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Bank of Commerce v San Pablo

FACTS: Santos obtained a loan of P1,064,000.40from Direct Funders Management and Consultancy Inc., (Direct
Funders). Natividad executed a SPA in favor of Santos, authorizing him to mortgage to Direct Funders her
paraphernal real property as security. In the Deed of REM, Natividad and her husband, Prudencio San Pablo,
signed as the co-mortgagors of Santos. Santos settled his obligation but failed to turn over the TCT of the subject
property despite demands. Upon inquiry with the ROD, the spouses discovered that the property was again used
by Santos as collateral for another loan obligation from the Bank of Commerce. The spouses then filed a
Complaint seeking for the Quieting of Title and Nullification of the SPA and the deed of REM, and the subsequent
foreclosure sale. While the case is pending, the Bank of Commerce, for non-payment, initiated the foreclosure
proceedings, and was the highest bidder at the auction sale.
Spouses: Their signatures were forged. While the loan with the Direct Funders was obtained with their consent
and direct participation, they never authorized the subsequent loan obligation with the Bank of Commerce.
Bank of Commerce: It is a mortgagee in good faith and therefore entitled to protection under the law. It
strenuously asserts that it is an innocent party who had no knowledge that the right of Santos to mortgage the
subject property was merely simulated. Since the loan already became due and demandable, the foreclosure sale
is justified.
ISSUE: Whether or not the Bank of Commerce is a mortgagee in good faith.
HELD: No. In cases where the mortgagee does not directly deal with the registered owner of real property, the law
requires that a higher degree of prudence be exercised by the mortgagee. This principle is applied more
strenuously when the mortgagee is a bank or a banking institution.
The Bank of Commerce clearly failed to observe the required degree of caution in ascertaining the
genuineness and extent of the authority of Santos to mortgage the subject property. It should not have simply
relied on the face of the documents submitted by Santos, as its undertaking to lend a considerable amount of
money required of it a greater degree of diligence. That the person applying for the loan is other than the
registered owner of the real property being mortgaged should have already raised a red flag and which should
have induced the Bank of Commerce to make inquiries into and confirm Santos authority to mortgage the
Spouses San Pablos property. A person who deliberately ignores a significant fact that could create suspicion in
an otherwise reasonable person is not an innocent purchaser for value.
PDB v CA
FACTS: Two different persons with exactly the same name, Vicente T. Garaygay, each claimed exclusive
ownership of Lot 23 by virtue of an owners duplicate certificate each had. Garaygay of Cebu executed a deed of
sale over the lot in favor of his nephew, Joselito. In another transaction, Garaygay of Rizal, sold to Liberto G.
Yambao and Jesus B. Rodriguez the same property. In 1988, fire destroyed a portion of the Quezon City hall and
the original copy of TCT on file with the ROD. Upon application and after due proceedings, the LRA issued an
order of reconstitution and Garaygay of Cebu acquired reconstituted TCT. Meanwhile, Lot 23 was subdivided into
three lots. Joselito acquirred a TCT and sold one lot to Lilian Toundjis. Joselito assigned the two lots to Century
Realty and Development Corporation which, after securing TCTs therefor, mortgaged the same to Premiere
Development Bank, Inc. to secure a P2.5 Million loan. Thereafter, Yambao and his agents forcibly prevented
Joselito from concrete-fencing the subject property. Yambao, et al. caused the annotation of their respective
adverse claims on Joselitos TCTs. They then filed suit against Joselito, Century Realty and Premiere Bank for
quieting of title and annulment of said defendants fake titles.
ISSUE: Whether or not Lilian Toundjis and Premiere Bank are mortgagees in good faith
HELD: No. A study of the record shows that TCT 14414 covering Lot. 23-A that Toundjis contracted to buy from
Joselito carried an annotation that it was administratively reconstituted. Records also indicate that Toundjis knew
at the time of the sale that Joselito did not have possession of the lot
Premiere Bank cannot also be accorded the status of an innocent mortgagee for value vis--vis the
mortgage of the lots covered by TCT Nos. 34390 and 34391 constituted in its favor by Century Realty.
It cannot be overemphasized that Premiere Bank, being in the business of extending loans secured by
real estate mortgage, is familiar with rules on land registration. As such, it was, as here, expected to exercise

more care and prudence than private individuals in their dealing with registered lands. Accordingly, given inter alia
the suspicion-provoking presence of occupants other than the owner on the land to be mortgaged, it behooved
Premiere Bank to conduct a more exhaustive investigation on the history of the mortgagors title. That Premiere
Bank accepted in mortgage the property in question notwithstanding the existence of structures on the property
and which were in actual, visible and public possession of a person other than the mortgagor, constitutes gross
negligence amounting to bad faith. Premier Bank is thus not entitled to have its lien annotated on the genuine title.
***NOTE: It has not been shown that Garaygay of Cebu was at any time in possession of the property in question,
unlike his namesake from Rizal who managed to place the property under the care of certain individuals who built
semi-permanent structure-dwelling houses thereon without so much of a protest from Garaygay of Cebu or his
nephew Joselito.
Landbank v Poblete
FACTS: Barbara Sampaga Poblete obtained a P300,000.00 loan from Kabalikat ng Pamayanan ng Nagnanais
Tumulong at Yumaman Multi-Purpose Cooperative (Kapantay) and mortgaged Lot No. 29, a parcel of land
registered under her namen, to guarantee payment. Kapantay used it as collateral under its Loan Account with
Land Bank-Sablayan Branch. To pay her loan, Poblete sold the lot to Angelito Joseph Maniego for P900,000.00
and executed a deed of absolute sale. Maniego promised to pay the amount upon his return from the United
States. Poblete then agreed to have the payment deposited in her Land Bank Savings Account. Maniego paid
Kapantays Loan and a TCT was issued in his name. Maniego then applied for 1M loan with Land Bank secured
by the TCT. Maniego failed to pay the loan so Land Bank filed an Application for Extra-judicial Foreclosure of
REM. Poblete filed a Complaint for Nullification of the Deed.
Poblete: She did not receive any payment from Maniego. She claimed that her and her deceased husband's
signature were forgeries.
Land Bank: It is a mortgagee in good faith and it observed due diligence prior to approving the loan by verifying
Maniegos title with the Office of the Register of Deeds.
ISSUE: Whether or not Land Bank is a mortgagee in good faith.
HELD: No. Land Bank claims that it conditioned the approval of the loan upon the transfer of title to Maniego, but
admits processing the loan based on Maniegos assurances that title would soon be his. Thus, only one day after
Maniego obtained TCT No. T-20151 under his name, Land Bank and Maniego executed a Credit Line Agreement
and a Real Estate Mortgage. Because of Land Banks haste in granting the loan, it appears that Maniegos loan
was already completely processed while the collateral was still in the name of Poblete.
Where the mortgagee acted with haste in granting the mortgage loan and did not ascertain the ownership
of the land being mortgaged, as well as the authority of the supposed agent executing the mortgage, it cannot be
considered an innocent mortgagee.
Philippine National Bank vs. Corpuz
FACTS: Respondent Mercedes Corpuz delivered her owners duplicate copy TCT to Dagupan City Rural Bank as
security against any liability she might incur as its cashier. She later left her job and went to the United States. The
bank cancelled its lien on the title because she had no liability to her employer. Without her knowledge and
consent, however, Natividad Alano, the rural banks manager, turned over Corpuzs title to Julita Camacho and
Amparo Callejo, who falsified a deed of sale, acquirred a TCT in Mary Bondoc's name, and sold the property to
spouses Rufo and Teresa Palaganas. The spouses executed a deed of sale in favor of spouses Virgilio and Elena
Songcuan, resulting in the issuance of TCT. The Songcuans loaned P1.1 million from PNB and, as a security,
they executed a REM on their title. Corpuz filed, through an attorney-in-fact, a complaint asking for the annulment
of the deeds of sale and the cancellation of TCTs, and the reinstatement of TCT in her name.
PNB: The precautions it took constitute sufficient compliance with the due diligence required of banks when
dealing with registered lands.

ISSUE: Whether or not petitioner PNB is a mortgagee in good faith

HELD: No. petitioner PNB is not an ordinary mortgagee; it is a bank. Banks are expected to be more cautious
than ordinary individuals in dealing with lands, even registered ones, since the business of banks is imbued with
public interest.
It is evident from the faces of those titles that the ownership of the land changed from Corpuz to Bondoc,
from Bondoc to the Palaganases, and from the Palaganases to the Songcuans in less than three months and
mortgaged to PNB within four months of the last transfer.
The above information in turn should have driven the PNB to look at the deeds of sale involved. It would
have then discovered that the property was sold for ridiculously low prices: Corpuz supposedly sold it to Bondoc
for just P50,000.00; Bondoc to the Palaganases for just P15,000.00; and the Palaganases to the Songcuans also
for just P50,000.00. Yet the PNB gave the property an appraised value of P781,760.00. Anyone who deliberately
ignores a significant fact that would create suspicion in an otherwise reasonable person cannot be considered as
an innocent mortgagee for value.
Dela Pea v Avila
FACTS: Antonia R. Dela Pea obtained a P250,000.00 loan from A.C. Aguila & Sons, Co. As a security, Antonia
also executed a Deed of Real Estate Mortgage over the property. Thereafter, Antonia executed a Deed of
Absolute Sale over the property in favor of Gemma Remilyn C. Avila for P600,000.00. Gemma acquired a TCT
and constituted a REM over said parcel in favor of Far East Bank and Trust Company (FEBTC-BPI) to secure a
loan facility. Sometime after, Antonia filed with the ROD Marikina an Affidavit of Adverse Claim. Gemma failed to
pay her obligation so FEBTC-BPI caused the extrajudicial foreclosure of the REM. At the public auction, FEBTCBPI was the higher bidder. FEBTC-BPI later consolidated its ownership over the realty and caused the same to be
titled in its name under TCT No. 415392.
Antonia: She was the true and lawful owner of the property and that the Deed of Absolute Sale was simulated.
Gemma: Antonia agreed to the use of the property as collateral for a loan to be obtained by her from FEBTC-BPI.
FEBTC-BPI: The property was already titled in Gemmas name when she executed the REM thereon; and, that
not being privy to Antonias transaction with Gemma and unaware of any adverse claim on the property, it was a
mortgagee in good faith
ISSUE: Whether or not FEBTC-BPI is a mortgagee in good faith
HELD: Yes. Absent clear and convincing evidence to contradict the same, the Deed of Absolute Sale was valid
and binding between Antonia and Gemma.
The mortgage directly and immediately subjects the property upon which it is imposed, whoever the
possessor may be, to the fulfilment of the obligation for whose security it was constituted. When the principal
obligation is not paid when due, the mortgagee consequently has the right to foreclose the mortgage, sell the
property, and apply the proceeds of the sale to the satisfaction of the unpaid loan.
Banks like FEBTC-BPI are expected to exercise more care and prudence than private individuals in
that their dealings because their business is impressed with public interest and their standard practice is to
conduct an ocular inspection of the property offered to be mortgaged and verify the genuineness of the title to
determine the real owner or owners thereof, hence, the inapplicability of the general rule that a mortgagee need
not look beyond the title does not apply to them. The validity of the Deed of Absolute Sale executed by Antonia in
favor of Gemma having been upheld, FEBTC-BPIs supposed failure to ascertain the ownership of the property
has been rendered immaterial for the purpose of determining the validity of the mortgage executed in its favor as
well as the subsequent extrajudicial foreclosure thereof.