G.R. No.

205271

September 2, 2015

LAND BANK OF THE PHILIPPINES v BELLE CORPORATION

Commercial Law; Banking Law; mortgagee in good faith. When the
purchaser or the mortgagee is a bank, the rule on innocent purchasers or
mortgagees for value is applied more strictly.48 Being in the business of
extending loans secured by real estate mortgage, banks are presumed to be
familiar with the rules on land registration.49 Since the banking business is
impressed with public interest, they are expected to be more cautious, to
exercise a higher degree of diligence, care and prudence, than private
individuals in their dealings, even those involving registered lands.50 Banks
may not simply rely on the face of the certificate of title.51
Same;same;same. A person who deliberately ignores a significant fact that
could create suspicion in an otherwise reasonable person is not a
mortgagee in good faith. A mortgagee cannot close his eyes to facts which
should put a reasonable man on his guard and claim that he acted in good
faith under the belief that there was no defect in the title of the mortgagor.
PERALTA, J.:
FACTS: The suit started upon a land dispute between the respondent
corporation and a certain Bautista wherein the latter contested that it is the
owner of the land being in possession of the respondent corporation which
is involved in the development and creation of leisure and recreational
areas in Tagaytay area such as the Tagaytay Highlands. The respondent
filed a suit for quieting of title with TRO upon receiving a letter from
Bautista ordering the respondent to vacate the subject area and stopped its
operation which was made without her consent. During the pendency of the
case, the respondent was informed that Bautista is no longer the registered
owner of the disputed area as it was already foreclosed by the petitioner
bank and a new TCT was registered in the bank name. Hence, a Motion for
Leave to File Amended Petition impleading petitioner as indispensable party
was filed by the respondent corporation which was granted by the trial
court. Apparently, Bautista mortgaged the property to the bank without
informing respondent. However, because of the failure to pay the loan
obtained, the mortgage was foreclosed in favor of the bank. Claiming that it
is a mortgagee on good faith, the petitioner bank contended that observed
due diligence and prudence expected of it as a banking institution. Prior to
the approval of the loan application, there as a verification of the status of
the collateral by its representative which then revealed that the subject

property was registered in the name of Bautista and that the same is free
and clear of any lien or encumbrance. Further, no adverse ownership or
interest was found upon ocular inspection. Therefore, in the absence of
anything to excite or arouse suspicion, petitioner is legally justified to rely
on the mortgagor and what appears on the face of her certificate of title.
The RTC ruled against the respondents but was reversed and set
aside by the CA upon appeal. The CA ruled that the respondent corporation
is the true and registered owner of the disputed area and that the petitioner
is not to be considered a mortgagee in good faith. It made notice that ot
once did the bank made a testimony that it conducted an investigation on
the status of the property despite the fact that it forms part of the ingress
and egress of the well-known Tagaytay Highlands since 1990 or several
years before it accepted the property as collateral from Bautista. Since its
negligence was the primary, immediate and overriding reason, petitioner
must bear the loss of the disputed property. Hence, this appeal.
ISSUE: Whether or not the petitioner is a mortgagee in good faith hence
not liable for the loss sustained by the corporation.
HELD: NEGATIVE. The Court, upon investigation and taking into account
of the facts and evidence of the case ruled that the corporation is the
legitimate owner of the disputed area. And in connection with this, the
determination of liability on the part of the petitioner yielded in the positive.
As held in several jurisprudence, there is a stricter rule provided by
the law when a bank is questioned as to its good faith as a mortgagee. More
caution and a higher degree of diligence are expected from a bank by
reason of it being imbued with public interest. Hence, it could not just
merely rely on the face of the certificate of title. No assumption could be
made that simply because the title offered as security is on its face free of
any encumbrances or lien, the bank will already be relieved of any
obligation of ascertaining the verified status of the property and inspecting
it for mortgage purposes. It is of judicial notice that the standard practice
for banks before approving a loan is to send its representatives to the
property offered as collateral to assess its actual condition, verify the
genuineness of the title, and investigate who is/are its real owner/s and
actual possessors.
However, such standard was not achieved in this case. Despite
existence of a defect on the title and ignorance of an existing problem upon
its examination that there is a traversing road within the disputed area and

still sticking with the genuineness of the title presented by Bautista, the
bank could not claim good faith on its part. The facts show the existence of
several circumstances that would arouse suspicion on the part of the bank
but there is a willful closing of their eyes and refusal to believe on such
defect. After encountering a dead end in the DENRs Land Management
Section Region IV and the Tax Mapping Section of the Tagaytay City
Assessors Office, it manifestly failed to inquire further on the identity of
possible adverse claimants and the status of their occupancy. Had there
been an inquiry with Bautista or any of the occupants of the nearby area of
the existence of the traversing access road, it could easily show that there is
indeed defect on the title Bautista. There should have been an exhaustive
investigation but none was made. The acceptance of the collateral despite
the existing facts constitutes gross negligence on the part of the bank.
Hence, the bank could not be considered a mortgagee in good faith.