PRINCE; SECURED TRANS.

NO

GSIS vs. CA, G.R. No. 128471 March 6, 1998

Petitioners vs. Respondents
Salonga, Tan Kiat Tan, and Usman (respondents) were registered owners of
certain lots in Molino, Bacoor, Cavite. When they were about to pay their real
estate taxes, they found that the tax declaration and titles of the lot now belongs
to Queen's Row Subdivision, Inc. (QRSI). Thus, before the RTC, they filed an action
for declaration of ownership and cancellation of title against QRSI. The RTC
impleaded GSIS and found that it entered into a project and loan agreement with
QRSI wherein the GSIS granted the latter a loan in the amount of P14,360,000.00
secured by a real estate mortgage covering QRSI's lots in Molino, Bacoor, Cavite
totaling an area of 1,300,000 square meters. QRSIs lots included respondents.
And these lots were extrajudicially foreclosed in favour of GSIS when QRSI
defaulted payment.
Soon, the RTC decided against GSIS and ordered it
cancellation of GSISs title over the contested lots and revive or reinstate the title
belonging to the respondents. Not satisfied, GSIS appealed the RTCs decision to
the CA. But the CA affirmed the RTC.
ISSUE: Should GSIS be considered a mortgagee and buyer for value in
good faith with a better right than herein respondents when GSIS had
complied with all the requirements of a valid extrajudicial foreclosure of
mortgage and when it had the right to rely on the face of the certificates
of titles, thus justified in dispensing with further inquiry and acquiring
the lots free from any lien, encumbrance, and defect?
NO. GSIS is not a buyer in good faith because it did not exercise due
diligence. PETITION DENIED.
Although the GSIS is categorized as a social security and insurance entity, its
ancillary function of investing funds imposes upon it the duty of exercising due
diligence in dealing with properties submitted as collateral for loans.
It should have been more cautious, considering the substantial amount of
the loan granted. Thus, GSIS cannot assert the defense of good faith, considering
that it did not exercise the proper diligence required by the situation. This failure is
tantamount to negligence for GSIS cannot simply rely on the face of the title of the
property, as its ancilliary function of investing funds requires a greater degree of
diligence. It cannot, therefore, be considered as a mortgagee and subsequent
purchaser in good faith, and necessarily, private respondents are deemed to have
a better right over the property.