Malayan Bank Savings and Mortgage Bank vs. Spouses Joseph & Jocelyn Cabigao

Banks are expected to exercise more care and prudence than private individuals in their dealings involving registered lands because their business is impressed with public interest; consequently, the settled rule that persons dealing with registered lands can rely solely on the certificate of title does not apply to banks, and a bank's failure to detect that the mortgagor is not the registered owner of the collateral—as evidenced by its own internal documents—renders it a mortgagee in bad faith whose mortgage lien is unenforceable against the true owner.

Spouses Joseph and Jocelyn Cabigao owned a 7,842.50 square meter lot registered under Transfer Certificate of Title (TCT) No. T-282258 (M). In March 2011, the spouses discovered that their title had been cancelled and replaced by TCT No. 040-2010003403 issued in the name of Rosalinda E. Techico. Investigation revealed that a Deed of Absolute Sale purportedly executed by Jocelyn Cabigao in favor of Techico was used to effect the transfer, and that Techico subsequently mortgaged the property to Malayan Bank Savings and Mortgage Bank to secure a P13 Million loan.

• Ownership and Discovery of Fraud: Spouses Joseph and Jocelyn Cabigao were the registered owners of a 7,842.50 square meter lot under Transfer Certificate of Title (TCT) No. T-282258 (M). In March 2011, the spouses discovered that their title had been cancelled and replaced by TCT No. 040-2010003403 issued in the name of Rosalinda E. Techico.
• The Alleged Sale and Mortgage: Investigation revealed that a Deed of Absolute Sale dated September 15, 2010 purportedly executed by Jocelyn Cabigao in favor of Techico was registered, effecting the transfer of title. Techico subsequently executed a real estate mortgage dated November 22, 2010 over the subject property in favor of Malayan Bank to secure a loan of P13 Million.
• Irregularities in the Documents: Evidence established that the Deed of Absolute Sale was falsified. The notary public who purportedly notarized the deed was neither a notary public for Pasig City in 2010 nor a member of the Philippine Bar. Techico failed to surrender the original copy of TCT No. T-282258 (M) for cancellation, which remained in the possession of Spouses Cabigao, and presented fictitious tax clearances.
• Malayan Bank's Internal Records: The Inspection and Appraisal Report prepared by Malayan Bank itself reflected that at the time of Techico's loan application, the subject property was still registered in the name of "Jocelyn S. Cabigao, married to Joseph C. Cabigao" under TCT No. 282258 (M). The mortgage was executed barely two months after the alleged sale and transfer of registration.
• Procedural Posture: Malayan Bank failed to appear at the scheduled pre-trial conference despite due notice and failed to submit a pre-trial brief, judicial affidavits, and documentary evidence; the RTC allowed Spouses Cabigao to present evidence ex parte.

• Mortgagee in Good Faith: Malayan Bank maintained that it conducted due diligence to ascertain the identity of Techico, her financial capacity, and the property offered as security. It contended that it verified the authenticity of TCT No. 040-2010003403 with the Registry of Deeds and conducted an ocular inspection to confirm the genuineness of the title and the owner/actual occupant.
• Impossibility of Detecting Fraud: The Bank argued that assuming there was fraud in the issuance of the title, it was impossible for it to detect such fraud given that the Registry of Deeds itself issued and certified the genuineness of the title.
• Due Process Violation: The Bank asserted that its right to participate in the proceedings was violated when it was not notified of the formal offer of evidence, though it was able to file a motion for reconsideration and notice of appeal.
• Standard of Diligence: It reiterated that it observed good faith in the mortgage transaction and exercised due diligence in ascertaining the ownership of the subject property.

• Lack of Good Faith: Spouses Cabigao argued that Malayan Bank was a mortgagee in bad faith for its failure to verify the identity of the registered owners, pointing to the Bank's Inspection and Appraisal Report which showed the property was still registered in the name of Jocelyn Cabigao at the time of the loan application.
• Fraudulent Documents: They alleged that the real estate mortgage was null and void because Techico was not the owner of the subject property, and the Deed of Absolute Sale was falsified.
• Procedural Default: They maintained that Malayan Bank's failure to appear at pre-trial and submit required documents resulted in the loss of its right to adduce evidence, rendering the ex parte proceedings proper.

• Scope of Review under Rule 45: Whether the determination of whether a mortgagee is in good faith constitutes a factual matter outside the scope of a petition for review on certiorari under Rule 45.
• Standard of Care for Banking Institutions: Whether banks are held to a higher standard of diligence than private individuals in dealings involving registered lands.
• Status as Mortgagee in Good Faith: Whether Malayan Bank qualifies as a mortgagee in good faith entitled to protection of its mortgage lien.
• Pre-trial Absence and Due Process: Whether Malayan Bank's failure to appear at the pre-trial conference and submit a pre-trial brief violated its right to due process.

• Factual Findings and Rule 45: The ascertainment of good faith or the lack thereof and the determination of negligence are factual matters which lay outside the scope of a petition for review on certiorari under Rule 45. Factual findings of the trial court, when adopted and confirmed by the Court of Appeals, are final and conclusive unless unsupported by the evidence. No misapprehension of facts was shown to warrant the Court's review and overturning of the factual findings.
• Enhanced Duty of Banks: The settled rule that persons dealing with registered lands can rely solely on the certificate of title does not apply to banks. Banks are expected to exercise more care and prudence than private individuals in their dealings, even those involving registered lands, since their business is impressed with public interest.
• Finding of Bad Faith: Malayan Bank was not a mortgagee in good faith. The Bank's own Inspection and Appraisal Report disclosed that at the time of Techico's loan application, the subject property was still registered in the name of Jocelyn S. Cabigao, not Techico. The haste in executing the mortgage barely two months after the alleged sale and transfer of registration, combined with Techico's failure to surrender the owner's duplicate copy of the original title and the presentation of fictitious tax clearances, constituted badges of bad faith that should have placed the Bank on guard. The Bank failed to discharge the extraordinary diligence required of it as a banking institution.
• Procedural Effects of Pre-trial Absence: No due process violation occurred. Under Section 5, Rule 18 of the Revised Rules of Court, a defendant's failure to appear during pre-trial allows the plaintiff to present evidence ex parte and the court to render judgment based on such evidence. While the phrase "as in default" was deleted in the amended rule for semantic propriety, the effects similar to default were retained: the party loses the right to adduce evidence but retains the right to appeal, provided it does not seek modification or reversal of the judgment based on its own evidence as that would effectively restore the lost right to present evidence.

• Higher Standard of Diligence for Banks: Banks are expected to exercise more care and prudence than private individuals in their dealings, even those involving registered lands, since their business is impressed with public interest. Consequently, the rule that persons dealing with registered lands can rely solely on the certificate of title does not apply to banks.
• Mortgagee in Good Faith: A mortgagee in good faith is one who is not aware of any defect in the title of the mortgagor at the time the mortgage is executed. Good faith is negated when the mortgagee has actual or constructive knowledge of irregularities in the mortgagor's title, such as when its own internal records reveal the mortgagor is not the registered owner, or when circumstances (such as haste in execution or failure to produce owner's duplicate title) should have prompted further inquiry.
• Effect of Failure to Appear at Pre-trial: Under Section 5, Rule 18 of the Revised Rules of Court, a defendant's failure to appear during pre-trial allows the plaintiff to present evidence ex parte and the court to render judgment based thereon. The deletion of the phrase "as in default" in the amended rule does not change the retained effects similar to default: the party loses the right to adduce evidence but retains the right to appeal, though it cannot seek modification or reversal of the judgment based on its own evidence.
• Factual Questions in Rule 45: The ascertainment of good faith or the lack thereof and the determination of negligence are factual matters which lay outside the scope of a petition for review on certiorari under Rule 45; the Supreme Court is bound by the factual findings of the Court of Appeals when supported by evidence.

• "The settled rule that persons dealing with registered lands can rely solely on the certificate of title does not apply to banks. Banks are expected to exercise more care and prudence than private individuals in their dealings, even those involving registered lands, since their business are impressed with public interest."
• "The haste in the execution of the real estate mortgage on the subject property which is barely two months after its alleged sale and transfer of registration in favor of Techico is a badge of bad faith which should have placed Malayan Bank on guard before it proceeded with the transaction."
• "Indeed, Malayan Bank was shown to be wanting in the exercise of extraordinary diligence required of it as a banking institution in approving the mortgage contract in favor of Techico."
• "For its absence during the pre-trial, in addition to its failure to file a pre-trial brief, Malayan Bank lost its standing in court and its right to adduce evidence in its defense. However, akin to a party declared in default, Malayan Bank retained its right to appeal albeit it is proscribed from seeking a modification or reversal of the assailed decision on the basis of its own evidence, for if it were otherwise, it would thereby be allowing it to regain its right to adduce evidence, a right which it lost in the trial court when the plaintiff was allowed to present evidence ex parte."

• Arguelles, et al. v. Malarayat Rural Bank, Inc., 730 Phil. 226 (2014) — Cited for the principle that the issue of whether a mortgagee is in good faith generally cannot be entertained in a petition filed under Rule 45 as it is a factual matter.
• Philippine Trust Co. v. Hon. Court of Appeals, 650 Phil. 54 (2010) — Cited for the doctrine that the rule allowing reliance solely on the certificate of title does not apply to banks, which must exercise greater care and prudence.
• Ultra Mar Aqua Resource, Inc. v. Fermida Construction Services, 808 Phil. 648 (2017) — Cited for the interpretation of Section 5, Rule 18 regarding the effects of failure to appear at pre-trial, explaining that the deletion of "as in default" was for semantic propriety but retained similar effects.
• Producers Bank of the Phil. v. Court of Appeals, 445 Phil. 702 (2003) — Cited for the rule that factual findings of courts, when adopted and confirmed by the Court of Appeals, are final and conclusive unless unsupported by evidence.

• Section 5, Rule 18 of the Revised Rules of Court — Provides that a defendant's failure to appear during pre-trial shall be a cause to allow the plaintiff's presentation of evidence ex parte and the rendition by the trial court of a judgment based on the evidence offered.
• Rule 45 of the 1997 Rules of Civil Procedure, as amended — Governs petitions for review on certiorari to the Supreme Court; limited to questions of law, not fact.

Leonen (Chairperson), Hernando, Delos Santos, and J. Lopez, JJ., concur.