Encarnacion Gatioan v. Sixto Gaffud, et.

al and Philippine National Bank

(G.R. No. L-21953, March 28, 1969)

FACTS:
Petitioner Encarnacion Gatioan bought a parcel of land originally registered in the name
of Rufino Permison, who acquired it on the basis of a free patent. Gatioan had the Original
Certificate of Title of the land cancelled, in lieu of a Transfer Certificate of Title issued in his
name. The land in question was then mortgaged three times for three different loans acquired
by her from the Philippine National Bank. Upon the payment of her last loan, she did not
execute any instrument to discharge the encumbrance on her TCT. Meanwhile, the defendants,
Sixto Gaffud and Villamora Logan, also acquired a free patent over the same land as Gatioan,
and an OCT was issued in their favor. They obtained two loans from PNB, and they used the
land as collateral.
The Secretary of Agriculture and Natural Resources was able to compare the petitioners
TCT and the defendants OCT, and he found out that the titles cover only one and the same
parcel of land. He then ordered the cancellation of the second title. Gatioan filed a complaint for
quieting of title, and a judgment was rendered in her favor. The defendant bank filed an appeal
questioning the part of the judgment stating that the mortgage executed by Gaffud and Logan
was null and void and unenforceable, and claiming that the bank is a mortgagee in good faith
and for value. PNB sought to have the annotation of the mortgage on the OCT of Gaffud and
Logan to be carried over to the TCT of Gatioan as an encumbrance.
ISSUE:
Whether or not the bank may benefit from the provisions of Act No. 496 regarding the
protection for innocent purchasers of land
HELD:
No, it may not. Act No. 496, or the Land Registration Act, provides in Sections 38, 56, and
112 of Act No. 496 that the vendee may acquire rights and be protected against the defenses which
the vendor would not. However, these provisions do not apply to the appellant PNB because it
cannot claim that it is a bona fide purchaser/mortgagee who had no knowledge of the existence of
the flaws in the defendants title, as compared to the petitioners title. When a conveyance has been
properly recorded, such record is constructive notice of its contents and all interests, legal and
equitable, included therein. The conveyance is recorded in the public registry, and it is never issued
unless and until it is recorded. Thus, it serves as a notice to the world that such land is registered,
and it is presumed that a purchaser has examined every instrument of record affecting the title of the
land he purchased. This presumption is not rebuttable; otherwise, the very purpose of the system
providing for records of conveyance will be negated.
In this case, PNB failed to exercise a higher degree of diligence in granting the loans of the
parties, as well as in checking the mortgaged properties and the titles thereto. The petitioner already
mortgaged the property three times; it should have noticed that the defendants mortgaged property
was exactly the same as that of the petitioners. Under the circumstances, appellant had absolutely
no excuse for approving the application of the defendant spouses and giving the loans in question.