Ursal v. CA (G.R. No. 142411)

Facts:

Spouses Moneset are registered owners of a parcel of land and they executed on it a Contract to Sell in favor of petitioner Ursal. Petitioner paid the monthly installments but stopped due to the spouses’ failure to deliver the TCT. The land was subject of an absolute deed of sale in favor of Dr. Canora, Jr. and was sold again with pacto de retro. The land was mortgaged with respondent Rural Bank of Larena and corresponding annotations to the title were made. For failure of the spouses to pay the loan, the bank served a notice of extra-judicial foreclosure. Petitioner moved for the declaration of the non-effectivity of the mortgage and the payment of damages alleging that there was fraud/bad faith in the part of the spouses and with the bank for granting the REM in spite knowing that the property was in possession of petitioner. RTC ruled in favor of petitioner but maintained that the property be foreclosed. CA affirmed in toto.

Issue:

Whether or not respondent bank acted in bad faith by failing to look beyond the TCT of the property before a loan may be extended upon it.

Ruling: YES.

We agree. Banks cannot merely rely on certificates of title in ascertaining the status of mortgaged properties; as their business is impressed with public interest, they are expected to exercise more care and prudence in their dealings than private individuals. Indeed, the rule that persons dealing with registered lands can rely solely on the certificate of title does not apply to banks.

As enunciated in Cruz vs. Bancom:

Respondent… is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike private individuals, it is expected to exercise greater care and prudence in its dealings, including those involving registered lands. 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.

*The ruling in the case however is still unfavorable to petitioner. The court held:

“Our agreement with petitioner on this point of law, notwithstanding, we are constrained to refrain from granting the prayers of her petition. The reason is that, the contract between petitioner and the Monesets being one of “Contract to Sell Lot and House,” petitioner, under the circumstances, never acquired ownership over the property and her rights were limited to demand for specific performance from the Monesets, which at this juncture however is no longer feasible as the property had already been sold to other persons.”

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