Case Summary (G.R. No. 213241)
Relevant Dates and Proceedings
The RTC of Villasis, Pangasinan, Branch 50 rendered its decision on June 22, 2011, ruling against PNB and in favor of Vila, finding PNB was not a mortgagee in good faith. The Court of Appeals (CA) affirmed this decision on December 18, 2013 and denied reconsideration on June 13, 2014. PNB filed a Petition for Review on Certiorari before the Supreme Court, which was resolved on August 1, 2016.
Factual Background
In 1986, Spouses Cornista obtained a loan from Traders Royal Bank, mortgaging a 451-square meter parcel of land as collateral. Upon default, Traders Bank foreclosed and sold the property at public auction on December 23, 1987, where Vila was the highest bidder. Vila took possession, paid real estate taxes, and was issued a Certificate of Final Sale after the redemption period expired in 1989. However, the Spouses Cornista were allowed to redeem the property by tendering the bid amount, leading to a Certificate of Redemption.
Vila filed a case to nullify the redemption and transfer ownership, which the RTC and subsequently the CA ruled in his favor by final judgment in 1997. Despite this, the Spouses Cornista mortgaged the same property to PNB in 1992, prior to the notice of lis pendens being annotated on the title. After the Cornistas defaulted on their loan with PNB, the bank foreclosed and acquired ownership, prompting Vila to file another case seeking nullification of the mortgage, cancellation of PNB’s title, and damages.
Issues Presented
- Whether PNB is a mortgagee in good faith despite the existing litigation and prior adjudication regarding ownership of the property;
- Whether PNB is liable for damages arising from its mortgage and foreclosure over the contested property.
Lower Courts' Findings
Both the RTC and CA found that PNB failed to exercise due diligence. The bank approved the loan and accepted the mortgage without adequately verifying the property’s actual possession and ownership status. The courts emphasized that the property was in Vila’s possession, who had a colorable title through the Certificate of Final Sale and had been paying real estate taxes, indicating his real ownership. The failure of PNB to investigate or conduct an ocular inspection as is standard banking practice led to the conclusion that it was not a mortgagee in good faith.
Legal Analysis on Good Faith and Due Diligence
The Supreme Court stressed that the determination of good faith is a question of intent and fact, which generally cannot be reviewed under a Petition for Review on Certiorari unless there are conflicting factual findings between lower courts. In this case, both the RTC and CA were in accord. The Court held that banks, as financial institutions engaged in business significantly related to public interest, are held to the highest standards of care and diligence in verifying the legitimacy of the security offered for loans.
The Court quoted prevailing jurisprudence which requires banks to conduct ocular inspections and investigate the genuineness of titles to protect true owners and innocent third parties from fraudulent claims. PNB’s failure to discover that Vila was in actual possession and paying taxes on the property, and to take objective measures to verify ownership, amounted to negligence, thus negating its claim of good faith.
Application of Legal Principles
The Court applied the principle upheld in Land Bank of the Philippines v. Belle Corporation emphasizing that banks cannot solely rely on the face of the certificate of title but must take further steps to verify the ownership and condition of the property offered as security. The banking business is “impressed with public interest” making the duty of care and prudence stricter than that applicable to private individuals.
PNB’s negligence was further highlighted by
...continue readingCase Syllabus (G.R. No. 213241)
Case Background and Parties Involved
- The case concerns a petition for review on certiorari filed by the Philippine National Bank (PNB) seeking to reverse the decisions rendered by the Regional Trial Court (RTC) of Villasis, Pangasinan and the Court of Appeals (CA).
- PNB is a universal banking corporation authorized by the Bangko Sentral ng Pilipinas to conduct banking business.
- Juan F. Vila is the respondent who purchased a mortgaged property at a sheriff's auction following foreclosure.
- The mortgagors involved are Spouses Reynaldo and Erlinda Gamboa Cornista, who initially obtained a loan from Traders Royal Bank, subsequently defaulted, and mortgaged their land, which became the subject matter of successive litigations.
Factual History of the Case
- The Spouses Cornista defaulted on a loan from Traders Royal Bank secured by a mortgage on a 451-square meter lot registered as TCT No. 131498.
- Following foreclosure, the property was auctioned on 23 December 1987; Vila was declared highest bidder for P50,000 and issued a Certificate of Sale on 13 January 1988.
- Vila took possession of the property and paid real estate taxes; after the redemption period lapsed, a Certificate of Final Sale was issued to Vila.
- Uniquely, the Spouses Cornista were allowed to redeem the property by paying P50,000, and a Certificate of Redemption was issued and annotated on the title.
- Vila filed an action for nullification of redemption, transfer of title, and damages after contesting the redemption, resulting in the cancellation of the Certificate of Redemption and the restoration of the property title to Vila upheld in final, executory decisions by the RTC and the CA.
- Subsequently, the Spouses Cornista mortgaged the same property to PNB in 1992 for a loan amounting to P532,000.
- The PNB foreclosure led to issuance of a new transfer certificate of title (TCT No. 216771) to PNB.
- Vila initiated further litigation to nullify the PNB’s mortgage and title issuance, alleging fraud and absence of good faith by PNB.
Procedural History
- Vila’s complaint (Civil Case No. V-0567 RTC Villasis, Branch 50) led to a trial where both documentary and testimonial evidence were presented.
- On 22 June 2011, the RTC ruled in favor of Vila, declaring PNB was not a mortgagee in good faith, nullifying PNB’s mortgage, deed of sale, and TCT No. 216771, and ordering damages awarded to Vila.
- PNB’s Motion for Reconsideration was denied by the RTC on 13 June 2014.
- On appeal, the CA affirmed the RTC’s Decision and Resolution on 18 December 2013 and 13 June 2014, respectively, holding that PNB failed to exercise due diligence and thus was not a mortgagee in good faith.
- PNB elevated the case to the Supreme Court via petition for review on cer