G.R. No. 204663 . September 27, 2017
MUNICIPAL RURAL BANK OF LIBMANAN, CAMARINES SUR, PETITIONER, VS. VIRGINIA ORDOÑEZ, RESPONDENT.

FACTS

Respondent Virginia Ordoñez filed a complaint for quieting of title against petitioner Municipal Rural Bank. She claimed ownership by inheritance of a 2,174-square-meter unregistered land in Libmanan, Camarines Sur, alleging open, continuous, and adverse possession by her and her predecessors-in-interest since time immemorial. She sought to nullify the bank’s claim, which was based on a real estate mortgage and subsequent foreclosure sale involving a certain Roberto Hermita, who had mortgaged the property to the bank. The Regional Trial Court (RTC) dismissed Ordoñez’s complaint, finding the bank’s investigation into Hermita’s ownership prior to the mortgage to be sufficient and ruling that the evidence preponderated in the bank’s favor.
On appeal, the Court of Appeals (CA) reversed the RTC. The CA found that Ordoñez and her predecessors-in-interest had prior possession, supported by tax declarations dating back to 1949, compared to Hermita’s tax payments starting only in 1970. The appellate court also noted that the bank’s manager failed to conduct a thorough ocular inspection, which would have revealed that Ordoñez’s caretaker was in actual possession of a portion of the land. Consequently, the CA declared Ordoñez the owner and nullified the real estate mortgage contract. The bank’s motion for reconsideration was denied.

ISSUE

Whether the Court of Appeals erred in declaring Virginia Ordoñez the owner of the disputed property and in nullifying the real estate mortgage contract between the bank and Roberto Hermita.

RULING

The Supreme Court affirmed the CA’s decision. The Court clarified that an action for quieting of title requires the plaintiff to have legal or equitable title to, or interest in, the property, which is clouded by an apparently valid but actually invalid instrument. The Court found that Ordoñez successfully established a better right through preponderance of evidence, demonstrating prior possession and tax declarations from 1949, which substantiated her claim of ownership. In contrast, the bank’s claim derived from Hermita, whose possession was neither exclusive nor notorious, as it was shared with Ordoñez’s caretaker, thereby preventing acquisitive prescription from running in his favor.
Crucially, the Court emphasized that the bank’s duty of diligence was heightened because the land was unregistered. One who deals with unregistered land does so at his own peril. The bank’s manager failed to exercise the necessary due diligence by not conducting a proper ocular inspection, which would have easily uncovered the caretaker’s possession and cast doubt on Hermita’s sole claim. The bank’s claim of good faith was irrelevant, as good faith is a defense only in transactions involving registered land. Therefore, the real estate mortgage, based on a flawed claim of ownership, was correctly declared null and void. The Court upheld the CA’s ruling declaring Ordoñez the rightful owner.