Jimenez vs. Jimenez, Jr.

A mortgagee in good faith who subsequently purchases the mortgaged property at a foreclosure sale is protected against a subsequent adverse claim annotated on the title; the foreclosure sale retroacts to the date of registration of the mortgage, and the purchaser’s knowledge of the adverse claim does not defeat that right.

Corona F. Jimenez was the registered owner of a 532-square meter lot covered by TCT No. RT-122097 (126876). Danilo, Sonia, Vilma, Federico Dalton, Chona, and Damian are her children. The controversy concerns the property’s transfer and mortgage under the Torrens system, and the doctrine of mortgagee in good faith supplies the legal backdrop for evaluating the rights of subsequent mortgagees and foreclosure purchasers.

Corona F. Jimenez was the registered owner of a 532-square meter lot located at No. 18 South Maya Street, Philam Homes, Quezon City, covered by Transfer Certificate of Title No. RT-122097 (126876). Danilo Santiago F. Jimenez, Sonia F. Jimenez-Catarroja, Vilma T. Jimenez-Lagdameo, Federico Dalton F. Jimenez, and Chona F. Jimenez-Veluz were her children, collectively referred to as the Jimenez siblings, and Damian F. Jimenez, Jr. was also her child. Corona died on January 16, 2002.

During the settlement of the estate, the Jimenez siblings discovered a Deed of Donation allegedly executed by Corona in favor of Damian on August 31, 2000 over the 532-square meter property. By virtue of that Deed of Donation, TCT No. RT-122097 (126876) was cancelled and TCT No. N-217728 was issued in Damian’s name on September 7, 2000.

On May 21, 2001, Damian mortgaged the property to Arturo C. Calubad and Antonio Keh in consideration of a P7,000,000.00 loan. On the same day, the mortgage was annotated on TCT No. N-217728. The Jimenez siblings learned about the mortgage, but only Sonia registered her Affidavit of Adverse Claim, which was annotated at the back of TCT No. N-217728 on July 12, 2002.

On October 12, 2002, Sonia was informed that the property was scheduled for auction on October 24, 2002. This prompted the Jimenez siblings to file a complaint for the annulment of the Deed of Donation and TCT No. N-217728, as well as the cancellation and annulment of the Deed of Real Estate Mortgage, with prayer for preliminary injunction before the RTC of Quezon City on October 21, 2002. The RTC denied the prayer for injunction, and the extrajudicial sale proceeded as scheduled. Calubad and Keh emerged as the highest bidders. A Certificate of Sale dated November 3, 2002 was issued, and on December 11, 2003, title to the property was consolidated and TCT No. N-257432 was issued in favor of Calubad and Keh.

The RTC found that Corona’s signature on the Deed of Donation was forged and declared the Deed void. Notwithstanding that finding, the RTC sustained the validity of TCT No. N-257432 issued in the names of Calubad and Keh, as they were found to be innocent mortgagees for value and good faith. The CA agreed that Calubad and Keh were mortgagees in good faith and that their right over the property should be recognized. The records also showed that Calubad and Keh conducted an ocular inspection and confirmed that Damian was in possession and occupation of the property.

• HSLB and Purchaser in Good Faith: Danilo argued that although Calubad and Keh may be mortgagees in good faith, they are not purchasers in good faith because they were aware of Sonia’s adverse claim when they purchased the property during the public auction on October 24, 2002; therefore, they have no right over the disputed property, TCT No. N-257432 should be cancelled, and TCT No. RT-122097 (126876) in Corona’s name should be reinstated.

• Inapplicability of HSLB: Calubad and Keh contended that Homeowners Savings and Loan Bank vs. Felonia is not on all fours with this case.
• BPI vs. Noblejas: Calubad and Keh argued that Bank of the Philippine Islands vs. Noblejas applies, where any subsequent adverse claim will not prejudice the mortgagee’s right as a purchaser in the foreclosure sale.

• Factual Findings under Rule 45: Whether the determination of good faith may be entertained in a Petition for Review on Certiorari under Rule 45.
• Mortgagee in Good Faith: Whether Calubad and Keh satisfied the requisites of the doctrine of mortgagee in good faith.
• Adverse Claim and Foreclosure Sale: Whether Sonia’s adverse claim, annotated after the mortgage but before the foreclosure sale, defeats Calubad and Keh’s rights as purchasers in the foreclosure sale.
• Applicability of HSLB: Whether Homeowners Savings and Loan Bank vs. Felonia applies to invalidate Calubad and Keh’s title.

• Factual Findings under Rule 45: No. Good faith is a factual matter generally not entertained under Rule 45, and no recognized exception warranted departure from the lower courts’ uniform findings.
• Mortgagee in Good Faith: Yes. All requisites concurred, including reliance on the Torrens title and absence of circumstances requiring inquiry.
• Adverse Claim and Foreclosure Sale: No. The adverse claim, annotated after the registered mortgage, cannot prevail; the foreclosure sale retroacts to the date of mortgage registration, and the mortgagee’s protection extends to the purchaser despite notice.
• Applicability of HSLB: No. HSLB is not on all fours; its ruling rested on the final nullification of the mortgage, foreclosure sale, and mortgagee’s title, which left no mortgage lien to carry over.

• Factual Findings under Rule 45: The determination of good faith or lack of it is a factual matter, which cannot be entertained in a Petition for Review on Certiorari under Rule 45. The Court generally defers to the factual findings of the lower courts unless the case falls under any of the jurisprudentially recognized exceptions. No reason appeared to depart from the uniform factual findings and conclusion of the RTC and the CA.

• Mortgagee in Good Faith: In Cavite Development Bank vs. Lim, the doctrine of mortgagee in good faith was explained as a situation where, despite the mortgagor not being the owner of the mortgaged property and his title being fraudulent, the mortgage contract and any foreclosure sale arising therefrom are given effect by reason of public policy. The doctrine applies when the following requisites concur: (a) the mortgagor is not the rightful owner of, or does not have valid title to, the property; (b) the mortgagor succeeded in obtaining a Torrens title over the property; (c) the mortgagor succeeded in mortgaging the property to another person; (d) the mortgagee relied on what appears on the title and there exists no facts and circumstances that would compel a reasonably cautious man to inquire into the status of the property; and (e) the mortgage contract was registered. All requisites were satisfied: Damian had no valid title because his title was derived from a forged Deed of Donation; he obtained TCT No. N-217728; he mortgaged the property to Calubad and Keh; Calubad and Keh found nothing on TCT No. N-217728 that would have notified them of Damian’s invalid title and even conducted an ocular inspection confirming Damian’s possession and occupation; and the mortgage contract was registered. Thus, the courts a quo did not err in ruling that Calubad and Keh were mortgagees in good faith.

• Adverse Claim and Foreclosure Sale: Danilo’s reliance on HSLB was mistaken because the factual milieu of HSLB is exceptional. In HSLB, the original owners sought reformation of a Deed of Absolute Sale with Option to Repurchase into a real estate mortgage; the reformation was affirmed with finality. During the pendency of that case, Delgado filed a consolidation case, obtained title, and mortgaged the property to HSLB. A notice of lis pendens was later annotated. HSLB foreclosed and consolidated ownership, but the CA eventually set aside the consolidation decision, declared the original owners as absolute owners, and ordered cancellation of Delgado’s title. The CA decision became final. Because the mortgage, foreclosure sale, and HSLB’s title were nullified with finality, HSLB could no longer benefit from its rights as a mortgagee in good faith, and the determination of its good faith as purchaser became necessary. Here, by contrast, the validity of the mortgage and Calubad and Keh’s title as purchasers in the foreclosure sale are precisely the issue. Bank of the Philippine Islands vs. Noblejas applies: the mortgage was annotated on November 13, 1952, while the adverse claim was annotated on December 21, 1953; the Court ruled that any subsequent lien or encumbrance cannot defeat the rights of an innocent mortgagee as a purchaser in a foreclosure sale. Once the subject property is foreclosed, it passes to the purchaser at a public auction free from any lien or encumbrance. Gonzales vs. Intermediate Appellate Court likewise held that a notice of lis pendens after the mortgage does not affect the rights of the mortgagee or the purchaser at the auction sale, and the protection extends to a purchaser at a sheriff’s sale under proceedings on the mortgage although such purchaser had notice of the alleged equity. Pineda vs. CA reiterated that the auction sale retroacts to the date of registration of the mortgage, putting the auction sale beyond the reach of any intervening lis pendens, sale, or attachment. Sonia’s adverse claim was annotated on July 12, 2002, after the mortgage was registered on May 21, 2001. The foreclosure sale on October 24, 2002 retroacted to May 21, 2001, making the sale superior to the adverse claim. Calubad and Keh’s knowledge of the adverse claim is of no moment because their right as mortgagees in good faith extends up to the time of the foreclosure sale and in their capacity as purchasers. The nullity of the mortgagor’s certificate of title does not automatically carry with it the nullity of a registered mortgage if the mortgagee acted in good faith. Thus, TCT No. N-257432 issued in favor of Calubad and Keh pursuant to the foreclosure sale is valid.

• Applicability of HSLB: HSLB is not on all fours with this case. In HSLB, the mortgage, foreclosure sale, and HSLB’s title were later nullified with finality, so there was no more mortgage lien to carry over and into the restored title. The determination of HSLB’s good faith as purchaser in the foreclosure sale was necessary only because it could no longer benefit from its rights as a mortgagee in good faith. Here, the validity of the mortgage and Calubad and Keh’s title as purchasers in the foreclosure sale are the very issues, so the doctrine in Bank of the Philippine Islands vs. Noblejas applies.

• Mortgagee in Good Faith — A mortgagee who relies on a clean Torrens title in good faith is protected even if the mortgagor’s title is later shown to be invalid. The doctrine applies when the following requisites concur: (a) the mortgagor is not the rightful owner of, or does not have valid title to, the property; (b) the mortgagor succeeded in obtaining a Torrens title over the property; (c) the mortgagor succeeded in mortgaging the property to another person; (d) the mortgagee relied on what appears on the title and there exists no facts and circumstances that would compel a reasonably cautious man to inquire into the status of the property; and (e) the mortgage contract was registered. The Court applied the doctrine because all requisites were present; Calubad and Keh even conducted an ocular inspection and confirmed Damian’s possession and occupation.

• Foreclosure Sale Retroacts to Date of Registration of Mortgage — The purchaser at a foreclosure sale derives rights from the previously registered mortgage, and the sale is deemed prior in time to any subsequent lien or encumbrance annotated after the mortgage. The Court applied this rule because the mortgage was registered on May 21, 2001, while Sonia’s adverse claim was annotated on July 12, 2002; the foreclosure sale on October 24, 2002 retroacted to May 21, 2001 and was therefore superior to the adverse claim.

• Protection Extends to Purchaser at Public Auction Despite Notice of Adverse Claim — The protection granted to a mortgagee in good faith extends to the purchaser at a public auction even if the purchaser had notice of the adverse claim. Otherwise, the value of the mortgage could be easily destroyed by a subsequent record of an adverse claim, for no one would purchase at a foreclosure sale if bound by the posterior claim. The Court applied this rule to Calubad and Keh, holding that their knowledge of Sonia’s adverse claim did not invalidate their title.

• Nullity of Mortgagor’s Certificate of Title Does Not Automatically Nullify Registered Mortgage — The nullity of the mortgagor’s certificate of title does not automatically carry with it the nullity of a registered mortgage if the mortgagee acted in good faith. The Court applied this rule despite the forged Deed of Donation, because Calubad and Keh were mortgagees in good faith.

• HSLB Exception — Homeowners Savings and Loan Bank vs. Felonia applies only where the mortgage, foreclosure sale, and mortgagee’s title have been nullified with finality, leaving no mortgage lien to carry over. The Court distinguished HSLB because here the validity of the mortgage and Calubad and Keh’s title as purchasers in the foreclosure sale are precisely the issue.

• Factual Findings in Rule 45 — Findings of good faith are factual and generally not reviewable under Rule 45 absent recognized exceptions. The Court applied this rule by deferring to the uniform factual findings and conclusion of the RTC and the CA.

• "The doctrine of mortgagee in good faith is not based solely on the indefeasibility of the certificate of title - it is also based on the very nature and purpose of a mortgage. The protection granted to a mortgagee in good faith extends to the purchaser at a public auction even if he or she had notice of the adverse claim. Otherwise, the value of the mortgage could be easily destroyed by a subsequent record of an adverse claim, for no one would purchase at a foreclosure sale if bound by the posterior claim." — This passage states the core ratio: the mortgagee in good faith doctrine protects not only the mortgagee but also the foreclosure purchaser despite notice of an adverse claim.

• "In sum, jurisprudence dictates that a subsequent lien or encumbrance annotated at the back of a certificate of title of a foreclosed property will not affect the rights of a purchaser in a foreclosure sale because such sale retroacts to the date of the registration of the mortgage, making the sale prior in time to the lien or encumbrance." — This is the Court’s synthesized rule on the retroactive effect of a foreclosure sale and its superiority over later annotations.

• "Furthermore, we stress that the nullity of the mortgagor's certificate of title does not automatically carry with it the nullity of a registered mortgage if the mortgagee acted in good faith." — This defines the limited effect of a void mortgagor’s title on a registered mortgage held by a good-faith mortgagee.

• "Accordingly, Sonia's adverse claim, which was annotated after the registered mortgage in favor of Calubad and Keh, cannot prevail over Calubad and Keh's rights as mortgagees in good faith and purchasers in the foreclosure sale. Being mortgagees in good faith, they have a superior lien over that of Sonia, and their right to foreclose is reserved." — This applies the doctrine to the facts and explains why the adverse claim did not defeat Calubad and Keh’s title.

• Cavite Development Bank vs. Lim, 381 Phil. 355 (2000) — Explained the doctrine of mortgagee in good faith and the rule that all persons dealing with property covered by a Torrens Certificate of Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title.
• Homeowners Savings and Loan Bank vs. Felonia, 728 Phil. 115 (2014) — Distinguished; its factual milieu is exceptional because the mortgage, foreclosure sale, and mortgagee’s title had been nullified with finality, leaving no mortgage lien to carry over.
• Bank of the Philippine Islands vs. Noblejas, 105 Phil. 418 (1959) — Controlling precedent; a subsequent lien or encumbrance cannot defeat the rights of an innocent mortgagee as a purchaser in a foreclosure sale, and the foreclosure sale retroacts to the date of registration of the mortgage.
• Gonzales vs. Intermediate Appellate Court, 241 Phil. 630 (1988) — Followed; a notice of lis pendens after the mortgage does not affect the rights of the mortgagee or the purchaser at the auction sale, and the protection extends to a purchaser at a sheriff’s sale even with notice of the alleged equity.
• Pineda vs. CA, 456 Phil. 732 (2003) — Followed; the auction sale retroacts to the date of registration of the mortgage, putting the auction sale beyond the reach of any intervening lis pendens, sale, or attachment.
• Medina vs. Mayor Asistio, Jr., 269 Phil. 225 (1990) — Cited for the recognized exceptions to the rule that factual findings of the lower courts are generally not reviewed under Rule 45.

• Rule 45, Rules of Court — Petition for Review on Certiorari; the Court noted that the determination of good faith is a factual matter that cannot be entertained under Rule 45, absent recognized exceptions.
• Section 79, Act No. 496 — Quoted in the Gonzales excerpt; a notice of lis pendens is not a lien and its notation produced no effect against a prior mortgage. The Court used this to support the rule that a subsequent notice does not defeat a prior registered mortgage.
• Section 401, Code of Civil Procedure — Quoted in the same excerpt; similarly addresses notice of lis pendens and supports the rule that it does not affect a prior mortgage.

Perlas-Bernabe, Senior Associate Justice, (Chairperson), Gesmundo, Lazaro-Javier, and Rosario, JJ., concur.