LOPEZ, M., J.:
WHEREFORE, in view of the foregoing, judgement is hereby rendered:On appeal, the CA agreed with the RTC that Calubad and Keh are mortgagees in good faith; hence, their right over the property should be recognized.[17] The dispositive portion of the May 19, 2016 Decision reads:
1) declaring the signature of Corona Vda. De Jimenez in the Deed of Donation dated August 31, 2000 as a product of forgery. The said Deed of Donation is hereby declared null and void. The TCT No. 257432 in the name of Arturo Calubad and Antonio Keh is however recognized.x x x x
SO ORDERED.[16] (Emphases in the original.)
WHEREFORE, premises considered, the appeal is DENIED. The Decision of the Regional Trial Court, Branch 227 of Quezon City dated 20 December 2012 is hereby AFFIRMED.Only Danilo filed a motion for reconsideration, but was denied on October 25, 2016.[19] Hence, this petition.
SO ORDERED.[18] (Emphases in the original.)
There is, however, a situation where, despite the fact that the mortgagor is not the owner of the mortgaged property, his title being fraudulent, the mortgage contract and any foreclosure sale arising therefrom are given effect by reason of public policy. This is the doctrine of "the mortgagee in good faith" based on 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. The public interest in upholding the indefeasibility of a certificate of title, as evidence of the lawful ownership of the land or of any encumbrance thereon, protects a buyer or mortgagee who, in good faith, relied upon what appears on the face of the certificate of title.[27] (Emphasis supplied.)The doctrine applies when the following requisites concur, namely: (a) the mortgagor is not the rightful owner of, or does not have valid title to, the property;[28] (b) the mortgagor succeeded in obtaining a Torrens title over the property;[29] (c) the mortgagor succeeded in mortgaging the property to another person;[30] (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;[31] and (e) the mortgage contract was registered.[32] All these requisites were satisfied in this case, viz.: (a) Damian was found to have no valid title to the property as his title was derived from a forged Deed of Donation; (b) he was able to obtain TCT No. N-217728; (c) he succeeded in mortgaging the property to Calubad and Keh; (d) Calubad and Keh found nothing on TCT No. N-217728 that would have notified them of Damian's invalid title. In fact, Calubad and Keh even went beyond the title and conducted an ocular inspection, whereby they confirmed that Damian was in possession and occupation of the property;[33] and (e) the mortgage contract was registered. Thus, the courts a quo did not err in ruling that Calubad and Keh were mortgagees in good faith.
However, the rights of the parties to the present case are defined not by the determination of whether or not HSLB is a mortgagee in good faith, but of whether or not HSLB is a purchaser in good faith. And, HSLB is not such a purchaser.The determination of HSLB's good faith as the purchaser in the foreclosure sale was necessary, since it can no longer benefit from its rights as a mortgagee in good faith considering that the mortgage, foreclosure sale, and HSLB's title were later on nullified with finality. This is not the case here.x x x x
Indeed, at the time HSLB bought the subject property, HSLB had actual knowledge of the am10tated Notice of Lis Pendens. Instead of heeding the same, HSLB continued with the purchase knowing the legal repercussions a notice of lis pendens entails. HSLB took upon itself the risk that the Notice of Lis Pendens leads to. As correctly found by the CA, "the notice of lis pendens was annotated on 14 September 1995, whereas the foreclosure sale, where the appellant was declared as the highest bidder, took place sometime in 1997. There is no doubt that at the time appellant purchased the subject property, it was aware of the pending litigation concerning the san1e property and thus, the title issued in its favor was subject to the outcome of said litigation."x x x x
The subject of the lis pendens on the title of HSLB's vendor, Delgado, is the "Reformation case" filed against Delgado by the herein respondents. The case was decided with finality by the CA in favor of herein respondents. The contract of sale in favor of Delgado was ordered reformed into a contract of mortgage. By final decision of the CA, HSLB's vendor, Delgado, is not the property owner but only a mortgagee. As it turned out, Delgado could not have constituted a valid mortgage on the property. That the mortgagor be the absolute owner of the thing mortgaged is an essential requisite of a contract of mortgage. x x x.x x x x
We go back to Bank of Commerce v. San Pablo, Jr. where the doctrine of mortgagee in good faith, upon which petitioner relies, was clarified as based on the rule that all persons dealing with property covered by the Torrens Certificate of Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title. In turn, the rule is based on "x x x public interest in upholding the indefeasibility of a certificate of title, as evidence of lawful ownership of the land or of any encumbrance thereon."
Insofar as the HSLB is concerned, there is no longer any public interest in upholding the indefeasibility of the certificate of title of its mortgagor, Delgado. Such title has been nullified in a decision that had become final and executory. Its own title, derived from the foreclosure of Delgado's mortgage in its favor, has likewise been nullified in the very same decision that restored the certificate of title in respondents' name. There is absolutely no reason that can support the prayer of HSLB to have its mortgage lien carried over and into the restored certificate of title of respondents.[35] (Emphases supplied; citations omitted.)
Petitioners also contend that the notice of adverse claim which antedated the foreclosure and sale of public auction of the property subject thereto - charges all strangers with notice of the particular litigation or claim and, therefore, any right that may be acquired thereafter on the property is subject to the eventuality of the third[-]party claim, is not sustainable in the present controversy. It is well to note that the mortgage in favor of the late Ramon Eugenio was annotated on November 13, 1952 at the back of the certificates of title in controversy, while the adverse claim was only annotated on the same certificates more than one year later, on December 21, 1953. Hence, the adverse claim could not affect the rights of the mortgagee; and the fact that the foreclosure of the mortgage and the consequent public auction sale have been effected long after the annotation of the adverse claim is of no moment, because the foreclosure sale retroacts to the date of registration of the mortgage (See Cruz vs. Sandoval, 39 Phil., 736, and Lopez vs. Vijandre, 72 Phil., 56.)Similarly, in Gonzales v. Intermediate Appellate Court,[38] the notice of lis pendens was already inscribed in the title of mortgagor at the time of the purchase of the subject property at the foreclosure sale on August 11, 1973. We ruled:"A person who takes a mortgage in good faith and for a valuable consideration, the record showing a clear title in the mortgagor, will be protected against any equitable titles to the premises, or equitable claims on the title, in favor of third persons, of which he had no notice, actual or constructive and that protection extends to a purchaser at a Sheriff's sale under proceedings on the mortgage although such purchaser had notice of the alleged equity." (59 C.J.S., Sec. 233, pp. 303-304)Any subsequent lien or encumbrance annotated at the back of the certificates of title cannot in any way prejudice the mortgage previously registered, and the lots subject thereto pass to the purchaser at the public auction sale free from any lien or encumbrance. 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.[37] (Emphases supplied.)
It is true that the notice of lis pendens is an announcement to the whole world that a particular real property is in litigation, and serves as a warning that one who acquires an interest over said property does so at his own risk, so that he gambles on the results of the litigation over said property.The iteration of the doctrine continued in Pineda v. CA,[40] viz.:
However, it has also been held that any subsequent lien or encumbrance annotated at the back of the certificate of title cannot in any way prejudice the mortgage previously registered, and the lots subject thereto pass to the purchaser at the public auction sale free from any lien or encumbrance. 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.
In the case of Gomes vs. Government of the Philippine Islands, this Court ruled:"The appealed judgment was finally based on the fact that both the plaintiff and the intervenor had succeeded in having notices of lis pendens noted in transfer certificate of title No. 25909. lt seems that it is desired to attribute to these notations a legal effect similar to a lien. This is not, however, the effect of a notice of lis pendens under sections 79 of Act No. 496, and 401 of the Code of Civil Procedure. The notation of the plaintiff's notice produced no effect whatsoever against the Government's mortgage not only because the latter was prior to the former but also because once the mortgage is declared valid and effective by final judgment, the plaintiff can no longer enforce any preferential right. x x x We hold, therefore, that the notices of lis pendens and the attachment did not constitute justifiable or lawful cause to prevent the execution of the judgment of foreclosure of mortgage obtained by the Government."A person who takes a mortgage in good faith and for a valuable consideration, the record showing a clear title in the mortgagor will be protected against any equitable titles to the premises or equitable claims on the title, in favor of their persons, of which he had no notice, actual or constructive and that protection extends to a purchaser at a Sheriff's sale under proceedings on the mortgage although such purchaser had notice of the alleged equity.
In the case at bar, it is the respondent bank, the mortgagee itself, which purchased the subject property in the foreclosure sale. Being an innocent mortgagee with a superior lien over that of petitioner, its right to a foreclosure of the property is reserved. The notice of lis pendens which antedated the foreclosure and sale at public auction of subject property could not affect the rights of the respondent bank because the foreclosure sale retroacts to the date of registration of the mortgage. Its character of being an innocent mortgagee continues up to the date of actual foreclosure and sale at public auction.[39] (Emphases supplied; citations omitted.)
When Gonzales purchased the Property at the auction sale, Pineda and Sayoc had already annotated the lis pendens on the original of TCT 8361, which remained valid. However, the mortgage of Gonzales was validly registered prior to the notation of the lis pendens. The subsequent annotation of the lis pendens could not defeat the rights of the mortgagee or the purchaser at the auction sale who derived their rights under a prior mortgage validly registered. The settled rule is that the auction sale retroacts to the date of the registration of the mortgage, putting the auction sale beyond the reach of any intervening lis pendens, sale or attachment. As the Court explained in Caviles, Jr. v. Bautista: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.[42] The foreclosure sale retroacts to the date of registration of the mortgage because it is incidental to the fulfilment of the mortgagor's obligation in the mortgage contract upon his default. In turn, the purchaser in a foreclosure sale essentially derives his right from the previously registered mortgage. To rule otherwise would be to render nugatory the purpose of the mortgage as security. 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.[43] Once the mortgagor defaulted in the fulfillment of his obligation, the mortgagee in good faith can still cause the foreclosure of the mortgage. In such case, the purchaser in the foreclosure sale acquires the right of the mortgagee in good faith, making the sale prior in time as against any subsequent lien or encumbrance.We have also consistently ruled that an auction or execution sale retroacts to the date of levy of the lien of attachment. When the subject property was sold on execution to the petitioner, this sale retroacted to the date of inscription of petitioners' notice of attachment on October 6, 1982. The earlier registration of the petitioners' levy on preliminary attachment gave them superiority and preference in rights over the attached property as against respondents.A contrary rule would make a prior registration of a mortgage or any lien meaningless. The prior registered mortgage of Gonzales prevails over the subsequent notice of lis pendens, even if the auction sale took place after the notation of the lis pendens. Consequently, TCT 16084, issued to Gonzales after she presented the sheriffs certificate of sale and her affidavit of consolidation, is valid.[41] (Emphases supplied; citations omitted.)
Accordingly, we rule that the execution sale in favor of the petitioner Caviles spouses was anterior and superior to the sale of the same property to the respondent Bautista spouses on October 18, 1982. The right of petitioners to the surrender of the owner's duplicate copy of TCT No. 57006 covering the subject property for inscription of the certificate of sale, and for the cancellation of said certificate of title and the issuance of a new title in favor of petitioners cannot be gainsaid.