GOVERNMENT  SERVICE INSURANCE SYSTEM (GSIS), PETITIONER, VS. HON. COURT OF APPEALS, (THIRTEENTH DIVISION),  JOSE SALONGA, TAN KIAT TIAN AND JOSEFINA USMAN JOINED BY HER HUSBAND …

Government Service Insurance System versus Salonga

The Case

This is a petition for review brought by the Government Service Insurance System, the GSIS, against Jose Salonga, Tan Kiat Tian, and Josefina Usman, the registered co-owners of two parcels of land in Molino, Bacoor, Cavite. The private respondents sued to declare their ownership and to cancel the later titles that had been issued in the name of Queen's Row Subdivision, Incorporated, and the GSIS was impleaded because it had taken those same lots as collateral for a large loan and later bought them at a foreclosure sale. The case matters because it fixes the standard of diligence owed by a government insurance and financing institution when it accepts registered land as security, and it tells us when such an institution may and may not claim the protective mantle of good faith.

Procedural History

The private respondents filed their action for declaration of ownership and cancellation of title before the Regional Trial Court of Bacoor, Cavite, Branch 19. Queen's Row Subdivision and the Register of Deeds of Cavite were declared in default for failure to answer, while the GSIS answered and trial on the merits proceeded. The trial court rendered judgment for the private respondents, ordering the reinstatement of their original certificates of title, the cancellation of the later titles, the reinstatement of their tax declarations, and the payment of attorney's fees and costs. The GSIS appealed to the Court of Appeals, which dismissed the appeal and affirmed the trial court in its entirety. The GSIS then came to the Supreme Court by petition for review, raising three grounds: that it was a mortgagee and purchaser in good faith, that the private respondents' cause of action had prescribed, and that the award of attorney's fees was improper.

Facts

On the thirty-first of October 1968, Emiliano Bunag and Raymundo Catienza sold two parcels of land in Molino, Bacoor, Cavite to Jose Salonga, Tan Kiat Tian, and Josefina Usman, who became registered co-owners in indivision. Transfer Certificates of Title Number T-32452 and Number T-32453 were issued in their names by the Register of Deeds of Cavite on the fifth of November 1968.

Sometime in 1974, the Municipal Treasurer of Cavite refused the private respondents' payment of real estate taxes on the ground that their tax declarations had already been cancelled. Upon investigation, they discovered that new tax declarations and new titles had been issued in the name of Queen's Row Subdivision, Incorporated. Their title Number T-32453 had been superseded by Title Number T-54244, issued on the twenty-seventh of August 1971, and their title Number T-32452 was now covered by Title Number T-54192, issued on the seventeenth of August 1971, both in the name of the subdivision corporation. On the seventeenth of June 1974, the private respondents sent a letter-complaint to the Public Assistance Office of the then Ministry of National Defense, asking for an investigation of the corporation and of the Register of Deeds, but no action was taken.

Meanwhile, the GSIS had entered into a project and loan agreement with Queen's Row Subdivision, Incorporated, granting it a loan of 14,360,000 pesos secured by a real estate mortgage over its properties in Molino, Bacoor, Cavite, totalling an area of 1,300,000 square meters, for the construction of 4,493 housing units. Among the properties included as collateral were the two lots of the private respondents. Upon the corporation's default, the GSIS extrajudicially foreclosed the mortgage. On the thirteenth of November 1987, the private respondents filed their action for declaration of ownership and cancellation of title.

Issues

• Whether or not the GSIS was a mortgagee and purchaser in good faith entitled to rely solely on the face of the certificates of title.
• Whether or not the private respondents' cause of action had already prescribed or was barred by laches.
• Whether or not the Court of Appeals erred in affirming the award of attorney's fees and litigation costs.

Applicable Provisions

Section 36 of the Government Service Insurance System Act of 1997 provides:

Section 36. Investment of Funds. The funds of the GSIS which are not needed to meet the current obligations may be invested under such terms and conditions and rules and regulations as may be prescribed by the Board: Provided, that investments shall satisfy the requirements of liquidity, safety, security and yield in order to ensure the actuarial solvency of the funds of the GSIS.

This provision is the anchor of the ruling, because it imposes on the GSIS the duty to invest with safety and security, which the Court reads as a duty of greater care and prudence in dealing with properties offered as collateral.

Ruling

On the first issue, the Court held that the GSIS was not a mortgagee and purchaser in good faith. The funds of the GSIS come from the monthly contributions of its members, and its business is to keep in trust money belonging to government employees. Although it is a social security and insurance entity, its ancillary function of investing funds imposes upon it the duty of exercising due diligence in dealing with properties submitted as collateral for loans. The records failed to reveal that the GSIS exercised due diligence in ascertaining the real owners of the two titles, and had it investigated, it would have learned that those titles were illegally obtained. The Court quoted its earlier ruling in Tomas versus Tomas:

Banks, indeed, should exercise more care and prudence in dealing even with registered lands, than private individuals, for their business is one affected with public interest, keeping in trust money belonging to their depositors, which they should guard against loss by not committing any act of negligence which amount to lack of good faith by which they would be denied the protective mantle of the land registration statute, Act 496, extended only to purchasers for value and good faith, as well as to mortgagees of the same character and description.

The Court applied the same doctrine, holding that the failure to observe due diligence is tantamount to negligence, and that the GSIS cannot simply rely on the face of the title because its ancillary function of investing funds requires a greater degree of diligence. Necessarily, the private respondents were deemed to have a better right over the property.

On the second issue, the Court held that laches had not set in. Laches is the failure or neglect, for an unreasonable length of time, to do that which by exercising due diligence could or should have been done earlier. For laches to exist, there must be a showing of delay in asserting the complainant's right. Here, from the time the private respondents discovered the cancellation of their tax declarations, they immediately filed a complaint with the Public Assistance Office, and when no action was taken, they filed their action for declaration of ownership. They did not sleep on their rights.

On the third issue, the Court held that the award of attorney's fees of 40,000 pesos and litigation costs of 50,000 pesos was justified, since these were duly proven by the private respondents. The assessment and evaluation for such awards are findings of fact ordinarily left to the trial court for its conclusive determination. Finally, the Court reiterated the settled rule that factual findings of the trial court, adopted and confirmed by the Court of Appeals, are final and conclusive and may not be reviewed on appeal, and it found no justifiable reason or exception to reverse the judgments below.

Doctrine

A person dealing with registered land may generally rely on the face of the certificate of title, but this rule does not apply to banks and similar institutions affected with public interest, which must exercise more care and prudence than private individuals. The GSIS, whose funds come from the contributions of its members and which is empowered to invest those funds under Section 36 of its charter, owes a greater degree of diligence when it accepts registered land as collateral; failure to investigate the real owners and the validity of the titles amounts to negligence that defeats a claim of good faith. A mortgagee or purchaser who fails to observe due diligence is not a mortgagee or purchaser in good faith, and the registered owner under a prior and valid Torrens title has a better right. Laches requires a showing of unreasonable delay in asserting a right; prompt action upon discovery negates it.

Disposition

The petition was denied, and the decision of the Court of Appeals was affirmed in its entirety, with no costs.

Remember This

Memorize the line that the protective mantle of the land registration statute extends only to purchasers for value and in good faith, and that the GSIS, like a bank, must exercise a greater degree of diligence because it invests its members' trust money. Examiners use this case to test the good faith of mortgagees and buyers of registered land, the diligence required of banks and government financial institutions, and the elements of laches.