PBC VS DY

Naulit na yung case na ito. See PNB vs Dy, Page 13

DBP VS CAPULONG
Facts: DBP granted a loan in favor of Asialand Development Corporation (ADC) in the amount
of P 16M for the purpose of real estate development. The loan was secured by a REM. After the
constitution of the mortgage, ADC caused the subdivision of the entire property into separate
individual residential lots eventually sold to different buyers, one of whom was respondent
Gregorio Capulong. For failure of ADC to pay its obligation to DBP, the latter extrajudicially
foreclosed the mortgage and, thus, was able to acquire the property. ADC failed to redeem the
foreclosed properties within the redemption period. Capulong filed a complaint for the release of
the titles in his favor.
Capulong: ADC sold the properties to him without having the Contract to Sell registered with
the HLURB; that it did not inform him of the mortgage; and that despite his full payment, it
refused to deliver to him the titles to the properties in violation of Presidential Decree (PD) 957.
DBP: It is an innocent mortgagee for value. The loan to ADC was granted at the time when the
mortgaged property was not yet subdivided into individual lots and when there were as yet no
end-buyers thereof; that it foreclosed the property pursuant to the Loan Agreement and the
Mortgage Contract signed by them; and that it was not the proper party in interest due to its
transfer of the account and the titles to PMO such that even if Capulong prevails in the case, it
would be impossible for it to comply with any order of the HLURB, as DBP was no longer in
possession of the said titles and could not dispose of the same.
Issue: WON DBP is an innocent mortgagee for value.
Ruling: NO. DBP should have considered that it was dealing with a property subject of a real
estate development project. A reasonable person, particularly a financial institution such as
DBP, should have been aware that, to finance the project, funds other than those obtained from
the loan could have been used to serve the purpose, albeit partially. Hence, there was a need to
verify whether any part of the property was already intended to be the subject of any other
contract involving buyers or potential buyers. In granting the loan, DBP should not have been
content merely with a clean title, considering the presence of circumstances indicating the need
for a thorough investigation of the existence of buyers like Capulong. Wanting in care and
prudence, the DBP cannot be deemed to be an innocent mortgagee. It should not have relied
only on the representation of ADC that it had secured all requisite permits and licenses from the
government agencies concerned. During the existence of the loan and the mortgage, DBP
should have required the submission of certified true copies of those documents and verified
their authenticity through its own independent effort.
PNB VS MILITAR
Facts: Deogracias, Glicerio, Tomas and Caridad, all surnamed Militar, were heirs of Estanislao
Militar and the registered co-owners of several lots. Deogracias sold his undivided share to
Pedro Golez and the Spouses Lumagbas. Subsequently, Deogracias, et al. sold the same
property to spouses Rodolfo and Nilda Jalbuna.
The Jalbuna spouses mortgaged the property to PNB, which was subsequently
foreclosed. PNB, in turn, sold it to spouses Johnny and Nona Lucero. While all of this was

happening, the heirs of Militar continued to occupy the lot. Spouses Lucero filed an ejectment
case against the heirs. The heirs, on the other hand, filed an action for reconveyance of title.
PNB: PNB claimed that it was a mortgaee in good faith and for value; that the title of spouses
Jalbuna was free from all liens and encumbrances when they secured the loan; and that it
conducted verification and inspection of the property before granting the loan.
Spouses Lucero: They were innocent purchasers in good faith and for value.
Issue: Whether or not petitioners PNB and spouses Lucero were mortgagee and purchasers in
good faith, respectively.
Ruling: NO. PNB claims that it conducted the necessary inquiry and investigation on the
subject lot and was convinced that Nilda Jalbuna, as one of the heirs of Estanislao Militar, had
every right to mortgage the same, even if she was not in actual possession thereof.
However, considering that the land was in the possession of persons other than the
mortgagors, PNB should have inquired whether the possessors knew that the lot is being
mortgaged, and the circumstances surrounding the acquisition of the lot by the mortgagors.
Indeed, while PNB is not expected to conduct an exhaustive investigation on the history of the
mortgagors title, it cannot be excused from the duty of exercising the due diligence required of
a banking institution. In Tomas v. Tomas, we noted that it is standard practice for banks, before
approving a loan, to send representatives to the property offered as collateral to assess its
actual condition and to investigate who are the real owners thereof. We held that banks are
expected to exercise more care and prudence than private individuals in their dealings, even
those involving registered lands, for their business is affected with public interest. Verily, PNB
was remiss in the exercise of due diligence required of a banking institution, hence it cannot be
considered as mortgagee in good faith.
Neither could spouses Lucero be considered buyers in good faith. As respondents
neighbors, they could have verified the status of the property they were buying by inquiring from
the possessors thereof. This, they failed to do; hence they cannot be considered buyers in
good faith.
TIO VS ABAYATA
Facts: The heirs of Celedonio Abayata filed an action for annulment of mortgage, mortgage
sale, a subsequent sale and certificates of title covering a parcel of land located in Cebu. They
alleged that through machinations, defendant Benjamin Lasola (Lasola) was able to register the
property in his name under Transfer Certificate of Title (TCT) No. 11428 and mortgage it to
secure a loan from the Commercial Rural Bank of Tabogon (Cebu), Inc. (Rural Bank). In turn,
the Rural Bank foreclosed the mortgage and sold the property to David and Robert Sia Tio who
registered the property under TCT No. 20006. The Tios argue that they are innocent purchasers
for value.
Issue: WON petitioners are innocent purchasers for value
Ruling: YES. Ineluctably, the Rural Bank is a mortgagee in bad faith. Records confirm that the
Rural Bank did not exercise the due diligence required of banking and financial institutions
before entering into the mortgage contract with Lasola. As a banking institution, it is expected to
exercise due diligence before entering into a mortgage contract. The ascertainment of the

status or condition of a property offered to it as security for a loan must be a standard and
indispensable part of its operations.
The subject property was acquired by the Rural Bank in a foreclosure proceeding as the
highest bidder for which a Certificate of Sale and Definite Deed of Sale were issued by the
Sheriff in its favor; and was subsequently sold by the Rural Bank to petitioners who, as borne
out by evidence, are purchasers in good faith.
A purchaser in good faith is one who buys the property of another without notice that
some other person has a right to or interest in such property and pays a full and fair price for the
same at the time of such purchase or before he has notice of the claim of another person. The
sources of notice are the title, the recordings on the title and the land itself.
The rule has always been that every person dealing with registered land may safely rely
on the correctness of the certificate of title issued therefor and the law will in no way oblige him
to go beyond the certificate to determine the condition of the property. Where there is nothing in
the certificate of title to indicate any cloud or vice in the ownership of the property, or any
encumbrance thereon, the purchaser is not required to explore further than what the Torrens
Title upon its face indicates in quest for any hidden defects or inchoate right that may
subsequently defeat his right thereto.[26] However, where the land sold is in the possession of
a person other than the vendor, the purchaser must go beyond the certificate of title and make
inquiries concerning the actual possessor. A buyer of real property which is in possession of
another must be wary and investigate the rights of the latter. Otherwise, without such inquiry,
the buyer cannot be said to be in good faith and cannot have any right over the property.
Petitioners bought the property in 1989 from the Rural Bank. While at the time of the
sale, title to the property still remained in the name of Lasola, the Rural Bank had documents
showing that it bought the property in a valid foreclosure proceeding. Notices of extra-judicial
sale were published. An auction sale was held with the Rural Bank as the lone and highest
bidder. A Certificate of Sale was issued by the Deputy Provincial Sheriff in favor of the Rural
Bank. After the lapse of the one-year redemption period, a Definite Deed of Sale was executed
by the RTC-Cebu Sheriff in favor of the Rural Bank. The Certificate of Sale and the Definite
Deed of Sale, including the Real Estate Mortgage between Lasola and the Rural Bank, were
inscribed on Lasola's title. What's more, petitioners even went beyond the Rural Bank's
documents and together with a Rural Bank representative, inspected the property. When
confronted with the presence of houses on the property, they were led to believe by the Rural
Bank's representative that the occupants were merely squatters whose occupation was being
tolerated by the Rural Bank.
It should be emphasized that the prudence required of petitioners is not that of a person
with training in law, but rather that of an average man who weighs facts and circumstances
without resorting to the calibration of our technical rules of evidence of which his knowledge is
nil. Rather, he relies on the calculus of common sense of which all reasonable men have an
abundance. And, by law and jurisprudence, a mistake upon a doubtful or difficult question of
law may properly be the basis of good faith.
Thus, since petitioners were without actual notice of respondents' claim of ownership
over the property, and which claim was not discoverable by them after examining the title, the
annotations on the title, and an observation of the property, then they are entitled to a good faith
status.