Rural Bank of Sariaya Vs Yacon

RURAL BANK OF SARIAYA vs.
BENJAMIN YACON, CA
G. R. No. L-78011
July 5, 1989
J, Regalado
Facts:
This is a case wherein the respondent filed a complaint for cancellation and for the declaration of nullity of the
following documents: Special Power of Atty, Deed of Absolute Sale, Deed of Real Estate Mortgage execute by Luis
Parco in favor of the Petitioner Rural Bank of Sariaya
1. That the respondents alleged that they are the registered owners and possessors of the land in question
a. That they entrusted their TCT to their nephew Florentino Alcantara, in order to obtain a bigger loan
b. Florentino Alcantara brought the plaintiffs to one Gregorio Cordero who lives in Candelaria, Quezon
– said that they have prepared the application for a real estate mortgage
i. Convinced the plaintiffs that the papers are a requirement for securing a loan from the
said Bank in Manila
2. Plaintiffs do no understand English – however, they have signed such documents in confidence with their
nephew
a. The defendants assured them that they would be notified as soon as the loan would be ready for
releasae
3. They never heard from them until April 1977 – and that they discovered that their TCT has been cancelled
and a new one was issued in favor of Luis Parco
a. They found out that the papers they were made to sign included a SPA in favor of Alcantara with
authority to negotiate – to mortgage and to sell the property
4. Parco was able to transfer the title covering the land in his name and was able to mortgage it to Rural Bank
of Sariaya
5. Plaintiffs, never received the proceeds of the sale and neither did they intend to sell the property
a. They also never authorized Alcantara to sell the land
b. And that they have been in possession of the land to the present
6. Parco said that he bought the land to Alcantara
a. Set up an affirmative defense being a buyer in good faith
7. Alcantara admitted the in the complaint that he himself was deceived in to signing the documents in question
a. Stated that he never executed a Deed of Sale
b. Never went to Manila to execute and acknowledge the same before any Notary Public
c. Never received from Parco any consideration for the sale
d. Prayed for the declaration of nullity of documents
8. The RTC nullified the SPA and Deed of Real Estate Mortgage
a. Cancelled and restored
9. Petitioner bank and Luis Parco appealed to the IAC; but IAC affirmed RTC
Issue: W/N the Petitioner Bank is considered a mortgagor in good faith, NO
Ruling:
General Rule:
Where the certificate of title is in the name of the mortgagor when the land in mortgages, 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 the said certificate.
As the owner should be having the absolute ownership of the lot, a subsequent declaration of a title as null and void
is not a ground for nullifying the mortgage right of a mortgagee in good faith.
The main purpose of the Torrens System is to avoid possible conflicts to real estate and to facilitate transaction
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. Thus, where innocent third persons relying on
the correctness of the certificate thus issued, acquire the rights over the property, the court cannot disregard such
rights.
In the case at bar
The Court found that the bank failed to make adequate inquiries.
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 bank’s responsibility to
exercise care and prudence in dealing even with registered land, more than in the case of private individuals. The
bank’s 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 496, extended only to purchasers for value
and in good faith, as well as to mortgagees of the same character and description.

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RURAL BANK OF SARIAYA vs.

Issue: W/N the Petitioner Bank is considered a mortgagor in good faith, NO

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