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288 SUPREME COURT REPORTS ANNOTATED

Llanto vs. Alzona


*
G.R. No. 150730. January 31, 2005.

MILA SALES LLANTO, YOLANDA


1
SALES CABILLO,
OSCAR SALES, ACQUILINA SALES, FRANCISCO
SALES, ALBERTO SALES, GLORIA 2
SALES ALIPIO,
EDUARDO SALES, EMERCIANA SALES ALGIRE,
ELENITA SALES SERRANO, and CONRADO SALES,
petitioners, vs. ERNESTO ALZONA, DOMINADOR
3
ALZONA, ESTELA SALES PELONGCO, and the
REGISTER OF DEEDS OF CALAMBA, LAGUNA,
respondents.

Civil Law; Contracts; Mortgages; Mortgagee in Good Faith;


Under Article 2085 of the Civil Code, one of the essential requisites
of the contract of mortgage is that the mortgagor should be the
absolute owner of the property to be mortgaged; otherwise, the
mortgage is considered null and void—an exception to this rule is
the doctrine of “mortgagee in good faith.”—Under Article 2085 of
the Civil Code, one of the essential requisites of the contract of
mortgage is that the mortgagor should be the absolute owner of
the property to be mortgaged; otherwise, the mortgage is
considered null and void. However, an exception to this rule is the
doctrine of “mortgagee in good faith.” Under this doctrine, even if
the mortgagor is not the owner of the mortgaged property, the
mortgage contract and any foreclosure sale arising therefrom are
given effect by reason of public policy. This principle is based on
the rule that all persons dealing with property covered by a
Torrens Certificate of Title, as buyers or mortgagees, are not
required to go beyond what appears on the face of the title. This is
the same rule that underlies the principle of “innocent purchasers
for value” cited by the CA in its decision.
Same; Same; Same; Same; The prevailing jurisprudence is
that a mortgagee has the right to rely in good faith on the
certificate of title of the mortgagor to the property given as security
and in the absence of any sign that might arouse suspicion, has no
obligation to
_______________

* SECOND DIVISION.

1 Spelled as Aquilina in other parts of the record and TSN.

2 Spelled as Emerenciana in other parts of the record and TSN.

3 Spelled as Pillongco in other portions of the record and TSN.

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Llanto vs. Alzona

undertake further investigation.—The prevailing jurisprudence is


that a mortgagee has a right to rely in good faith on the certificate
of title of the mortgagor to the property given as security and in
the absence of any sign that might arouse suspicion, has no
obligation to undertake further investigation. Hence, even if the
mortgagor is not the rightful owner of, or does not have a valid
title to, the mortgaged property, the mortgagee in good faith is,
nonetheless, entitled to protection.
Same; Same; Same; Same; 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 the properties offered as collateral and to
verify the identity of the persons they transact businesses with.—
For persons, more particularly those who are engaged in real
estate or financing business like herein respondents Ernesto and
Dominador Alzona, to be considered as mortgagees in good faith,
jurisprudence requires that they should take the necessary
precaution expected of a prudent man to ascertain the status and
condition of the properties offered as collateral and to verify the
identity of the persons they transact business with, particularly
those who claim to be the registered property owners.
Same; Same; Same; Same; It is well­settled in our jurisdiction
that the determination of credibility of witnesses is properly within
the domain of the trial court as it is in the best position to observe
their demeanor and bodily movements.—In the instant case, the
CA affirmed the ruling of the trial court that Ernesto and
Dominador are mortgagees in good faith. The trial court gave
credence to Ernesto’s testimony that he conducted a credit
investigation before he approved the loan sought and the property
mortgaged. It is well settled in our jurisdiction that the
determination of credibility of witnesses is properly within the
domain of the trial court as it is in the best position to observe
their demeanor and bodily movements. Further, findings of the
trial court with respect to the credibility of witnesses and their
testimonies are entitled to great respect, and even finality, unless
said findings are arbitrary, or facts and circumstances of weight
and influence have been overlooked, misunderstood, or misapplied
by the trial judge which, if considered, would have affected the
case. These findings are binding on this Court especially when
affirmed by the appellate court.

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290 SUPREME COURT REPORTS ANNOTATED

Llanto vs. Alzona

Same; Same; Same; Same; Respondent sufficiently established


that he acted in good faith by exercising due diligence in
ascertaining the status of the property mortgaged and identity of
the owners and occupants of the said property—in fine, the
respondents are mortgagees in good faith that should be entitled to
the protection of the law.—We find no error in the ruling of the CA
that Ernesto sufficiently established that he acted in good faith by
exercising due diligence in ascertaining the status of the property
mortgaged and the identity of the owners and occupants of the
said property; that it was Estela and the persons who represented
themselves as Bernardo and Maria who perpetrated the fraud.
Hence, Ernesto can no longer be faulted if he was led into
believing that the old man and woman whom he met in November
1989 and January 1990 are Bernardo and Maria Sales when, in
fact, they are not. While it was also established that petitioners
Yolanda, Gloria and Conrado were present at the time Ernesto
conducted his credit investigation on January 26, 1990, no direct
and conclusive evidence was presented to show that they had
sufficient knowledge of the fraud that was perpetrated by their
sister Estela and the persons posing as Bernardo and Maria as to
hold them equally guilty of such fraud. In fine, we hold that
respondents Ernesto and Dominador Alzona are mortgagees in
good faith and, as such, they are entitled to the protection of the
law.

PETITION for review on certiorari of the decision and


resolution of the Court of Appeals.

The facts are stated in the opinion of the Court.


          Restituto M. Mendoza and Troy A. Luna for
petitioners.
     Santos V. Pampolina, Jr. for private respondents.
AUSTRIA­MARTINEZ, J.:

Before us is a petition for review on certiorari


4
under Rule
45 of the Rules of Court assailing the Decision of the Court
of Appeals (CA) promulgated on March 19, 2001 in CA­G.R.
CV

_______________

4 Penned by Justice Eloy R. Bello, Jr. and concurred in by Justices


Eugenio S. Labitoria and Perlita J. Tria­Tirona.

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Llanto vs. Alzona
5
No. 52951, which affirmed with modification the decision
dated May 30, 1996 of the Regional Trial Court (RTC) of
San Pedro, Laguna (Branch 31); and the Resolution dated
October 26, 2001, denying petitioners’ motion for
reconsideration.
The facts of the case are as follows:
Bernardo Sales and Maria Sales were husband and wife.
They have twelve children, eleven of whom are the present
petitioners while the remaining child, Estela Sales
Pelongco, is one of herein respondents. Maria was the
registered owner of a certain parcel of land with an area of
202 square meters and covered by Original Certificate of
Title (OCT)
6
No. P­3225 which she acquired under a free
patent. 7 The property is located at Banlic, Cabuyao,
Laguna. Until they died, Maria and Bernardo, together
with some of their children, lived on said land and in the
house which they 8
constructed thereon. Maria died on
August 27, 1986 while Bernardo died on January 1, 1997.
On January 29, 1990, a real estate mortgage contract
was purportedly executed by Maria, who was already
deceased at that time, and Bernardo
9
in favor of herein
respondent Dominador Alzona. Respondent Estela Sales
Pelongco signed 10 as an instrumental witness to the
mortgage contract. Respondent Ernesto Alzona admitted
that while he was a co­mortgagee of his brother,
Dominador, his name does not appear in the mortgage
contract. The mortgage was subsequently foreclosed for
alleged failure of Bernardo and Maria to settle their
obligation secured by the said mortgage. The property was
thereafter sold in a mortgage sale conducted on December
20, 1990 wherein Ernesto Alzona was the highest bidder.
Consequent­

_______________

5 Entitled, “Bernardo Sales, et. [sic] al., plaintiffs­appellants, vs.


Ernesto Alzona, et. [sic] al., defendants­appellees.”
6 Exhibit “B”, Original Records, p. 151.
7 Ibid.
8 Exhibit “A”, OR, p. 262.
9 Exhibit “C”, OR, pp. 267­268.
10 Ibid.

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292 SUPREME COURT REPORTS ANNOTATED


Llanto vs. Alzona

ly, a certificate of11 sale was awarded to Ernesto on


December 20, 1990, and on January 22, 1992, he executed 12
a Consolidation of Ownership over the property.
Accordingly, Transfer Certificate of Title No. T­261853 was
issued in his name while OCT 13
No. P­3225 in the name of
Maria Sales was cancelled.
On December 17, 1992, herein petitioners caused the
inscription
14
of an adverse claim on the title to the
property.
On October 15, 1993, herein petitioners filed before the
RTC of San Pedro, Laguna a complaint for Annulment of
Mortgage and of 15
Auction Sale, with Reconveyance of Title
and Damages. Respondents Ernesto and Dominador
Alzona and the Register of Deeds of Calamba, Laguna filed
their answers, respectively. However, respondent Estela
Sales Pelongco failed to file her answer; as a consequence of
which, she was declared in default.
After trial, the RTC rendered judgment, the dispositive
portion of which reads as follows:

“WHEREFORE, judgment is hereby rendered in favor of


defendants Dominador Alzona and Ernesto Alzona and against
Estela Sales dismissing plaintiffs’ complaint with costs against
plaintiffs, and ordering plaintiffs to pay defendants Dominador
Alzona and Ernesto Alzona the sum of P50,000 plus P1,000 per
court appearance for and as attorney’s fees.
For paucity of evidence, no judgment can be rendered by this
Court on the other reliefs prayed for by defendants Dominador
Alzona and Ernesto Alzona in their counterclaim against the
plaintiffs and in their crossclaim against defendant Estela Sales.
Relative to plaintiffs’ complaint against defendant Estela
Sales, judgment is hereby rendered in favor of the plaintiffs and
against defendant Estela Sales by ordering the latter to pay the

_______________

11 Exhibit “11”, OR, p. 352.


12 Exhibit “21”, OR, pp. 361­362.
13 Exhibit “22”, OR, p. 363.
14 Exhibit “B­3”, OR, pp. 264­266.
15 OR, p. 1.

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Llanto vs. Alzona

plaintiffs the amount of P30,000 for and as attorney’s fees plus


P1,000 per court appearance and P200,000 for moral damages.
For paucity of evidence, no judgment can be rendered on the
other reliefs prayed for by plaintiffs in their complaint against
defendant Estela Sales.
For lack of evidence, the complaint of plaintiffs against
defendant Register of Deeds of Laguna, Calamba Branch, is as it
is, hereby DISMISSED.
16
SO ORDERED.”

Aggrieved by the trial court’s decision, petitioners filed an


appeal with the CA.
On March 19, 2001, the CA rendered a decision
affirming the judgment of the RTC 17
but deleting the
attorney’s fees awarded to petitioners.
Petitioners’ motion for reconsideration was denied in a
resolution
18
issued by the Court of Appeals on October 26,
2001.
Hence, herein petitioners filed the present petition on
the following grounds:

GROUNDS FOR THE PETITION

A. THE RULE THAT A PURCHASER OR MORTGAGEE OF


LAND IS NOT OBLIGATED TO LOOK BEYOND THE
CERTIFICATE OF TITLE CANNOT BE APPLIED
WHERE THERE IS NO QUESTION AS TO THE TITLE
OF THE MORTGAGOR AND WHERE A DIFFERENT
PERSON MORTGAGED THE PROPERTY.
B. A MORTGAGEE, SPECIALLY ONE WHO IS IN THE
LENDING BUSINESS, IS LEGALLY REQUIRED TO
TAKE THE NECESSARY PRECAUTIONS WHICH
PRUDENCE WOULD DICTATE, BEFORE ENTERING
19
INTO A MORTGAGE CONTRACT.

_______________

16 The dispositive portion of the decision was amended on June 6, 1996


per RTC Order of even date, OR, p. 489.
17 CA Rollo, pp. 83­89.
18 CA Rollo, p. 123.
19 Rollo, pp. 20­21.

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294 SUPREME COURT REPORTS ANNOTATED


Llanto vs. Alzona

In the present case, since it is no longer disputed that the


mortgagors were not the owners of the property subject of
the petition the question that remains is whether Ernesto
and Dominador are mortgagees in good faith.
Petitioners contend that the principle regarding
innocent purchasers for value enunciated by the CA in its
decision is not applicable to the present case because in the
cases cited by the CA there was no question that the
mortgagors were the real owners of the property that was
mortgaged, while in the instant case, the mortgagors were
impostors who pretended as the real owners of the
property.
We do not agree. The principle of “innocent purchasers
for value” is applicable to the present case.
Under Article 2085 of the Civil Code, one of the essential
requisites of the contract of mortgage is that the mortgagor
should be the absolute owner of the property to be
mortgaged;
20
otherwise, the mortgage is considered null and
void. However, an exception to this rule is the doctrine of
“mortgagee in good faith.” Under this doctrine, even if the
mortgagor is not the owner of the mortgaged property, the
mortgage contract and any foreclosure sale arising 21
therefrom are given effect by reason of public policy. This
principle is based on the rule

_______________

20 Art. 2085. The following requisites are essential to the contracts of


pledge and mortgage:

(1) That they be constituted to secure the fulfillment of a principal obligation;


(2) That the pledgor or mortgagor be the absolute owner of the thing pledged
or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free
disposal of their property, and in the absence thereof, that they be legally
authorized for the purpose.
Third persons who are not parties to the principal obligation may secure
the latter by pledging or mortgaging their own property.

21 Cavite Development Bank vs. Lim, February 1, 2000, 324 SCRA 346,
358.

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Llanto vs. Alzona

that all persons dealing with property covered by a Torrens


Certificate of Title, as buyers or mortgagees, are not
required
22
to go beyond what appears on the face of the
title. This is the same rule that underlies the principle of
“innocent purchasers for value” cited by the CA in its
decision. The prevailing jurisprudence is that a mortgagee
has a right to rely in good faith on the certificate of title of
the mortgagor to the property given as security and in the
absence of any sign that might arouse suspicion,23
has no
obligation to undertake further investigation. Hence, even
if the mortgagor is not the rightful owner of, or does not
have a valid title to, the mortgaged property, the
mortgagee 24 in good faith is, nonetheless, entitled to
protection.
For persons, more particularly those who are engaged in
real estate or financing business like herein respondents
Ernesto and Dominador Alzona, to be considered as
mortgagees in good faith, jurisprudence requires that they
should take the necessary precaution expected of a prudent
man to ascertain the status and condition of the properties
offered as collateral and to verify the identity of the
persons they transact business with, particularly
25
those who
claim to be the registered property owners.
In the instant case, the CA affirmed the ruling of the
trial court that Ernesto and Dominador are mortgagees in
good faith. The trial court gave credence to Ernesto’s
testimony that he conducted a credit investigation before
he approved the loan sought and the property mortgaged.
It is well settled in our jurisdiction that the determination
of credibility of witnesses is properly within the domain of
the trial court as it is in the best position to observe their
demeanor and bodily
_______________

22 Ibid.
23 Cebu International Finance Corporation vs. Court of Appeals,
February 13, 1997, 268 SCRA 178, 188­189.
24 Cabuhat vs. Court of Appeals, September 28, 2001, 366 SCRA 176,
186.
25 Adriano vs. Pangilinan, January 16, 2002, 373 SCRA 544, 553.

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296 SUPREME COURT REPORTS ANNOTATED


Llanto vs. Alzona
26
movements. Further, findings of the trial court with
respect to the credibility of witnesses and their testimonies
are entitled to great respect, and even finality, unless said
findings are arbitrary, or facts and circumstances of weight
and influence have been overlooked, misunderstood, or
misapplied by the trial 27
judge which, if considered, would
have affected the case. These findings are binding on28 this
Court especially when affirmed by the appellate court.
After a re­examination of the evidence presented, we
find no cogent reason to depart from this rule.
Indeed, a perusal of the testimony of Ernesto proves that
he exercised the necessary precautions to ascertain the
status of the property sought to be mortgaged and the
identity of the mortgagors. During his cross­examination
he testified as follows:

q. And according to you, you made a credit


investigation of the property in question?
a. Yes, sir.
q. And you went to the place because according
to you of a sketch given to you by Estela?
a. Yes, sir.
q. Where in Brgy. Banlic is the property
specifically located in relation to any
landmark?
Pampolina: The question is rather vague, Your Honor.
You mentioned perhaps a place that is known
that is near the place.
Court: Witness may answer. Where in Brgy. Banlic is
the property located, Mr. Witness?

_______________
26 Rodriguez vs. Court of Appeals, June 17, 1997, 273 SCRA 607, 616;
Dela Cruz vs. Court of Appeals, July 20, 2001, 361 SCRA 636, 645.
27 Ibid.
28 Ibid.

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Llanto vs. Alzona

a. It is about five (5) houses away before reaching


the junction going to Brgy. Mamatid and in the
corner, there is the Rural Bank of Cabuyao, sir.
Mendoza: You were only equipped with a sketch given to
you by Estela. How were you able to see
specifically the property?
a. I inquired from the neighbors, sir.
q. Who among the neighbors did you inquire?
a. The first one is a male residing . . . .
Court: The question is who?
a. Felix Icepel and the second one is Auring Sales,
wife of Francisco Sales, sir.
q. When you asked these persons, did you ask
where was Maria Sales?
a. No, sir.
q. Did this Felix Icepel pointed to you the house of
Bernardo Sales and Maria Sales?
a. Yes, sir.
q. Did you also ask Auring Sales about the house
of Maria Sales?
a. Yes, sir.
q. Why did you ask again Auring Sales about the
house of Maria Sales considering that you’ve
asked Felix Icepel about this.
a. Because I would like to have two witnesses, sir.
q. Aside from asking their houses, did you ask
whether Maria Sales and Bernardo Sales were
there?
a. I did not ask, sir.
Court: Considering that Auring’s surname is Sales and
the one applying for a loan from you is also
surnamed Sales, did you ask her if she has any
relation with the Saleses?
a. Yes, ma’am. She even volunteered . . . .
q. What was the answer?
a. That she is the daughter­in­law of Bernardo
Sales and Maria Sales, sir.
q. You also said that Auring is the wife of
Francisco Sales?
a. Yes, ma’am.

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Llanto vs. Alzona

q. And Francisco Sales is one of the children of


Maria Sales and Bernardo Sales?
a. Yes, ma’am.
q. For which reason she is claiming that she is the
daughter­in­law of Bernardo Sales and Maria
Sales?
a. Yes, ma’am.
Court: Continue.
Mendoza: You pointed to two persons earlier whom you
said went to your house?
a. Yes, sir.
q. And who were they when you said them?
a. They are Estela, the couple, Yolanda, Gloria,
Conrado and three other women, sir.
q. Where did you meet these persons?
a. Inside the house of Bernardo Sales and Maria
Sales, sir.
q. And you were able to talk to Maria Sales at that
time?
a. Yes, sir.
q. And when the couple went to you in November,
1989, they were the same couple whom you met
in the house of Bernardo Sales?
a. Yes, sir.
q. And when you saw Bernardo Sales, he can
walk?
a. He was sitting down at that time, sir.
q. At that time you went to their house, did he
stand up?
a. Yes, sir. I think he stood up.
q. And Maria Sales offered you a coffee at that
time?
a. No, sir.
q. What time did you go there when you made a
credit investigation?
a. It was in the morning, sir.
q. And for how long did you talk with the couple,
Yolanda, Gloria and Estela?
a. It lasted for 30 minutes, sir.
q. You pointed earlier the person of Yolanda whom
you said you saw on January 26, 1990 inside the
house of the Saleses?
a. Yes, sir.

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q. And you also mentioned of Gloria Sales whom


you said is not in court today?
a. Yes, sir.
q. And you saw this woman when she testified in
court?
a. Yes, sir.
q. And you saw her several times before she
testified in court until she completed her
testimony?
a. Yes, sir. When she came to my house.
Mendoza: We would like to make it on record that Gloria
Sales Alipio is now present in court.
Pampolina: But with eyeglasses, Your Honor. She was not
wearing an eyeglass when she took the
witness stand.
Mendoza: I would like to manifest Your Honor that even
a person is wearing eyeglasses, if you saw her
several times, you know her.
Court: Alright. Gloria Sales is there. Continue.
Mendoza: During that meeting with the couple, Estela,
Gloria, Yolanda and Conrado in January 1990
at the house of the Saleses, were they together
inside the house?
a. Yes, sir.
q. Who among the group greeted you?
a. Estela, sir.
q. And Estela told you the property they were
mortgaging?
a. Yes, sir. Their house.
q. And again the couple was introduced to you by
Estela?
a. No, sir. I was introduced to the brother and
sisters.
q. When you went to the place, Estela, Yolanda,
Gloria, Conrado and the couple did not know
that you would go to their place on January
26, 1990?
Court: He will be incompetent.
Mendoza: Why did you say that Yolanda, Gloria,
Conrado were expecting you when in fact you
have not met them?
a. Because Estela asked when I am going to visit
their place, she even made a sketch of their
place, and I said, probably on January 26,
1990 because that is the feast day of St.
Policarp and its . . .

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300 SUPREME COURT REPORTS ANNOTATED


Llanto vs. Alzona
29
Mendoza: Okay, that’s it.

The CA affirmed the findings of the trial court that


petitioners never disputed Ernesto’s claim that when he
inspected the subject property on January 26, 1990, he met
petitioners Yolanda, Gloria and Conrado together with
Estela and the persons whom he knew as Bernardo and
Maria Sales at the house built inside the premises of the
said property. A further reading of the transcript of
stenographic notes reveals that Ernesto even went inside
the house and, in the presence of the aforementioned
persons, discussed with Estela the matter regarding the
loan they30 were seeking and the mortgage of the subject
property. It was only in their motion for reconsideration
filed with the CA did petitioners dispute the foregoing
claims of Ernesto. However, their disputation merely
consisted in denying that Ernesto met Gloria Sales inside
the house of Bernardo and Maria. They did not contradict
Ernesto’s claim that he also met Conrado and Yolanda
inside the said house. On the contrary, the truth of the
abovementioned claims of Ernesto is bolstered by the
testimonies of Francisco and Gloria Sales to the effect that
during the period between 1989 and 1990, Estela, Yolanda,
Gloria and Conrado31
were all living in the house built on the
subject property. The trial court also gave credence to
Ernesto’s testimony that prior to the execution of the
contract of mortgage, he was even shown a copy of the32
OCT
and the tax declaration in the name of Maria Sales.
From the foregoing, we find no error in the ruling of the
CA that Ernesto sufficiently established that he acted in
good faith by exercising due diligence in ascertaining the
status of the property mortgaged and the identity of the
owners and

_______________

29 TSN, July 6, 1995, pp. 45­54.


30 TSN, July 6, 1996, pp. 25­27.
31 TSN, Testimony of Francisco Sales, December 1, 1994, pp. 28­29;
TSN, Testimony of Gloria Sales Alipio, March 24, 1995, p. 10.
32 TSN, June 16, 1995, p. 15.

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occupants of the said property; that it was Estela and the


persons who represented themselves as Bernardo and
Maria who perpetrated the fraud. Hence, Ernesto can no
longer be faulted if he was led into believing that the old
man and woman whom he met in November 1989 and
January 1990 are Bernardo and Maria Sales when, in fact,
they are not.
While it was also established that petitioners Yolanda,
Gloria and Conrado were present at the time Ernesto
conducted his credit investigation on January 26, 1990, no
direct and conclusive evidence was presented to show that
they had sufficient knowledge of the fraud that was
perpetrated by their sister Estela and the persons posing
as Bernardo and Maria as to hold them equally guilty of
such fraud.
In fine, we hold that respondents Ernesto and
Dominador Alzona are mortgagees in good faith and, as
such, they are entitled to the protection of the law.
WHEREFORE, the instant petition is DENIED and the
assailed decision and resolution of the Court of Appeals in
CA­G.R. CV No. 52951 are AFFIRMED in toto.
SO ORDERED.

          Puno (Chairman), Callejo, Sr., Tinga and Chico­


Nazario, JJ., concur.

Petition denied, assailed decision and resolution


affirmed in toto.

Note.—The rule is that a mortgage annotated on a void


title is valid if the mortgagee registered the mortgage in
good faith. (Pineda vs. Court of Appeals, 409 SCRA 438
[2003])

——o0o——

302

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