CASE 1

PRUDENTIAL BANK vs. RAPANOT

PRUDENTIAL BANK vs. RAPANOT

GR No. 191636

JANUARY 16, 2017

FACTS:

Golden Dragon Real Estate Corporation (Golden Dragon) is the developer of Wack-Wack
Twin Towers Condominium in Mandaluyong City. Ronald Rapanot (Ronald) bought Unit
2308-B2, on May 9, 1995. On September 13, 1995, the Bank of the Philippine Islands,
formerly known as Prudential Bank (Bank), extended a loan to Golden Dragon in the amount
of P50,000,000.00 to be utilized by the latter as additional working capital. To secure the
loan, Golden Dragon executed a mortgage Agreement in favor of the Bank, which had the
effect of constituting a real estate mortgage over several condominium units owned and
registered under Golden Dragon’s name. Unit 2308-B2 is among said units subject of said
mortgage agreement.

Ronald made several verbal demands for the delivery of Unit 2308-B2, being its lawful
owner, but to no avail. Hence he filed a complaint before the Expanded National Capital
Region Field Office of the Housing and Land Use Regulatory Board (HLURB). No
settlement was arrived at before the said Office. The Arbiter rendered a decision on July 3,
2002, in favor of Ronald, directing Golden Dragon and the Bank to deliver to Ronald the title
of the condominium unit and to pay damages and costs.

On January 16, 2003, the Bank filed a Petition for Review with the HLURB Board
Commissioner, who, in turn affirmed the decision of the HLURB. Thereafter the Bank went
to the Office of the President, which denied its appeal declaring that the Bank was given due
process, and adopted the ruling of the HLURB. Again, the Bank appealed to the Court of
Appeals, who in turn affirmed the decision of the HLURB.

ISSUES:

Whether or not the Court of Appeals erred when it affirmed the resolution of the Office of the
President finding that the Bank had been afforded due process before the HLURB; and

Whether the not the Court of Appeals erred when it affirmed the resolution of the Office of
the President that the Bank cannot be considered a mortgagee in good faith.

\
HELD:

NO. The Bank was not deprived of due process before the HLURB. The Bank was able to
set out its position by participating in the preliminary hearing and the scheduled conferences
before the Arbiter and even assert its special and affirmative defenses in its Answer to
Ronald’s claim.

It was a clear fact that the Arbiter merely acted in accordance with the 1996 Rules of
Procedure of the HLURB when it rendered its decision on the basis of the pleadings and
records submitted by the parties.

The mortgage agreement is null and void against Ronald, and thus cannot be enforced against
him. The Bank failed to take note of Section 18 of Presidential Decree No. 957 which states:
no mortgage on any unit or lot shall be made by the owner or developer without prior
approval of the Authority. The mortgage entered into by and between the Bank and Golden
Dragon violates the said provision. Ronald, who was the buyer of the subject condominium
unit, was not notified of the mortgage before the release of the loan proceeds by the Bank. It
was an act executed against the provisions of mandatory prohibitory laws, hence, void
because of the Bank’s failure to comply with PD 957.

CASE 2

Land bank of the Philippines vs Narciso L. Kho

G.R. No. 205839

FACTS: Narciso L. Kho purchased a manager’s check from Land Bank of the Philippines
(LBP) worth Php 25,000,000.00 paid using the money from his savings account in the same
bank. The check was purchased in order to negotiate a deal with Red Orange. LBP gave Kho
the check and a photocopy of the check. The photocopy was given to Red Orange. The deal
between Kho and Red Orange did not push through. Rudy Medel (representing Red Orange)
went to LBP to negotiate the check. LBP cleared the check and notified Kho of the
transaction. Kho was surprised as the original check was still with him. It turns out that the
check negotiated by Medel with LBP is spurious. Kho filed a complaint for Specific
Performance and Damages against LBP to recover the Php 25,000,00.00 from LBP but the
latter claims that the former was negligent for giving Medel the photocopy of the check
which was used to make the spurious check and thus they cannot be held liable for the lost
amount.

ISSUE: Whether Kho is precluded from asserting the forgery of check because his negligence
substantially contributed to his loss

HELD:

No, we cannot agree that the proximate causes of the loss were Kho's act of giving Medel a
photocopy of check No. 07410 and his failure to inform Land Bank that his deal with Red
Orange did not push through.

The business of banking is imbued with public interest; it is an industry where the general
public's trust and confidence in the system is of paramount importance.29 Consequently,
banks are expected to exert the highest degree of, if not the utmost, diligence. They are
obligated to treat their depositors' accounts with meticulous care, always keeping in mind the
fiduciary nature of their relationship.30chanrobleslaw

Banks hold themselves out to the public as experts in determining the genuineness of checks
and corresponding signatures thereon.31 Stemming from their primordial duty of diligence,
one of a bank's prime duties is to ascertain the genuineness of the drawer's signature on check
being encashed.32 This holds especially true for manager's checks.

The genuine check No. 07410 remained in Kho's possession the entire time and Land Bank
admits that the check it cleared was a fake. When Land Bank's CCD forwarded the deposited
check to its Araneta branch for inspection, its officers had every opportunity to recognize the
forgery of their signatures or the falsity of the check. Whether by error or neglect, the bank
failed to do so, which led to the withdrawal and eventual loss of the P25,000,000.00.

This is the proximate cause of the loss. Land Bank breached its duty of diligence and
assumed the risk of incurring a loss on account of a forged or counterfeit check. Hence, it
should suffer the resulting damage.

We cannot agree with the Land Bank and the RTC's positions that Kho is precluded from
invoking the forgery. A drawer or a depositor of the bank is precluded from asserting the
forgery if the drawee bank can prove his failure to exercise ordinary care and if this
negligence substantially contributed to the forgery or the perpetration of the fraud.

Kho's failure to inform Land Bank that the deal did not push through as of January 2,
2006, does not justify Land Bank's confirmation and clearing of a fake check bearing the
forged signatures of its own officers. Whether or not the deal pushed through, the check
remained in Kho's possession. He was entitled to a reasonable expectation that the bank
would not release any funds corresponding to the check.
CASE 3

UNIVERSITY OF MINDANAO, INC. vs. BANGKO SENTRAL NG PILIPINAS, ET

AL.

G.R. No. 194964-65, January 11, 2016

Leonen, J. Second Division

Topic: Delay; Demand; Unenforceable contract

Nature: Appeal from a Decision of the CA

FACTS:

The University of Mindanao is an Educational Institution. It was chaired by Sps. Torres in the
year 1982. Before then, the Sps. Torres incorporated and operated 2 thrift banks, FISLAI and
DSLAI. In 1982, BSP issued standby emergency credit for FISLAI and DSLAI. This credit
was evidenced by 3 promissory notes (PNs). The University of Mindanao executed a deed of
real estate mortgage over its property which served as security for the thrift banks' credit. The
mortgage was signed by the Vice President of the university who presented a secretary's
certificate showing that he was authorized to enter into the mortgages. FISLAI and DSLAI
eventually had to enter rehabilitation and were merged into Mindanao Savings and Loan
Association (MSLAI). MSLAI failed to recover and was liquidated. BSP thus informed the
University of Mindanao that it would foreclose the mortgaged properties.

Thus, petitioner university filed two complaints for nullification and cancellation of
mortgage: one at the RTC of Iligan and another at Davao. The petitioner claims that they
never received the proceeds of any loan from BSP and that it never authorized the VP to
mortgage any property. Both courts ruled in favor of Petitioner and declared the Real Estate
Mortgage void. On appeal, the CA consolidated both cases and ruled in favor of respondent.
The CA held that Petitioner was estopped from denying the authority of its VP, that the
annotations on the titles of Petitioner’s property served as constructive notice and that there
was implied ratification and that since the secretary’s certificates were notarized, they
enjoyed a presumption of regularity. Hence this petition for review.

ISSUE:

1. Whether or not the action had prescribed.

2. Whether or not the petitioner had validly delegated the power to mortgage to
its VP Petalcorin.
3. Whether or not the act of mortgaging the property was ratified by petitioner.

HELD:

1. NO, the action had not yet prescribed.

Prescription is the mode of acquiring or losing rights through the lapse of time. Its purpose is
“to protect the diligent and vigilant, not those who sleep on their rights.” The prescriptive
period for actions on mortgages is ten (10) years from the day they may be brought. Actions
on mortgages may be brought not upon the execution of the mortgage contract but upon
default in payment of the obligation secured by the mortgage.

A debtor is considered in default when he or she fails to pay the obligation on due date and,
subject to exceptions, after demands for payment were made by the creditor. Article 1169 of
the Civil Code provides:

ART. 1169. Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declare; or

(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered was a
controlling motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his power to
perform.

Article 1193 of the Civil Code provides that an obligation is demandable only upon due date.
In other words, as a general rule, a person defaults and prescriptive period for action runs
when (1) the obligation becomes due and demandable; and (2) demand for payment has been
made. The prescriptive period neither runs from the date of the execution of a contract nor
does the prescriptive period necessarily run on the date when the loan becomes due and
demandable. Prescriptive period runs from the date of demand, subject to certain exceptions.

In this case, the running of the prescriptive period for respondent’s action on the mortgages
did not start when it executed the mortgage contracts with Petitioner in 1982. In view of the
termination of the existence of one of the corporations, demand was rendered unnecessary,
thus prescription would start to run in 1990, the due date of the contract. Therefore,
respondent had until 2000 in order to institute an action on the mortgage contract. However,
under Article 1155, respondent actually interrupted, the running of the prescriptive period
when it sent its demand letter to petitioner on June 18, 1999.

2. NO. The relationship between a corporation and its representatives is governed by the
general principles of agency. Article 1317 of the Civil Code provides that there must be
authority from the principal before anyone can act in his or her name. Hence, without
delegation by the board of directors or trustees, acts of a person—including those of the
corporation’s directors, trustees, shareholders, or officers—executed on behalf of the
corporation are generally not binding on the corporation. The effect of a lack of authority is
that under Art. 1317 and 1403, the contract becomes unenforceable.

In this case, the trial courts found that the Secretary’s Certificate and board resolution were
either non-existent or fictitious and that a board meeting giving the powers never occurred.
The court is bound by the findings of fact of the trial courts.
3. NO. Ratification converts an agents unauthorized act, into an act of the principal. It is a
voluntary and deliberate confirmation or adoption of a previously unauthorized act. No act by
petitioner can be interpreted as anything close to ratification. It was not shown that it issued a
resolution ratifying the execution of the mortgage contracts. It was not shown that it received
proceeds of the loans secured by the mortgage contracts. There was also no showing that it
received any consideration for the execution of the mortgage contracts. It even appears that
petitioner was unaware of the mortgage contracts until respondent notified it of its desire to
foreclose the mortgaged properties.

WHEREFORE, the Petition is GRANTED. The Court of Appeals' Decision dated December
17, 2009 is REVERSED and SET ASIDE. The Regional Trial Courts' Decisions of
November 23, 2001 and December 7, 2001 are REINSTATED.

CASE 4

Spouses Jalbay vs PNB

GR. No. 177803 August 3, 2015

FACTS: Virginia and her husband, Danilo Agus, applied ofr a loan with PNB. As a security,
the spouses Agus constituted a real mortgage over the lot, which they represented as being
owned by siblings Emiliano and Teresita Jalbay-Cinco. The borrowers, however, failed to
pay. PNB foreclosed the mortgage and emerged as the highest bidder at the public auction.

Spouses Jalbay learned about the mortgage and foreclosure of their property. Contending that
the real estate mortgage and the proceedings for its foreclosure were invalid for lack of
consent of the real owners, the Spouses Jalbay filed a complaint against PNB. The RTC
declared the real estate mortgage as null and void and the foreclosure proceedings without
force and effect.

ISSUE: Whether PNB observed the necessary diligence in granting the loan

Whether PNB was a mortgagee in good in goodfaith

HELD: Yes. Not only did it require Emiliano, Jr., Cinco and the Spouses Agus to submit
their biodata, duly accomplished loan application and the TCT covering the mortgaged lot, it
likewise caused the subject property to be inspected and appraised and conducted a thorough
credit investigation on the persons of the borrowers.

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.
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. 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 determining 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.

Here, the Court finds that PNB has complied with the required degree of diligence, prudence,
and care in dealing with the mortgagor. There was also no sign or circumstance which could
have possibly triggered suspicion on the bank’s part. Aside from the fact that the certificate of
title ot the subject lot is authentic and issued in the name of Emiliano Jalbay, he also appeared
to have been the one occupying said property. Hence, there is no compelling reason to depart
from the assailed rulings of the appellate court.