RURAL BANK OF SARIAYA, INC., PETITIONER, VS. BENJAMIN YACON, MAXIMA BAUTISTA, HONORIO BAUTISTA, ISABEL ALVAREZ, PAULINO BAUTISTA, CONSUELO YACON, AND COURT OF APPEALS, RESPONDENTS.

This case originated from the then Court of First Instance of Quezon, Branch III in
Lucena City, where respondents herein filed a
complaint for the cancellation of Transfer Certificate of Title No. T-142490 of
the Register of Deeds of Quezon and for the
declaration of the nullity of the following documents:  (1) Special Power of Attorney, dated October
30, 1976, recorded as Doc. No. 105, Page No. 22, Book No. XXIII, Series of
1976, of the Notarial Register of Notary Public Godofredo B. Bañez; (2) Deed of
Absolute Sale, dated November 17,
1976, notarized as Doc. No. 176, Page No. 37, Book No. XXIII,
Series of 1976, of the same notary public; and (3) Deed of Real Estate Mortgage
executed by one Luis Parco on
December 13, 1976 in favor of
petitioner Rural Bank of Sariaya, Inc., identified as
Doc. No. 1559, Page No. 100, Book No. XII, Series of 1976, of Notary Public Angelito Arana.

Named as defendants therein were Luis B. Parco, Florentino B. Alcantara, Aniano Tantuco, Efren Rocha, Gregorio Cordero, Godofredo
Bañez and petitioner Rural Bank of Sariaya, Inc.^[1]

The factual background, which was established and became the basis of the decision appealed from, is
succinctly stated by respondent Court of Appeals, as follows:

“The plaintiffs alleged in their complaint that they are the
registered owners and possessors of the land in question, containing an area of
11.8717 hectares more or less.  Sometime
in October 1976, plaintiffs entrusted their owner’s copy of their TCT No. T-38632
covering the land in question to their nephew, defendant Florentino
Alcantara, whom they approached for the purpose of
obtaining a bigger loan from a bank in Manila with the land as collateral.  Alcantara promised
he can work for it.  After a few days, Alcantara returned to plaintiffs’ house and he brought with
him plaintiffs to the house of one Gregorio Cordero who lives in Candelaria, Quezon, wherein Alcantara introduced to plaintiffs Aniano
Tantuco, Efren Rocha and
Cordero who told plaintiffs that they have prepared the latter’s application
for a real estate mortgage.  These people convinced plaintiffs to sign
said papers as a requirement for securing a loan from the Bank in Manila.

“Without understanding the contents thereof as plaintiffs do
not understand English, the language in which the documents were written and
having trust and confidence in their nephew, Alcantara,
plaintiffs signed the prepared documents in their belief that they were indeed
applications for a loan.  The defendants
assured plaintiffs that they would be notified as soon as the loan would be
ready for release.

“Plaintiffs never heard from defendants until in April 1977,
plaintiffs discovered that their Transfer Certificate of Title No. T-38632 had
been cancelled and in lieu thereof Transfer Certificate of Title No. T-142490
had been issued in favor of defendant Luis Parco.  Plaintiffs also found that the papers they
were made to sign in Cordero’s house included a Special Power of Attorney in
favor of Alcantara with authority to ‘negotiate, to
mortgage and to sell’ the
property.

“Defendant Parco was able to transfer the title covering the land
in his name and he was able to mortgage the land in favors of the defendant
Rural Bank of Sariaya, Inc., for a loan of
P24,500.00.

“Plaintiff (sic) never received the proceeds of the sale
neither did they ever intend to sell the property.  Plaintiffs never authorized Alcantara to sell the land and plaintiffs had always been
in possession of the land to the present. 
Plaintiffs filed this instant action for annulment of documents and
damages against all defendants.

“Defendant Luis Parco filed his answer admitting that he
bought the land from Alcantara and mortgaged it with
the Rural Bank of Sariaya Inc., for a loan of
P24,500.00 but denied the rest of the material allegations of the
complaint.  He set up the affirmative
defense of being a buyer in good faith.

“Defendant Sariaya, Inc., alleged it
acted in good faith in granting the loan of P24,500.00 in favor of defendant
Parco and it had no knowledge about the truth of the averments in the
complaint.

“All other defendants denied the material averments of the
complaint and prayed for dismissal of the complaint against them.

“Defendant Florentino Alcantara admitted the averments in the complaint alleging
he himself was deceived into signing the documents in question.  He stated never executed a deed of sale
covering the property in favor of defendant Parco and he never went to Manila
to execute and acknowledge the same before any Notary Public.  He never received from defendant Parco any
consideration for the sale.  Defendant Alcantara likewise prayed for the declaration of nullity of documents in question.”^[2]

On December 17, 1982,
the court a quo^[3]
rendered judgment nullifying the special power of attorney and deed of real
estate mortgage hereinbefore mentioned and cancelling
Transfer Certificate of Title No. T-142490 and restoring the validity and legal
effect of Transfer Certificate of Title No. T-38632.  The defendants, except Godofredo
Bañez, were ordered to pay jointly and severally the
plaintiffs forty thousand pesos (P40,000.00) as actual and moral damages, twenty thousand pesos (P20,000.00)
as litigation expenses, and ten thousand pesos (P10,000.00) as attorney’s fees.^[4]

Petitioner bank and its co-defendant Luis Parco seasonably
appealed to the then Intermediate Appellate Court, but said appeal resulted in
the affirmance of the decision of the trial court.^[5]
Petitioner bank’s motion for reconsideration was denied on March 27, 1987, hence this petition.

The rule applicable to this controversy, with the exception
thereto, is well settled.  Where the
certificate of title is in the name of the mortgagor when the land is
mortgaged, the innocent mortgagee for value has the right to rely on what
appears on the certificate of title.  In the absence of anything to excite or
arouse suspicion, said mortgagee is under no obligation to look beyond the
certificate and investigate the title of the mortgagor appearing on the face of
said certificate.  Although Article 2085 of
the Civil Code provides that absolute
ownership of the mortgaged property by the mortgagor is essential, the
subsequent declaration of a title as null and void is not a ground for
nullifying the mortgage right of a mortgagee in good faith.^[6]

The rationale for this rule is stated thus:

“The main purpose of the Torrens System is to avoid possible
conflicts of title to real estate and to facilitate transactions relative
thereto by giving the public the right to rely upon the face of a Torrens
certificate of title and to dispense with the need of inquiring further, except when the party
concerned had actual knowledge of facts and circumstances that should impel a reasonably cautious man to make such
further inquiry (Pascua v. Capuyoc,
77 SCRA 78).  Thus, where innocent third
persons relying on the correctness of the certificate thus issued, acquire
rights over the property, the court cannot disregard such rights (Director of
Land v. Abache, et al., 73 Phil 606).  The lien of the petitioner, an innocent
mortgagee for value, must be respected and protected (Blanco v. Esquierdo, 110 Phil. 494).”^[7]

The applicability of the foregoing rule
in the case at bar is not being questioned here.  Neither is there a dispute as to the right of
respondents to have the title of defendant Parco cancelled.  What is in controversy is petitioner’s
insistence that it is a mortagagee in good faith for
value.  Consequently, it submits that the
circumstances of this case do not justify the imposition on it of the duty to
look beyond Parco’s title.

Petitioner correspondingly dissects and takes exception to the
following circumstances which the appellate court took into account in ruling against it, viz:

“a.     When the Respondents-plaintiffs still had
the torrens title in their names, Petitioner bank was
willing to Iend them P5,000.00 only;
when defendant applied he was granted a P24,500 loan for the same land;

b.       Petitioner bank did not inquire into the
persons in possession of the same;

c.       Respondents had used the same land as
collateral in an earlier loan applied for by them;

d.       Respondents have lived in Sariaya for a long time, while defendant Parco is a new
client of the bank;

e.       Petitioner bank could have inquired from
the respondents about the fact that the sale of the land was through the
alleged attorney in fact Alcantara and not from the
plaintiffs themselves directly.”^[8]

There is no ground to
reject or deviate from the findings of both the trial court and the Court of
Appeals.  In cases heretofore decided by
this Court, We took judicial notice of the common practice of banks, before
approving a loan, to send a representative to the premises of the land offered
as collateral and duly investigate who are the true owners thereof.  Failure to do so was considered as
constitutive of negligence on the part of the banks.  This is in keeping with the banks’
responsibility to exercise care and prudence in dealing even with registered
land, more than in the case of private individuals.  The banks’ business is “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 No. 496 (now Presidential
Decree No. 1529), extended only to purchasers for value and in good faith, as
well as to mortgagees of the same character and description.”^[9]

The finding that the petitioner bank failed to make adequate
inquiries with the person in possession of
the land has adequate evidentiary support.  The testimony of the bank inspector, Ricardo Aro, Jr., that he went to the land together with an
assistant inspector does not bespeak the diligent verification required in the
circumstances.  As earlier stated, the
prudent practice is to investigate who are the true owners of the properties
sought to be mortgaged.  What appears to
have been done in the present case is that petitioner merely went through the
motions of sending a representative to the premises.  When the inspector found nobody on the land
on the date of inspection, he only counted the coconut trees, without bothering
to look for the person in possession of the same.^[10]
He further testified that he did not bother to find out who was in actual
possession of the property when he went to the premises, relying on the fact
that the vice-president of the bank had already talked to Luis Parco.^[11]
Petitioner is, therefore, not in a position to assail the finding that Luis
Parco never took possession of the land in question and that the respondents
continuously and openly possessed the land without any disturbance.^[12]

On the other circumstances which merited the appellate court’s
conclusion that petitioner acted with negligence amounting to bad faith, We agree that, considered in conjunction with one another and the facts of record, petitioner’s
present stance is far from tenable.  One
further consideration is the haste on the part of Luis Parco in applying for a
loan, a circumstance which could not have escaped the attention of the bank’s
personnel.  As found by the court below, the loan application was
filed on December 11, 1976, three days after the cancellation of respondents’
Transfer Certificate of Title No. T-38632 on December 8, 1976.^[13]
This hurried application for a loan is matched by petitioner bank’s dispatch in
approving the same two days thereafter
on December 13, 1976.^[14]
One can only view with puzzlement and
suspicion this concordance of events, especially since Parco was a new client
of the bank living in a town distant from Sariaya.

There being an exiguity of countervailing evidence, We see no reason for disturbing the findings of the Court of Appeals
confirmatory of those of the trial court, which findings are consequently
entitled to respect.

ACCORDINGLY, the appealed judgment is hereby AFFIRMED.

SO ORDERED.

Melencio-Herrera, (Chairman), Paras, Padilla, and Sarmiento, JJ., concur.

* The former Intermediate Appellate Court, now the Court of Appeals, is
deemed impleaded and is included in the caption of
this case as the public respondent.

^[1]
Rollo, 31-38.

^[2]
Ibid., 91-93.

^[3]
Presided over by Judge Milagros V. Caguioa.

^[4]
Rollo, 85-86.

^[5]
Tenth Division; Justice Jose C. Campos,
Jr., ponente, Justices Reynato
S. Puno and Venancio D. Aldecoa, Jr., concurring.

^[6]
Penullar vs. Philippine National Bank, 120
SCRA 171 (1983); Duran, et al., vs. Intermediate Appellate Court, et al., 138 SCRA 489 (1985); Philippine
National Cooperative Bank, vs. Carrandang-Villalon,
etc., et al., 139 SCRA 570 (1985); Philippine National Bank, vs. Court
of Appeals, et al., 153 SCRA 435 (1987); Gonzales vs. Intermediate
Appellate Court, 157 SCRA 587 (1988).

^[7]
St. Dominic Corporation vs.
Intermediate Appellate Court, et al., 151 SCRA 577, 586-587 (1987).

^[8]
Petition, 10; Rollo,
11.

^[9]
Gaotian, vs. Gaffud
27 SCRA 706, 714-715 (1969);
Tomas, et al., vs. Tomas, et al., 98 SCRA 280, 286 (1980); Gonzales vs.
Intermediate Appellate Court, et al., 157 SCRA 587, 596 (1988).

^[10]
Rollo, 19-21.

^[11]
TSN, March 25, 1981, 23.

^[12]
Rollo, 81,95.

^[13]
Ibid., 80-81.

^[14]
Rollo, 81.