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G.R. No.

200468 March 19, 2014


MACARIA ARGUELLES and the HEIRS ! "HE #ECEASE# $E"RNI ARGUELLES, Petitioners,
vs.
MALARA%A" RURAL &AN', INC., Respondent.
D E C I S I O N
(ILLARAMA, )R., J.:
Before us is a petition for review on certiorari assailing the Decision

dated Dece!"er #, $% and Resolution


$
dated
&e"ruar' (, $%$ of the Court of )ppeals *C)+ in C),-.R . C. No. #$///. 0he C) had reversed and set aside the
1ul' $#, $%%2 Decision
3
of the Regional 0rial Court *R0C+ Branch 2(, of 0aal, Batangas, in Civil Case No. ((.
0he facts, as culled fro! the records, follow4
0he late &er!ina 5. -uia was the registered owner of 6ot 3, a parcel of agricultural land in Barrio Pinag7urusan,
)litagtag, Batangas, with an area of 8,/(% s9uare !eters, as evidenced "' Original Certificate of 0itle *OC0+ No. P,
$#3%
8
of the Register of Deeds of Batangas. On Dece!"er , ##%, &er!ina 5. -uia sold the south portion of the
land with an appro:i!ate area of ,3/% s9uare !eters to the spouses Petronio and 5acaria )rguelles.
/
)lthough the
spouses )rguelles i!!ediatel' ac9uired possession of the land, the Deed of Sale was neither registered with the
Register of Deeds nor annotated on OC0 No. P,$#3%. )t the sa!e ti!e, &er!ina 5. -uia ordered her son Eddie
-uia and the latter;s wife 0eresita -uia to su"divide the land covered "' OC0 No. P,$#3% into three lots and to
appl' for the issuance of separate titles therefor, to wit4 6ot 3,), 6ot 3,B, and 6ot 3,C. 0hereafter, she directed the
deliver' of the 0ransfer Certificate of 0itle *0C0+ corresponding to 6ot 3,C to the vendees of the unregistered sale or
the spouses )rguelles. <owever, despite their repeated de!ands, the spouses )rguelles clai!ed that the' never
received the 0C0 corresponding to 6ot 3,C fro! the spouses -uia.
Nevertheless, in accordance with the instructions of &er!ina 5. -uia, the spouses -uia succeeded in cancelling
OC0 No. P,$#3% on )ugust /, ##8 and in su"dividing the lot in the following !anner4
6ot No. 0C0 No. Registered Owner
3,) 0,23#83 &er!ina 5. -uia
3,B 0,23#8/ Spouses Datingaling
3,C 0,23#88 &er!ina 5. -uia
(
On )ugust 2, ##=, the spouses -uia o"tained a loan in the a!ount of P$8%,%%% fro! the respondent 5alara'at
Rural Banlc and secured the loan with a Deed of Real Estate 5ortgage
=
over 6ot 3,C. 0he loan and Real Estate
5ortgage were !ade pursuant to the Special Power of )ttorne'
2
purportedl' e:ecuted "' the registered owner of 6ot
3,C, &er!ina 5. -uia, in favor of the !ortgagors, spouses -uia. 5oreover, the Real Estate
5ortgage and Special Power of )ttorne' were dul' annotated in the !e!orandu! of encu!"rances of 0C0 No. 0,
23#88 covering 6ot 3,C.
0he spouses )rguelles alleged that it was onl' in ##= or after seven 'ears fro! the date of the unregistered sale
that the' discovered fro! the Register of Deeds of Batangas Cit' the following facts4 *+ su"division of 6ot 3 into 6ots
3,), 3,B, and 3,C> *$+ issuance of separate 0C0s for each lot> and *3+ the annotation of the Real Estate 5ortgage and
Special Power of )ttorne' over 6ot 3,C covered "' 0C0 No. 0,23#88. 0wo 'ears thereafter, or on 1une =, ###, the
spouses )rguelles registered their adverse clai!
#
"ased on the unregistered sale dated Dece!"er , ##% over 6ot
3,C.
On 1ul' $$, ###, the spouses )rguelles filed a co!plaint
%
for )nnul!ent of 5ortgage and Cancellation of 5ortgage
6ien with Da!ages against the respondent 5alara'at Rural Banlc with the R0C, Branch 2(, of 0aal, Batangas. In
asserting the nullit' of the !ortgage lien, the spouses )rguelles alleged ownership over the land that had "een
!ortgaged in favor of the respondent 5alara'at Rural Ban7. On )ugust (, ###, the respondent 5alara'at Rural
Ban7 filed an )nswer with Counterclai! and Cross,clai!

against cross,clai!,defendant spouses -ui a wherein it


argued that the failure of the spouses )rguelles to register the Deed of Sale dated Dece!"er , ##% was fatal to
their clai! of ownership.
On 1ul' $#, $%%2, the R0C rendered a Decision, the dispositive portion of which reads as follows4
?<ERE&ORE, pre!ises considered @udg!ent is here"' rendered4
+ declaring the !ortgage !ade "' the defendants spouses Eddie -uia and 0eresita -uia in favor of
defendant 5alara'at Rural Ban7 null and void>
$+ setting aside the foreclosure sale had on Dece!"er (, ### and the corresponding certificate of sale
issued "' this Court dated 5a' $, $%%%>
3+ ordering the Register of Deeds of the Province of Batangas to cancel the annotation pertaining to the
!e!orandu! of encu!"rances *entries no. //(2( and //(22+ appearing in 0C0 No. 0,23#A8B8>
8+ ordering cross defendants spouses Eddie and 0eresita -uia to pa' the a!ount of Php$8%,%%%.%% to cross
clai!ant 5alara'at Rural ABBan7 corresponding to the total a!ount of the loan o"ligation, with interest herein
!odified at $C per annu! co!puted fro! default>
/+ ordering defendants spouses Eddie and 0eresita -uia to pa' plaintiffs )rguelles the a!ount of
Php%%,%%%.%% as !oral da!ages. <owever, the pra'er of the plaintiffs to order the registration of the deed
of sale in their favor as well as the su"se9uent issuance of a new title in their na!es as the registered
owners is denied considering that there are other acts that the plaintiffs ought to do which are ad!inistrative
in nature, and are dependent upon co!pliance with certain re9uire!ents pertaining to land ac9uisition and
transfer.
SO ORDERED.
$
0he R0C found that the spouses -uia were no longer the a"solute owners of the land descri"ed as 6ot 3,C and
covered "' 0C0 No. 0,23#88 at the ti!e the' !ortgaged the sa!e to the respondent 5alara'at Rural Ban7 in view of
the unregistered sale in favor of the vendee spouses )rguelles. 0hus, the R0C annulled the real estate !ortgage, the
su"se9uent foreclosure sale, and the corresponding issuance of the certificate of title. 5oreover, the R0C declared
that the respondent 5alara'at Rural Ban7 was not a !ortgagee in good faith as it failed to e:ercise the e:acting
degree of diligence re9uired fro! "an7ing institutions.
On Septe!"er (, $%%2, the respondent filed a notice of appeal with the C).
On Dece!"er #, $%, the C) reversed and set aside the decision of the court a 9uo4
IN 6I-<0 O& 0<E &ORE-OIN-, pre!ises considered, the instant appeal is -R)N0ED. )ccordingl', the Decision of
the R0C of 0aal, Batangas, Branch 2( pro!ulgated on 1ul' $#, $%%2 in Civil Case No. (( is here"' RE.ERSED )ND
SE0 )SIDE and the co!plaint "elow dis!issed.
SO ORDERED.
3
In granting the appeal, the C) held that "ecause of the failure of the spouses )rguelles to register their deed of sale,
the unregistered sale could not affect the respondent 5alara'at Rural Ban7. 0hus, the respondent 5alara'at Rural
Ban7 has a "etter right to the land !ortgaged as co!pared to spouses )rguelles who were the vendees in the
unregistered sale. In addition, the C) found that the respondent 5alara'at Rural Ban7 was a !ortgagee in good faith
as it sufficientl' de!onstrated due diligence in approving the loan application of the spouses -uia. )ggrieved, the
petitioners filed the instant petition rais!g the following issues for resolution4
)
0<E CODR0 O& )PPE)6S ERRED IN <O6DIN- 0<)0 0<E DEED O& S)6E EEECD0ED BF &ER5IN)
-DI) IN &).OR O& 0<E SPODSES PE0RONIO )ND 5)C)RI) )R-DE66ES C)NNO0 BE EN&ORCED
)-)INS0 )PPE66)N0 B)NG &OR NO0 BEIN- RE-IS0ERED )ND )NNO0)0ED IN 0<E CER0I&IC)0E
O& 0I06E, DESPI0E 0<E &)C0 0<)0 0<E B)NG <)D )C0D)6 GNO?6ED-E 0<EREO&.
B
0<E CODR0 O& )PPE)6S CO55I00ED ) 5IS0)GE IN &INDIN- 0<)0 )PPE66)N0 B)NG IS )
5OR0-)-EE IN -OOD &)I0< NO0?I0<S0)NDIN- CONC6DSI.E E.IDENCE ON RECORD 0<)0 I0
?)S -ROSS6F NE-6I-EN0 IN NO0 )SCER0)ININ- 0<E RE)6 CONDI0ION O& 0<E PROPER0F IN
0<E POSSESSION O& 0<E SPODSES )R-DE66ES BE&ORE )CCEP0IN- I0 )S CO66)0ER)6 &OR
0<E 6O)N )PP6IED &OR BF ) 5ERE )00ORNEF,IN,&)C0.
C
0<E CODR0 O& )PPE)6S CO55I00ED )N ERROR IN DEC6)RIN- )PPE66)N0 B)NG <)S BECO5E
0<E )BSO6D0E O?NER O& 0<E SDB1EC0 PROPER0F NO0?I0<S0)NDIN- 0<E ND66I0F O& 0<E
RE)6 ES0)0E 5OR0-)-E EE0R)1DDICI)66 F &OREC6OSED BF I0.
D
0<E CODR0 O& )PPE)6S ERRED IN <O6DIN- 0<)0 0<E SPODSES )R-DE66ES DID NO0 PD0 IN
ISSDE 0<)0 )PPE66)N0 B)NG <)D CONS0RDC0I.E NO0ICE )ND POSSESSION O& 0<E SDB1EC0
6O0.
8
In fine, the issue in this case is whether the respondent 5alara'at Rural Ban7 is a !ortgagee in good faith who is
entitled to protection on its !ortgage lien.
Petitioners i!puted negligence on the part of respondent 5alara'at Rural Ban7 when it approved the loan application
of the spouses -uia. 0he' pointed out that the "an7 failed to conduct a thorough ocular inspection of the land
!ortgaged and an e:tensive investigation of the title of the registered owner. )nd since the respondent 5alara'at
Rural Ban7 cannot "e considered a !ortgagee in good faith, petitioners argued that the unregistered sale in their
favor ta7es precedence over the dul' registered !ortgage lien. On the other hand, respondent 5alara'at Rural Ban7
clai!ed that it e:ercised the re9uired degree of diligence "efore granting the loan application. In particular, it asserted
the a"sence of an' facts or circu!stances that can reasona"l' arouse suspicion in a prudent person. 0hus, the
respondent 5alara'at Rural Ban7 argued that it is a !ortgagee in good faith with a "etter right to the !ortgaged land
as co!pared to the vendees to the unregistered sale.
0he petition is !eritorious.
)t the outset, we note that the issue of whether a !ortgagee is in good faith generall' cannot "e entertained in a
petition filed under Rule 8/ of the ##= Rules of Civil Procedure, as a!ended.
/
0his is "ecause the ascertain!ent of
good faith or the lac7 thereof, and the deter!ination of negligence are factual !atters which la' outside the scope of
a petition for review on certiorari.
(
<owever, a recogniHed e:ception to this rule is when the R0C and the C) have
divergent findings of fact
=
as in the case at "ar. ?e find that the respondent 5alara'at Rural Ban7 is not a !ortgagee
in good faith. 0herefore, the spouses )rguelles as the vendees to the unregistered sale have a superior right to the
!ortgaged land.
In Cavite Develop!ent Ban7 v. Spouses 6i!,
2
the Court e:plained the doctrine of !ortgagee in good faith, thus4
0here is, however, a situation where, despite the fact that the !ortgagor is not the owner of the !ortgaged propert',
his title "eing fraudulent, the !ortgage contract and an' foreclosure sale arising therefro! are given effect "' reason
of pu"lic polic'. 0his is the doctrine of I!ortgagee in good faithI "ased on the rule that all persons dealing with the
propert' covered "' a 0orrens Certificate of 0itle, as "u'ers or !ortgagees, are not re9uired to go "e'ond what
appears on the face of the title. 0he pu"lic interest in upholding the indefeasi"ilit' of a certificate of title, as evidence
of lawful ownership of the land or of an' encu!"rance thereon, protects a "u'er or !ortgagee who, in good faith,
relied upon what appears on the face of the certificate of title.
In Ban7 of Co!!erce v. Spouses San Pa"lo, 1r.,
#
we declared that indeed, a !ortgagee has a right to rel' in good
faith on the certificate of title of the !ortgagor of the propert' offered as securit', and in the a"sence of an' sign that
!ight arouse suspicion, the !ortgagee has no o"ligation to underta7e further investigation.
<owever, in Ban7 of Co!!erce v. Spouses San Pa"lo, 1r.,
$%
we also ruled that IAiBn cases where the !ortgagee does
not directl' deal with the registered owner of real propert', the law re9uires that a higher degree of prudence "e
e:ercised "' the !ortgagee.I Specificall', we cited )"ad v. Sps. -ui!"ci
$
where we held, I: : : ?hile one who "u's
fro! the registered owner does not need to loo7 "ehind the certificate of title, one who "u's fro! one who is not the
registered owner is e:pected to e:a!ine not onl' the certificate of title "ut all factual circu!stances necessar' for
AoneB to deter!ine if there are an' flaws in the title of the transferor, or in AtheB capacit' to transfer the land. I )lthough
the instant case does not involve a sale "ut onl' a !ortgage, the sa!e rule applies inas!uch as the law itself
includes a !ortgagee in the ter! Ipurchaser.I
0hus, where the !ortgagor is not the registered owner of the propert' "ut is !erel' an attorne',in,fact of the sa!e, it
is incu!"ent upon the !ortgagee to e:ercise greater care and a higher degree of prudence in dealing with such
!ortgagor.
$$
Recentl', in 6and Ban7 of the Philippines v. Po"lete,
$3
we affir!ed Ban7 of Co!!erce v. Spouses San
Pa"lo, 1r.4
Based on the evidence, 6and Ban7 processed 5aniego;s loan application upon his presentation of OC0 No. P,$%$(,
which was still under the na!e of Po"lete. 6and Ban7 even ignored the fact that Gapanta' previousl' used Po"lete;s
title as collateral in its loan account with 6and Ban7. In Ban7 of Co!!erce v. San Pa"lo, 1r., we held that when Ithe
person appl'ing for the loan is other than the registered owner of the real propert' "eing !ortgaged, Asuch factB
should have alread' raised a red flag and which should have induced the Ban7 :: : to !a7e in9uiries into and
confir! : : : AtheB authorit' to !ortgage : : :. ) person who deli"eratel' ignores a significant fact that could create
suspicion in an otherwise reasona"le person is not an innocent purchaser for value.I
5oreover, in a long line of cases, we have consistentl' en@oined "an7s to e:ert a higher degree of diligence, care,
and prudence than individuals in handling real estate transactions.
In CruH v. Banco! &inance Corporation,
$8
we declared4
Respondent, however, is not an ordinar' !ortgagee> it is a !ortgagee,"an7. )s such, unli7e private individuals, it is
e:pected to e:ercise greater care and prudence in its dealings, including those involving registered lands. ) "an7ing
institution is e:pected to e:ercise due diligence "efore entering into a !ortgage contract. 0he ascertain!ent of the
status or condition of a propert' offered to it as securit' for a loan !ust "e a standard and indispensa"le part of its
operations.
In Drsal v. Court of )ppeals,
$/
we held that where the !ortgagee is a "an7, it cannot rel' !erel' on the certificate of
title offered "' the !ortgagor in ascertaining the status of !ortgaged properties. Since its "usiness is i!pressed with
pu"lic interest, the !ortgagee,"an7 is dut',"ound to "e !ore cautious even in dealing with registered lands.
$(
Indeed,
the rule that person dealing with registered lands can rel' solel' on the certificate of title does not appl' to "an7s.
0hus, "efore approving a loan application, it is a standard operating practice for these institutions to conduct an
ocular inspection of the propert' offered for !ortgage and to verif' the genuineness of the title to deter!ine the real
owners thereof. 0he apparent purpose of an ocular inspection is to protect the Itrue ownerI of the propert' as well as
innocent third parties with a right, interest or clai! thereon fro! a usurper who !a' have ac9uired a fraudulent
certificate of title thereto.
$=
In 5etropolitan Ban7 and 0rust Co. v. Ca"ilHo,
$2
we e:plained the socio,econo!ic role of "an7s and the reason for
"estowing pu"lic interest on the "an7ing s'ste!4
?e never fail to stress the re!ar7a"le significance of a "an7ing institution to co!!ercial transactions, in particular,
and to the countr';s econo!' in general. 0he "an7ing s'ste! is an indispensa"le institution in the !ode! world and
pla's a vital role in the econo!ic life of ever' civiliHed nation. ?hether as !ere passive entities for the safe7eeping
and saving of !one' or as active instru!ents of "usiness and co!!erce, "an7s have "eco!e an u"i9uitous
presence a!ong the people, who have co!e to regard the! with respect and even gratitude and, !ost of all,
confidence.
In this case, we find that the respondent 5alara'at Rural Ban7 fell short of the re9uired degree of diligence,
prudence, and care in approving the loan application of the spouses -uia.
Respondent should have diligentl' conducted an investigation of the land offered as collateral.1wphi 1 )lthough the Report
of Inspection and Credit Investigation found at the dorsal portion of the )pplication for )gricultural 6oan
$#
proved that
the respondent 5alara'at Rural Ban7 inspected the land, the respondent turned a "lind e'e to the finding therein that
the Ilot is planted AwithB sugarcane with annual 'ield *crops+ in the a!ount of P/,%%%.I
3%
?e disagree with respondent;s stance that the !ere planting and harvesting of sugarcane cannot reasona"l' trigger
suspicion that there is adverse possession over the land offered as !ortgage. Indeed, such fact should have
i!!ediatel' pro!pted the respondent to conduct further in9uiries, especiall' since the spouses -uia were not the
registered owners of the land "eing !ortgaged. 0he' !erel' derived the authorit' to !ortgage the lot fro! the
Special Power of )ttorne' allegedl' e:ecuted "' the late &er!ina 5. -uia. <ence, it was incu!"ent upon the
respondent 5alara'at Rural Ban7 to "e !ore cautious in dealing with the spouses -uia, and in9uire further regarding
the identit' and possi"le adverse clai! of those in actual possession of the propert'.
Pertinentl', in 6and Ban7 of the Philippines v. Po"lete,
3
we ruled that IAwBhere the !ortgagee acted with haste in
granting the !ortgage loan and did not ascertain the ownership of the land "eing !ortgaged, as well as the authorit'
of the supposed agent e:ecuting the !ortgage, it cannot "e considered an innocent !ortgagee.I
Since the su"@ect land was not !ortgaged "' the owner thereof and since the respondent 5alara'at Rural Ban7 is
not a !ortgagee in good faith, said "an7 is not entitled to protection under the law. 0he unregistered sale in favor of
the spouses )rguelles !ust prevail over the !ortgage lien of respondent 5alara'at Rural Ban7.
?<ERE&ORE, the petition for review on certiorari is -R)N0ED. 0he Decision dated Dece!"er #, $% and
Resolution dated &e"ruar' (, $%$ of the Court of )ppeals in C),-.R. C. No. #$/// are RE.ERSED and SE0
)SIDE. 0he Decision dated 1ul' $#, $%%2 of the Regional 0rial Court, Branch 2(, of 0aal, Batangas, in Civil Case No.
(( is REINS0)0ED and DP<E6D.
No pronounce!ent as to costs.
SO ORDERED.
MAR"IN S. (ILLARAMA, )R.
)ssociate 1ustice
?E CONCDR4
MARIA LUR#ES $. A. SEREN
Chief 1ustice
Chairperson
"ERESI"A ). LENAR#*#E CAS"R
)ssociate 1ustice
LUCAS $. &ERSAMIN
)ssociate 1ustice
&IEN(ENI# L. RE%ES
)ssociate 1ustice
C E R 0 I & I C ) 0 I O N
Pursuant to Section 3, )rticle .III of the #2= Constitution, I certif' that the conclusions in the a"ove Decision had
"een reached in consultation "efore the case was assigned to the writer of the opinion of the Court;s Division.
MARIA LUR#ES $. A. SEREN
Chief 1ustice

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