Philippine National Bank vs. Court of Appeals

A co-owner may mortgage only the undivided share allotted to her upon termination of co-ownership, and a mortgage executed before registration but never annotated on the original certificate of title cannot encumber land once the decree of registration has become incontrovertible after one year.

Pedro, Fernando, Gregorio, Guillermo and Clarita Bitanga are the children and heirs of Iñigo Bitanga and Rosa Ver, whose disputed parcel, Lot 9068 in Ilocos Norte, was their conjugal property submitted to cadastral adjudication. The Philippine National Bank appears as mortgagee-foreclosure purchaser that later sold to Felizardo Reyes, while spouses Melitona Lagpacan and Jorge Malacas appear as intervenors claiming through the Manila Trading Company, another creditor of Rosa Ver. Understanding the dispute requires the Civil Code rules on conjugal partnership, succession and co-ownership and the Land Registration Act's scheme of conclusive decrees and certificates of title.

The lot in question originally belonged to spouses Iñigo Bitanga and Rosa Ver as conjugal property. Submitted to cadastral proceedings, it was adjudicated by decision dated December 27, 1934, with decree of registration entered September 14, 1937 and original certificate of title issued in the Registry Books of Ilocos Norte on December 15, 1937. Before that title issued, Iñigo Bitanga died on September 25, 1935, survived by Rosa Ver and their children Pedro, Fernando, Gregorio, Guillermo and Clarita Bitanga.

A little over a year later, on October 20, 1936, Rosa Ver mortgaged the entire property to the Philippine National Bank for P500.00. The mortgage was registered in the day book of the Register of Deeds on November 12, 1936, but the mortgage lien was not annotated when Original Certificate of Title No. 7683 was issued; only the October 20, 1936 power of attorney authorizing the Bank to take possession and sell or lease upon default was annotated on February 27, 1941. In the meantime Rosa Ver defaulted to the Manila Trading Company, which levied on her share on December 13, 1939, annotated February 14, 1940, bought her interest at public auction on March 19, 1940 with deed annotated May 25, 1940, and on November 14, 1940 sold its rights to Santiago Sambrano, annotated March 20, 1941. One-half of the property thereafter passed to intervenors Jorge Malacas and Melitona Lagpacan as a result of Civil Case No. 1846. Separately, by virtue of the Manila Trading and Supply Company's judgment against Rosa Ver and Guillermo Bitanga in Civil Case No. 121519 of the Municipal Court of Manila, the Provincial Sheriff sold to the Company as highest bidder all rights, title, interest and participation of Guillermo Bitanga and Rosa Ver de Bitanga, registered under Entry No. 5100 dated May 25, 1940 on the back of Certificate of Title No. 7683.

Because Rosa Ver failed to settle with the Bank, the Bank sold at public auction the whole mortgaged lot and emerged as highest bidder, and after the redemption period expired without redemption consolidated title, though consolidation was not annotated for failure of Rosa Ver to surrender the owner's duplicate. On November 25, 1950 the Bank petitioned for cancellation of owner's certificate No. 7683 and issuance of a new title in its name, granted by order dated October 2, 1951, resulting in owner's duplicate No. T-2701. On May 24, 1954 the Bank sold the property to Felizardo Reyes, in whose name owner's duplicate No. T-3944 was issued.

The trial court found the lot conjugal, one-half transmitted to Iñigo's heirs and one-half retained by Rosa Ver; the mortgage valid only as to Rosa Ver's half and in any event not subsisting for lack of special mention in the decree; the Manila Trading Company's acquisition and its transfer to Sambrano and then to intervenors valid; Reyes not a purchaser for value in good faith; and the Bank's and Reyes's transfer certificates without legal basis.

• Extent of Mortgage: Petitioner argued that the October 20, 1936 mortgage by Rosa Ver was valid and covered the entire Lot 9068 because its execution, existence and registration under Act No. 3344 were undisputed and Tax Declaration No. 120225-A in her exclusive name, admitted by respondents, proved exclusive ownership.
• Subsistence Despite Non-Annotation: Petitioner maintained that the mortgage remained subsisting although unannotated on Original Certificate of Title No. 7683, because Rosa Ver and respondent heirs as witnesses and notary, with full knowledge, breached the duty under Section 19 of the Land Registration Act to obtain the mortgagee's written consent and to have registration made subject to the mortgage.
• Estoppel and Laches: Petitioner argued that respondent heirs were estopped by acquiescence, Guillermo Bitanga having signed as instrumental witness, Atty. Agripino L. Rabago having notarized the deed, and Pedro Bitanga having offered in a September 14, 1949 letter to repurchase, and were barred by laches for suing only on May 17, 1954, nineteen years after the mortgage, after benefiting from the loan.
• Preference Over Levy and Intervenors: Petitioner contended that the intervenors' acquisition lacked validity because its mortgage, registered November 12, 1936 while the land was still unregistered, was first in time and therefore first in right over the Manila Trading and Supply Company's levy noted only on February 14, 1940 after Torrens registration.

• Finality and Personality: Respondents countered by motion to dismiss that the Court of Appeals decision had become final and executory for failure of Felizardo Reyes, the real party in interest, to join PNB in the petition.
• Factual Issues: Respondents argued that the issues presented were questions of fact and not of law, hence improper for review by the Supreme Court.

• Validity and Scope of Mortgage: Whether the mortgage executed by Rosa Ver alone covered the entire Lot 9068 or only her one-half conjugal share.
• Effect of Non-Annotation and Indefeasibility: Whether the mortgage remained subsisting and enforceable although not annotated on the original certificate of title after the decree of registration became final.
• Estoppel and Laches: Whether respondent heirs were barred by estoppel or laches from assailing the mortgage over the inherited half.
• Intervenors' Title and Priority: Whether the acquisition by intervenor spouses through the Manila Trading Company was valid and preferred over PNB's earlier mortgage.

• Validity and Scope of Mortgage: No. The mortgage was valid only as to Rosa Ver's one-half conjugal share, a mortgagor needing absolute ownership and a co-owner being able to encumber only the portion allottable upon partition.
• Effect of Non-Annotation and Indefeasibility: No. The unannotated lien did not attach, the decree and clean title having become incontrovertible one year after September 14, 1937 under Sections 38, 39 and 47 of Act 496.
• Estoppel and Laches: No. Nullity ab initio cannot be validated by lapse of time, and estoppel failed for want of consent, reliance and clear proof, mere attestation as witness being insufficient.
• Intervenors' Title and Priority: Yes. The intervenors validly acquired Rosa Ver's half plus Guillermo Bitanga's one-fifth of the other half as successors of the Manila Trading Company, an innocent purchaser for value.

• Validity and Scope of Mortgage: Lot 9068 being conjugal, Iñigo's death transmitted his half to his heirs under Article 777 of the New Civil Code and Article 657 of the Old Code, creating co-ownership between them and Rosa Ver. Under Article 2085 of the New Civil Code and Article 1857 of the Old Code ownership is essential to mortgage, while Article 493 of the New Civil Code and Article 399 of the Old Code limit a co-owner's alienation or mortgage to the share to be allotted on partition. Rosa Ver alone thus conveyed only her half; the other half remained the heirs' inheritance, Rosa Ver retaining only usufructuary rights therein under the Old Code which could not be mortgaged. Tax Declaration No. 120225-A in her name, even if admitted, could not alter conjugal character, declarations for taxation not being sufficient evidence of title.
• Effect of Non-Annotation and Indefeasibility: Registration proceedings being in rem, the September 14, 1937 decree binding the whole world became conclusive after the one-year period for review for fraud, no innocent purchaser having been shown to be affected. Following Snyder vs. Provincial Fiscal of Cebu and Jose Avila, a mortgagee who fails to claim interest during registration and allows registration free of encumbrance loses it against the land with equal or greater reason than an owner who defaults in appearance. Registration being the operative act creating liens, and purchasers needing only to rely on the face of the register per William H. Anderson and Co. vs. Garcia, the clean title issued to the Bitanga spouses prevailed. No knowledge by the Manila Trading Company of the prior mortgage was shown, so it was presumed an innocent purchaser, passing good title to Sambrano and to intervenors under Granados vs. Monton, while Reyes, with lis pendens annotated before his purchase, was in bad faith.
• Estoppel and Laches: Of the five heirs only Guillermo Bitanga signed, and merely as instrumental witness alongside Mary B. Castillo, which attests only to signing in his presence and does not prove knowledge of contents or consent, unlike Vda. de la Cruz vs. Ilagan where heirs expressly approved the sale in the deed and court motion. Essential estoppel elements of reliance, misleading representation and intent to mislead, emphasized in Kalalo vs. Luz, were absent, PNB having relied on the tax declaration rather than Guillermo's signature. Atty. Rabago's notarization did not bind the heirs, the rule binding clients for counsel's negligence applying only to pending litigation with an attorney-client relationship, not to a single independent mortgage transaction, and his omission was his own responsibility. Pedro Bitanga's September 14, 1949 offer expressly reserved the siblings' unsold rights and sought to avoid litigation, negating admission of absolute ownership. Laches and prescription could not validate a void mortgage over the inherited half, mere lapse of time being unable to give efficacy to null and inexistent contracts.
• Intervenors' Title and Priority: The premise of a valid whole-lot mortgage being rejected, first-in-time under Act 3344 could not confer preference beyond Rosa Ver's half, which in any event was extinguished as a lien by indefeasible registration. The Manila Trading Company acquired all rights of Rosa Ver and Guillermo Bitanga more than two years after the decree, when Original Certificate No. 7683 stood free of any mortgage lien through May 25, 1940 annotation of its certificate of sale, giving it better right than PNB. Intervenors as successors through Civil Case No. 1846 therefore regularly acquired not merely one-half but six-tenths, comprising Rosa Ver's one-half plus Guillermo's one-fifth of the other half shared equally among five siblings, leaving two-fifths to Pedro, Fernando, Gregorio and Clarita.

• Co-ownership upon death and limited power to mortgage — Upon death the decedent's undivided conjugal half is transmitted to heirs, creating co-ownership with the surviving spouse; each co-owner has full ownership only of his part and may alienate or mortgage only the portion that may be allotted upon partition, so a mortgage by one co-owner of the whole binds only her share. Applied to sustain the mortgage solely against Rosa Ver's one-half and preserve the Bitanga children's inherited half.
• Nemo dat rule in mortgage — One cannot give what is not his; a mortgagor without absolute ownership of the inherited half conveys nothing as to that half. Applied to reject PNB's claim to the entire Lot 9068.
• Tax declaration not proof of title — Declarations of ownership for taxation are insufficient evidence of title and cannot alter established conjugal character. Applied to disregard Tax Declaration No. 120225-A in Rosa Ver's exclusive name.
• Indefeasibility of Torrens decree after one year — A decree of registration binds the land and quiets title against the whole world, becoming incontrovertible one year after entry absent timely petition for review for fraud, and can no longer be altered to insert unclaimed interests. Applied to bar annotation or enforcement of the 1936 mortgage after the September 14, 1937 decree matured.
• Registration as operative act; mirror principle — Under the Torrens system registration gives validity to transfers and creates liens; a person dealing with registered land need not go behind the register and is charged only with burdens noted on the certificate. Applied to protect the Manila Trading Company and its successors who relied on a clean title.
• Successor of innocent purchaser for value — One who steps into the shoes of a prior good-faith purchaser acquires all defenses available to the predecessor, including acquisition in good faith and for value. Applied to uphold intervenors' title derived from the Manila Trading Company against PNB and Reyes.
• Estoppel by attestation distinguished from consent; reliance required — Signing merely as instrumental witness attests only to execution in the witness's presence and, without clear proof of knowledge and consent, does not bind the witness as party; estoppel further requires influence, reliance and deliberate misleading, is odious and must be clearly proved. Applied to reject estoppel against Guillermo Bitanga and against heirs through Atty. Rabago's notarization.
• Client bound by counsel only in pending litigation — Negligence or omissions of counsel bind the client only in the conduct of pending judicial or administrative litigation under an attorney-client relationship, not in an isolated extrajudicial transaction. Applied to refuse attribution of Rabago's notarial role to the heirs.
• Imprescriptibility of action on void contract — Mere lapse of time cannot validate null and void inexistent contracts, so recovery based on indubitable nullity does not prescribe and laches does not attach. Applied to allow the 1954 reconveyance suit despite nineteen years since the mortgage.

• "Upon the expiration of said term of one year, every decree or certificate of title issued in accordance with this section shall be incontrovertible." — States the statutory core of indefeasibility under Section 38 of Act 496 upon which the extinction of the unannotated mortgage turned.
• "with equal or greater reason does a lessee, mortgagee, or other person having an interest in said land lose such interest or right, so far as the land is concerned by not claiming the same during the registration proceeding and by allowing said land to be registered free of all encumbrances ..." — Recites the controlling Snyder formulation extending the consequence of default in registration proceedings from owners to mortgagees and lessees.
• "A person dealing with registered land is not required to go behind the register to determine the condition of the property." — Gives the canonical mirror-principle justification, drawn from William H. Anderson and Co. vs. Garcia, for protecting reliance on the clean certificate.
• "He is only charged with notice of the burdens on the property which are noted on the face of the register or the certificate of title." — Defines the limit of constructive notice supporting the preference of the Manila Trading Company over the unregistered mortgagee.

• Snyder vs. Provincial Fiscal of Cebu and Jose Avila, 42 Phil. 761 — Followed as nearly identical authority that a pre-registration lease, like the mortgage here, unclaimed during registration cannot be recorded after original registration free of encumbrance.
• William H. Anderson and Co. vs. Garcia, 64 Phil. 506 — Followed for the rule that registration is the operative act and purchasers need not look behind the register, sustaining the clean title against the unannotated lien.
• Gestosani, et al. vs. Insular Development Company, et al., L-21166, September 15, 1967, 21 SCRA 114 — Cited for the rationale that registration proceedings are in rem and decrees become incontrovertible to guarantee Torrens indefeasibility.
• Granados vs. Monton, L-1698, April 8, 1950, 86 Phil. 42 — Applied to extend the innocent-purchaser defense of the Manila Trading Company to intervenors as its successors-in-interest.
• Vda. de la Cruz vs. Ilagan, 81 Phil. 554 — Distinguished because heirs there expressly approved the sale in deed and motion, unlike Guillermo Bitanga's mere attestation as witness, so estoppel did not attach.
• Kalalo vs. Luz, L-27782, July 31, 1970, 34 SCRA 337 — Followed for estoppel essentials of influence, reliance and clear proof, found wanting against PNB.
• Angeles, et al. vs. Court of Appeals, et al., 102 Phil. 1006; Tipton vs. Velasco, 6 Phil. 67 — Followed for imprescriptibility of actions to recover property sold under null and void contracts, defeating laches.

• Article 777, New Civil Code; Article 657, Old Civil Code — Transmit the decedent's rights to heirs from death; applied to vest Iñigo Bitanga's one-half in his children and create co-ownership with Rosa Ver.
• Article 2085, New Civil Code; Article 1857, Old Civil Code — Require the pledgor or mortgagor to be absolute owner; applied to limit Rosa Ver's mortgage to her own share.
• Article 493, New Civil Code; Article 399, Old Civil Code — Allow each co-owner to alienate or mortgage only his part limited to what may be allotted on partition; applied to confine PNB's acquisition to one-half.
• Sections 38, 39 and 47, Act No. 496 (Land Registration Act); Sections 29, 30, 31, 32, 44 and Sec. 31, par. 2, P.D. No. 1529 — Provide conclusiveness and incontrovertibility of decrees after one year, freedom from unnoted encumbrances, and evidentiary conclusiveness of certificates; applied to extinguish the unannotated mortgage lien.
• Sections 19 and 21, Act No. 496 in relation to Sections 31 and 35 — Govern applications subject to mortgages and general constructive notice; PNB invoked specific-notice duties thereunder, rejected as incompatible with indefeasibility where the mortgagee defaulted in claiming.
• Sections 50 and 51, Act No. 496 — Make registration the operative act for transfers and liens; applied to deny effect to the day-book registration under Act No. 3344 after Torrens issuance.

Makasiar, Fernandez and De Castro, JJ., concur. Teehankee, J., concurs in the result. Melencio-Herrera, J., took no part.