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Gaffud vs Gaotian, G.R. No.

L-21953, March 28, 1969

On June 12, 1950, appellee Gatioan obtained a loan in the amount of P900.00
from the appellant, Philippine National, Bank, and as security therefor,
mortgaged the land described in TCT No. T1212. Said mortgage was duly
inscribed at the back of the title but was cancelled when it was fully paid on June
3, 1953. Using the same land and title as collateral, appellee acquired another
loan in the sum of P1,100.00 from the same bank on May 3, 1954. The annotated
incumbrance covering this second loan was upon its being paid released on June
28, 1956. On July 18, 1957, appellee secured, a third loan from the same bank,
this time for a bigger amount P2,800,00. Again, she remortgaged the same
land and title.

Appellee paid P2,800.00, plus interest, in full payment of the last loan secured by
mortgage on the land covered by TCT No. T1212, as per receipt No. 402272B.
Despite payment, appellant executed no instrument releasing or discharging the
encumbrance on TCT No. T1212.

It turned out that defendant spouses Sixto Gaffud and Villamora Logan procured
a free patent covering the identical parcel of land described in TCT No. T1212 of
appellee, on the basis of which Original Certificate of Title No. P6038 was issued
in their favor. Defendants also obtained two loans from appellant Bank in the
sum of P1,400.00 and P300.00, respectively, and as collateral for both, they
mortgaged the said land covered by OCT No. P6038. Hence, appellee filed the
complaint for quieting of title.

The Court of first instance of Isabela ruled in favor of appellee Gaotian and
ordered TCT no P-6038 Declaring the real estate mortgage executed by the
defendant spouses Sixto Gaffud and Villamora Logan in favor of the Bank,
recorded on OCT P6038 null and void and unenforceable as against the herein
plaintiff, and ordering its cancellation, without prejudice of the Bank's right to
collect from the said spouses. Hence this appeal by PNB on a sole question of law.

PNB insists that the lower court should have declared it an innocent mortgagee in
good faith and for value as regards the mortgages executed in its favor by said
defendant spouses and duly annotated on their abovementioned OCT P6038 and
that consequently, the said mortgage annotations should be carried over to and
considered as encumbrances on the land covered by TCT No. T1212

Issue: W/N PNB is a mortgagee in good faith?

Ruling: Petition has no merit. The CFIs decision is affirmed.

May the purchaser of land from the owner of the second original certificate be an
"innocent purchaser" when a part or all of such land had theretofore been
registered in the name of another, not the vendor?
The first original certificate is recorded in the public registry. It is never issued
until it is recorded. The record is notice to all the world. All persons are charged
with the knowledge of what it contains. All persons dealing with the land so
recorded or any portion of it, must be charged with notice of whatever it contains.

He cannot be regarded as an "innocent purchaser" because of the facts contained

in the record of the first original certificate

By reason of the prior registry there cannot be an innocent purchaser of land

included in a prior original certificate and in a name other than that of the
vendor, or his successors. The rule of notice of what the record contains
precludes the idea of innocence.

Moreover, it is a matter of judicial notice that before a bank grants a loan on the
security of land, it first undertakes a careful examination of the title of the
applicant as well as a physical and onthespot investigation of the land itself
offered as security.

Undoubtedly, had herein appellant Bank taken such a step which is demanded by
the most ordinary prudence, it would have easily discovered the flaw in the title
of the defendant spouses; and if it did not conduct such examination and
investigation, it must be held to be guilty of gross negligence in granting them the
loans in question. In either case, appellant Bank cannot be considered as a
mortgagee in good faith within the contemplation of the law.

By the time the defendant spouses offered OCT P6038, in their names, for
scrutiny in connection with their own application for loan with appellant, the
Bank was charged with the notice of the identity of the technical descriptions,
areas, lot numbers and cadastral numbers of the lands purportedly covered by
the two titles and was in a position to know, if it did not have such knowledge
actually, that they referred to one and the same lot

Anyway, appellant Bank is not without any remedy. It appears that, defendant
spouses have another land covered by OCT 3137 which is also mortgaged to it and
which perhaps may yet be sufficient to cover the loans in question.
36. Philippine Bank of Communications (PBCOM) vs CA, G.R. No. 118552,
February 5, 1996

Facts: Plaintiff spouses Alejandro and Amparo Casafranca sold their lot to Carlos Po who
paid part of the agreed price. The latter mortgaged the lot to the Philippine Bank of
Communications (PBCOM) to secure a loan of P330,000. It appears that in a civil action
that ensued between them, plaintiff spouses obtained a favorable judgment against
Carlos Po and acquired said lot in an auction sale to satisfy Carlos obligation.

Later, PBCOM applied for extrajudicial foreclosure of the mortgage executed by Carlos
Po, and in the succeeding auction sale, it acquired the lot at its winning bid of

Plaintiff Amparo Casafranca who had stepped into the shoes of mortgagor Carlos Po by
virtue of the auction sale in her favor offered to redeem the property from PBCOM by
tendering to its manager a check in the amount of P500,000 which, in her estimate,
would be sufficient to settle the account of Carlos Po. PBCom did not accept the check.
The extrajudicial foreclosure was set aside in an action filed by plaintiff spouses.

PBCom advised plaintiff spouses to pay the sum of P884,281.38 purportedly

representing Carlos Pos principal account of P330,000, interest and charges thereon,
attorneys fees and realty taxes which it paid for the lot. Plaintiff did not agree. PBCom
again applied for extrajudicial foreclosure of mortgage of the lot and it was sold to
Natalie Limchio for P1,184,000.

Upon plaintiffs application, a TRO enjoining defendant sheriffs from transferring the
title of the lot in favor of defendant Natalie Limchio and the latter, from taking
possession of the lot. Plaintiffs signified their intention to pursue only their alternative
demand for the residue or balance of the proceeds of the auction sale less the correct
outstanding account which was secured by the mortgage.

RTC ruled in favor of plaintiffs Alejandro and Amparo Casafranca for the sum of
P273,653.32 representing the residue or balance of the proceeds of the auction sale
conducted on 2 April 1987 after deducting therefrom publication expenses and paying off
the total account due to defendant Philippine Bank of Communications, and ordering the
latter to pay unto plaintiffs the aforesaid amount. Decision was affirmed by the CA.
Hence, this review on certiorari by Petitioner PBCOM raising the issue of penalties.
Issue: whether, in the foreclosure of a real estate mortgage, the penalties stipulated in
two promissory notes secured by the mortgage may be charged against the mortgagors as
part of the sums secured, although the mortgage contract does not mention the said

Ruling: No. The general rule is that an action to foreclose a mortgage must be limited to
the amount mentioned in the mortgage. The mortgage contract is one of adhesion as it
was prepared solely by the petitioner and the only participation of the other party was
the affixing of his signature or adhesion thereto. Being a contract of adhesion, the
mortgage is to be strictly construed against the petitioner, the party which prepared the

A reading, not only of the earlier quoted provision, but of the entire mortgage contract
yields no mention of penalty charges. Construing this silence strictly against the
petitioner, it can fairly be concluded that the petitioner did not intend to include the
penalties on the promissory notes in the secured amount. This explains the finding by
the trial court, as affirmed by the Court of Appeals, that penalties and charges are not
due for want of stipulation in the mortgage contract.

A mortgage and a note secured by it are deemed parts of one transaction and are
construed together, thus, an ambiguity is created when the notes provide for the
payment of a penalty but the mortgage contract does not. Construing the ambiguity
against the petitioner, it follows that no penalty was intended to be covered by the
mortgage. The mortgage contract consisted of three pages with no less than seventeen
conditions in fine print; it included provisions for interest and attorneys fees similar to
those in the promissory notes; and it even provided for the payment of taxes and
insurance charges. Plainly. the petitioner can be as specific as it wants to be, yet it simply
did not specify nor even allude to, that the penalty in the promissory notes would be
secured by the mortgage. This can then only be interpreted to mean that the petitioner
had no design of including the penalty in the amount secured.