G.R. No. 213241 - Philippine National Bank vs. Vila

Petitioner Philippine National Bank (PNB), a universal banking corporation authorized by the Bangko Sentral ng Pilipinas, extended a loan in 1992 to Spouses Reynaldo and Erlinda Gamboa Cornista (Spouses Cornista), using as security a parcel of land (Lot 555-A-2, TCT No. 131498) registered in their names.
Prior to this, in 1986, the Spouses Cornista obtained a loan from Traders Royal Bank, which they secured with the same land. Failure to pay led to foreclosure.

Traders Bank foreclosed the mortgage on the property; during the public auction on December 23, 1987, Juan F. Vila (Respondent) was declared highest bidder for P50,000.00. A Certificate of Sale was issued and recorded.
Vila took possession of the property, paid real estate taxes, and was issued a Certificate of Final Sale in February 1989 after the one-year redemption period expired without the Spouses Cornista redeeming the property.
Despite the expiration, the Spouses Cornista redeemed the property by tendering P50,000.00. A Certificate of Redemption was issued and annotated on the title.

Vila filed an action to nullify the redemption, transfer title to himself, and claim damages, arguing the Spouses Cornista lost the right to redeem.
The RTC ruled in favor of Vila in 1995, nullifying the Certificate of Redemption and ordering cancellation of its annotation on TCT No. 131498. The Court of Appeals affirmed this decision in 1997, and the decision became final and executory the same year.
Vila sought enforcement through a Writ of Execution in 1997, but the sheriff could not enforce it because the title was no longer under the Spouses Cornista's name.

During this period, the Spouses Cornista mortgaged the same property to PNB in September 1992 (REM recorded before Notice of Lis Pendens), obtaining a loan for P532,000.00.
The Spouses Cornista defaulted on the PNB loan, leading to foreclosure; PNB became highest bidder and eventually consolidated ownership, having TCT No. 216771 issued in its name.

Vila filed Civil Case No. V-0567 against the Spouses Cornista and PNB to nullify the mortgage, deed of sale, and title issued to PNB, and to claim damages, alleging PNB was not a mortgagee in good faith.
PNB contended it was a mortgagee in good faith, asserting the property was free of any liens at the time of mortgage, the Notice of Lis Pendens was annotated after the mortgage registration, and that it relied on a title free of clouds.
The RTC and CA rejected PNB’s claims, finding it failed to exercise due diligence and was not a mortgagee in good faith. The courts pointed to failure to inspect the property and discover Vila’s possession and payment of taxes as red flags.

The RTC (2011) declared the mortgage and deeds in favor of PNB null and void and ordered cancellation of TCT No. 216771, restoring title to Vila. It awarded moral and exemplary damages, attorney’s fees, and litigation expenses against PNB.
The CA affirmed the RTC in 2013, emphasizing that banks must exercise a higher degree of diligence in examining titles and inspecting properties offered as security.
The CA also denied PNB’s Motion for Reconsideration in 2014.

PNB filed a Petition seeking reversal of the CA decisions, raising issues regarding its status as mortgagee in good faith and liability for damages.