Jalbay vs PNB

August 3, 2015
The Case:
Spouses Emiliano and Mamerta Jalbay are the owners of a 257 square-meter property
located in Sauyo Road, Novaliches. In 1988, the TCT covering the property was
destroyed in a fire that gutted the Quezon City Hall. When it was reconstituted, the title
was issued in the name of Emiliano Jalbay, married to Mamerta C. Jalbay,, which title
was given to their daughter, Virginia Agus as they were then residing abroad. To secure
additional funds for their garments business, Virginia and her husband Danilo mortgaged
the property to the Philippine National Bank, representing to the bank that the lot is
owned by the siblings Emiliano and Teresita Jalbay-Cinco. Because they failed to pay the
loan in time, the bank foreclosed the property. When the spouses Jalbay learned that the
property was mortgaged to PNB, they filed a complaint against the PNB before the
Quezon City RTC, contending that they had no knowledge of the mortgage and the
subsequent foreclosure. They also sought to prevent the PNB from consolidating title to
the property. After trial, the TC declared the real estate mortgage null an void and the
foreclosure proceedings without force and effect. PNB appealed to the CA, which ruled in
their favour. The spouses moved to reconsider, arguing that that PNB did not act with
the requisite diligence when it approved the loan application of the Spouses Agus,
Emiliano, Jr., and Cinco. They claim that the RTC was correct in finding that PNB was not
a mortgagee in good faith, making the mortgage constituted on the subject lot null and
void. The CA, however, refused to reconsider, hence the spouses appealed to the
Supreme Court.
The Issue:
Whether or not the PNB was a mortgagee in good faith.
The Ruling:
The petition lacks merit.
True, banks, in handling real estate transactions, are required to exert a higher degree of
diligence, care, and prudence than individuals. Unlike private individuals, it is expected
to exercise greater care and prudence in its dealings, including those involving registered
lands. A banking institution is expected to exercise due diligence before entering into a
mortgage contract.2 Indeed, there is a situation where, despite the fact that the
mortgagor is not the owner of the mortgaged property, his title being fraudulent, the
mortgage contract and any foreclosure sale arising therefrom are given effect by reason
of public policy. This is the doctrine of the mortgagee in good faith, wherein buyers or
mortgagees dealing with property covered by a Torrens Certificate of Title are no longer
required to go beyond what appears on the face of the title.3 However, the rule that
persons dealing with registered lands can rely solely on the certificate of title is not
applicable to banks. Thus, before approving a loan application, it is a standard operating
practice for these institutions to conduct an ocular inspection of the property offered for
mortgage and to verify the veracity of the title to determine its real owners. An ocular
inspection is necessary to protect the true owner of the property as well as innocent third
parties with a right, interest or claim thereon from a usurper who may have acquired a
fraudulent certificate of title.4