Dela Cruz-Pascual v. Development Bank of the Philippines

FIRST DIVISION

[G.R. No. 213637. August 28, 2019.]

GUADALUPE DELA CRUZ-PASCUAL, ET AL., petitionervs.DEVELOPMENT BANK OF THE PHILIPPINES, respondent.

NOTICE

Sirs/Mesdames :

Please take notice that the Court, First Division, issued a Resolution datedAugust 28, 2019which reads as follows:

"G.R. No. 213637 (Guadalupe dela Cruz-Pascual, et al. v. Development Bank of the Philippines). — We reverse and set aside the Court of Appeals' (CA) Decision 1 dated March 21, 2014 and Resolution 2 dated July 9, 2014 in CA-G.R. CV No. 95733 and hold that Development Bank of the Philippines (DBP) is not a mortgagee in good faith.

The facts, as narrated by the CA, are as follows:

Spouses Lorenza Mercado and Conrado dela Cruz were the owners of a parcel of land with an area of 82,881 sq. m. located at Sitio Bongol (now Sitio Hagnayahan), Barangay Lumangbayan, Pinamalayan, Oriental Mindoro.

On May 8, 1969, Conrado dela Cruz passed away.

On June 18, 1970, Original Certificate of Title No. P-8342 (OCT P-8342) covering the aforementioned property was issued by virtue of Free Patent No. 471061 in the name of Glicerio Panganiban, Jr. (Glicerio).

On August 20, 1974, Lorenza Mercado, Igmidio dela Cruz, Antonio dela Cruz and Trinidad dela Cruz, the surviving heirs of Conrado, filed a complaint for Reconveyance, Delivery of Possession and Accounting with Damages against Glicerio in the RTC (then Court of First Instance) of Pinamalayan, Branch II docketed as Civil Case No. R-346. The civil case was not annotated at the back of OCT P-8342.

On November 26, 1980, Civil Case No. R-346 was decided in favor of the heirs of Conrado, x x x.

xxx xxx xxx

x x x This Court, through its Twelfth Division, in a Decision dated August 4, 1987, affirmed the decision of the trial court x x x.

xxx xxx xxx

Glicerio then filed a petition for review on certiorari before the Supreme Court docketed as G.R. No. 80423 but said petition was denied for being filed out of time and also for lack of merit in a Resolution dated November 25, 1987.

The Supreme Court Resolution became final and executory and an Entry of Judgment was issued on August 30, 1988. No action whatsoever was taken by [petitioners] to implement the said ruling in their favor. Thus, the title has remained in the name of Glicerio Panganiban. The said Decision has not been annotated on OCT P-8342.

It appears, however, that pending the resolution [on] Civil Case No. R-346, Glicerio together with his wife, Aurora Mazon-Panganiban (Aurora), obtained a loan from the Development Bank of the Philippines (DBP) on October 8, 1975 in the amount of Fifteen Thousand Pesos (P15,000.00) secured by a real estate mortgage constituted on the property covered by OCT P-8342. Glicerio and Aurora will hereafter be referred to as Spouses Panganiban.

The mortgage was registered with the Registry of Deeds and annotated at the back of OCT P-8342.

After Spouses Panganiban defaulted in the payment of their loan, DBP instituted foreclosure proceedings. At the public auction, the property was awarded to DBP, being the highest bidder. On May 6, 1992, a certificate of sale was issued to DBP and the same was inscribed on OCT P-8342. The redemption period lapsed without the Spouses Panganiban redeeming the property.

On December 28, 2006, the heirs of Conrado dela Cruz and Lorenza Mercado (herein appellees) filed the instant case for Damages against DBP, Spouses Panganiban and the Registry of Deeds of Oriental Mindoro before the RTC of Pinamalayan, Oriental Mindoro, Branch 42 docketed as Civil Case No. 2199-06.

xxx xxx xxx

On July 6, 2012, the trial court ruled in favor of appellees. 3

The trial court held that the mortgage contract between Spouses Glicerio Panganiban, Jr. and Aurora Panganiban (Spouses Panganiban) and DBP was void because they were not the absolute owners of the property offered as collateral to DBP. DBP cannot be considered a mortgagee in good faith because it failed to exercise the degree of diligence required from mortgagee banks. 4

The CA reversed the Regional Trial Court (RTC) and held that DBP was a mortgagee and buyer in good faith. It held that there was no indication that would have led DBP to any suspicion that Spouses Panganiban were not the real owners of the property sought to be mortgaged and that there was a pending litigation over its ownership. 5 Petitioners' motion for reconsideration was also denied. 6

In this petition for review on certiorari7 under Rule 45 of the Rules of Court, petitioners argue that DBP cannot be considered to be a mortgagee in good faith since it failed to meet the higher standard of diligence required of banks as mortgagees. 8 Petitioners assert that DBP failed to present evidence that it conducted an investigation of the property and claim that had any of DBP's credit investigators gone to the property, conducted investigation and inspection of the area, and interviewed adjacent property owners, DBP would have discovered that Spouses Panganiban were not the real owners of the property. 9

We agree and grant the petition.

Under Article 2085 of the Civil Code, the essential requisites of a contract of mortgage are: (a) that it be constituted to secure the fulfillment of a principal obligation; (b) that the mortgagor be the absolute owner of the thing mortgaged; and (c) that the persons constituting the mortgage have the free disposal of their property, and in its absence, that they be legally authorized for the purpose. Thus, in a real estate mortgage contract, it is essential that the mortgagor be the absolute owner of the property to be mortgaged; otherwise, the mortgage is void. 10

In Cavite Development Bank v. Lim, 11 however, We applied the doctrine of mortgagee in good faith where even though 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. 12 This is based on the rule that all persons dealing with the property covered by a Torrens Certificate of Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title. 13

Banks and other financial institutions, on the other hand, whose business is imbued with public interest, are required to exert a higher degree of diligence, care, and prudence than individuals handling real estate transactions. 14 Thus, in Ursal v. Court of Appeals, 15 We explained that where the mortgagee is a bank, it cannot merely rely on the certificate of title offered by the mortgagor in ascertaining the status of mortgaged properties. 16 The mortgagee-bank is required to be more cautious even in dealing with registered lands. Thus, before approving a loan application, it is a standard operating practice for banks to conduct an ocular inspection of the property offered for mortgage including the presence of occupants/tenants and to verify the genuineness of the title to determine its real owners. 17 During the ocular inspection, should the prospective buyer (in this case, the mortgagee) 18 find out that the land he intends to buy is occupied by anybody else other than seller, who is not in actual possession, it is incumbent upon the purchaser to verify the extent of the occupant's possessory rights. The failure of a prospective buyer to take such precautionary steps would mean negligence on his part and would thereby preclude him from claiming or invoking the rights of a purchaser in good faith. 19 The ocular inspection protects the real owner and the innocent third parties with a right, interest or claim on the property from usurpers who may have acquired a fraudulent certificate of title to it. 20

As a general rule, the ascertainment of good faith, or lack of it, and the determination of whether due diligence and prudence were exercised, are questions of fact. And while this Court is not a trier of facts and the general rule is that the determination of whether a buyer or mortgagee is in good faith, is generally outside the province of this Court to determine in a petition for review, 21 this rule is subject to exceptions, as in this case, where the findings of the CA are contrary to those of the trial court. 22

We find that DBP failed to exercise the higher degree of diligence, care and prudence expected from it. DBP is not a mortgagee in good faith; thus, the mortgage, foreclosure and consequent sale of the property to DBP are void.

It appears that DBP relied on Original Certificate of Title No. P-8342 and the fact that there was no annotation of any adverse claim on the title indicating that the property was subject of a pending litigation. This does not make DBP a mortgagee in good faith. A bank cannot assume that, simply because the title offered as security is on its face free of any encumbrances or lien, it is relieved of the responsibility of taking further steps to verify the title and inspect the properties to be mortgaged. 23

Likewise, DBP's reliance on the tax declarations and tax receipts in the name of Spouses Panganiban is insufficient to declare it as a mortgagee in good faith. Tax declarations and receipts do not by themselves conclusively prove title to the land; they are only prima facie evidence of ownership or possession. 24

DBP's failure to prove that it conducted an ocular inspection and appraisal of the property, as well as an investigation and inquiry with relevant government offices to verify the ownership status of the property, negates its claim that it was a mortgagee in good faith. Contrary to DBP's position, these acts are standard operating practice expected of banks when dealing with real property. 25

Since the property was not mortgaged by its owners and DBP is not a mortgagee in good faith, DBP is not entitled to protection under the law. 26

WHEREFORE, the petition is GRANTED. The Decision dated March 21, 2014 and the Resolution dated July 9, 2014 of the Court of Appeals are hereby REVERSED AND SET ASIDE.

SO ORDERED."

Very truly yours,

(SGD.) LIBRADA C. BUENADivision Clerk of Court

 

Footnotes

1.Rollo, pp. 16-32; penned by Associate Justice Priscilla J. Baltazar-Padilla with the concurrence of Associate Justices Noel G. Tijam (now a retired Member of this Court) and Agnes Reyes Carpio.

2.Id. at 38-39.

3.Id. at 17-21.

4. CA rollo, p. 94.

5.Rollo, p. 27.

6.Id. at 38-39; see Resolution dated July 9, 2014.

7.Id. at 7-14.

8.Id. at 11-12.

9.Id. at 12-13.

10.Robles v. Court of Appeals, G.R. No. 123509, March 14, 2000, 328 SCRA 97, 112.

11. G.R. No. 131679, February 1, 2000, 324 SCRA 346.

12.Id. at 358.

13.Id.

14.Arguelles v. Malarayat Rural Bank, Inc., G.R. No. 200468, March 19, 2014, 719 SCRA 563.

15. G.R. No. 142411, October 14, 2005, 473 SCRA 52.

16.Id. at 63.

17.Andres v. Philippine National Bank, G.R. No. 173548, October 15, 2014, 738 SCRA 344, 363.

18. In Macadangdang v. Martinez (G.R. No. 158682, January 31, 2005, 450 SCRA 363, 369-370), We explained that "[t]he phrase 'innocent purchaser for value' is deemed to include an innocent lessee, mortgagee or other (beneficiary of an) encumbrance for value."

19.Land Bank of the Philippines v. Belle Corporation, G.R. No. 205271, September 2, 2015, 769 SCRA 46, 67.

20.Philippine Banking Corporation v. Dy, G.R. No. 183774, November 14, 2012, 685 SCRA 567, 575.

21.Philippine National Bank v. Heirs of Estanislao Militar, G.R. No. 164801, June 30, 2006, 494 SCRA 308, 319.

22.Pascual v. Burgos, G.R. No. 171722, January 11, 2016, 778 SCRA 189, 205, citing Medina v. Mayor Asistio, Jr., November 8, 1990, 191 SCRA 218, 223-224.

23.Land Bank of the Philippines v. Poblete, G.R. No. 196577, February 25, 2013, 691 SCRA 613, 626.

24.Heirs of Leopoldo Vencilao, Sr. v. Court of Appeals, G.R. No. 123713, April 1, 1998, 288 SCRA 574, 582.

25. Ursal v. Court of Appeals, supra note 13 at 363.

26. Arguelles v. Malarayat Rural Bank, Inc., supra note 12 at 576.