Hemedes vs. Court of Appeals

The Court held that Article 1332 of the Civil Code is inapplicable when a party denies executing a contract altogether, as the provision contemplates vitiated consent, not a complete absence of consent; a notarized document cannot be overturned by the mere denial of a biased party. Furthermore, a mortgagee who relies on a certificate of title annotated with a usufruct is an innocent mortgagee for value, because a usufruct merely transfers the jus utendi and jus fruendi and does not impair the owner's jus disponendi to alienate or encumber the property.

Jose Hemedes executed a "Donation Inter Vivos With Resolutory Conditions" in 1947 in favor of his third wife, Justa Kausapin, stipulating that upon her death or remarriage, the property would revert to a designated child of the donor. In 1960, Kausapin executed a "Deed of Conveyance of Unregistered Real Property by Reversion" designating her stepdaughter, Maxima Hemedes, while reserving a lifetime usufruct. Maxima registered the property and obtained an Original Certificate of Title (OCT) with the usufruct annotated. In 1964, Maxima mortgaged the property to R & B Insurance Corporation, which later extrajudicially foreclosed the mortgage and obtained a Transfer Certificate of Title (TCT) in 1975, also subject to the usufruct. Despite the prior conveyance, Kausapin executed a "Kasunduan" in 1971 transferring the same property to her stepson, Enrique Hemedes, who subsequently sold it to Dominium Realty and Construction Corporation in 1979. In 1981, Kausapin executed an affidavit affirming the 1971 Kasunduan and denying the 1960 conveyance to Maxima.

• The Donation and First Conveyance: Jose Hemedes donated the subject land to Justa Kausapin in 1947, subject to resolutory conditions allowing her to designate a child of the donor as the reversionary beneficiary. Pursuant to this, Kausapin executed a Deed of Conveyance in 1960 in favor of Maxima Hemedes, reserving a lifetime usufruct. Maxima registered the land and secured OCT No. (0-941) 0-198 in 1962, with the usufruct properly annotated.
• The Mortgage and Foreclosure: In 1964, Maxima mortgaged the property to R & B Insurance. Upon her default, R & B Insurance extrajudicially foreclosed the mortgage in 1968, bought the property at auction, and consolidated ownership, securing TCT No. 41985 in 1975. The usufruct annotation was carried over to the new title.
• The Second Conveyance and Sale: In 1971, Kausapin executed a "Kasunduan" transferring the same property to Enrique Hemedes. Enrique declared the property for taxation purposes and sold it to Dominium Realty in 1979. In 1981, Kausapin executed an affidavit affirming the 1971 transfer and repudiating the 1960 Deed of Conveyance to Maxima, claiming she never saw the document and could not understand English.
• The Action for Reconveyance: Dominium and Enrique Hemedes filed a complaint to annul R & B Insurance's TCT and reconvey the property, asserting that Kausapin never transferred the land to Maxima and that Enrique acquired it via the 1971 Kasunduan.

• Maxima Hemedes: Petitioner argued that the Court of Appeals erred in applying Article 1332 of the Civil Code, as she is not enforcing the contract but relying on her OCT, and Art. 1332 requires a party seeking enforcement, not a party defending a title. Petitioner contended that Kausapin's affidavit should be discredited due to her evident bias and dependence on Enrique Hemedes. Petitioner asserted that the 1971 Kasunduan was void and that she was the rightful owner.
• R & B Insurance: Petitioner argued that it was a mortgagee in good faith because the annotation of a usufruct on the title does not impose a duty to investigate the validity of the mortgagor's title, as the owner retains the right to alienate or encumber the property. Petitioner asserted that even if it were required to investigate, it would not have discovered any adverse claim since the 1971 Kasunduan and 1981 affidavit were executed after the 1964 mortgage. Petitioner further argued that the action had prescribed or was barred by laches.

• Respondents argued that the 1960 Deed of Conveyance was spurious and that Kausapin denied its execution. Respondents asserted that Art. 1332 applies because Kausapin could not read or understand English, and Maxima failed to prove the terms were explained to her. Respondents contended that R & B Insurance was not a mortgagee in good faith because the usufruct annotation on the title should have prompted further investigation into the circumstances of the encumbrance, and R & B made it appear in the mortgage contract that the land was free from liens.

• Procedural Issues: N/A
• Substantive Issues: Whether the 1960 Deed of Conveyance is valid and enforceable notwithstanding Justa Kausapin's denial of its execution and the application of Article 1332 of the Civil Code. Whether R & B Insurance Corporation is an innocent mortgagee for value despite the annotation of usufructuary rights on the certificate of title.

• Procedural: N/A
• Substantive: The Court ruled that the 1960 Deed is valid. Article 1332 of the Civil Code is inapplicable because it contemplates a situation where consent is vitiated by mistake or fraud, not where consent is entirely absent. Kausapin denied executing the document altogether, rendering an inquiry into whether the terms were explained to her futile. Furthermore, a notarized document carries a presumption of regularity that cannot be overturned by the mere denial of a biased witness. Kausapin was evidently dependent on Enrique Hemedes for support, destroying her credibility. The failure of private respondents to present Kausapin's thumbmark for comparison triggers the presumption that suppressed evidence would be adverse. Consequently, the 1971 Kasunduan is null and void for having an inexistent object, as the property had already been conveyed to Maxima. The Court ruled that R & B Insurance is an innocent mortgagee for value. The annotation of usufructuary rights does not impair the owner's title or restrict the right to alienate or encumber the property (jus disponendi). A usufruct merely transfers the jus utendi and jus fruendi. Thus, the mortgagee had the right to rely on the certificate of title without investigating the validity of the mortgagor's ownership. Even if R & B Insurance were required to investigate, it would not have found any adverse claim because the 1971 Kasunduan and the 1981 affidavit were executed after the 1964 mortgage.

• Article 1332 of the Civil Code (Vitiated Consent vs. Absence of Consent) — This provision applies only when a party to a contract alleges mistake or fraud and the other party is unable to read or understand the language of the contract. It presupposes that consent was given, although vitiated. It does not apply when a party denies having given consent at all or denies the execution of the contract.
• Presumption of Regularity of Notarized Documents — A notarized document carries a presumption of regularity. Mere denial of its execution by a party is insufficient to overturn it; clear, strong, and convincing evidence is required.
• Innocent Purchaser/Mortgagee for Value under the Torrens System — Every person dealing with registered land may safely rely on the correctness of the certificate of title and is not obliged to go behind it to determine the condition of the property. The annotation of a usufruct does not impose a duty to investigate the validity of the registered owner's title because the owner retains the jus disponendi—the power to alienate, encumber, or dispose of the property—subject only to the usufructuary's right to enjoy the fruits.

• "Art. 1332 was intended for the protection of a party to a contract who is at a disadvantage due to his illiteracy, ignorance, mental weakness or other handicap. This article contemplates a situation wherein a contract has been entered into, but the consent of one of the parties is vitiated by mistake or fraud committed by the other contracting party. ... Clearly, article 1332 assumes that the consent of the contracting party imputing the mistake or fraud was given, although vitiated, and does not cover a situation where there is a complete absence of consent."
• "The annotation of usufructuary rights in favor of Justa Kausapin upon Maxima Hemedes' OCT does not impose upon R & B Insurance the obligation to investigate the validity of its mortgagor's title. ... Clearly, only the jus utendi and jus fruendi over the property is transferred to the usufructuary. The owner of the property maintains the jus disponendi or the power to alienate, encumber, transform, and even destroy the same."

• Bunyi v. Reyes, 39 SCRA 504 (1971) — Cited to explain that Art. 1332 is intended for the protection of a party at a disadvantage due to illiteracy or ignorance, and that mere preponderance of evidence is insufficient to overthrow a notary public's certificate of acknowledgment.
• Legarda v. CA, 280 SCRA 642 (1997) — Cited for the principle that every person dealing with registered land may safely rely on the correctness of the certificate of title.
• Mathay v. CA, 295 SCRA 556 (1998) — Cited for the definition of an innocent purchaser for value.

• Article 1332, Civil Code — Provides that when one party is unable to read or understand the contract language, and mistake or fraud is alleged, the person enforcing the contract must show the terms were fully explained. The Court held this inapplicable where consent is entirely denied rather than merely vitiated.
• Article 581, Civil Code — Provides that the owner of property subject to a usufruct may alienate it, provided he does not alter its form or substance or prejudice the usufructuary. The Court applied this to rule that the mortgagee could rely on the title despite the usufruct annotation.
• Article 600, Civil Code — Provides that if the owner mortgages the property, the usufructuary is not obliged to pay the debt. Cited to support the separability of ownership and usufruct.
• Section 32, Presidential Decree No. 1529 (Property Registration Decree) — Defines an innocent purchaser for value to include an innocent mortgagee. Cited to affirm R & B Insurance's status.

Panganiban, Purisima, Vitug (separate concurring opinion).

• Justice Melo — Filed a dissenting opinion (content not provided in the source text).