OBLIGATIONS AND CONTRACTS

G.R. No. 147788

Date: 19 March 2002

EDILBERTO CRUZ, ET AL. vs. BANCOM FINANCE

CORPORATION (NOW UNIONBANK OF THE
PHILIPPINES),
Petitioner(s): Edilberto Cruz ET AL
Petitioner(s):
Respondent: Bancom Finance Corporation.

Facts:

In 19
1978
78,, Norm
Norma
a Suli
Sulitt offere
offered
d to pu
purch
rchase
ase an agric
agricult
ultur
ural
al la
land
nd owned
owned by
brother
brothers
s Rev. Fr.Edilb
Fr.Edilberto
erto Cruz and Simplicio
Simplicio Cruz.
Cruz. The asking price was
P700,000, but Sulit only had P25,000,which Fr. Cruz accepted as earnest
money. Sulit failed to pay the balance.Capitalizing on the close relationship
of a Candelaria Sanchez with the brothers, Sulit succeededin having Cruz
execute a document of sale of the land in favor of Sanchez for
P150,000.Pursuant to the sale, Sulit was able to transfer the title of the land
in her
her name
name.E
.Evi
vide
denc
nce
e sho
show th
that
at as
asid
ide
e from
from th
the
e P150
P150,0
,000
00,, Sanc
Sanch
hez
underto
undertook
ok to pay the bro
brother
thers
s the amou
amounto
ntoff P65
P655,00
5,000,
0, represen
representing
ting the
balance of the actual price of the land. Later, in a SpecialAgreement, Sulit
assumed Sanchez’s obligation to pay said amount. Unbeknownst to the Cruz

br
brot
othe
hers
rs,, Su
Suli
litt mana
manage
ged
d to ob
obta
tain
in a loloan
an from
from BaBanc
ncom
om secu
secure
red
d by a
mortgage over the land.Upon failure on the part of Sulit to pay the balance,
the Cruz brothers filed this complaint for reconveyance of the
land.Meanwhile, Sulit defaulted in her payment to the bank so her mortgage
was foreclosed. Bancomwas declared the highest bidder and was issued a
certificate of title over the land

Mark Buñag ART 1345-1346(Essential

1345-1346(Ess ential Requisites of 
Contracts)
02/ 21/ 2013
 

OBLIGATIONS AND CONTRACTS

Issue(s):
• Whether or not Bancom was a mortgagee in good faith.

Held:

NO. As a general rule, every person dealing with registered land may safely
rely on the correctness of the certificate of title and is no longer required to
look behind the certificate in order todetermine
todetermine the actual owner.This
owner.This rule is,

however, subject to the right of a person deprived of land through fraud to

bring anaction for reconveyance, provided the rights of innocent purchasers
for value and in good faithare not prejudiced. An innocent purchaser for
value or any equivalent phrase shall be deemed,under Section 38 of the Act
496, to include an innocent lessee, mortgagee or any other encumbrancer
for value.Bancom claims that, being an innocent mortgagee, it should not be
re
requ
quir
ired
ed to cond
conduc
uctt anex
anexha
haus
usti
tive
ve in
inve
vest
stig
igat
atio
ion
n on th
the
e hi
hist
stor
ory
y of the
the
mortgagor’s title before it could extend a loan.Bancom, however, is not an

ordinary mortgagee; it is a mortgagee-bank. As such, unlike

privateindividual
privateindividuals,
s, it is expected to exercise greater care and prudence in its
dealings, including thoseinvolving registered lands. A banking institution is
expected to exercise due diligence beforeentering into a mortgage contract.
 The ascertainment
ascertainment of the status or condition
condition of a propertyoffered
propertyoffered to it as
secu
securi
rity
ty fo
forr a lo
loan
an mu
must
st be a st
stan
anda
dard
rd and
and in
indi
disp
spen
ensa
sabl
ble
e part
part of it
its
s
operations

Mark Buñag ART 1345-1346(Essential

1345-1346(Ess ential Requisites of 
Contracts)
02/ 21/ 2013