Mortgagee-bank's good faith; Rule 45


In general, the issue of whether a mortgagee is in good faith cannot be entertained in a Rule 45 petition. This is because the ascertainment of good faith or the lack thereof, and the determination of negligence are factual matters which lay outside the scope of a petition for review on certiorari.

Good faith, or the lack of it, is a question of intention. In ascertaining intention, courts are necessarily controlled by the evidence as to the conduct and outward facts by which alone the inward motive may, with safety, be determined. A recognized exception to the rule is when there are conflicting findings of fact by the CA and the RTC. In the case at bar, RTC and the CA agreed on their findings.

In G.R. No. 213241, the RTC, which possessed the first hand opportunity to observe the demeanor of the witnesses and admit the documentary evidence, found that PNB accepted outright the collateral offered by the Spouses Cornista without making farther inquiry as to the real status of the subject property. Had the bank been prudent and diligent enough in ascertaining the condition of the property, it could have discovered that the same was in the possession of Vila who, at that time, possessed a colorable title thereon being a holder of a Final Certificate of Sale. The RTC further exposed the frailty of PNB's claim by pointing to the fact that it was Vila who was paying the realty tax on the property, a crucial information that the bank could have easily discovered had it exercised due diligence.

Resonating the findings of the RTC, the CA also declared that PNB fell short in exercising the degree of diligence expected from bank and financial Institutions. The Supreme Court quotes with approval the disquisition of the appellate court:
Thus, before approving a loan application, it is a standard operating practice for these institutions to conduct an ocular inspection of the property offered for mortgage and to verify the genuineness of the title to determine the real owner thereof. The apparent purpose of an ocular inspection is to protect the "true owner" of the property as well as innocent third parties with a right, interest or claim thereon from a usurper who may have acquired a fraudulent certificate of title thereto. Here, [the] PNB has failed to exercise the requisite due diligence in ascertaining the status and condition of the property being offered to it as security for the loan before it approved the same. xxx.
Clearly, the PNB failed to observe the exacting standards required of banking institutions which are behooved by statutes and jurisprudence to exercise greater care and prudence before entering into a mortgage contract.

No credible proof on the records could substantiate the claim of PNB that a physical inspection of the property was conducted. The Supreme Court agrees with, both the RTC and CA that if in fact it were true that ocular inspection was conducted, a suspicion could have been raised as to the real status of property. By failing to uncover a crucial fact that the mortgagors were not the possessors of the subject property. We could not lend credence to claim of the bank that an ocular inspection of the property was conducted. What further tramples upon PNB's claim is the fact that, as shown on the records, it was Vila who was religiously paying the real property tax due on the property from 1989 to 1996, another significant fact that could have raised a red flag as to the real ownership of the property. The failure of the mortgagee to take precautionary steps would mean negligence on his part and would thereby preclude it from invoking that it is a mortgagee in good faith.Before approving a loan application, it is standard operating procedure for banks and financial institutions to conduct an ocular inspection of the property offered for mortgage and to determine the real owner(s) thereof The apparent purpose of an ocular inspection is to protect the "true owner" of the property as well as innocent third parties with a right, interest or claim thereon from a usurper who may have acquired a fraudulent certificate of title thereto.

In this case, it was adjudged by the courts of competent jurisdiction in a final and executory decision that the Spouses Cornista's reacquisition of the property after the lapse of the redemption period is fraudulent and the property used by the mortgagors as collateral rightfully belongs to Vila, an innocent third party with a right, could have been protected if PNB only observed the degree diligence expected from it.

In Land Bank of the Philippines v. Belle Corporation, the Court exhorted banks to exercise the highest degree of diligence in its dealing with properties offered as securities for the loan obligation:
When the purchaser or the mortgagee is a bank, the rule on innocent purchasers or mortgagees for value is applied more strictly. Being in the business of extending loans secured by real estate mortgage, banks are presumed to be familiar with the rules on land registration. Since the banking business-is impressed with public interest, they are expected to be more cautious, to exercise a higher degree of diligence, care and prudence, than private individuals in their dealings, even those involving registered lands. Banks may not simply rely on the face of the certificate of title. Hence, they cannot assume that, xxx the title offered as security is on its face free of any encumbrances or lien, they are relieved of the responsibility of taking further steps to verify the title and inspect the properties to be mortgaged. As expected, 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 the bank's operations. xxx.
The Supreme Court has never failed to stress the remarkable significance of a banking institution to commercial transactions, in particular, and to the country's economy in general. The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of every civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce, banks have become an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and, most of all, confidence. Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are even required, of it.

In this case of G.R. No. 213241, PNB clearly failed to observe the required degree of caution 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 not have simply relied on the face of title but went further to physically ascertain the actual condition of the property. That the propprty offered as security was in the possession of the person other than the lone applying for the 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 purchaser for value.

Having laid down that the PNB is not in good faith, the Supreme Court was led to affirm the award of moral damages, exemplary damages, attorney's fees and costs of litigation in favor of Vila. Moral damages are not awarded to penalize the defendant but to compensate the plaintiff for the injuries he may have suffered. Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. In the instant case, we find that the award of moral damages is proper. As for the award of exemplary damages, we deem that the same is proper for the PNB was remiss in its obligation to inquire the real status of the subject property, causing damage to Vila. Finally, we rule that the award of attorney's fees and litigation expenses is valid since Vila was compelled to litigate and thus incur expenses in order to protect its rights over the subject property.

THE CASE: PHILIPPINE NATIONAL BANK, PETITIONER, VS. JUAN F. VILA, RESPONDENT. G.R. No. 213241, August 01, 2016.

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