Title
Land Bank of the Philippines vs. Ramos
Case
G.R. No. 247868
Decision Date
Oct 12, 2022
A property mortgaged by a cooperative using a forged SPA after the owner's death; LBP failed due diligence, held liable for damages with PCCCI.
mortgagee in bad faith
damages
loan obligations

Case Summary (G.R. No. 247868)

Factual Background

Respondents alleged that sometime in 1998, respondent Pilar was granted a loan by PCCCI in the amount of P200,000.00. They claimed that PCCCI’s manager, Lilia Ching, and general manager, Roberto Salazar, induced Pilar to sign multiple documents and surrender the owner’s copy of the title to the subject property as collateral. They further averred that Pilar received the loan proceeds on January 22, 1999. Upon Pilar’s demand for the return of the title after the loan was allegedly fully paid on November 12, 2001, PCCCI refused, informing her that the subject property had been mortgaged in favor of Land Bank.

Respondents then conducted their own investigation and discovered that one of the documents Pilar previously signed was a SPA dated December 5, 1998. The SPA purportedly authorized PCCCI to lease, mortgage, sell, or otherwise dispose of the subject property, and it contained the purported signature of Juan. However, respondents emphasized that Juan had already died on November 10, 1985. Respondents asserted that PCCCI used the SPA to execute the REM with Land Bank.

Land Bank admitted that PCCCI executed the REM covering the subject property to secure PCCCI’s loan obligations. Land Bank explained that before accepting the property as collateral, it referred the matter to its then LBP Central and Credit Liability Department (later known as LBP Credit Investigation and Appraisal Department) for appraisal and inspection. Land Bank claimed it accepted the property in reliance on the questioned SPA. Land Bank acknowledged that the REM dated January 11, 1999 was executed by PCCCI officers Lilia and Roberto together with respondent Pilar, to the exclusion of Juan. It maintained that the SPA and REM were presented to the Registry of Deeds and annotated on the title.

Land Bank added that when PCCCI failed to settle its obligations, PCCCI requested loan restructuring, resulting in a Restructuring Agreement dated December 19, 2000, and a second restructuring agreement and a Comprehensive Surety Agreement dated February 28, 2001. Still, PCCCI allegedly failed to pay. The RTC declared PCCCI in default because PCCCI did not file an answer.

RTC Proceedings and Ruling

In its Decision dated December 26, 2011, the RTC granted respondents’ complaint and annulled the SPA and the REM. The RTC declared the instruments null and void, directed Land Bank to cease and desist from foreclosing and release the title free from lien and encumbrance, ordered PCCCI and Land Bank to pay moral damages of P50,000.00 and attorney’s fees of P30,000.00 solidarily, and assessed costs against the defendants.

The RTC held that the SPA was void because Juan could not have personally signed and acknowledged it in 1998, given that he had died in 1985. The RTC also found the execution irregular, noting that only one community tax certificate appeared to have been presented to the notary public despite the SPA being purportedly signed and acknowledged by both Juan and Pilar. It gave weight to petitioner’s admission, as supported in the record, that neither Pilar nor Juan appeared before the notary public.

As to the REM, the RTC ruled it was void because it was executed in reliance on the void SPA. The RTC also faulted the notarial acknowledgment of the REM, finding that the notary public who acknowledged it was not a commissioned notary public for and in Valenzuela City.

On evidentiary and good-faith considerations, the RTC concluded that the circumstances negated the prima facie presumption of due execution and genuineness of the SPA and REM by clear and convincing evidence. It further held that Land Bank was not a mortgagee in good faith. The RTC reasoned that Land Bank failed to observe the required diligence expected of a banking institution in verifying the due execution of the documents before accepting the subject property as collateral, and it also found that Land Bank did not conduct a diligent ocular inspection.

Appellate Review and CA Ruling

Aggrieved, Land Bank appealed to the CA via a Notice of Appeal. The CA affirmed the RTC’s Decision dated October 31, 2018, but modified it by expressly awarding exemplary damages of P50,000.00 to respondents. The CA’s affirmation depended on factual concurrence with the RTC’s findings that Land Bank acted in bad faith, particularly through its representatives’ failures during appraisal, inspection, and verification.

The CA agreed that Land Bank should not have relied on PCCCI’s representations without performing adequate checks. It found no sufficient basis to depart from the RTC’s assessment that Land Bank’s representative failed to: (one) ask searching questions during ocular inspection regarding the whereabouts of Juan and Pilar, the location of the owners, and the identity of the person interviewed; (two) verify the authenticity of the SPA instead of relying merely on PCCCI’s claim of authority; and (three) require Juan to sign the REM despite both Juan’s and Pilar’s names appearing on the REM as “mortgagors,” especially since Land Bank had the opportunity to insist on the presence of the other registered owner.

With respect to damages, the CA modified the RTC award by adding exemplary damages. It noted that the RTC’s reasoning indicated an intent to award exemplary damages but omitted it in the dispositive portion. It further held that Land Bank’s remissness in inspection and verification justified exemplary damages.

Land Bank sought reconsideration, but the CA denied it in the Resolution dated July 21, 2019.

Issues Before the Supreme Court

Land Bank petitioned the Supreme Court under Rule 45, raising whether the CA erred in holding that Land Bank failed to observe the required degree of caution in approving the loan and collateral; whether the CA erred in holding Land Bank solidarily liable with PCCCI; and whether the CA erred in granting moral damages, exemplary damages, attorney’s fees, and litigation expenses. The Court treated the core issue as whether the CA erred in finding Land Bank to be a mortgagee in bad faith.

Land Bank argued that the CA wrongfully faulted it for relying on the notarized SPA without verifying whether the persons who executed it were still living. It maintained there was nothing in the SPA that should have prompted further verification and that its inspection would not have revealed suspicion about PCCCI’s authority. Land Bank also emphasized that the SPA was accepted by the Registry of Deeds and argued that it was respondents who misled it by signing the SPA and surrendering title.

Respondents countered that Land Bank acted in bad faith by deliberately ignoring the need to verify the identity of the property owners. They argued that Land Bank’s representatives failed to ask searching questions during inspection, and they treated Pilar’s signature as sufficient to execute the REM even though Juan’s name appeared as a mortgagor.

Legal Basis and Reasoning

The Court first addressed procedural limits under Rule 45. It reiterated the general rule that whether a mortgagee is in good faith is not ordinarily reviewable under a petition for review on certiorari because the determination of good faith and negligence involves factual issues outside the Court’s scope. It explained that its function under Rule 45 is confined to reviewing errors of law, and it refrained from reexamining factual findings of the trial court, especially when affirmed by the CA. The Court noted that the recognized exceptions allowing review of factual issues were not shown to exist in the case.

Even so, the Court independently sustained the factual conclusions as supported by the record. It held that Land Bank was not a mortgagee in good faith due to its failure to exercise the diligence expected of banks dealing with registered land and mortgage instruments.

The Court invoked the doctrine of mortgagee in good faith, as explained in Cavite Development Bank v. Spouses Lim, clarifying that where the mortgagor’s title is fraudulent, public policy may still uphold the mortgage contract and foreclosure sale by reason of protection of innocent parties who rely on what appears on the face of the Torrens title. It emphasized, however, the corollary that banks must observe the highest degree of diligence.

Applying the bank-diligence doctrine reiterated in Land Bank of the Philippines v. Belle Corporation, the Court explained that banks are presumed to know land registration rules because banking is affected with public interest. Thus, banks are expected to be more cautious than private individuals, and they may not simply rely on the face of the certificate of title. They must conduct standard and indispensable procedures, including sending representatives to inspect the property, verify the genuineness of the title, and investigate the real owners and actual possessors.

The Court then assessed the specific circumstances showing Land Bank’s lack of diligence. It observed that the authenticity of the SPA—upon which Land Bank heavily relied—was on its face already questionable. As the RTC noted, the SPA showed only one community tax certificate presented to the notary public when there should have been two, considering that the SPA was supposedly signed and acknowledged by both Juan and Pilar. This discrepancy should have prompted Land Bank to inquire further and investigate both PCCCI’s authority and the true identities of the registered owners.

The Court also found inadequate inspection and verification. While Land Bank conducted an ocular inspection, the witness admitted it was not conducted thoroughly. Land Bank failed to search specifically for Pilar or verify her whereabouts when she was not found on the property. Land Bank then simply believed and relied on information it had received that Pilar owned the property. Further, when Land Bank was informed that Pilar owned the property, it did not bother to look for her husband, Juan. The Court considered this omission significant because the nam

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