Metropolitan Bank & Trust Company vs. Alejo

A registered mortgagee is an indispensable party in a suit to nullify the Torrens Certificate of Title on which its mortgage is annotated, and the non-joinder of such mortgagee deprives the trial court of jurisdiction, rendering its judgment null and void and properly subject to a petition for annulment of judgment.

Spouses Raul and Cristina Acampado obtained loans from Metropolitan Bank & Trust Company (Metrobank) totaling ₱7,000,000, secured by a real estate mortgage over a parcel of land registered in their names under TCT No. V-41319 in the Registry of Deeds of Valenzuela City. The mortgage and its amendment were duly registered and annotated on the title on November 20, 1995 and January 23, 1996, respectively. Respondent Sy Tan Se claimed ownership over the same property and filed a complaint for declaration of nullity of TCT No. V-41319 against the Acampado spouses, without impleading Metrobank despite its registered mortgage interest.

On November 21, 1995 and January 30, 1996, Spouses Raul and Cristina Acampado obtained loans from Metropolitan Bank & Trust Company in the amounts of ₱5,000,000 and ₱2,000,000, respectively. As security, they executed a Real Estate Mortgage and an Amendment of Real Estate Mortgage over a parcel of land registered in their names, covered by TCT No. V-41319 in the Registry of Deeds of Valenzuela City. Both contracts were registered and annotated on the title on November 20, 1995 and January 23, 1996.

On June 3, 1996, respondent Sy Tan Se, represented by his attorney-in-fact Sian Suat Ngo, filed a Complaint for Declaration of Nullity of TCT No. V-41319 against the Acampado spouses before the RTC of Valenzuela, Branch 172, docketed as Civil Case No. 4930-V-96. Despite being the registered mortgagee of the property covered by the title sought to be annulled, Metrobank was neither made a party to the case nor notified of its existence.

Because the Acampado spouses defaulted on their loan obligations, Metrobank initiated extrajudicial foreclosure proceedings on April 19, 1997. On June 17, 1997, the sheriff of Valenzuela conducted an auction sale, at which Metrobank submitted the highest and winning bid. A Certificate of Sale was issued in its favor on July 15, 1997 and entered in the Registry of Deeds on July 28, 1997.

When the redemption period lapsed on July 28, 1998, Metrobank executed an Affidavit of Consolidation of Ownership to enable the issuance of a new TCT in its name. Upon presentation of the affidavit to the Registry of Deeds, Metrobank was informed of the existence of the August 12, 1998 RTC Decision in Civil Case No. 4930-V-96, which declared TCT No. V-41319 null and void for having proceeded from an illegitimate source. The nullification of the TCT necessarily carried with it the nullification and cancellation of the mortgage annotation. Metrobank learned of the decision only in October 1998.

On January 27, 1999, Metrobank filed a Petition for Annulment of the RTC Decision with the Court of Appeals, alleging that private respondent had purposely concealed the case by excluding Metrobank as a defendant despite its being an indispensable party. The Court of Appeals outrightly dismissed the petition for insufficiency in form and substance, ruling that Metrobank should have filed a petition for relief from judgment under Rule 38 or an action for quieting of title instead. Metrobank's Motion for Reconsideration was denied on January 27, 2000.

• Proper Remedy: Petitioner argued that a petition for annulment of judgment under Rule 47 was the only effective remedy available, because it was never a party to Civil Case No. 4930-V-96 and therefore could not avail of a petition for relief from judgment under Rule 38, which applies only to parties to the case.
• Extrinsic Fraud: Petitioner alleged that private respondent purposely concealed the case by excluding it as a defendant despite its being an indispensable party, thereby depriving it of its duly registered property right without due process of law.
• Inappropriateness of Quieting of Title: Petitioner maintained that an action for quieting of title was not appropriate, because the subject judgment could not be considered a cloud on title and because such an action would require a court to interfere with the judgment of a co-equal court.
• Lack of Jurisdiction: Petitioner contended that as the registered mortgagee whose mortgage was annotated on TCT No. V-41319, it was an indispensable party whose non-joinder deprived the trial court of jurisdiction, rendering its decision null and void.

• Improper Remedy: Respondents averred that a petition for annulment of judgment was not proper, because three other remedies were available to petitioner: a petition for relief from judgment under Rule 38, an action for quieting of title, and intervention in Civil Case No. 4930-V-96.
• Intervention as Available Remedy: Private respondent cited intervention as an available remedy, premised on petitioner's presumed knowledge of the pendency of Civil Case No. 4930-V-96, which would have alerted it to the need to intervene.
• Validity of Mortgage: It was argued that petitioner could not be an indispensable party, since the mortgage might not even be valid due to a possible absence of compliance with the Civil Code requirement that the mortgagor be the absolute owner of the thing mortgaged.

• Proper Remedy: Whether a petition for annulment of judgment under Rule 47 of the 1997 Rules of Civil Procedure is the proper remedy available to petitioner under the circumstances.
• Lack of Jurisdiction: Whether the judgment of the trial court in Civil Case No. 4930-V-96 should be annulled for lack of jurisdiction due to the non-joinder of petitioner as an indispensable party.

• Proper Remedy: Yes. The petition for annulment of judgment was the proper remedy, as the alternatives cited by respondents — petition for relief from judgment, action for quieting of title, and intervention — were all unavailable to petitioner under the circumstances.
• Lack of Jurisdiction: Yes. The trial court's decision was null and void for lack of jurisdiction, petitioner being an indispensable party whose non-joinder rendered all subsequent actuations of the court null and void.

• Proper Remedy: A petition for relief from judgment under Rule 38 was unavailable because the rule applies only when the one deprived of a right is a party to the case; petitioner was never a party to Civil Case No. 4930-V-96 nor even summoned to appear therein. An action for quieting of title was equally inappropriate because the subject judgment did not constitute a "cloud on title" — defined as a semblance of title appearing in some legal form but in fact unfounded — and because entertaining such an action would require a court to modify or interfere with the judgment of a co-equal court, which is impermissible in our jurisdiction. Intervention was not available because petitioner's knowledge of the case's pendency prior to October 1998 was emphatically denied, and private respondent had purposely excluded petitioner from the case. The allegation of extrinsic fraud, if substantiated by preponderance of evidence, may serve as a basis for annulling a judgment. The resort to annulment was therefore proper given the unavailability of all other remedies.

• Lack of Jurisdiction: It was undisputed that the mortgage was annotated on TCT No. V-41319 before the institution of Civil Case No. 4930-V-96 and that all subsequent foreclosure proceedings were entered in the Registry of Deeds. The nullification of the TCT carried with it the nullification and cancellation of the mortgage annotation, exposing petitioner to real prejudice, as its rights over the mortgaged property would no longer be known and respected by third parties. A real mortgage is a real right and real property by itself; thus, petitioner fell within the definition of an indispensable party — one who has such an interest in the controversy that a final adjudication cannot be made in its absence without injuring that interest. Under Section 7, Rule 3 of the Revised Rules of Civil Procedure, indispensable parties must be joined. The absence of an indispensable party renders all subsequent actuations of the court null and void for want of authority to act, not only as to the absent parties but even as to those present. The trial court therefore had no jurisdiction to render judgment. The argument that the mortgage might be invalid was rejected because at the time the mortgage was constituted, TCT No. V-41319 named the Acampado spouses as registered owners, and under the Torrens system, a person dealing with registered land has a right to rely on the face of the certificate of title. The peremptory disregard of the registered annotations constituted a deprivation of property without due process of law. A void judgment for want of jurisdiction is no judgment at all — it cannot be the source of any right nor the creator of any obligation, and all acts performed pursuant to it have no legal effect.

• Indispensable Party Doctrine — An indispensable party is one who has such an interest in the controversy that a final adjudication cannot be made in its absence without injuring or affecting that interest; a person in whose absence there cannot be a determination between the parties already before the court which is effective, complete, or equitable. The joinder of indispensable parties is mandated by Section 7, Rule 3 of the Revised Rules of Civil Procedure. The absence of an indispensable party renders all subsequent actuations of the court null and void for want of authority to act, not only as to the absent parties but even as to those present. In this case, the registered mortgagee was held to be an indispensable party in a suit to nullify the certificate of title on which its mortgage was annotated, because the nullification of the title necessarily carried with it the cancellation of the mortgage annotation, adversely affecting the mortgagee's property rights.

• Torrens System Reliance Doctrine — A person dealing with registered land has a right to rely upon the face of the Torrens Certificate of Title and to dispense with the need of inquiring further, except when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious person to make such inquiry. The Court applied this doctrine to reject the argument that the mortgage might be invalid, holding that at the time the mortgage was constituted, the TCT named the mortgagors as registered owners, and Metrobank was entitled to rely on the certificate of title.

• Void Judgment Doctrine — A void judgment for want of jurisdiction is no judgment at all. It cannot be the source of any right nor the creator of any obligation. All acts performed pursuant to it and all claims emanating from it have no legal effect. It can never become final, and any writ of execution based on it is void. The Court applied this doctrine to nullify the RTC decision, which was rendered without jurisdiction over the indispensable party.

• Annulment of Judgment for Extrinsic Fraud — The allegation of extrinsic fraud, if fully substantiated by a preponderance of evidence, may be the basis for annulling a judgment. The resort to annulment becomes proper when extrinsic fraud is alleged and the ordinary remedies — petition for relief from judgment, action for quieting of title, and intervention — are unavailable.

• "The absence of an indispensable party renders all subsequent actuations of the court null and void, for want of authority to act, not only as to the absent parties but even as to those present." — This passage articulates the ratio decidendi on jurisdiction: the non-joinder of an indispensable party strips the court of authority to act, voiding not only the proceedings as to the absent party but as to all parties present.

• "A void judgment for want of jurisdiction is no judgment at all. It cannot be the source of any right nor the creator of any obligation. All acts performed pursuant to it and all claims emanating from it have no legal effect." — This formulation of the void judgment doctrine, drawn from Leonor vs. Court of Appeals and Arcelona vs. Court of Appeals, is frequently cited in subsequent jurisprudence on jurisdictional defects.

• "The well-known rule in this jurisdiction is that a person dealing with a registered land has a right to rely upon the face of the Torrens Certificate of Title and to dispense with the need of inquiring further, except when the party concerned has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry." — This canonical statement of the Torrens reliance rule, quoted from Seno vs. Mangubat, was applied to uphold Metrobank's status as a mortgagee in good faith entitled to protection.

• Lagula vs. Casimiro, 98 Phil. 102 (1955) — Followed for the proposition that Rule 38 (petition for relief from judgment) applies only when the one deprived of a right is a party to the case, establishing that a non-party cannot avail of this remedy.
• Seno vs. Mangubat, 156 SCRA 113 (1987) — Followed for the Torrens system reliance doctrine, holding that a person dealing with registered land may rely on the face of the certificate of title and need not inquire further.
• Arcelona vs. Court of Appeals, 280 SCRA 20 (1997) — Followed for the definition of an indispensable party and for the void judgment doctrine, both of which were central to the Court's ruling.
• Leonor vs. Court of Appeals, 256 SCRA 69 (1996) — Followed for the doctrine that a void judgment for want of jurisdiction is no judgment at all and cannot be the source of any right or obligation.
• Lim Tanhu vs. Ramolete, 66 SCRA 425 (1975) — Followed for the proposition that the absence of an indispensable party renders all subsequent actuations of the court null and void.
• Wack Wack Condominium Corp. vs. Court of Appeals, 215 SCRA 850 (1992) — Followed for the doctrine that a court has no power to modify or interfere with the judgment or order of a co-equal court.
• Islamic Da Wah Council of the Phils. vs. Court of Appeals, 178 SCRA 178 (1989) — Followed for the proposition that extrinsic fraud, if substantiated by preponderance of evidence, may be the basis for annulling a judgment.

• Section 7, Rule 3, Revised Rules of Civil Procedure — Mandates the compulsory joinder of indispensable parties: "Parties in interest without whom no final determination can be had of an action shall be joined either as plaintiffs or defendants." Applied to hold that Metrobank, as registered mortgagee, should have been impleaded as a defendant in Civil Case No. 4930-V-96.
• Section 1, Rule 38, Rules of Court — Governs petitions for relief from judgment, available only to a party against whom a judgment or final order was entered through fraud, accident, mistake, or excusable negligence. Held inapplicable because petitioner was never a party to the case.
• Section 2, Rule 47, 1997 Rules of Civil Procedure — Governs petitions for annulment of judgment. Held to be the proper remedy given the unavailability of other remedies and the allegation of extrinsic fraud.
• Article 2085(2), Civil Code — Requires that the mortgagor be the absolute owner of the thing mortgaged. Respondents invoked this provision to argue the mortgage might be invalid, but the Court rejected the argument because at the time of constitution, the TCT named the mortgagors as registered owners.

Justices Melo, Vitug, Gonzaga-Reyes, and Sandoval-Gutierrez concurred in the decision. No separate concurring opinions were noted.