Llanto v Alzona

To be considered as mortgagees in good faith, jurisprudence require that they should take the necessary precaution expected of a prudent man to ascertain the status and condition of properties offered as collateral and to verify the persons they transact businesses with.

Facts:

Maria Sales was the registered owner of a parcel of land in Laguna which she acquired under a free patent. Until they died, she and her husband (Bernardo) lived on the said land in the house w/c they constructed. Maria died in August 1986.

In January 1990, a real estate mortgage contract (REM) was purportedly executed by Maria in favor of Dominador Alzona. Estela Pelongco (one of the daughters of Maria and Bernardo) signed as witness. Ernesta Alzona (brother of Dominador) admitted that his name does not appear in the REM although he was a co-mortgagee. The mortgage was foreclosed and was sold in a mortgage sale to Ernesto.  In January 1992, he executed a Consolidation of Ownership over the property and a Transfer Certificate of Title was issued in his name.

Mila Llanto (another daughter of Maria and Bernardo) and the rest of her brothers and sisters caused the inscription of an adverse claim on the title to the property. They filed for a complaint for Annulment of Mortgage and Auction Sale with Reconveyance of Title. However, the RTC and CA both ruled in favor of Alzona.

Issue:

Whether or not the Alzonas were mortgagees in good faith.

Held:

One of the essential requisites of mortgage is that the mortgagor should be the absolute owner of property to be mortgaged, otherwise the mortgage is null and void.  An exception to this is the doctrine of mortgagee in good faith - to be considered as mortgagees in good faith, jurisprudence require that they should take the necessary precaution expected of a prudent man to ascertain the status and condition of properties offered as collateral and to verify the persons they transact businesses with. This is based in the rule that all persons dealing with property covered by a Torrens title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title.

In the case, the RTC gave credence to Ernesto’s testimony that he conducted a credit investigation before he approved the loan sought and the property mortgaged. A perusal testimony proved that he exercised the necessary precautions to ascertain the status of the property to be mortgaged. Llanto never disputed Ernesto’s claim that he met the petitioners at the house built on the parcel of land. It was Estela and the persons who represented themselves as Bernardo and Maria who perpetrated the fraud. Ernesto cannot be faulted if he was led into believing that the old man and woman he met in November 1989 and January 1990 are 2 different persons.