G.R. No. 107109 - Philippine National Bank vs. Court of Appeals

Spouses Adriano Alonzo and Damiana Basibas owned two parcels of land (Lot No. 1773 with 239 sqm and Lot No. 1983 with 3,519 sqm) located at Tacloban, Leyte, covered by Original Certificate of Title No. 21293.
The couple had four children (Ambrosio, Hilarion, Hilario, and Gloria, all surnamed Alonzo); after Damiana's demise, Adriano married Basilia Daatorin producing a daughter, Aurelia Alonzo.
Upon Adriano’s death in 1933 and subsequent demise of Ambrosio (November 1936), various transactions among the heirs ensued regarding the division and waiver of interests in the property.

On February 13, 1968, Aurelia Alonzo executed a deed waiving her interests in the two lots in favor of Gloria, Hilarion, and Margarita (allegedly the natural daughter of Ambrosio), with further allocation to Victoria and Silvestra.
On March 10, 1968, Margarita sold a 700 sqm portion from her share to the spouses Florencio and Margarita Daa, resulting in the designation of Lot 1983-B-3 under Transfer Certificate of Title No. T-403.

On June 4, 1968, Philippine National Bank (PNB) extended a "time loan" of P3,500.00 to the Daa spouses, secured by a real estate mortgage on Lot 1983-B-3.
The loan was subsequently increased in several stages (to P20,000.00 in 1969; to P110,000.00 plus an additional P50,000.00 on August 14, 1980; and to further amounts on later dates in 1980).
After default by the Daa spouses in their obligation, PNB conducted an extrajudicial foreclosure of the mortgaged lot, acquiring Lot 1983-B-3 for P114,005.00 as the highest bidder.
Due to the failure by the Daa spouses to redeem within the legal period, Transfer Certificate of Title No. T-27516 was issued in PNB’s name.

Private respondents (direct descendants of Hilario and Hilarion Alonzo) filed an action to annul the deed of sale between Margarita and the Daa spouses, and the mortgage contract with PNB.
Their contention was based on allegations that Margarita, also known as Margarita Nalda, was not the legitimate child of Ambrosio Alonzo but rather the illegitimate child of Magno Paclibaro and Filomena Nalda.
They further argued that PNB acted with gross negligence and in bad faith in approving the loan, citing lapses such as absence of a proper loan application and failure to conduct an ocular inspection of the property.

On December 14, 1989, the trial court rendered a decision in favor of the private respondents, ordering PNB to be indemnified by the Daa spouses and Margarita Nalda, and directing the cancellation and reissuance of the title in favor of the rightful heirs.
The Court of Appeals, on September 14, 1992, affirmed the trial court’s decision with a modification (deleting the award for attorney’s fees against PNB) and reiterated that the indemnity was equivalent to the "loan plus interest" and not the fair market value, as contended by PNB.

That it was entitled to the fair market value of the property (instead of merely the loan plus interest) since its title had already been consolidated.
That it should not have been liable for attorney’s fees.

In its petition for review on certiorari, PNB invoked its internal memorandum (dated July 13, 1971) and circulars (including Gen. Circular No. 49-98/84 and SCL Circular No. 8-7/89) which prescribed the disposition of assets at fair market value.
The Supreme Court ultimately found that PNB’s reliance on these internal policies was misplaced and that there was no legal basis for them to influence the judicial determination of the property’s rightful ownership.

Whether the internal memorandum and circulars of PNB on the disposition of assets acquired through foreclosure (which prescribe a sale at fair market value) have binding effect on the courts in determining the appropriate indemnity.
Whether these policies can override statutory provisions and established case law regarding property title and mortgagee rights.

Whether PNB effectively acquired a valid title to the property by virtue of the extrajudicial foreclosure and consolidation of title, considering its failure to adhere to standard banking procedures (e.g., absence of a proper loan application and lack of an ocular inspection).
Whether PNB can be considered a mortgagee for value and in good faith under the established jurisprudence.

If PNB were entitled to any indemnity, whether the award should be based on the fair market value of the property or solely on the loan amount plus interest as determined by the trial court.