Heirs of Macalalad VS Rural Bank of Pola

June 20 2018
Peralta, J.

Facts:

Paz Macalalad, the alleged sole heir of a certain Leopoldo, filed a complaint for
declaration of nullity of TCT No. T-117484 issued in the name of the Rural Bank of Pola. The
parcel of land which is the subject of the controversy is located in Pinagsabangan, Oriental
Mindoro and was initially registered under the name of Leopoldo. Paz claims that after the death
of Leopoldo, ​it was made to appear ​that the parcel of land was sold to the Spouses Pimentel.
After the alleged sale of the land, the Spouses Pimentel obtained a loan from the Rural Bank of
Pola ​and used the land as collateral.
The Spouses Pimentel eventually failed to pay off the loan which led the Rural
Bank of Pola to foreclose the mortgage over the parcel of land; ​the Rural bank of Pola would
emerge as the highest bidder in the foreclosure proceedings. ​Paz alleges that the Rural Bank
of Pola acted in bad faith due to its negligence for not inquiring into the title of the Spouses
Pimentel and not verifying the location of the lot. On the other hand, ​Rural Bank of Pola
contends ​that it acted it good faith and that it is an innocent purchaser for value. A trial on
merits would ensue. While pending resolution of the case, Paz would die. ​This led to the
substitution of the current petitioners as the plaintiffs.
The RTC ruled in favor of the respondent bank. It was held by the trial court that
the respondent bank had the right to rely on the certificate of title of the mortgagor (Spouses
Pimentel) and that the bank also complied with the standard operating procedure in the
verification of the land which is why the bank must be deemed a mortgagee in good faith.
The CA affirmed such ruling. Hence, this petition.

Issue:
1) Whether or not the CA erred in affirming that the respondent bank acted in good faith and
was an innocent mortgagee for value.

Ruling:
 1) NO. The CA did not err in affirming that the respondent bank acted in good faith and was
an innocent mortgagee for value. Section 32 of PD No. 1529 provides that:

The decree of registration shall not be reopened or revised by reason of absence, minority, or
other disability of any person adversely affected thereby, nor by any proceeding in any court for
reversing judgments, subject, however, to the right of any person, including the government and
the branches thereof, deprived of land or of any estate or interest therein by such adjudication or
confirmation of title obtained by actual fraud, to file in the proper Court of First Instance a
petition for reopening and review of the decree of registration not later than one year from and
after the date of the entry of such decree of registration, ​but in no case shall such petition be
entertained by the court where an innocent purchaser for value has acquired the land or an
interest therein, whose rights may be prejudiced​. ​Whenever the phrase "innocent purchaser
for value" or an equivalent phrase occurs in this Decree, it shall be deemed to include an
innocent lessee, mortgagee, or other encumbrancer for value.

The Supreme Court ruled that while the general rule is that one cannot give what he
does not have​1​, ​a forged deed can still be the root of a valid title when an innocent purchaser
for value intervenes. It is immaterial if the Spouses Pimentel did acquire the land through
fraud​2 ​because a valid title can still arise upon a showing that the transferee was a
mortgagee in good faith.
A purchaser in good faith and for value is one who buys the property of another
without notice that some other person has a right to or interest in such property and pays a full
and fair price for the same, at the time of such purchase, or before he has notice of the claims or
interest of some other person in the property; ​the purchaser has the burden of proving that it
is a purchaser in good faith. The Supreme Court ruled that it is generally sufficient for a party
dealing with registered land to rely on the correctness of the certificate of title absent any
showing of any vice or defect that should have placed the party in inquiry. ​This means that a
purchaser is not required to go beyond the certificate of title. However, by virtue of the fact
that the respondent is a mortgagee bank, a higher degree of diligence is expected of it in

1
Nemo dat quod non habet
2
It must be noted that the RTC and CA did not rule upon the alleged fraud of the sale; it is unknown if the
Spouses Pimentel did acquire the land through forgery
regards to a mortgage contract. ​The ascertainment of the status or condition of a property
offered to it as security for a loan must be a standard and indispensable part of its
operations.
In the case at bar, the Supreme Court agreed with the findings of the RTC and CA
that the respondent bank did not fail in its duty to conduct an ocular inspection of the subject
parcel of land and in ascertaining the validity of the title of the property given as security. A
representative (Ronnie Marcial) was sent by the respondent bank who examined the premises of
the parcel of land. Furthermore, Marcial was also ​able to ascertain the owner thereof, the
nature of the subject property, its location and area, its assessed value and its annual yield.
Paz contends that if a representative was indeed sent by the respondent bank, such representative
should have discovered the tenant of the petitioner living on the land who would have informed
Marcial of the actual owner of the land. The Supreme Court gave no credence to such contention.
It was held by the Supreme Court that there is no sufficient evidence showing that the
representative met the tenant ​as Marcial would have stated such meeting in its report to the
respondent bank. ​Due to this lack of report by Marcial regarding the existence of a tenant, ​the
Rural Bank of Pola was justified in believing that the title of the Spouses Pimentel was
neither invalid nor defective.
Hence, the Rural Bank of Pola is deemed a mortgagee in good faith.