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

Case Summary (G.R. No. 213241)

Factual Background

In 1986 Spouses Reynaldo and Erlinda Gamboa Cornista obtained a loan from Traders Royal Bank and mortgaged Lot 555-A-2, TCT No. 131498, as security. Traders Royal Bank foreclosed and sold the property at public auction on 23 December 1987, where Juan F. Vila became the highest bidder for P50,000.00, and a Certificate of Sale was entered in the title. Vila took possession, paid real estate taxes, and on 11 February 1989 received a Certificate of Final Sale after the one-year redemption period expired. The Spouses Cornista were later allowed to redeem by tendering P50,000.00 and a Certificate of Redemption dated 14 March 1989 was annotated on the title.

Subsequent Litigation Establishing Vila’s Title

Vila filed Civil Case No. V-0242 seeking nullification of the redemption and transfer of title. The RTC rendered judgment in his favor on 3 February 1995, ordering cancellation of the redemption and its annotation. The Court of Appeals affirmed on 19 October 1997, and that decision became final and executory on 19 November 1997. A writ of execution issued on 14 December 1997 could not be satisfied because a later mortgage and foreclosure had caused the title to be in another name.

The PNB Mortgage and Resulting Transfer

During the interregnum the Spouses Cornista obtained a loan from PNB secured by a Real Estate Mortgage recorded 28 September 1992 under Entry No. 758171, one month before the Notice of Lis Pendens was annotated on the title. The Spouses Cornista defaulted, PNB foreclosed, became the highest bidder at public auction, and consolidated ownership. TCT No. 131498 in the Spouses Cornista’s name was cancelled and TCT No. 216771 was issued in the name of PNB.

Civil Case Against PNB

Vila filed Civil Case No. V-0567 in the RTC against the Spouses Cornista and PNB to nullify TCT No. 216771 and recover damages. Vila asserted that his final certificate of sale and the prior final judgment established his superior right and that the Spouses Cornista’s redemption was fraudulent. PNB pleaded that it was a mortgagee in good faith, pointing to the face of the title, the recording dates, and an alleged inspection of title and property.

Trial Court Proceedings and Ruling

After trial and receipt of documentary and testimonial evidence, the RTC found for Vila and ruled that PNB was not a mortgagee in good faith. The RTC held that PNB, as a financial institution, was required to exercise a higher degree of diligence and failed to inquire into the actual possession and tax payments concerning the property. The court nullified the Real Estate Mortgage dated 28 September 1992, cancelled TCT No. 216771 issued in favor of PNB, ordered issuance of a new certificate of title in the name of Vila, and awarded moral damages of P50,000.00, exemplary damages of P50,000.00, attorney’s fees of P100,000.00, litigation expenses, and costs against PNB.

Appellate Court Disposition

The Court of Appeals affirmed the RTC in a Decision dated 18 December 2013, later denying reconsideration on 13 June 2014. The CA agreed that PNB failed to exercise the degree of care and prudence expected of banks, observing that banks cannot rely solely on the face of a certificate of title but must take further steps to verify ownership and inspect the property. The CA held that the standard operating practice for banks is to conduct ocular inspection and title verification to protect true owners and innocent third parties.

Issues Presented to the Supreme Court

The petition presented two principal issues: (I) whether PNB was a mortgagee in good faith, and (II) whether PNB was liable for damages.

Standard of Review and Limits of Rule 45

The Supreme Court observed that factual determinations of good faith and negligence are generally beyond the scope of a Rule 45 petition because they involve assessments of intention and evidence. An exception arises only when the Court of Appeals and the trial court have rendered conflicting findings of fact. Here, both courts agreed on the factual findings, so the exception did not obtain.

Supreme Court’s Findings on Good Faith

The Supreme Court affirmed the factual findings of the RTC and the CA that PNB failed to exercise the heightened diligence required of banks. The Court relied on the record showing that Vila had possession, paid real property tax from 1989 to 1996, and held a final certificate of sale and a judgment confirming his title. The Court found no credible proof that PNB conducted a physical inspection or took reasonable steps to verify actual possession and payment of taxes, facts that should have put the bank on notice.

Legal Reasoning and Precedent

The Court reiterated the doctrine that banks, being in the business of lending secured by real estate, are presumed familiar with land registration rules and must exercise a higher degree of care than private individuals. The Court quoted and applied the standard in Land Bank of the Philippines v. Belle Corporation and relied on Philippine Banking Corporation v. D

Case Syllabus (G.R. No. 213241)

Parties and Posture

Philippine National Bank filed a Petition for Review on Certiorari under Rule 45 seeking reversal of the Court of Appeals decisions affirming the trial court ruling against it.
Juan F. Vila was the plaintiff in the trial courts and respondent in the appeal seeking nullification of title issued in favor of PNB and damages.
The case reached the Supreme Court after the Court of Appeals affirmed the Regional Trial Court decision and denied the motion for reconsideration.

Key Facts

Spouses Reynaldo Cormsta and Erlinda Gamboa Cornista obtained a loan from Traders Royal Bank in 1986 and mortgaged Lot 555-A-2 covered by TCT No. 131498 as security.
Traders Royal Bank foreclosed the mortgage and sold the property at public auction on 23 December 1987 where Juan F. Vila was the highest bidder at P50,000, and a Certificate of Sale dated 13 January 1988 was recorded.
Vila took possession and paid real property taxes thereafter and received a Certificate of Final Sale on 11 February 1989 after the redemption period lapsed.
The Spouses Cornista later redeemed the property by tendering P50,000 and a Certificate of Redemption dated 14 March 1989 was annotated on the title.
Vila instituted Civil Case No. V-0242 for nullification of the redemption and cancellation of the redemption annotation, and a Notice of Lis Pendens was annotated on TCT No. 131498 on 19 October 1992.
The RTC rendered judgment for Vila on 3 February 1995, which the Court of Appeals affirmed on 19 October 1997, and which became final and executory on 19 November 1997.
During the interregnum, the Spouses Cornista obtained a loan from PNB secured by a Real Estate Mortgage recorded on 28 September 1992 under Entry No. 758171, which preceded the annotation of the Notice of Lis Pendens.
PNB foreclosed the mortgage, emerged as highest bidder, and obtained TCT No. 216771 in its name which prompted Vila to file Civil Case No. V-0567 seeking nullification of TCT No. 216771 and damages.

Procedural History

The RTC of Villasis, Pangasinan, Branch 50 heard Civil Case No. V-0567 and rendered judgment on 22 June 2011 declaring the REM dated 28 September 1992 and subsequent title in favor of PNB null and void and awarding damages to Vila.
The Court of Appeals affirmed the RTC decision in its Decision dated 18 December 2013 and denied PNB's motion for reconsideration by Resolution dated 13 June 2014.
PNB filed the instant Petition for Review on Certiorari under Rule 45 before the Supreme Court which denied the petition and affirmed the lower courts' rulings.

Issues Presented

Whether PNB was a mortgagee in good faith at the time it accepted the REM dated 28 September 1992.
Whether PNB was liable for moral damages, exemplary damages, attorney's fees, and litigation expenses.

Findings of Fact

The RTC found that PNB accepted the collateral without making further inquiry into the real status of the property and without adequately verifying actual possession.
The trial court found that Vila was in possession of the property and that Vila paid real property taxes from 1989 to 1996, facts that a prudent mortgagee could have discovered.
The Court of Appeals concurred with the RTC