Abalos v. Darapa
REITERATIONFacts
The Antecedents: On June 25, 1962, the Development Bank of the Philippines (DBP) granted a loan to respondent spouses Lomantong Darapa and Sinab Dimakuta (spouses), secured by a real and chattel mortgage. This mortgage covered, among others, a warehouse constructed on a lot covered by Tax Declaration No. A-148. The spouses also executed a Deed of Assignment of Rights and Interests over the equity rights on the land. In 1970, the spouses applied for a loan renewal and increase, using Sinab Dimakuta's Transfer Certificate of Title (TCT) No. T-1,997 as additional collateral. DBP disapproved the application but retained the TCT. DBP subsequently foreclosed the mortgages on September 16, 1971, including TCT No. T-1,997, which was unknown to the spouses. The spouses failed to redeem the land, leading to the cancellation of TCT No. T-1,997 and the issuance of TCT No. T-7746 in DBP's name. In 1984, the spouses discovered this and demanded reconveyance, which DBP initially assured but later denied, stating the land was sold. On May 12, 1994, DBP sold the land to its co-petitioner Josefa Abalos, resulting in the cancellation of TCT No. T-7746 and the issuance of TCT No. T-16,280 in Abalos' name. Procedural History: On August 20, 1994, the spouses filed a Complaint for Annulment of Title, Recovery of Possession and Damages against DBP and Abalos. They averred that TCT No. T-1,997 was not among the mortgaged properties, making its foreclosure and sale to Abalos void. DBP countered that TCT No. T-1,997 originated from Tax Declaration No. A-148, which was mortgaged. Abalos claimed to be an innocent purchaser for value. The Regional Trial Court (RTC), Branch 3, Iligan City, annulled the foreclosure sale and the sale to Abalos, declaring Sinab Dimakuta the lawful owner. The RTC ordered the reinstatement of TCT No. T-1,997 in Dimakuta's name, cancellation of Abalos' title, surrender of possession, and awarded damages. DBP and Abalos appealed to the Court of Appeals (CA). Abalos abandoned her appeal. The CA affirmed the RTC decision, ruling that DBP had no right to foreclose the land under TCT No. T-1,997 as it was not mortgaged. The Petition: DBP filed a petition for review on certiorari with the Supreme Court, seeking to reverse the CA's decision. DBP argued that the land covered by Tax Declaration No. A-148 and the land covered by TCT No. T-1,997 are the same, and that the spouses voluntarily delivered TCT No. T-1,997 to DBP.
Issue(s)
Whether the land covered by TCT No. T-1,997 was included in the mortgage contract executed in 1962. Whether the foreclosure sale of the land covered by TCT No. T-1,997 was valid. Whether the spouses' cause of action is barred by estoppel, laches, or prescription.
Ruling
The petition is denied. The Decision of the Court of Appeals affirming the Regional Trial Court's decision is affirmed. The foreclosure sale of the land under TCT No. T-1,997 and the subsequent sale to Josefa Abalos are declared null and void ab initio. Sinab Dimakuta is declared the lawful owner of the land covered by TCT No. T-1,997.
Ratio Decidendi
On whether the land covered by TCT No. T-1,997 was included in the mortgage contract: The Supreme Court affirmed the findings of the RTC and CA that the land covered by TCT No. T-1,997 was not among the properties mortgaged by the spouses to DBP in 1962. The 1962 mortgage contract and deed of assignment described the land covered by Tax Declaration No. A-148 as being located in Linamon, Lanao del Norte, with specific boundaries and an area of 357 square meters. In contrast, the land covered by TCT No. T-1,997 is situated in Barrio Buru-an, Iligan, Lanao del Norte, with an area of 342 square meters, and its title originated from a homestead patent granted in 1933. Furthermore, DBP's own former property examiner testified that he never examined any land in Barrio Buru-an. The testimony of DBP's Executive Officer also contradicted the bank's claim regarding the origin of TCT No. T-1,997. The Court found DBP's contention that the two documents refer to the same land to be incredible, especially since DBP failed to submit the Tax Declaration itself and relied solely on an irregular annotation on Dimakuta's TCT. On whether the foreclosure sale of the land covered by TCT No. T-1,997 was valid: Since the land covered by TCT No. T-1,997 was not included in the mortgage contract, DBP had no legal right to foreclose it. Consequently, the foreclosure sale, the Sheriff's Certificate of Sale, and the Affidavit of Consolidation of Ownership, insofar as they included TCT No. T-1,997, were declared null and void ab initio. The subsequent issuance of TCT No. T-7746 in DBP's name and TCT No. T-16,280 in Abalos' name were also annulled. The Court emphasized that the annotation on Dimakuta's TCT, claiming it originated from Tax Declaration No. A-148, was irregular and did not change the fact that the two documents referred to different lands. This irregular annotation was the basis for the sale of the land in question. On whether the spouses' cause of action is barred by estoppel, laches, or prescription: The Court found the DBP's contentions regarding estoppel, laches, and prescription to be unmeritorious. The spouses were not guilty of estoppel as the requisites were not attendant. Regarding laches, the Court noted that it is an equitable doctrine and not meant to oppress further. The elements of laches must be proven positively, and in this case, the records showed that DBP's actions delayed the institution of the action by assuring the spouses of reconveyance, only to later deny it. For prescription, the Court clarified that the 10-year prescriptive period for reconveyance based on fraud applies only when the contract is voidable and the aggrieved party is not in possession. However, this case involved an action to nullify a contract that was void ab initio. Article 1410 of the Civil Code states that an action for the declaration of the inexistence of a contract does not prescribe. The spouses' action for annulment of title and recovery of possession was grounded on the theory that the foreclosure was void ab initio, thus subject to attack at any time.
Main Doctrine
A foreclosure sale of a property not included in the mortgage contract is null and void ab initio. An action to declare the inexistence of a contract, which is void ab initio, does not prescribe.