FIRST DIVISION

[G.R. No. 213637. August 28, 2019.]

GUADALUPE DELA CRUZ-PASCUAL, ET

AL., petitioner vs. DEVELOPMENT BANK OF THE
PHILIPPINES, respondent.

NOTICE

Sirs/Mesdames :

Please take notice that the Court, First Division, issued a Resolution
dated August 28, 2019 which reads as follows:
"G.R. No. 213637 (Guadalupe dela Cruz-Pascual, et al. v.
Development Bank of the Philippines). — We reverse and set aside the
Court of Appeals' (CA) Decision 1 dated March 21, 2014 and
Resolution 2 dated July 9, 2014 in CA-G.R. CV No. 95733 and hold that
Development Bank of the Philippines (DBP) is not a mortgagee in good
faith.
The facts, as narrated by the CA, are as follows:
Spouses Lorenza Mercado and Conrado dela Cruz were the
owners of a parcel of land with an area of 82,881 sq. m. located at
Sitio Bongol (now Sitio Hagnayahan), Barangay Lumangbayan,
Pinamalayan, Oriental Mindoro.
On May 8, 1969, Conrado dela Cruz passed away.
On June 18, 1970, Original Certificate of Title No. P-8342 (OCT
P-8342) covering the aforementioned property was issued by virtue
of Free Patent No. 471061 in the name of Glicerio Panganiban, Jr.
(Glicerio).
On August 20, 1974, Lorenza Mercado, Igmidio dela Cruz,
Antonio dela Cruz and Trinidad dela Cruz, the surviving heirs of
Conrado, filed a complaint for Reconveyance, Delivery of
Possession and Accounting with Damages against Glicerio in the
RTC (then Court of First Instance) of Pinamalayan, Branch II
docketed as Civil Case No. R-346. The civil case was not annotated
at the back of OCT P-8342.
On November 26, 1980, Civil Case No. R-346 was decided in
favor of the heirs of Conrado, x x x.
xxx xxx xxx
 x x x This Court, through its Twelfth Division, in a Decision
dated August 4, 1987, affirmed the decision of the trial court x x x.
xxx xxx xxx
Glicerio then filed a petition for review on certiorari before
the Supreme Court docketed as G.R. No. 80423 but said petition
was denied for being filed out of time and also for lack of merit in a
Resolution dated November 25, 1987.
The Supreme Court Resolution became final and executory
and an Entry of Judgment was issued on August 30, 1988. No action
whatsoever was taken by [petitioners] to implement the said ruling
in their favor. Thus, the title has remained in the name of Glicerio
Panganiban. The said Decision has not been annotated on OCT P-
8342.
It appears, however, that pending the resolution [on] Civil
Case No. R-346, Glicerio together with his wife, Aurora Mazon-
Panganiban (Aurora), obtained a loan from the Development Bank
of the Philippines (DBP) on October 8, 1975 in the amount of
Fifteen Thousand Pesos (P15,000.00) secured by a real estate
mortgage constituted on the property covered by OCT P-8342.
Glicerio and Aurora will hereafter be referred to as Spouses
Panganiban.
The mortgage was registered with the Registry of Deeds and
annotated at the back of OCT P-8342.
After Spouses Panganiban defaulted in the payment of their
loan, DBP instituted foreclosure proceedings. At the public auction,
the property was awarded to DBP, being the highest bidder. On
May 6, 1992, a certificate of sale was issued to DBP and the same
was inscribed on OCT P-8342. The redemption period lapsed
without the Spouses Panganiban redeeming the property.
On December 28, 2006, the heirs of Conrado dela Cruz and
Lorenza Mercado (herein appellees) filed the instant case for
Damages against DBP, Spouses Panganiban and the Registry of
Deeds of Oriental Mindoro before the RTC of Pinamalayan, Oriental
Mindoro, Branch 42 docketed as Civil Case No. 2199-06.
xxx xxx xxx
On July 6, 2012, the trial court ruled in favor of appellees. 3
The trial court held that the mortgage contract between Spouses
Glicerio Panganiban, Jr. and Aurora Panganiban (Spouses Panganiban)
and DBP was void because they were not the absolute owners of the
property offered as collateral to DBP. DBP cannot be considered a
mortgagee in good faith because it failed to exercise the degree of
diligence required from mortgagee banks. 4
 The CA reversed the Regional Trial Court (RTC) and held that DBP
was a mortgagee and buyer in good faith. It held that there was no
indication that would have led DBP to any suspicion that Spouses
Panganiban were not the real owners of the property sought to be
mortgaged and that there was a pending litigation over its
ownership. 5 Petitioners' motion for reconsideration was also denied. 6
In this petition for review on certiorari 7 under Rule 45 of the Rules
of Court, petitioners argue that DBP cannot be considered to be a
mortgagee in good faith since it failed to meet the higher standard of
diligence required of banks as mortgagees. 8 Petitioners assert that DBP
failed to present evidence that it conducted an investigation of the
property and claim that had any of DBP's credit investigators gone to the
property, conducted investigation and inspection of the area, and
interviewed adjacent property owners, DBP would have discovered that
Spouses Panganiban were not the real owners of the property. 9
We agree and grant the petition.
Under Article 2085 of the Civil Code, the essential requisites of a
contract of mortgage are: (a) that it be constituted to secure the
fulfillment of a principal obligation; (b) that the mortgagor be the absolute
owner of the thing mortgaged; and (c) that the persons constituting the
mortgage have the free disposal of their property, and in its absence, that
they be legally authorized for the purpose. Thus, in a real estate mortgage
contract, it is essential that the mortgagor be the absolute owner of the
property to be mortgaged; otherwise, the mortgage is void. 10
In Cavite Development Bank v. Lim, 11 however, We applied the
doctrine of mortgagee in good faith where even though the mortgagor is
not the owner of the mortgaged property, his title being fraudulent, the
mortgage contract and any foreclosure sale arising therefrom are given
effect by reason of public policy. 12 This is based on the rule that all
persons dealing with the property covered by a Torrens Certificate of Title,
as buyers or mortgagees, are not required to go beyond what appears on
the face of the title. 13
Banks and other financial institutions, on the other hand, whose
business is imbued with public interest, are required to exert a higher
degree of diligence, care, and prudence than individuals handling real
estate transactions. 14 Thus, in Ursal v. Court of Appeals, 15 We explained
that where the mortgagee is a bank, it cannot merely rely on the
certificate of title offered by the mortgagor in ascertaining the status of
mortgaged properties. 16 The mortgagee-bank is required to be more
cautious even in dealing with registered lands. Thus, before approving a
loan application, it is a standard operating practice for banks to conduct
an ocular inspection of the property offered for mortgage including the
presence of occupants/tenants and to verify the genuineness of the title
to determine its real owners. 17 During the ocular inspection, should the
prospective buyer (in this case, the mortgagee) 18 find out that the land he
intends to buy is occupied by anybody else other than seller, who is not in
actual possession, it is incumbent upon the purchaser to verify the extent
of the occupant's possessory rights. The failure of a prospective buyer to
take such precautionary steps would mean negligence on his part and
would thereby preclude him from claiming or invoking the rights of a
purchaser in good faith. 19 The ocular inspection protects the real owner
and the innocent third parties with a right, interest or claim on the
property from usurpers who may have acquired a fraudulent certificate of
title to it. 20
As a general rule, the ascertainment of good faith, or lack of it, and
the determination of whether due diligence and prudence were exercised,
are questions of fact. And while this Court is not a trier of facts and the
general rule is that the determination of whether a buyer or mortgagee is
in good faith, is generally outside the province of this Court to determine
in a petition for review, 21 this rule is subject to exceptions, as in this case,
where the findings of the CA are contrary to those of the trial court. 22
We find that DBP failed to exercise the higher degree of diligence,
care and prudence expected from it. DBP is not a mortgagee in good faith;
thus, the mortgage, foreclosure and consequent sale of the property to
DBP are void.
It appears that DBP relied on Original Certificate of Title No. P-8342
and the fact that there was no annotation of any adverse claim on the title
indicating that the property was subject of a pending litigation. This does
not make DBP a mortgagee in good faith. A bank cannot assume that,
simply because the title offered as security is on its face free of any
encumbrances or lien, it is relieved of the responsibility of taking further
steps to verify the title and inspect the properties to be mortgaged. 23
Likewise, DBP's reliance on the tax declarations and tax receipts in
the name of Spouses Panganiban is insufficient to declare it as a
mortgagee in good faith. Tax declarations and receipts do not by
themselves conclusively prove title to the land; they are only prima
facie evidence of ownership or possession. 24
DBP's failure to prove that it conducted an ocular inspection and
appraisal of the property, as well as an investigation and inquiry with
relevant government offices to verify the ownership status of the
property, negates its claim that it was a mortgagee in good faith. Contrary
to DBP's position, these acts are standard operating practice expected of
banks when dealing with real property. 25
 Since the property was not mortgaged by its owners and DBP is not
a mortgagee in good faith, DBP is not entitled to protection under the
law. 26
WHEREFORE, the petition is GRANTED. The Decision dated March
21, 2014 and the Resolution dated July 9, 2014 of the Court of Appeals are
hereby REVERSED AND SET ASIDE.
SO ORDERED."

Very truly yours,

(SGD.) LIBRADA C. BUENA

Division Clerk of Court