constructed an access road to Tagaytay Highlands. Belle Corporation sought to cancel Bautista’s free patent as a cloud on its title, tracing its own title back to OCT No. 0-216 registered in 1959. During trial, Belle Corporation learned that Bautista’s property had been foreclosed by petitioner Land Bank of the Philippines, which was then impleaded as an indispensable party. Land Bank claimed it was an innocent mortgagee for value, having verified that Bautista’s title was clean before approving her loan. The Regional Trial Court ruled in favor of Bautista/Land Bank, declaring Belle Corporation’s TCT No. P-1863 void insofar as it overlapped with Bautista’s property, based on a DENR verification survey that found Bautista’s title (registered February 4, 1977) was issued earlier than Belle Corporation’s derivative title (registered February 14, 1977). The Court of Appeals reversed the RTC, declaring Belle Corporation the legitimate owner and voiding Bautista’s title and its derivative title in Land Bank’s name. Land Bank appealed to the Supreme Court.

ISSUE

Whether the Court of Appeals erred in annulling the RTC decision and declaring Belle Corporation the legitimate owner of the disputed property, thereby voiding the titles of Bautista and Land Bank.

RULING

The Supreme Court DENIED the petition and AFFIRMED the Court of Appeals’ Decision. The Court held that a free patent issued over land already covered by a prior existing title is null and void. Belle Corporation’s title originated from OCT No. 0-216, which was registered pursuant to a judicial decree in 1958, long before Bautista’s free patent was issued in 1977. The land was already private property and no longer part of the public domain when the free patent was granted. Consequently, TCT No. P-671 and its derivative title, TCT No. P-3663 in Land Bank’s name, were void ab initio. The Court further ruled that Land Bank could not be considered a mortgagee in good faith. As a banking institution, it was required to exercise a higher degree of diligence. The presence of a notice of lis pendens annotated on Bautista’s title at the time of the mortgage contract should have alerted Land Bank to a possible defect. Land Bank’s failure to investigate the lis pendens and its reliance solely on the face of the certificate of title constituted gross negligence, barring it from invoking the protection accorded to innocent purchasers for value.