G.R. No. L-69622 January 29, 1988
LILIA Y. GONZALES, petitioner, vs. INTERMEDIATE APPELLATE COURT and RURAL BANK OF PAVIA, INC., respondents.

FACTS

The property in dispute, Lot No. 2161, was originally owned by spouses Asuncion Sustiguer and Dioscoro Buensuceso. For non-payment of taxes, the lot was sold at public auction to the Province of Iloilo in 1955. In 1969, Hortencia Buensuceso, the daughter, paid the back taxes, leading to a deed of repurchase executed in favor of her mother, Asuncion Sustiguer. Sustiguer then sold the land to spouses Gaudioso Panzo and Hortencia Buensuceso. The Panzos successfully petitioned for the reconstitution of the original certificate of title, which was issued in Sustiguer’s name and then cancelled to issue a new title (TCT No. T-64807) in their favor. They subsequently mortgaged the property to respondent Rural Bank of Pavia. Upon default, the bank foreclosed the mortgage, purchased the property at the auction, and obtained a certificate of sale.
Petitioner Lilia Y. Gonzales, as judicial co-administratrix of the Intestate Estate of Matias Yusay, filed a complaint for annulment of title. She alleged that the original owners had verbally sold the property to Yusay in 1934 and that the estate had been in possession since. She contended the bank was not a mortgagee in good faith. The trial court dismissed the complaint, ruling in favor of the bank, and the Intermediate Appellate Court affirmed the decision.

ISSUE

The core issue is whether the respondent Rural Bank of Pavia was a mortgagee in good faith, such that its rights over the property must be protected despite the petitioner’s claim of a prior verbal sale.

RULING

The Supreme Court affirmed the appellate court’s decision, upholding the bank’s status as a mortgagee in good faith. The legal logic rests on the principles governing transactions involving registered land under the Torrens system. The Court emphasized that a person dealing with registered property is not required to go beyond the certificate of title to investigate the history of the vendor’s title. The bank, as a mortgagee, relied on TCT No. T-64807, which was clean on its face and in the name of the mortgagors, the Panzo spouses. There was no annotation or lien on the title to indicate any adverse claim or the alleged prior sale to Yusay.
The Court found that the bank exercised the diligence required of a prudent mortgagee. It required the submission of the owner’s duplicate certificate of title and conducted an ocular inspection of the property. The fact that the tenant on the land made a claim of a different owner during the inspection did not constitute a defect on the title itself or a duty for the bank to undertake a further investigation. The tenant’s possession was not inconsistent with the title of the registered owners, as possession alone does not disprove ownership evidenced by a Torrens title. Consequently, the bank’s lien, acquired in good faith and for value, must be respected and protected. The subsequent foreclosure and purchase at the auction were valid extensions of this protected status. The Court did not need to resolve the underlying dispute over the verbal sale, as the rights of an innocent mortgagee for value prevail.