PNB vs.

VILA
G.R. No. 213241
01 August 2016
J. Perez
Doctrine: Banks must exercise the highest degree of diligence in dealing with
properties. With mortgages in particular, a bank cannot just rely on the title, but
also must physically ascertain the status of the property.

Facts:
Spouses Cornista obtained a loan from traders Royal Bank, and the loan was
secured by a real estate mortgage over a parcel of land. The spouses ultimately failed
to pay back the loan on time leading Traders Bank to foreclose the mortgage, and the
property was sold at a public auction to Vila, who immediately took possession over the
subject property and began paying the real estate taxes.
A Certificate of Final Sale was issued after the lapse of the one-year redemption
period, but Vila failed to consolidate ownership over the property since the owner’s copy
of the certificate of title was not turned over to him by the Sheriff.
Despite the lapse of the redemption period and the issuance of the Certificate of
Final Sale, the Spouses Cornista were allowed to buy back the subject property. A
Certificate of Redemption was issued.
Vila filed an action for the nullification of redemption, transfer of title and
damages against the Spouses Cornista. A Notice of Lis Pendens was issued.
The RTC found in favour of Vila, and this was affirmed by the CA. This decision
became final on 19 November 1997. This led Vila to file a Motion for the Issuance of a
Write of Execution, which was granted. However, this could not be successfully
enforced because the certificate of title was not registered under the names of Spouses
Cornista.
It turned out that during the interim, the Spouses Cornista were able to secure a
loan from PNB in the amount of Php532,000.00 with the same property subject of
litigation as security – the REM was recorded a month before the Notice of lis pendens
was annotated. The Spouses failed to pay and PNB foreclosed on the property where it
emerged as the highest bidder, and the spouses again filed to exercise the right of
redemption, allowing PNB to consolidate ownership over the subject property.
As a result, Vila filed a case against the Spouses Cornista and PNB to nullify the
TCT in PNB’s name.
The RTC ruled in favour of Vila and found that PNB was not a mortgagor in good
faith. PNB should have exercised a higher degree of diligence in finding out whether or
not the spouses were in actual possession of the property. The CA affirmed.

Issue: Whether or not PNB is a mortgagee in good faith

1
Held: No.

Ratio:
PNB should have exercised a higher degree of diligence in ascertaining whether
or not the property was free of any claims. The RTC found that the bank outright
accepted the collateral from the Spouses Cornista without making any further inquiry as
to the real status. It could have easily discovered that the same was in the possession
of Vila; moreover, Vila was already paying realty tax on it.

The CA also noted that PNB failed to conduct an ocular inspection of the
property and to verify the genuineness of the title to determine the real owner thereof. If
PNB actually conducted an ocular inspection, PNB would have suspected whether or
not the spouses were actually in possession over the property.

Consequently, PNB is not a mortgagor in good faith.

It has already been adjudged by the lower court that the reacquisition of the
property by the Spouses Cornista after the lapse of the redemption period is fraudulent,
and the property rightfully belongs to Vila, an innocent third party. PNB failed in its
obligation to exercise the highest degree of diligence in dealing with properties offered
as securities for the loan obligation.

PNB failed to meet the degree of diligence required in readily approving the loan
and accepting the collateral offered by the Spouses Cornista without first ascertaining
the real ownership of the property. It should have not just relied on the title but also
physically ascertained the actual condition of the property. That the property offered as
security was in the possession of a person other than the one applying for a loan and
the taxes were declared not in their names could have raised a suspicion. A person who
deliberately ignores a significant fact that could create suspicion in an otherwise
reasonable person is not an innocent mortgagor.