Singson vs. Spouses Carpio

A mortgagee who consolidates ownership of a mortgaged property in its name without first foreclosing the mortgage and purchasing the property at public auction engages in the prohibited practice of pactum commissorium, rendering the transfer void and requiring the reinstatement of title in the name of the mortgagor. The Torrens title issued pursuant to such void transfer cannot shield the mortgagee from the consequences of the prohibited appropriation.

Petitioner Annaliza C. Singson was the grandniece of Primitiva Cayanan Caamic, whom she cared for and treated as her own mother. Petitioner and Primitiva occupied a 51.24-square meter residential property in Magsaysay Village, Tondo, Manila, covered by TCT No. 267017. Respondents Spouses Nar Christian Carpio and Cecilia Cao Carpio were neighbors of Primitiva and petitioner. The property had previously been mortgaged to a certain Lordita Piamonte, and petitioner approached respondent Cecilia Carpio to request that respondents advance the funds needed to redeem the property from Piamonte.

Petitioner Annaliza C. Singson was the grandniece of Primitiva Cayanan Caamic, whom she cared for during Primitiva's lifetime and whom Primitiva treated as her own daughter. Together they occupied a 51.24-square meter residential property at No. 22-E Block 5, De los Santos Street, Magsaysay Village, Tondo, Manila, covered by TCT No. 267017. The property had previously been mortgaged to a certain Lordita Piamonte. When the need arose to redeem the property from Piamonte, petitioner approached respondent Cecilia Cao Carpio, a neighbor, and requested that respondents advance the sum of ₱135,000.00 to effect the redemption. Respondents agreed, but required Primitiva and petitioner to sign a notarized document entitled "Bilihan ng Lupa" dated February 18, 2007, which on its face stated that Primitiva was selling the property to Cecilia Cao Carpio for ₱135,000.00, with the right to repurchase within five years for ₱135,000.00 plus 3% monthly interest, totaling ₱387,000.00. The document also stipulated that Primitiva and petitioner could continue living on the property for five years, until February 18, 2012, after which they would be obliged to leave and the repurchase provision would become ineffective.

Primitiva died on July 21, 2007. Several months after her death, petitioner received through the mail a document entitled "Kasunduan" dated February 16, 2007, indicating that Primitiva had sold the property to respondents for ₱450,000.00 — a document petitioner had never seen before. Petitioner informed her uncle, Enriquito C. Caamic, who claimed to be Primitiva's son and heir. They visited Atty. Richard Anolin, the notary public who had notarized the Bilihan ng Lupa, who issued a Certification stating that he did not notarize a "Deed of Sale" dated February 18, 2007 purportedly executed by Primitiva and petitioner. This prompted petitioner and Enriquito to file a falsification case against respondents before the City Prosecutor of Manila. While the case was pending preliminary investigation, respondents attempted to register the property under their names. Petitioner opposed the move, but respondents eventually succeeded on their third attempt, obtaining TCT No. 286305.

Respondents claimed they acquired the property from Primitiva on February 16, 2007, and had been paying realty taxes since then. When petitioner and Enriquito refused to vacate despite repeated demands, respondents filed a barangay complaint for conciliation, but no amicable settlement was reached. On August 6, 2010, respondents filed a Complaint for Recovery of Possession and Ownership of Real Property with Damages before the RTC. Enriquito later vacated the property and was dropped as a defendant on November 8, 2011. During trial, respondents presented only one witness, Nar Christian Carpio, along with documentary evidence consisting of TCT No. 286305, tax declarations, real estate tax receipts, a notice to vacate, postal receipts, and a barangay certification to file action. Petitioner testified and presented the Bilihan ng Lupa, Primitiva's death certificate, Atty. Anolin's certification regarding the forged Deed of Sale, and her judicial affidavit. The RTC found the transaction to be a sale with conventional redemption and ruled in favor of respondents. The CA affirmed, finding the transaction to be an equitable mortgage but holding that petitioner had no right to redeem because Primitiva had no known heirs.

• Pactum Commissorium: Petitioner contended that the CA erred in affirming the RTC despite proof that the Bilihan ng Lupa was in the nature of a pactum commissorium, arguing that respondents automatically appropriated the mortgaged property upon Primitiva's death without foreclosing the mortgage and purchasing it at public auction, relying on the ruling in Spouses Solitarios vs. Spouses Jaque.
• Nullity of Title: Petitioner asserted that because the contract and subsequent registration constituted pactum commissorium, TCT No. 286305 must be declared null and void, and the Register of Deeds must issue a new title in the name of Primitiva or her estate.
• Indefeasibility Does Not Shield Fraud: Petitioner argued that the principle of indefeasibility of Torrens title does not apply when the title is used to perpetrate fraud or to countenance a prohibited practice, and that the Court can invalidate the title since its transmission was contrary to law and public policy.
• Damages and Attorney's Fees: Petitioner maintained that respondents' claims for rentals had no basis, that respondents were not entitled to attorney's fees because petitioner did not violate any of their rights, and that respondents should instead pay her attorney's fees and moral damages for attempting to eject her without right.

• Indefeasibility of Torrens Title: Respondents maintained that the Torrens title issued to them was indefeasible and binding upon the whole world unless nullified by a court of competent jurisdiction in a direct proceeding, and that the question of whether the Bilihan ng Lupa was an equitable mortgage or a sale with equitable redemption was irrelevant because it could not prevail over the Torrens title.
• Petitioner's Lack of Right: Respondents argued that petitioner had not established any right to remain on the property, having failed to show entitlement as an heir, donee, vendee, or owner by prescription.
• Collateral Attack: Respondents contended that petitioner was collaterally attacking the validity of their title, which she could not do since Torrens titles are indefeasible unless nullified in a direct proceeding for cancellation of title.
• Proper Registration: Respondents alleged that they were able to transfer the title to their names by going through the proper channels and government authorities, and that petitioner herself was a witness to the signing of the Bilihan ng Lupa.

• Pactum Commissorium: Whether the CA gravely erred in affirming the RTC despite proof that the Bilihan ng Lupa is in the nature of a pactum commissorium, such that respondents' title should be declared void and the original title reinstated.
• Validity of Title and Collateral Attack: Whether petitioner's defense constitutes an impermissible collateral attack on respondents' Torrens title, or whether the court in a reivindicatory suit may pass upon the validity of the plaintiff's certificate of title.
• Damages and Attorney's Fees: Whether respondents are entitled to rentals and attorney's fees, and whether petitioner is entitled to moral damages and attorney's fees.

• Pactum Commissorium: Yes. The registration of the property under respondents' names without foreclosure constituted pactum commissorium, rendering the transfer void under Article 2088 of the Civil Code, and respondents' title was cancelled with reinstatement of Primitiva's title subject to respondents' right to foreclose.
• Validity of Title and Collateral Attack: No, petitioner's defense was not an impermissible collateral attack. In a reivindicatory suit where the plaintiff's claim is based on a Torrens title, the court has jurisdiction to rule definitively on ownership and pass upon the validity of the certificate of title.
• Damages and Attorney's Fees: No. Respondents were not entitled to rentals or attorney's fees because they failed to prove ownership; petitioner was not entitled to moral damages or attorney's fees because fraud or bad faith was not proven by clear and convincing evidence.

• Pactum Commissorium: The CA correctly ruled that the Bilihan ng Lupa was an equitable mortgage under Article 1602 of the Civil Code, given two circumstances: (1) Primitiva and petitioner remained in possession of the property despite the purported sale, and (2) Primitiva was in dire need of money at the time of the transaction to redeem the property from Piamonte. However, the CA erred in sustaining the transfer of title to respondents. Article 2088 prohibits a creditor from appropriating mortgaged property upon the debtor's default. The essence of pactum commissorium is that ownership passes to the creditor by the mere default of the debtor. While the Bilihan ng Lupa itself contained no stipulation for automatic appropriation — it merely provided that the right to repurchase would lapse after five years — respondents' act of causing the cancellation of Primitiva's title and the issuance of a new one in their names, without foreclosing the equitable mortgage and purchasing the property at public auction, constituted the prohibited practice. The Court relied on Montevirgen vs. Court of Appeals, Cruz vs. Court of Appeals, Spouses Solitarios vs. Spouses Jaque, and Dacquel vs. Spouses Sotelo, all of which held that a mortgagee in equity must foreclose the mortgage and buy at auction to validly acquire title. Because respondents failed to present any evidence of foreclosure or auction purchase, their acquisition was void. The CA also erred in ruling that no one had the right to redeem the property and that Primitiva had no known heirs; petitioner was not asserting a right to redeem as an heir but was contesting the validity of the title transfer itself.

• Validity of Title and Collateral Attack: Respondents' reliance on the indefeasibility of their Torrens title was misplaced. A certificate of title is not conclusive proof of ownership but merely confirms or records title already existing and vested; registration does not create or vest title. Citing Spouses Yu Hwa Ping and Gaw vs. Ayala Land, Inc., the Court reiterated that a title cannot be used to protect a usurper, shield fraud, or permit enrichment at another's expense. Furthermore, under Heirs of Cullado vs. Gutierrez, when a plaintiff's claim of ownership in a reivindicatory suit is based on a Torrens title and the defendant disputes its validity, the issue of direct or collateral attack is irrelevant because the court has jurisdiction to rule definitively on ownership and pass upon the validity of the certificate of title. Respondents also failed to specifically deny under oath the authenticity and due execution of the Bilihan ng Lupa, which is the basis of petitioner's affirmative defense, and are deemed to have admitted the same. Tax declarations and receipts, without proof of actual possession, cannot support a claim of ownership — and respondents admitted they were never in possession of the property.

• Damages and Attorney's Fees: Respondents could not demand that petitioner vacate or pay rentals because the right to use and enjoy property is an attribute of ownership, and respondents failed to prove ownership. As for petitioner's counterclaim for moral damages, the Court found no basis: moral damages require a showing of fraud, bad faith, or wanton disregard of contractual obligations, and fraud must be proven by clear and convincing evidence, not presumed. Petitioner failed to formally offer in evidence the Kasunduan and the forged Deed of Sale, and what was established was only that the property was transferred in a pactum commissorium manner, not through fraudulent means or bad faith. Petitioner also failed to testify on mental anguish, sleepless nights, or similar injury. Attorney's fees under Article 2208 require compelling reasons such as bad faith or gross and evident refusal to satisfy a plainly valid claim; petitioner proved neither bad faith on respondents' part nor any stipulation warranting such fees.

• Equitable Mortgage Presumption (Article 1602, Civil Code) — A contract purporting to be a sale with right to repurchase is presumed to be an equitable mortgage when the vendor remains in possession and when the vendor is shown to be in dire need of money at the time of the transaction. In case of doubt, a sale with pacto de retro is construed as an equitable mortgage because it involves a smaller transmission of rights and interests. The Court applied this presumption based on two circumstances: continued possession by Primitiva and petitioner, and Primitiva's dire financial need.

• Pactum Commissorium (Article 2088, Civil Code) — A creditor cannot appropriate or consolidate ownership over mortgaged property merely upon the debtor's failure to pay. The essence of pactum commissorium is that ownership of the security passes to the creditor by the mere default of the debtor. Any stipulation to the contrary is null and void. The mortgagee's only proper remedy is to foreclose the mortgage and purchase the property at a public auction. Applied to equitable mortgages, consolidation of ownership in the mortgagee without foreclosure constitutes pactum commissorium and renders the transfer void.

• Torrens Title as Evidence, Not Source, of Ownership — A certificate of title is merely evidence of ownership, not a mode of acquiring ownership. Registration does not create or vest title. A title cannot be used to protect a usurper, shield fraud, or permit enrichment at another's expense. The issuance of a title does not foreclose the possibility that the property may be co-owned or held in trust.

• Collateral Attack in Reivindicatory Suits (Heirs of Cullado vs. Gutierrez) — When a plaintiff's claim of ownership in a reivindicatory or reconveyance suit is based on a Torrens title and the defendant disputes the validity of such title, the issue of whether there is a direct or collateral attack is irrelevant. The court where the suit is filed has jurisdiction to rule definitively on ownership and pass upon the validity of the plaintiff's certificate of title.

• Burden of Proof in Accion Reivindicatoria — The plaintiff must rely on the strength of his own evidence and not upon the weakness of the defendant's. The plaintiff must prove ownership by preponderance of evidence. Tax declarations and receipts support a claim of ownership only when coupled with proof of actual possession.

• "Registration of a piece of land under the Torrens System does not create or vest title, because it is not a mode of acquiring ownership. A certificate of title is merely an evidence of ownership or title over the particular property described therein. It cannot be used to protect a usurper from the true owner; nor can it be used as a shield for the commission of fraud; neither does it permit one to enrich himself at the expense of others." — This passage, quoting Spouses Yu Hwa Ping and Gaw vs. Ayala Land, Inc., articulates the fundamental principle that a Torrens title is evidence of ownership, not its source, and cannot shield fraud or unjust enrichment — the doctrinal basis for nullifying respondents' title.

• "Applying the principle of pactum commissorium to equitable mortgages, the Court ruled in Montevirgen v. Court of Appeals that the consolidation of ownership in the person of the mortgagee in equity, merely upon failure of the mortgagor in equity to pay the obligation, would amount to a pactum commissorium. If a mortgagee in equity desires to obtain title to a mortgaged property, the mortgagee's proper remedy is to cause the foreclosure of the mortgage in equity and buy it in a foreclosure sale." — This passage states the ratio decidendi on how pactum commissorium applies to equitable mortgages and the exclusive remedy available to the mortgagee.

• "if the plaintiff's claim of ownership is based on a Torrens title and the defendant disputes the validity of such title, then the issue of whether there is a direct or collateral attack on the plaintiff's title is irrelevant. This is because the court where the reivindicatory or reconveyance suit is filed has the requisite jurisdiction to rule definitively or with finality on the issue of ownership—it can pass upon the validity of the plaintiff's certificate of title." — This passage, quoting Heirs of Cullado vs. Gutierrez, defines the doctrine permitting courts in reivindicatory suits to pass upon the validity of a Torrens title, resolving the collateral-attack objection.

• Spouses Solitarios vs. Spouses Jaque, 746 Phil. 852 (2014) — Controlling precedent followed. The Court voided a transaction and the registration of deeds of sale where the mortgagee obtained title through pactum commissorium, directly analogous to the present case.
• Dacquel vs. Spouses Sotelo, G.R. No. 203946, August 4, 2021 — Followed. The Court held that a party who caused cancellation of the mortgagor's title and transfer to his name without foreclosure engaged in pactum commissorium, rendering the transaction void and requiring reversion of title.
• Montevirgen vs. Court of Appeals, 198 Phil. 338 (1982) — Followed. Established that consolidation of ownership in an equitable mortgagee upon the mortgagor's default amounts to pactum commissorium; the proper remedy is foreclosure and purchase at auction.
• Cruz vs. Court of Appeals, 459 Phil. 264 (2003) — Followed. Reiterated that in an equitable mortgage, title may not be secured in a pactum commissorium fashion but only through foreclosure and auction sale.
• Heirs of Cullado vs. Gutierrez, 858 Phil. 580 (2019) — Controlling precedent on collateral attack. Held that in a reivindicatory suit, the court has jurisdiction to rule definitively on ownership and pass upon the validity of the plaintiff's certificate of title, making the direct-or-collateral-attack distinction irrelevant.
• Spouses Yu Hwa Ping and Gaw vs. Ayala Land, Inc., 851 Phil. 421 (2019) — Followed. Articulated that a Torrens title is merely evidence of ownership and cannot be used to shield fraud or unjust enrichment.
• Muñoz vs. Ramirez, 643 Phil. 267 (2010) — Distinguished. In that case, the Court ordered reconveyance to the mortgagor upon payment of the loan within 90 days; a similar ruling could not be rendered here due to Primitiva's death, respondents' lack of possession, and the absence of information on Primitiva's estate.

• Article 1602, New Civil Code — Enumerates the circumstances under which a contract is presumed to be an equitable mortgage, including when the vendor remains in possession and when the vendor is in dire need of money. Applied to find that the Bilihan ng Lupa was an equitable mortgage based on two qualifying circumstances.
• Article 1603, New Civil Code — Provides that in case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage. Relied upon to support the presumption of equitable mortgage.
• Article 2088, New Civil Code — Prohibits a creditor from appropriating things given by way of pledge or mortgage or disposing of them; any stipulation to the contrary is null and void. The controlling provision invalidating respondents' appropriation of the property as pactum commissorium.
• Article 2208, New Civil Code — Enumerates the exceptions under which attorney's fees may be recovered in the absence of stipulation. Applied to deny attorney's fees to petitioner for failure to prove bad faith or any other qualifying circumstance.
• Rule 133, Section 1, Rules of Court — Governs preponderance of evidence in civil cases. Applied to hold that respondents, as plaintiffs bearing the burden of proof, failed to establish ownership by preponderant evidence.

Hernando, Zalameda, Rosario, and Marquez, JJ., concurred.