Philippine National Bank v. Jumamoy
REITERATIONFacts
The Antecedents: On December 27, 1989, the RTC ordered the exclusion of 2.5002 hectares from Lot 13521, registered in the name of Antonio Go Pace (Antonio), finding that this portion actually pertained to Sesinando Jumamoy (Sesinando), Ciriaco Jumamoy's (Ciriaco) predecessor-in-interest. The RTC acknowledged Ciriaco's actual and exclusive possession, cultivation, and claim of ownership over the lot acquired from Sesinando. The Deed of Conveyance to Ciriaco could not be annotated as Antonio and his wife had mortgaged Lot 13521 to Philippine National Bank (PNB) for loans, and PNB foreclosed the mortgage, acquiring title under TCT No. T-23063. PNB was not impleaded in the initial reconveyance case. Procedural History: Ciriaco filed a complaint against PNB and the Paces for Declaration of Nullity of Mortgage, Foreclosure Sale, Reconveyance and Damages, averring that Antonio could not validly mortgage the portion belonging to Ciriaco and that PNB had prior notice of the litigation due to a notice of lis pendens annotated on Antonio's title. PNB argued it was a mortgagee and buyer in good faith as Antonio's title was clean at the time of the mortgage. The RTC ordered the partial nullification of the mortgage and reconveyance to Ciriaco, finding PNB not a mortgagee/purchaser in good faith for failing to take necessary steps like sending a field inspector. The CA affirmed the RTC's ruling, emphasizing the bank's obligation to exercise extraordinary prudence and care, and held that Ciriaco's action for reconveyance, based on implied trust and his continued possession, was imprescriptible. PNB's motion for reconsideration was denied. The Petition: PNB filed a petition for review on certiorari, assailing the CA's decision and resolution. PNB contended that the lower courts erred in declaring it not an innocent mortgagee for value, in ordering the partial nullification of the mortgage and title, and in denying its motion for reconsideration. PNB also argued that Ciriaco's action was barred by prescription, as TCT No. T-23063 was issued in 1990 and Ciriaco filed his complaint six years later, exceeding the one-year period to nullify a title and the four or ten-year periods for reconveyance based on fraud or implied trust.
Issue(s)
Whether PNB qualified as an innocent mortgagee for value. Whether the real estate mortgage executed in favor of PNB and PNB's title should be partially nullified. Whether Ciriaco's action for reconveyance is barred by prescription.
Ruling
The petition is denied. The February 28, 2005 Decision and September 28, 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 73743 are affirmed.
Ratio Decidendi
On whether PNB qualified as an innocent mortgagee for value: The Supreme Court affirmed the lower courts' disposition, holding that PNB is not an innocent purchaser for value. A banking institution is expected to exercise due diligence before entering into a mortgage contract, and ascertaining the status or condition of the property offered as security must be a standard and indispensable part of its operations. PNB failed to overcome the burden of proving good faith, as there was no showing that it conducted an investigation, observed due diligence by checking for flaws in the title, verified the identity of the true owner and possessor, or visited the premises before accepting the property as collateral. Furthermore, the land was unregistered when first mortgaged, necessitating greater verification, which PNB failed to demonstrate. The Court noted that PNB dispensed with a full trial, foregoing its opportunity to dispute factual allegations. On whether the real estate mortgage and PNB's title should be partially nullified: The Court agreed with the lower courts that PNB is not an innocent mortgagee/purchaser for value. The RTC ordered the partial nullification of the mortgage and reconveyance of the subject lot to Ciriaco, a ruling affirmed by the CA. This was based on the finding that PNB failed to exercise the required due diligence. The fact that a notice of lis pendens was annotated on Antonio's title prior to the consolidation of title in PNB's name, although after the initial mortgage, also raised questions about PNB's claim of good faith, especially considering the prior judgment in Civil Case No. 2514 which had already declared Ciriaco's predecessor-in-interest as having a better right to the portion in question. The Court reiterated that the Torrens system does not intend to perpetuate fraud, and a title holder cannot be a true owner of all property described therein if it was illegally included. On whether Ciriaco's action for reconveyance is barred by prescription: The Supreme Court ruled that Ciriaco's action for reconveyance is imprescriptible. The Court clarified that while an action for reconveyance based on implied trust generally prescribes in 10 years from the issuance of the Torrens title, this rule applies only when the claimant is not in possession of the property. In cases where the claimant is in actual possession, an action for reconveyance is in effect an action for quieting of title, which does not prescribe. The Court cited Vda. de Cabrera v. Court of Appeals, stating that one in actual possession of land claiming ownership may wait until their possession is disturbed or title is attacked before seeking to vindicate their right. Since Ciriaco has been judicially established to be in actual possession of the property and has a better right to the disputed portion, his suit for reconveyance does not prescribe.
Main Doctrine
A banking institution is expected to exercise due diligence before entering into a mortgage contract, and the ascertainment of the status or condition of a property offered as security must be a standard and indispensable part of its operations. An action for reconveyance based on implied trust, where the claimant is in actual possession of the property, is in effect an action for quieting of title and does not prescribe.