Rural Bank of Libmanan v. Ordoñez
REITERATIONFacts
The Antecedents: Respondent Virginia Ordoñez filed a complaint for quieting of title against petitioner Municipal Rural Bank of Libmanan, Camarines Sur. Respondent claimed ownership of a 2,174 square meter parcel of land, asserting that she and her predecessors-in-interest had been in open, peaceful, adverse, and uninterrupted possession since time immemorial. She alleged that the bank's claim of ownership was unfounded and based on a void or unenforceable instrument. The bank, in its counterclaim, asserted its own ownership, stating it acquired the property through foreclosure of a mortgage from Roberto Hermita, who had previously owned the land but failed to satisfy his obligation. Procedural History: The Regional Trial Court (RTC) of Libmanan, Camarines Sur, initially dismissed both the respondent's complaint and the bank's counterclaim, finding that the bank had conducted a proper investigation before entering into the mortgage and that the weight of evidence favored the bank. Aggrieved, the respondent appealed to the Court of Appeals (CA). The CA reversed the RTC's decision, declaring the real estate mortgage contract null and void and affirming the respondent as the owner of the property. The CA found that the respondent's predecessors-in-interest had prior possession, declared the property for tax purposes earlier, and that the evidence preponderated in favor of the respondent. The bank's motion for reconsideration was denied by the CA. The Petition: The Municipal Rural Bank of Libmanan, Camarines Sur, filed a petition for review on certiorari with the Supreme Court, assailing the CA's decision and resolution. The bank raised three main assignments of error: (a) the CA erred in holding that the respondent had prior possession through her caretaker; (b) the CA erred in ruling that acquisitive prescription could not apply to Roberto Hermita's possession; and (c) the CA erred in finding the bank remiss in its duty to establish true ownership and possession. The petition seeks to overturn the CA's declaration of the respondent as owner and the nullification of the mortgage contract.
Issue(s)
Whether the Court of Appeals erred in holding that respondent has prior possession over the property through her caretaker. Whether the Court of Appeals erred in ruling that acquisitive prescription cannot be made to apply to the possession of Roberto Hermita. Whether the Court of Appeals erred in pronouncing that petitioner bank was utterly remiss in its duty to establish who the true owners and possessors of the subject property were.
Ruling
The Court AFFIRMS the Decision of the Court of Appeals, promulgated on March 30, 2012, and its Resolution dated October 17, 2012, in CA-G.R. CV No. 94947, declaring the real estate mortgage contract null and void and respondent Virginia Ordoñez as the owner of the disputed lot.
Ratio Decidendi
On the issue of prior possession through a caretaker: The Court found no reason to depart from the CA's conclusion that respondent's witness clearly testified that Roman Zamudio was assigned as caretaker by respondent's mother. The RTC itself made a positive finding that Zamudio was respondent's caretaker. The Court clarified that possession does not require constant physical occupation of every inch of the property; it can be established by juridical acts, such as authorizing a caretaker. Zamudio's occupation as caretaker since 1975 was considered evidence of respondent's occupation, which began later than petitioner's predecessor-in-interest's occupation in 1986. Furthermore, respondent and her predecessors-in-interest declared the property for tax purposes as early as 1949, which are good indicia of possession in the concept of owner, unlike petitioner's predecessor-in-interest who only started paying taxes in 1970. On the issue of acquisitive prescription: The Court agreed with the CA that acquisitive prescription could not be appreciated in favor of Roberto Hermita or his predecessor-in-interest, Sofronio Hermita. For ordinary acquisitive prescription under Article 1134 of the Civil Code, possession must be in good faith and with just title, which was not established. Roberto Hermita's possession could not be considered in good faith as he was aware of respondent's mother's claim prior to mortgaging the property. For extraordinary acquisitive prescription under Article 1137, there was no evidence presented that Sofronio Hermita was ever in possession of the land, rendering the RTC's conclusion of ripening into title by prescription without evidentiary basis. Consequently, Sofronio Hermita did not have the power to transfer ownership to his son Roberto. On the issue of the bank's due diligence: The Court reiterated that banking institutions are expected to exercise the highest degree of diligence before entering into mortgage contracts. The ascertainment of the property's status is a standard and indispensable part of their operations. The Court found that petitioner bank was remiss in exercising the required diligence, especially since the lot was unregistered. A simple check with authorities would have revealed respondent's predecessors-in-interest's declaration of ownership and tax payments since 1949. The bank's manager's testimony did not prove any consultation with the assessor's office, and an ocular inspection should have revealed the presence of respondent's caretaker. The Court also noted that the issue of good faith is not a defense for purchasing unregistered land, which is done at the buyer's peril.
Main Doctrine
A banking institution is expected to exercise due diligence before entering into a mortgage contract, and failure to do so, especially with unregistered land, renders the mortgage contract voidable. Possession can be established through a caretaker, and tax declarations are good indicia of possession in the concept of owner.