Where bank is not innocent purchaser/mortgagee for value - G.R. No. 169901

G.R. No. 169901

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Doctrine:

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PNB is not an innocent purchaser/ mortgagee for value.

Undoubtedly, our land registration statute extends its protection to an innocent purchaser for value, defined as “one who buys the property of another, without notice that some other person has a right or interest in such property and pays the full price for the same, at the time of such purchase or before he has notice of the claims or interest of some other person in the property.”[25] An “innocent purchaser for value” includes an innocent lessee, mortgagee, or other encumbrancer for value .[26]

Here, we agree with the disposition of the RTC and the CA that PNB is not an innocent purchaser for value. As we have already declared:

A banking institution is expected to exercise due diligence before entering into a mortgage contract. 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 its operations.[27] (Emphasis ours.)

PNB’s contention that Ciriaco failed to allege in his complaint that PNB failed to take the necessary precautions before accepting the mortgage is of no moment. It is undisputed that the 2.5002-hectare portion of the mortgaged property has been adjudged in favor of Ciriaco’s predecessor-in-interest in Civil Case No. 2514. Hence, PNB has the burden of evidence that it acted in good faith from the time the land was offered as collateral. However, PNB miserably failed to overcome this burden. There was no showing at all that it conducted an investigation; that it observed due diligence and prudence by checking for flaws in the title; that it verified the identity of the true owner and possessor of the land; and, that it visited subject premises to determine its actual condition before accepting the same as collateral.

Both the CA and the trial court correctly observed that PNB could not validly raise the defense that it relied on Antonio’s clean title. The land, when it was first mortgaged, was then unregistered under our Torrens system. The first mortgage was on February 25, 1971[28] while OCT No. P-4952 was issued on July 19, 1971. Since the Paces offered as collateral an unregistered land, with more reason PNB should have proven before the RTC that it had verified the status of the property by conducting an ocular inspection before granting Antonio his first loan. Good faith which is a question of fact could have been proven in the proceedings before the RTC, but PNB dispensed with the trial proper and let its opportunity to dispute factual allegations pass. Had PNB really taken the necessary precautions, it would have discovered that a large portion of Lot 13521 is occupied by Ciriaco.

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