TORBELA V.

ROSARIO
G.R. No. 140528 December 7, 2011

FACTS: The controversy began with a parcel of land, with an area of 374 square meters,
located in Urdaneta City, Pangasinan (Lot No. 356-A) covered by (OCT) No. 16676,8 in
the name of Valeriano Semilla (Valeriano), married to Potenciana Acosta. Under
unexplained circumstances, Valeriano gave Lot No. 356-A to his sister Marta Semilla,
married to Eugenio Torbela (spouses Torbela). Upon the deaths of the spouses Torbela,
Lot No. 356-A was adjudicated in equal shares among their children, the Torbela siblings,
by virtue of a Deed of Extrajudicial Partition. The Torbela siblings executed a Deed of
Absolute Quitclaim10 over Lot No. 356-A in favor of Dr. Rosario "for and in consideration
of the sum of NINE PESOS (₱9.00) OCT No. 16676 in Valeriano’s name was partially
cancelled as to Lot No. 356-A and TCT No. 5275112 was issued in Dr. Rosario’s name
covering the said property.

Another Deed of Absolute Quitclaim13 was subsequently executed, this time by Dr.
Rosario, acknowledging that he only borrowed Lot No. 356-A from the Torbela siblings
and was already returning the same to the latter for ₱1.00. Dr. Rosario obtained a loan
from the Development Bank of the Philippines (DBP) secured by a mortgage constituted
on Lot No. 356-A.

Dr. Rosario was able to fully pay his loan from DBP. Dr. Rosario acquired another loan
from the Philippine National Bank (PNB). The loan was secured by mortgages constituted
on, among others, Lot No. 356-A, covered by TCT No. 52751 in Dr. Rosario’s name

On December 8, 1981, Dr. Rosario and his wife, Duque-Rosario (spouses Rosario),
acquired a third loan from Banco Filipino Savings and Mortgage Bank (Banco Filipino).
To secure said loan, the spouses Rosario again constituted mortgages on Lot No. 356-
A, among others.

The Torbela siblings filed before the Regional Trial Court (RTC) of Urdaneta, Pangasinan,
a Complaint for recovery of ownership and possession of Lot No. 356-A, plus damages,
against the spouses Rosario, which was docketed as Civil Case No. U-4359.

The spouses Rosario afterwards failed to pay their loan from Banco Filipino. Banco
Filipino extrajudicially foreclosed the mortgages on Lot No. 356-A and the other
properties. Banco Filipino was the lone bidder for the three foreclosed properties. On
December 9, 1987, the Torbela siblings filed before the RTC their Amended Complaint,31
impleading Banco Filipino as additional defendant and praying that the spouses Rosario
be ordered to redeem Lot No. 356-A from Banco Filipino.
On June 7, 1988, new certificates of title were issued in the name of Banco Filipino,
particularly, TCT No. 165813 for Lot No. 356-A .36
The Torbela siblings thereafter filed before the RTC on August 29, 1988 a Complaint37
for annulment of the Certificate of Final Sale dated May 24, 1988, judicial cancellation of
TCT No. 165813, and damages, against Banco Filipino, the Ex Officio Provincial Sheriff,
and the Register of Deeds of Pangasinan, which was docketed as Civil Case No. U-4733.

On June 19, 1991, Banco Filipino filed before the RTC of Urdaneta City a Petition for the
issuance of a writ of possession. The RTC ruled in favor of Banco Filipino which was
affirmed by the CA.
ISSUES:
1. Was there an express trust between the Torbela siblings and Dr. Rosario?

2. Whether or not the right of the Torbela siblings to recover Lot 356-A has
prescribed?
3. Is Banco Filipino a buyer or a mortgagee in good faith?
RULING:
1. YES. There was an express trust between the Torbela siblings and Dr. Rosario.

Indeed, the Torbela siblings executed a Deed of Absolute Quitclaim on December 12,
1964 in which they transferred and conveyed Lot No. 356-A to Dr. Rosario for the
consideration of ₱9.00. However, the Torbela siblings explained that they only executed
the Deed as an accommodation so that Dr. Rosario could have Lot No. 356-A registered
in his name and use said property to secure a loan from DBP. On December 28, 1964,
Dr. Rosario executed his own Deed of Absolute Quitclaim, in which he expressly
acknowledged that he "only borrowed" Lot No. 356-A and was transferring and conveying
the same back to the Torbela siblings for the consideration of ₱1.00.

Dr. Rosario presented TCT No. 52751, issued in his name, to prove his purported title to
Lot No. 356-A. In Lee Tek Sheng v. Court of Appeals,53 the Court made a clear distinction
between title and the certificate of title:

The certificate referred to is that document issued by the Register of Deeds known as the
Transfer Certificate of Title (TCT). By title, the law refers to ownership which is
represented by that document. Placing a parcel of land under the mantle of the Torrens
system does not mean that ownership thereof can no longer be disputed. Ownership is
different from a certificate of title. The TCT is only the best proof of ownership of a piece
of land. Besides, the certificate cannot always be considered as conclusive evidence of
ownership. Mere issuance of the certificate of title in the name of any person does not
foreclose the possibility that the real property may be under co-ownership with persons
not named in the certificate or that the registrant may only be a trustee or that other parties
may have acquired interest subsequent to the issuance of the certificate of title.
Registration does not vest title; it is merely the evidence of such title. Land registration
laws do not give the holder any better title than what he actually has.55 Consequently,
Dr. Rosario must still prove herein his acquisition of title to Lot No. 356-A, apart from his
submission of TCT No. 52751 in his name.

Dr. Rosario testified that he obtained Lot No. 356-A after paying the Torbela siblings
₱25,000.00, pursuant to a verbal agreement with the latter. Even if the Court considers
Dr. Rosario’s testimony on his alleged verbal agreement with the Torbela siblings, the
Court finds the same unsatisfactory. Dr. Rosario averred that the two Deeds were
executed only because he was "planning to secure loan from the Development Bank of
the Philippines and Philippine National Bank and the bank needed absolute
quitclaim[.]"58 While Dr. Rosario’s explanation makes sense for the first Deed of Absolute
Quitclaim dated December 12, 1964 executed by the Torbela siblings (which transferred
Lot No. 356-A to Dr. Rosario for ₱9.00.00), the same could not be said for the second
Deed of Absolute Quitclaim dated December 28, 1964 executed by Dr. Rosario. In fact,
Dr. Rosario’s Deed of Absolute Quitclaim (in which he admitted that he only borrowed Lot
No. 356-A and was transferring the same to the Torbela siblings for ₱1.00.00) would
actually work against the approval of Dr. Rosario’s loan by the banks. Since Dr. Rosario’s
Deed of Absolute Quitclaim dated December 28, 1964 is a declaration against his self-
interest, it must be taken as favoring the truthfulness of the contents of said Deed.59

It can also be said that Dr. Rosario is estopped from claiming or asserting ownership over
Lot No. 356-A based on his Deed of Absolute Quitclaim dated December 28, 1964. Dr.
Rosario's admission in the said Deed that he merely borrowed Lot No. 356-A is deemed
conclusive upon him.
Trust is the right to the beneficial enjoyment of property, the legal title to which is vested
in another. It is a fiduciary relationship that obliges the trustee to deal with the property
for the benefit of the beneficiary. Trust relations between parties may either be express
or implied. An express trust is created by the intention of the trustor or of the parties, while
an implied trust comes into being by operation of law.61

Express trusts are created by direct and positive acts of the parties, by some writing or
deed, or will, or by words either expressly or impliedly evincing an intention to create a
trust. Under Article 1444 of the Civil Code, "[n]o particular words are required for the
creation of an express trust, it being sufficient that a trust is clearly intended."62 It is
possible to create a trust without using the word "trust" or "trustee." Conversely, the mere
fact that these words are used does not necessarily indicate an intention to create a trust.
The question in each case is whether the trustor manifested an intention to create the
kind of relationship which to lawyers is known as trust. It is immaterial whether or not he
knows that the relationship which he intends to create is called a trust, and whether or not
he knows the precise characteristics of the relationship which is called a trust.63
In Tamayo v. Callejo,64 the Court recognized that a trust may have a constructive or
implied nature in the beginning, but the registered owner’s subsequent express
acknowledgement in a public document of a previous sale of the property to another party,
had the effect of imparting to the aforementioned trust the nature of an express trust. The
same situation exists in this case. When Dr. Rosario was able to register Lot No. 356-A
in his name under TCT No. 52751 on December 16, 1964, an implied trust was initially
established between him and the Torbela siblings under Article 1451 of the Civil Code,
which provides:

ART. 1451. When land passes by succession to any person and he causes the legal title
to be put in the name of another, a trust is established by implication of law for the benefit
of the true owner.

Dr. Rosario’s execution of the Deed of Absolute Quitclaim on December 28, 1964,
containing his express admission that he only borrowed Lot No. 356-A from the Torbela
siblings, eventually transformed the nature of the trust to an express one. The express
trust continued despite Dr. Rosario stating in his Deed of Absolute Quitclaim that he was
already returning Lot No. 356-A to the Torbela siblings as Lot No. 356-A remained
registered in Dr. Rosario’s name under TCT No. 52751 and Dr. Rosario kept possession
of said property, together with the improvements thereon.

2. NO. The right of the Torbela siblings to recover Lot No. 356-A has not yet
prescribed.
Under Section 40 of the old Code of Civil Procedure, all actions for recovery of real
property prescribed in 10 years, excepting only actions based on continuing or subsisting
trusts that were considered by section 38 as imprescriptible. As held in the case of Diaz
v. Gorricho, L-11229, March 29, 1958, however, the continuing or subsisting trusts
contemplated in section 38 of the Code of Civil Procedure referred only to express
unrepudiated trusts, and did not include constructive trusts (that are imposed by law)
where no fiduciary relation exists and the trustee does not recognize the trust at all."

This principle was amplified in Escay v. Court of Appeals this way: "Express trusts
prescribe 10 years from the repudiation of the trust (Manuel Diaz, et al. vs. Carmen
Gorricho et al., 54 O.G. p. 8429, Sec. 40, Code of Civil Procedure)."

To apply the 10-year prescriptive period, which would bar a beneficiary’s action to recover
in an express trust, the repudiation of the trust must be proven by clear and convincing
evidence and made known to the beneficiary.67 The express trust disables the trustee
from acquiring for his own benefit the property committed to his management or custody,
at least while he does not openly repudiate the trust, and makes such repudiation known
to the beneficiary or cestui que trust.
Dr. Rosario argues that he is deemed to have repudiated the trust on December 16, 1964,
when he registered Lot No. 356-A in his name under TCT No. 52751, so when on
February 13, 1986, the Torbela siblings instituted before the RTC Civil Case No. U-4359,
for the recovery of ownership and possession of Lot No. 356-A from the spouses Rosario,
over 21 years had passed. Civil Case No. U-4359 was already barred by prescription, as
well as laches.

The Court already rejected a similar argument in Ringor v. Ringor69 for the following
reasons:

A trustee who obtains a Torrens title over a property held in trust for him by another cannot
repudiate the trust by relying on the registration. A Torrens Certificate of Title in Jose’s
name did not vest ownership of the land upon him. The Torrens system does not create
or vest title. It only confirms and records title already existing and vested. It does not
protect a usurper from the true owner. The Torrens system was not intended to foment
betrayal in the performance of a trust. It does not permit one to enrich himself at the
expense of another. Where one does not have a rightful claim to the property, the Torrens
system of registration can confirm or record nothing. Petitioners cannot rely on the
registration of the lands in Jose’s name nor in the name of the Heirs of Jose M. Ringor,
Inc., for the wrong result they seek. For Jose could not repudiate a trust by relying on a
Torrens title he held in trust for his co-heirs. The beneficiaries are entitled to enforce the
trust, notwithstanding the irrevocability of the Torrens title. The intended trust must be
sustained.70 (Emphasis supplied.)

[P]rescription and laches will run only from the time the express trust is repudiated. The
Court has held that for acquisitive prescription to bar the action of the beneficiary against
the trustee in an express trust for the recovery of the property held in trust it must be
shown that: (a) the trustee has performed unequivocal acts of repudiation amounting to
an ouster of the cestui que trust; (b) such positive acts of repudiation have been made
known to the cestui que trust, and (c) the evidence thereon is clear and conclusive.
Respondents cannot rely on the fact that the Torrens title was issued in the name of
Epifanio and the other heirs of Jose. It has been held that a trustee who obtains a Torrens
title over property held in trust by him for another cannot repudiate the trust by relying on
the registration. The rule requires a clear repudiation of the trust duly communicated to
the beneficiary. The only act that can be construed as repudiation was when respondents
filed the petition for reconstitution in October 1993. And since petitioners filed their
complaint in January 1995, their cause of action has not yet prescribed, laches cannot be
attributed to them.72 (Emphasis supplied.)

It is clear that under the foregoing jurisprudence, the registration of Lot No. 356-A by Dr.
Rosario in his name under TCT No. 52751 on December 16, 1964 is not the repudiation
that would have caused the 10-year prescriptive period for the enforcement of an express
trust to run.

The Court of Appeals held that Dr. Rosario repudiated the express trust when he acquired
another loan from PNB and constituted a second mortgage on Lot No. 356-A sometime
in 1979, which, unlike the first mortgage to DBP in 1965, was without the knowledge
and/or consent of the Torbela siblings.
The Court only concurs in part with the Court of Appeals on this matter.

For repudiation of an express trust to be effective, the unequivocal act of repudiation had
to be made known to the Torbela siblings as the cestuis que trust and must be proven by
clear and conclusive evidence. A scrutiny of TCT No. 52751 reveals the following
inscription:

The Torbela siblings can only be charged with knowledge of the mortgage of Lot No. 356-
A to PNB on March 6, 1981 when the amended loan and mortgage agreement was
registered on TCT No. 52751 as Entry No. 520099. Entry No. 520099 is constructive
notice to the whole world74 that Lot No. 356-A was mortgaged by Dr. Rosario to PNB as
security for a loan, the amount of which was increased to ₱450,000.00. Hence, Dr.
Rosario is deemed to have effectively repudiated the express trust between him and the
Torbela siblings on March 6, 1981, on which day, the prescriptive period for the
enforcement of the express trust by the Torbela siblings began to run.

From March 6, 1981, when the amended loan and mortgage agreement was registered
on TCT No. 52751, to February 13, 1986, when the Torbela siblings instituted before the
RTC Civil Case No. U-4359 against the spouses Rosario, only about five years had
passed. The Torbela siblings were able to institute Civil Case No. U-4359 well before the
lapse of the 10-year prescriptive period for the enforcement of their express trust with Dr.
Rosario.
3. NO. Banco Filipino is not a mortgagee and buyer in good faith.

Having determined that the Torbela siblings are the true owners and Dr. Rosario merely
the trustee of Lot No. 356-A, the Court is next faced with the issue of whether or not the
Torbela siblings may still recover Lot No. 356-A considering that Dr. Rosario had already
mortgaged Lot No. 356-A to Banco Filipino, and upon Dr. Rosario’s default on his loan
obligations, Banco Filipino foreclosed the mortgage, acquired Lot No. 356-A as the
highest bidder at the foreclosure sale, and consolidated title in its name under TCT No.
165813. The resolution of this issue depends on the answer to the question of whether
or not Banco Filipino was a mortgagee in good faith.
Under Article 2085 of the Civil Code, one of the essential requisites of the contract of
mortgage is that the mortgagor should be the absolute owner of the property to be
mortgaged; otherwise, the mortgage is considered null and void. However, an exception
to this rule is the doctrine of "mortgagee in good faith." Under this doctrine, even if the
mortgagor is not the owner of the mortgaged property, the mortgage contract and any
foreclosure sale arising therefrom are given effect by reason of public policy. This
principle is 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. This is the same rule that underlies the principle of "innocent
purchasers for value." The prevailing jurisprudence is that a mortgagee has a right to rely
in good faith on the certificate of title of the mortgagor to the property given as security
and in the absence of any sign that might arouse suspicion, has no obligation to undertake
further investigation. Hence, even if the mortgagor is not the rightful owner of, or does not
have a valid title to, the mortgaged property, the mortgagee in good faith is, nonetheless,
entitled to protection.76

On one hand, the Torbela siblings aver that Banco Filipino is not a mortgagee in good
faith because as early as May 17, 1967, they had already annotated Cornelio’s Adverse
Claim dated May 16, 1967 and Dr. Rosario’s Deed of Absolute Quitclaim dated December
28, 1964 on TCT No. 52751 as Entry Nos. 274471-274472, respectively.

On the other hand, Banco Filipino asseverates that it is a mortgagee in good faith because
per Section 70 of Presidential Decree No. 1529, otherwise known as the Property
Registration Decree, the notice of adverse claim, registered on May 17, 1967 by the
Torbela siblings under Entry Nos. 274471-274472 on TCT No. 52751, already lapsed
after 30 days or on June 16, 1967. Additionally, there was an express cancellation of
Entry Nos. 274471-274472 by Entry No. 520469 dated March 11, 1981. So when Banco
Filipino approved Dr. Rosario’s loan for ₱1,200,000.00 and constituted a mortgage on Lot
No. 356-A (together with two other properties) on December 8, 1981, the only other
encumbrance on TCT No. 52751 was Entry No. 520099 dated March 6, 1981, i.e., the
amended loan and mortgage agreement between Dr. Rosario and PNB (which was
eventually cancelled after it was paid off with part of the proceeds from Dr. Rosario’s loan
from Banco Filipino). Hence, Banco Filipino was not aware that the Torbela siblings’
adverse claim on Lot No. 356-A still subsisted.

The Court finds that Banco Filipino is not a mortgagee in good faith. Entry Nos. 274471-
274472 were not validly cancelled, and the improper cancellation should have been
apparent to Banco Filipino and aroused suspicion in said bank of some defect in Dr.
Rosario’s title.

The purpose of annotating the adverse claim on the title of the disputed land is to apprise
third persons that there is a controversy over the ownership of the land and to preserve
and protect the right of the adverse claimant during the pendency of the controversy. It is
a notice to third persons that any transaction regarding the disputed land is subject to the
outcome of the dispute.77

The Court stressed in Ty Sin Tei v. Lee Dy Piao78 that "[t]he validity or efficaciousness
of the [adverse] claim x x x may only be determined by the Court upon petition by an
interested party, in which event, the Court shall order the immediate hearing thereof and
make the proper adjudication as justice and equity may warrant. And it is ONLY when
such claim is found unmeritorious that the registration thereof may be cancelled." The
Court likewise pointed out in the same case that while a notice of lis pendens may be
cancelled in a number of ways, "the same is not true in a registered adverse claim, for it
may be cancelled only in one instance, i.e., after the claim is adjudged invalid or
unmeritorious by the Court x x x;" and "if any of the registrations should be considered
unnecessary or superfluous, it would be the notice of lis pendens and not the annotation
of the adverse claim which is more permanent and cannot be cancelled without adequate
hearing and proper disposition of the claim."

With the enactment of the Property Registration Decree on June 11, 1978, Section 70
thereof now applies to adverse claims:

SEC. 70. Adverse claim. – Whoever claims any part or interest in registered land adverse
to the registered owner, arising subsequent to the date of the original registrations, may,
if no other provision is made in this Decree for registering the same, make a statement in
writing setting forth fully his alleged right, or interest, and how or under whom acquired, a
reference to the number of the certificate of title of the registered owner, the name of the
registered owner, and a description of the land in which the right or interest is claimed.

The statement shall be signed and sworn to, and shall state the adverse claimant’s
residence, and a place at which all notices may be served upon him. This statement shall
be entitled to registration as an adverse claim on the certificate of title. The adverse claim
shall be effective for a period of thirty days from the date of registration. After the lapse of
said period, the annotation of adverse claim may be cancelled upon filing of a verified
petition therefor by the party in interest: Provided, however, that after cancellation, no
second adverse claim based on the same ground shall be registered by the same
claimant.
Before the lapse of thirty days aforesaid, any party in interest may file a petition in the
Court of First Instance where the land is situated for the cancellation of the adverse claim,
and the court shall grant a speedy hearing upon the question of the validity of such
adverse claim, and shall render judgment as may be just and equitable. If the adverse
claim is adjudged to be invalid, the registration thereof shall be ordered cancelled. If, in
any case, the court, after notice and hearing, shall find that the adverse claim thus
registered was frivolous, it may fine the claimant in an amount not less than one thousand
pesos nor more than five thousand pesos, in its discretion. Before the lapse of thirty days,
the claimant may withdraw his adverse claim by filing with the Register of Deeds a sworn
petition to that effect. (Emphases supplied.)

In Sajonas v. Court of Appeals,79 the Court squarely interpreted Section 70 of the

In construing the law aforesaid, care should be taken that every part thereof be given
effect and a construction that could render a provision inoperative should be avoided, and
inconsistent provisions should be reconciled whenever possible as parts of a harmonious
whole. For taken in solitude, a word or phrase might easily convey a meaning quite
different from the one actually intended and evident when a word or phrase is considered
with those with which it is associated. In ascertaining the period of effectivity of an
inscription of adverse claim, we must read the law in its entirety. Sentence three,
paragraph two of Section 70 of P.D. 1529 provides:

"The adverse claim shall be effective for a period of thirty days from the date of
registration."

At first blush, the provision in question would seem to restrict the effectivity of the adverse
claim to thirty days. But the above provision cannot and should not be treated separately,
but should be read in relation to the sentence following, which reads:

"After the lapse of said period, the annotation of adverse claim may be cancelled upon
filing of a verified petition therefor by the party in interest."

If the rationale of the law was for the adverse claim to ipso facto lose force and effect after
the lapse of thirty days, then it would not have been necessary to include the foregoing
caveat to clarify and complete the rule. For then, no adverse claim need be cancelled. If
it has been automatically terminated by mere lapse of time, the law would not have
required the party in interest to do a useless act.

A statute's clauses and phrases must not be taken separately, but in its relation to the
statute's totality. Each statute must, in fact, be construed as to harmonize it with the pre-
existing body of laws. Unless clearly repugnant, provisions of statutes must be reconciled.
The printed pages of the published Act, its history, origin, and its purposes may be
examined by the courts in their construction. x x x.
xxxx

Construing the provision as a whole would reconcile the apparent inconsistency between
the portions of the law such that the provision on cancellation of adverse claim by verified
petition would serve to qualify the provision on the effectivity period. The law, taken
together, simply means that the cancellation of the adverse claim is still necessary to
render it ineffective, otherwise, the inscription will remain annotated and shall continue as
a lien upon the property. For if the adverse claim has already ceased to be effective upon
the lapse of said period, its cancellation is no longer necessary and the process of
cancellation would be a useless ceremony.

It should be noted that the law employs the phrase "may be cancelled," which obviously
indicates, as inherent in its decision making power, that the court may or may not order
the cancellation of an adverse claim, notwithstanding such provision limiting the effectivity
of an adverse claim for thirty days from the date of registration. The court cannot be bound
by such period as it would be inconsistent with the very authority vested in it. A fortiori,
the limitation on the period of effectivity is immaterial in determining the validity or
invalidity of an adverse claim which is the principal issue to be decided in the court
hearing. It will therefore depend upon the evidence at a proper hearing for the court to
determine whether it will order the cancellation of the adverse claim or not.

To interpret the effectivity period of the adverse claim as absolute and without qualification
limited to thirty days defeats the very purpose for which the statute provides for the
remedy of an inscription of adverse claim, as the annotation of an adverse claim is a
measure designed to protect the interest of a person over a piece of real property where
the registration of such interest or right is not otherwise provided for by the Land
Registration Act or Act 496 (now P.D. 1529 or the Property Registration Decree), and
serves as a warning to third parties dealing with said property that someone is claiming
an interest or the same or a better right than the registered owner thereof.

The reason why the law provides for a hearing where the validity of the adverse claim is
to be threshed out is to afford the adverse claimant an opportunity to be heard, providing
a venue where the propriety of his claimed interest can be established or revoked, all for
the purpose of determining at last the existence of any encumbrance on the title arising
from such adverse claim. This is in line with the provision immediately following:

"Provided, however, that after cancellation, no second adverse claim shall be registered
by the same claimant."

Should the adverse claimant fail to sustain his interest in the property, the adverse
claimant will be precluded from registering a second adverse claim based on the same
ground.

It was held that "validity or efficaciousness of the claim may only be determined by the
Court upon petition by an interested party, in which event, the Court shall order the
immediate hearing thereof and make the proper adjudication as justice and equity may
warrant. And it is only when such claim is found unmeritorious that the registration of the
adverse claim may be cancelled, thereby protecting the interest of the adverse claimant
and giving notice and warning to third parties."80 (Emphases supplied.)
Whether under Section 110 of the Land Registration Act or Section 70 of the Property
Registration Decree, notice of adverse claim can only be cancelled after a party in interest
files a petition for cancellation before the RTC wherein the property is located, and the
RTC conducts a hearing and determines the said claim to be invalid or unmeritorious.

No petition for cancellation has been filed and no hearing has been conducted herein to
determine the validity or merit of the adverse claim of the Torbela siblings. Entry No.
520469 cancelled the adverse claim of the Torbela siblings, annotated as Entry Nos.
274471-774472, upon the presentation by Dr. Rosario of a mere Cancellation and
Discharge of Mortgage.
Regardless of whether or not the Register of Deeds should have inscribed Entry No.
520469 on TCT No. 52751, Banco Filipino could not invoke said inscription in support of
its claim of good faith. There were several things amiss in Entry No. 520469 which should
have already aroused suspicions in Banco Filipino, and compelled the bank to look
beyond TCT No. 52751 and inquire into Dr. Rosario’s title. First, Entry No. 520469 does
not mention any court order as basis for the cancellation of the adverse claim. Second,
the adverse claim was not a mortgage which could be cancelled with Dr. Rosario’s
Cancellation and Discharge of Mortgage. And third, the adverse claim was against Dr.
Rosario, yet it was cancelled based on a document also executed by Dr. Rosario.

It is a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts which
should put a reasonable man upon his guard, and then claim that he acted in good faith
under the belief that there was no defect in the title of the vendor or mortgagor. His mere
refusal to believe that such defect exists, or his willful closing of his eyes to the possibility
of the existence of a defect in the vendor's or mortgagor's title, will not make him an
innocent purchaser or mortgagee for value, if it afterwards develops that the title was in
fact defective, and it appears that he had such notice of the defects as would have led to
its discovery had he acted with the measure of precaution which may be required of a
prudent man in a like situation.81
While the defective cancellation of Entry Nos. 274471-274472 by Entry No. 520469 might
not be evident to a private individual, the same should have been apparent to Banco
Filipino. Banco Filipino is not an ordinary mortgagee, but is a mortgagee-bank, whose
business is impressed with public interest. In fact, in one case, 82 the Court explicitly
declared that the rule that persons dealing with registered lands can rely solely on the
certificate of title does not apply to banks. In another case,83 the Court adjudged that
unlike private individuals, a bank is expected to exercise greater care and prudence in its
dealings, including those involving registered lands. A banking institution is expected to
exercise due diligence before entering into a mortgage contract. The ascertainment of the
status or condition of a property offered to it as security for a loan must be a standard and
indispensable part of its operations.
Banco Filipino cannot be deemed a mortgagee in good faith, much less a purchaser in
good faith at the foreclosure sale of Lot No. 356-A. Hence, the right of the Torbela siblings
over Lot No. 356-A is superior over that of Banco Filipino; and as the true owners of Lot
No. 356-A, the Torbela siblings are entitled to a reconveyance of said property even from
Banco Filipino.

Nonetheless, the failure of Banco Filipino to comply with the due diligence requirement
was not the result of a dishonest purpose, some moral obliquity, or breach of a known
duty for some interest or ill will that partakes of fraud that would justify damages.84

Given the reconveyance of Lot No. 356-A to the Torbela siblings, there is no more need
to address issues concerning redemption, annulment of the foreclosure sale and
certificate of sale (subject matter of Civil Case No. U-4733), or issuance of a writ of
possession in favor of Banco Filipino (subject matter of Pet. Case No. U-822) insofar as
Lot No. 356-A is concerned. Such would only be superfluous. Banco Filipino, however, is
not left without any recourse should the foreclosure and sale of the two other mortgaged
properties be insufficient to cover Dr. Rosario’s loan, for the bank may still bring a proper
suit against Dr. Rosario to collect the unpaid balance.

WHEREFORE, in view of the foregoing, the Petition of the Torbela siblings in G.R. No.
140528 is GRANTED, while the Petition of Lena Duque-Rosario in G.R. No. 140553 is
DENIED for lack of merit. The Decision dated June 29, 1999 of the Court of Appeals in
CA-G.R. CV No. 39770, which affirmed with modification the Amended Decision dated
January 29, 1992 of the RTC in Civil Case Nos. U-4359 and U-4733 and Pet. Case No.
U-822, is AFFIRMED WITH MODIFICATIONS, to now read as follows:
(1) Banco Filipino is ORDERED to reconvey Lot No. 356-A to the Torbela siblings;

(2) The Register of Deeds of Pangasinan is ORDERED to cancel TCT No. 165813 in the
name of Banco Filipino and to issue a new certificate of title in the name of the Torbela
siblings for Lot No. 356-A;

(3) The case is REMANDED to the RTC for further proceedings to determine the facts
essential to the proper application of Articles 448 and 546 of the Civil Code, particularly:
(a) the present fair market value of Lot No. 356-A; (b) the present fair market value of the
improvements thereon; (c) the option of the Torbela siblings to appropriate the
improvements on Lot No. 356-A or require Dr. Rosario to purchase Lot No. 356-A; and
(d) in the event that the Torbela siblings choose to require Dr. Rosario to purchase Lot
No. 356-A but the value thereof is considerably more than the improvements, then the
reasonable rent of Lot No. 356-A to be paid by Dr. Rosario to the Torbela siblings;

(4) The Torbela siblings are DIRECTED to submit an accounting of the rents of the
improvements on Lot No. 356-A which they had received and to turn over any balance
thereof to Dr. Rosario;
(5) Dr. Rosario is ORDERED to pay the Torbela siblings ₱200,000.00 as moral damages,
₱100,000.00 as exemplary damages, and ₱100,000.00 as attorney’s fees; and

(6) Banco Filipino is entitled to a writ of possession over Lot-5-F-8-C-2-B-2-A, covered by