Philippine Banking Corporation v. Dy
REITERATIONFacts
The Antecedents: Cipriana Delgado was the registered owner of a lot (Lot No. 6966). She and her husband, Jose Delgado (Sps. Delgado), agreed to sell the property to Cecilia Tan (buyer) for P10.00/sq.m., with partial payments made. After paying P147,000.00, the buyer demanded the execution of the deed, which was refused. The buyer later discovered the property was sold to Arturo Dy and Bernardo Dy (Dys) and mortgaged to Philippine Banking Corporation (Philbank). Procedural History: The buyer filed a complaint for annulment of title, specific performance, and reconveyance against Sps. Delgado, the Dys, and Philbank. Sps. Delgado claimed the sale to the Dys was fictitious, intended only to secure a loan from Philbank, and that the Dys failed to pay the agreed price. The Dys denied knowledge of the buyer's transaction and claimed valid acquisition. Philbank asserted it was an innocent mortgagee for value. The complaints against the Dys and Philbank were withdrawn. The RTC dismissed the cross-claims of Sps. Delgado against the Dys and Philbank, finding no competent evidence of non-payment and noting Philbank's good faith. The CA set aside the RTC decision, nullified the sale to the Dys, and ordered the cancellation of their titles, deeming the sale simulated and the mortgage void. The CA also declared Philbank not a mortgagee in good faith. The Petition: Philbank petitioned the Supreme Court, asserting its status as a mortgagee in good faith and arguing Sps. Delgado were estopped from denying the mortgage's validity. Sps. Delgado maintained Philbank's lack of due diligence. Arturo Dy filed a petition-in-intervention arguing relative simulation, but this was deemed improper as the CA decision had become final and executory as to the Dys.
Issue(s)
Whether the Court of Appeals erred in declaring Philbank not a mortgagee in good faith. Whether Sps. Delgado are estopped from denying the validity of the mortgage. Whether the simulated sale between Sps. Delgado and the Dys invalidates Philbank's mortgage.
Ruling
The Supreme Court affirmed the CA's decision nullifying the sale to the Dys and upholding the cancellation of their titles in favor of Cipriana Delgado. However, the Court modified the ruling by upholding Philbank's mortgage rights over the properties, declaring Philbank a mortgagee in good faith.
Ratio Decidendi
On Philbank's status as mortgagee in good faith: The Court found that while Philbank failed to exercise "greater care" in its ocular inspection, its omission did not prejudice any innocent third parties. The buyer did not pursue her claim, and Sps. Delgado were parties to the simulated sale, intending to mislead Philbank. Therefore, no amount of diligence could have uncovered the complicity between the Dys and Sps. Delgado. The Court held that the ultimate cause of the Dys' defective title was the simulated sale to which Sps. Delgado were privies. The Court reiterated that the diligence required varies with the situation, and Philbank's "inconsequential oversight" should not serve as a basis for fraud and deceit, especially since Sps. Delgado's actions constituted fraudulent conduct intended to prejudice Philbank. Thus, Philbank's mortgage rights were maintained for reasons of public policy, fair dealing, good faith, and justice. On estoppel of Sps. Delgado: The Court ruled that Sps. Delgado, being privy to the simulated sale intended to deceive Philbank, could not deny the validity of the mortgage executed by the Dys in favor of Philbank. To allow them to do so would sanction their bad faith to Philbank's detriment. Their participation in the simulation estopped them from later claiming the mortgage was invalid due to the simulated underlying sale. On the nullification of the sale to the Dys: The Court affirmed the CA's finding that the deeds of sale between Sps. Delgado and the Dys were simulated. The admission that the deeds were executed solely to facilitate the Dys' loan application with Philbank and that the prices indicated were not the true consideration established the nullity of these contracts. Consequently, the Dys acquired no valid title to the properties, and their certificates of title were correctly ordered cancelled in favor of the original owner, Cipriana Delgado.
Main Doctrine
While a simulated deed of sale is null and void, the subsequent nullification of title to a property is not a ground to annul the contractual right derived by a transferee who acted in good faith. Banks, however, are required to exercise greater care and due diligence in conducting ocular inspections of properties offered for mortgage.