In the case of Heirs of Pedro de Guzman vs. Angelina Perona, the Supreme Court addressed the critical issue of mortgage validity, emphasizing the importance of good faith and due diligence on the part of banks when accepting properties as collateral. The Court ruled that Bataan Development Bank (BD Bank) acted in good faith when it accepted the property as collateral after conducting an inspection and appraisal. This decision underscores the principle that banks are not automatically considered negligent if there are underlying disputes regarding the property’s ownership, provided they have undertaken reasonable steps to verify the property’s status before entering into a mortgage agreement. This ruling clarifies the responsibilities of financial institutions in property transactions and provides guidance for property owners and lenders alike.

Due Diligence Defined: Resolving a Land Dispute and Mortgage Claim in Bataan

The roots of this legal battle trace back to a complaint filed by Pedro de Guzman, who sought to reclaim a parcel of land from the heirs of Rosauro de Guzman and Angelina Perona. Pedro claimed that through fraudulent means, the respondents had improperly subdivided and titled the land, which originally belonged to their ancestors. The land in question was initially registered under Original Certificate of Title (OCT) No. 10075, with portions belonging to Andrea de Guzman and the children of Servando de Guzman. Over time, through a series of extrajudicial settlements and transfers, the land was divided into several parcels, some of which were mortgaged to Bataan Development Bank (BD Bank) and Republic Planters Bank (RP Bank). The central legal question revolves around whether BD Bank acted as a mortgagee in good faith when it accepted the property as collateral, considering the claims of fraud and the alleged rights of Pedro de Guzman over the land.

Pedro de Guzman argued that he was entitled to a portion of the land, claiming that it had been orally partitioned and that Andrea de Guzman had transferred ownership to him. He further asserted that BD Bank failed to conduct a proper investigation before accepting the land as collateral, making them a mortgagee in bad faith. The Regional Trial Court (RTC) dismissed Pedro’s complaint, a decision upheld by the Court of Appeals (CA). Pedro’s heirs then elevated the case to the Supreme Court, maintaining their claims of oral partition, ownership based on a document from Andrea, and bad faith on the part of BD Bank. At the heart of the dispute is the principle of good faith in property transactions, and the extent to which a mortgagee must investigate the title and claims of ownership before providing financial services.

The Supreme Court, in its analysis, emphasized that issues not raised before the trial court cannot be raised for the first time on appeal, citing the principle of due process as highlighted in Del Rosario v. Bonga, 402 Phil. 949 (2001). The Court refused to consider the claim of oral partition, as it was not presented during the initial trial. Further, the Court noted the lack of substantiating evidence regarding Pedro’s claim that Andrea de Guzman had transferred the land to him. Evidence presented showed that Pedro only began paying real property taxes on the land shortly before filing the complaint, suggesting that his claim was an afterthought. The Court reaffirmed the principle that a certificate of title holds more weight than a mere tax declaration in proving ownership, referencing Dinah C. Castillo v. Antonio M. Escutin, Aquilina A. Mistas, Marietta A. Linatoc, and the Honorable Court of Appeals. G.R. No. 171056, March 13, 2009.

Regarding the allegations of fraud against the spouses Rosauro and Angelina de Guzman, the Supreme Court underscored the need for specific allegations and clear proof, stating that “mere allegations of fraud are insufficient.” This requirement for specificity is a cornerstone of proving fraud in legal proceedings, as emphasized in Barrera v. Court of Appeals, G.R. No. 123935, December 14, 2001, 372 SCRA 312, 316-317. The Court further clarified that the burden of proof lies with the party alleging fraud, and this proof must be clear and convincing. Even though the heirs of Rosauro and Angelina did not answer the complaint, the Court emphasized that this did not automatically imply an admission of the allegations. The principle that the party making allegations has the burden of proving them by a preponderance of evidence remains paramount, as articulated in Gajudo v. Traders Royal Bank, G.R. No. 151098, March 21, 2006, 485 SCRA 108, 119-120.

The Court, drawing from previous rulings, emphasized that a judgment by default does not imply a waiver of rights or an automatic admission of the plaintiff’s claims. The plaintiff must still present evidence to support their allegations. As stated in Luxuria Homes, Inc., v. Court of Appeals, G.R. No. 125986, January 28, 1999, 302 SCRA 315, 326, citing De los Santos v. De la Cruz, 37 SCRA 555 (1971):

a judgment by default against a defendant does not imply a waiver of rights, except that of being heard and of presenting evidence in his favor. It does not imply admission by the defendant of the facts and causes of action of the plaintiff, because the codal section requires the latter to adduce his evidence in support of his allegations as an indispensable condition before final judgment could be given in his favor. Nor could it be interpreted as an admission by the defendant that the plaintiff’s causes of action finds support in the law, or that the latter is entitled to the relief prayed for.

Turning to the main issue of the bank’s good faith, the Supreme Court reiterated that petitions under Rule 45 of the Rules of Court are limited to questions of law, not questions of fact, citing Liberty Construction & Development Corporation v. Court of Appeals, 327 Phil. 490 (1996). The Court deferred to the trial court’s finding that BD Bank had indeed inspected the property before accepting it as collateral, which supported the bank’s claim of due diligence. The court held that factual findings of trial courts are entitled to great weight, particularly when supported by evidence, emphasizing the bank’s exercise of due diligence in verifying the ownership and status of the property. The Court emphasized that:

Records show that after the spouses Rosauro and Angelina applied for a loan with respondent BD bank, the latter, through its appraiser Oscar M. Ronquillo, conducted an inspection and appraisal of the property covered by TCT No. 78181, together with the existing improvements thereon. After the said inspection and appraisal of the property, respondent BD Bank approved the loan in favor of the spouses Rosauro and Angelina and, thereafter, executed a Real Estate Mortgage with the said Spouses.

This case underscores the importance of due diligence in real estate transactions, particularly for financial institutions. It provides a framework for assessing whether a mortgagee acted in good faith by considering the steps taken to verify the property’s status and ownership. The Supreme Court’s decision reinforces the stability of the Torrens system, highlighting that registered titles provide strong evidence of ownership unless proven otherwise by clear and convincing evidence of fraud or mistake.

FAQs

What was the key issue in this case?	The key issue was whether Bataan Development Bank (BD Bank) acted in good faith as a mortgagee when it accepted the property as collateral for a loan. This involved assessing whether the bank exercised due diligence in verifying the ownership and status of the land.
What is the significance of a certificate of title in property disputes?	A certificate of title, under the Torrens system, serves as conclusive evidence of ownership. It is binding upon the whole world, and tax declarations cannot override its evidentiary value.
What constitutes fraud in the context of reconveyance of property?	Fraud, in this context, involves intentional acts to deceive and deprive another of their rights. Allegations of fraud must be specifically pleaded and proven by clear and convincing evidence to warrant the reconveyance of property.
What is the legal effect of a defendant being declared in default?	Being declared in default does not automatically entitle the complainant to the relief sought. The complainant must still present evidence to support their claims, and the court will only grant relief warranted by the evidence presented.
What does it mean for a bank to be a ‘mortgagee in good faith’?	A mortgagee in good faith means that the bank conducted a reasonable investigation into the property’s ownership and status before accepting it as collateral. This includes inspecting the property and verifying the title.
Can issues be raised on appeal that were not presented in the trial court?	Generally, issues and arguments not brought before the trial court cannot be raised for the first time on appeal. This is based on principles of fairness and due process.
What is the role of an inspection and appraisal in mortgage transactions?	Inspection and appraisal are critical steps in mortgage transactions. They help the bank assess the property’s value and verify its physical condition, which aids in determining the viability of accepting it as collateral.
How does the court determine if a bank exercised due diligence?	The court examines the steps taken by the bank to verify ownership and status, such as inspections, appraisals, and title searches. The standard is whether the bank acted as a reasonably prudent person would under similar circumstances.

The Supreme Court’s decision in this case reaffirms the importance of due diligence in property transactions and provides clarity on the responsibilities of mortgagees. It highlights the significance of good faith in protecting the rights of all parties involved and underscores the stability of the Torrens system in the Philippines.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: HEIRS OF PEDRO DE GUZMAN VS. ANGELINA PERONA, G.R. No. 152266, July 02, 2010