Philippine National Bank vs. Corpuz

A bank cannot be considered a mortgagee in good faith when it deliberately ignores significant facts—such as rapid successive transfers and ridiculously low purchase prices in the title's history—that would create suspicion in a reasonable person and prompt further inquiry.

Mercedes Corpuz delivered her owner’s duplicate copy of Transfer Certificate of Title (TCT) 32815 to Dagupan City Rural Bank as security against any liability she might incur as its cashier. After she left for the United States, the bank cancelled its lien on the title, but the bank manager, without Corpuz’s knowledge or consent, turned over the title to third parties who falsified deeds of sale. This initiated a series of rapid transfers culminating in a mortgage to PNB.

• Delivery of Title: On October 4, 1974, respondent Mercedes Corpuz delivered her owner’s duplicate copy of TCT 32815 to Dagupan City Rural Bank as security against any liability she might incur as its cashier. She later left her job and went to the United States.
• Fraudulent Transfer: On October 24, 1994, the rural bank cancelled its lien on the title because Corpuz had incurred no liability. Without her knowledge and consent, bank manager Natividad Alano turned over the title to Julita Camacho and Amparo Callejo. Conniving with someone from the assessor’s office, Alano, Camacho, and Callejo prepared a falsified deed of sale making it appear that on February 23, 1995, Corpuz sold the land to "Mary Bondoc" for ₱50,000.00, resulting in the cancellation of TCT 32815 and the issuance of TCT 63262 in Bondoc’s name.
• Subsequent Transfers: On March 27, 1995, the trio executed another fictitious deed of sale with "Mary Bondoc" selling the property to spouses Rufo and Teresa Palaganas for ₱15,000.00, resulting in TCT 63466. Nine days later, on April 5, 1995, the Palaganases executed a deed of sale in favor of spouses Virgilio and Elena Songcuan for ₱50,000.00, resulting in TCT 63528.
• Mortgage to PNB: On August 10, 1995, the Songcuans took out a loan of ₱1.1 million from petitioner PNB and executed a real estate mortgage on their title. Before granting the loan, PNB had the title verified and the property inspected. PNB gave the property an appraised value of ₱781,760.00.
• Action for Annulment: On November 20, 1995, Corpuz filed a complaint before the RTC seeking the annulment of the layers of deeds of sale, the cancellation of TCTs 63262, 63466, and 63528, and the reinstatement of TCT 32815 in her name.

• Due Diligence Exercised: Petitioner argued that it conducted a credit investigation, inspected the property, and verified the clean status of the title before granting the loan to the Songcuans.
• Mortgagee in Good Faith: Petitioner maintained that the precautions it took constitute sufficient compliance with the due diligence required of banks when dealing with registered lands, entitling it to be regarded as a mortgagee in good faith.

• Mortgagee in Good Faith: Whether petitioner PNB is a mortgagee in good faith, entitling it to its lien on the title to the property in dispute.

• Mortgagee in Good Faith: PNB is not a mortgagee in good faith. While an ordinary mortgagee is not expected to conduct an exhaustive investigation of the mortgagor’s title, banks are expected to be more cautious because their business is imbued with public interest. PNB was informed of the previous TCTs covering the property during its verification, which showed that ownership changed from Corpuz to Bondoc, to the Palaganases, to the Songcuans in less than three months, and was mortgaged within four months of the last transfer. This information should have driven PNB to examine the deeds of sale, where it would have discovered that the property was sold for ridiculously low prices (₱50,000.00, ₱15,000.00, and ₱50,000.00) compared to its appraised value of ₱781,760.00. Anyone who deliberately ignores a significant fact that would create suspicion in an otherwise reasonable person cannot be considered an innocent mortgagee for value.

• Doctrine of Mortgagee in Good Faith for Banks — While the general rule is that a mortgagee need not conduct an exhaustive investigation of the history of the mortgagor’s title, banks are expected to exercise a higher degree of caution than ordinary individuals in dealing with registered lands because their business is imbued with public interest. A bank that deliberately ignores a significant fact that would create suspicion in an otherwise reasonable person—such as rapid successive transfers and disproportionately low purchase prices—cannot be considered a mortgagee in good faith.

• "Anyone who deliberately ignores a significant fact that would create suspicion in an otherwise reasonable person cannot be considered as an innocent mortgagee for value." — This principle was applied to deny PNB's claim of good faith, emphasizing that the suspicious transfer history and low prices should have prompted further inquiry.

• Development Bank of the Philippines v. Court of Appeals, 387 Phil. 283 (2000) — Cited for the rule that an ordinary mortgagee is not expected to conduct an exhaustive investigation, and for the principle that ignoring suspicious facts precludes a finding of good faith.
• Cruz v. Bancom Finance Corporation (now Union Bank of the Philippines), 429 Phil. 225 (2002) — Cited to establish that a bank is not an ordinary mortgagee and is held to a higher standard of diligence.
• Heirs of Manlapat v. Court of Appeals, 498 Phil. 453 (2005) — Cited for the proposition that the business of banks is imbued with public interest, requiring more caution in dealing with lands.
• Cavite Development Bank v. Spouses Lim, 381 Phil. 355 (2000) — Cited for the judicial notice that the standard practice for banks before approving a loan is to verify the genuineness of the title and determine the real owners.

Antonio T. Carpio, Arturo D. Brion, Mariano C. del Castillo, Jose P. Perez