Expresscredit Financing Corporation, G.R. No. 156033: Quisumbing, J.

EXPRESSCREDIT FINANCING CORPORATION, Petitioner, SPS. MORTON AND JUANITA VELASCO, Respondents. QUISUMBING, J.
G.R. No. 156033 Present: Promulgated: October 20, 2005
On May 25, 1988, respondents purchased on installment, from spouses Jesus and Lorelei Garcia (Garcia spouses), a house and lot in Quezon City, covered by Transfer Certificate of Title No. 3250 in the name of Jesus Garcia. In July 1988, a Deed of Absolute Sale was executed whereby the Garcia spouses bound themselves to deliver the title of the property purchased, free from all liens and encumbrances within 15 days from full payment. Respondents were thereafter informed by the Garcia spouses that since the house on the property was still under construction, the lot was still covered by the mother title and had no separate title as yet. They promised to give the title after the construction was completed. In August 1988, the keys to the property were delivered to the respondents. They moved in, applied for a telephone connection, and insured the house. When respondents followed up on the title, the Garcia spouses told them that since the Quezon City Hall was razed by a fire in June, the title had to be reconstituted, so their separate title could not yet be delivered to them. Because the Garcia spouses would not deliver the title despite repeated demands, respondents went to the Register of Deeds in Quezon City and discovered that the Garcia spouses had mortgaged the property to petitioner, Expresscredit Financing Corporation, for P250,000 on June 15, 1989, or more than a year after the property was sold to them. On October 23, 1990, the respondents filed a case for Quieting of Title and Specific Performance against the Garcia spouses before the court a quo, whereby they caused registration of a notice of lis pendens on the title, attaching thereto a copy of their complaint stating that they have been the owners of the said property since May 25, 1988. The Garcia spouses were subsequently declared in default for failing several times to appear in court despite notice. On October 7, 1992, petitioner foreclosed on the property in defiance of the notice of lis pendens and the Writ of Preliminary Injunction issued by the lower court, enjoining petitioner from selling or in any manner disposing of the property without permission from the court. Petitioner sold the property in a public auction where petitioner was the highest bidder. Due to the failure of the Garcia spouses to redeem the property, petitioner thereafter executed an Affidavit of Consolidation and secured Certificate of Title No. 69049 in its name. On March 1, 1996, the Regional Trial Court rendered its Decision and held that defendant [Expresscredit] Financing Corporation is an innocent purchaser and is, therefore, in good faith. The case filed against defendant [Expresscredit] Financing Corporation was ordered DISMISSED for lack of merit. The Court of Appeals reversed the Decision of the trial court.
Issue:
Whether or not the petitioner who acquired the same in a foreclosure sale as the highest bidder was a purchaser in good faith and therefor entitled to the questioned property?
Held: No, An innocent purchaser for value or any equivalent phrase shall be deemed to include, under the Torrens System, the innocent lessee, mortgagee, and other encumbrancer for value. As shown by the evidence, the property had already been sold by the Garcia spouses to the respondents on May 25, 1988. The respondents immediately took possession, applied for a telephone line, and insured the property with Pioneer Insurance in September 1988. When the same land was mortgaged by the Garcia spouses, respondents have been, since May 25, 1988 in actual, physical, continuous and uninterrupted possession. Petitioner justifies its acquisition of the property by saying that when it was mortgaged, the previous sale of the land was not annotated on the title and so its purchase was in good faith. To fulfill the requirement of good faith, it is imperative for a mortgagee of the land, in the possession of persons not the mortgagor, to inquire and investigate into the rights or title of those in possession. It is true that a person dealing with the owner of registered land is not bound to go beyond the certificate of title. He may rely on the notices of the encumbrances on the property annotated on the certificate of title or absence of any annotation. However, we note that the Garcia spouses are unlike other mortgagors. They are in the business of constructing and selling townhouses and are past masters in real estate transactions. Further, petitioner is in the business of extending credit to the public, including real estate loans. In both these businesses, it devolves upon both, greater charge than ordinary buyers or encumbrancers for value, who are not in such venture. It is standard in their business, as a matter of due diligence required of banks and financing companies, to ascertain whether the property being offered as security for the debt has already been sold to another to prevent injury to prior innocent buyers. They also have the resources to ascertain any encumbrances over the properties they are dealing with. According to respondents witness, Conchita Cotoner, on the second week of June 1989, two credit investigators of petitioner visited the subject property to investigate concerning the occupants on the property. They were promptly informed by the witness, who was the caretaker of the property, that the same had been sold to respondents by the Garcia spouses in May of 1988. Clearly, petitioner, through its agents, had been informed of the earlier sale of the subject property to the respondents. Since the Garcia spouses no longer had the right to alienate the property, no valid mortgage was ever constituted on it. Since the mortgage contract was void, the foreclosure of the property was ineffectual as well. Sadly, petitioner, despite having knowledge of the unregistered sale still accepted the mortgage and to our mind, in bad faith, purchased the same at the foreclosure sale. Indeed, where the land sold in auction sale was registered under the Torrens System, the purchaser at the execution sale acquired such rights, title and interest of the judgment debtor as appearing on the certificate of title issued on the property, subject to no liens, encumbrances or burdens that were not noted thereon. Petitioners claim that it
purchased the property at an auction sale is of no moment. In this case, particular circumstances constrain us to rule that petitioner was neither a mortgagee nor a purchaser in good faith and as such, could not acquire good title to the property as against the former transferee.

Expresscredit Financing Corporation, G.R. No. 156033: Quisumbing, J.

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EXPRESSCREDIT FINANCING CORPORATION, Petitioner, SPS. MORTON AND JUANITA VELASCO, Respondents. QUISUMBING, J.

G.R. No. 156033 Present: Promulgated: October 20, 2005

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