GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), petitioner, vs. HON.

COURT OF APPEALS, (Thirteenth Division), JOSE SALONGA, TAN KIAT TIAN and
JOSEFINA USMAN joined by her husband ESTEBAN TAN, respondents.
FACTS: 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. QRSI’s lots included respondent’s. 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 GSIS’s title over the contested lots and
revive or reinstate the title belonging to the respondents. Not satisfied, GSIS appealed
the RTC’s 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?
RULING: NO. GSIS is not a buyer in good faith because it did not exercise due
diligence.
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.