Arguelles v. Malarayat Rural Bank, GR No.
200468, March 19, 2014 Case Digest
FACTS:
The late Fermina M. Guia was the registered owner of Lot 3, a parcel of agricultural land in
Barrio Pinagkurusan, Alitagtag, Batangas.
On December 1, 1990, Fermina M. Guia sold the south portion of the land to the spouses
Petronio and Macaria Arguelles. Although the spouses Arguelles immediately acquired
possession of the land, the Deed of Sale was neither registered with the Register of Deeds nor
annotated on OCT No. P-12930.
At the same time, Fermina M. Guia ordered her son Eddie Guia and the latter's wife Teresita
Guia to subdivide the land covered by OCT No. P-12930 into three lots and to apply for the
issuance of separate titles therefor, to wit: Lot 3-A, Lot 3-B, and Lot 3-C.
Thereafter, she directed the delivery of the Transfer Certificate of Title (TCT) corresponding to
Lot 3-C to the vendees of the unregistered sale or the spouses Arguelles. However, despite their
repeated demands, the spouses Arguelles claimed that they never received the TCT
corresponding to Lot 3-C from the spouses Guia.
When the lot was subdivided, Lot 3-C, which was supposed to be registered under Spouses
Arguelles was actually registered under the name of Fermina M. Guia.
On August 18, 1997, the spouses Guia obtained a loan in the amount of ₱240,000 from the
respondent Malarayat Rural Banlc and secured the loan with a Deed of Real Estate
Mortgage over Lot 3-C. The loan and Real Estate Mortgage were made pursuant to the Special
Power of Attorney purportedly executed by the registered owner of Lot 3-C, Fermina M. Guia, in
favor of the mortgagors, spouses Guia. Moreover, the Real Estate Mortgage and Special Power
of Attorney were duly annotated in the memorandum of encumbrances of TCT No. T-83944
covering Lot 3-C.
The spouses Arguelles alleged that it was only in 1997 or after seven years from the date of the
unregistered sale that they discovered from the Register of Deeds of Batangas City the fact that
the land 3-C which was suppose to be registered to them, was registered under the spouses Guia
and registered their adverse claim on the unregistered sale dated December 1, 1990 over Lot 3-C.
The spouses Arguelles filed a complaint for Annulment of Mortgage and Cancellation of
Mortgage Lien with Damages against the respondent Malarayat Rural Bank with the RTC.
In asserting the nullity of the mortgage lien, the spouses Arguelles alleged ownership over the
land that had been mortgaged in favor of the respondent Malarayat Rural Bank. On August 16,
1999, the respondent Malarayat Rural Bank filed an Answer with Counterclaim and Cross-
claim against cross-claim-defendant spouses Gui a wherein it argued that the failure of the
spouses Arguelles to register the Deed of Sale dated December 1, 1990 was fatal to their claim of
ownership.
RTC favored the Arguelles, and declared that the respondent Malarayat Rural Bank was not a
mortgagee in good faith as it failed to exercise the exacting degree of diligence required from
banking institutions.
CA reversed the decision, they held that because of the failure of the spouses Arguelles to
register their deed of sale, the unregistered sale could not affect the respondent Malarayat Rural
Bank. Thus, the respondent Malarayat Rural Bank has a better right to the land mortgaged as
compared to spouses Arguelles who were the vendees in the unregistered sale.
In addition, the CA found that the respondent Malarayat Rural Bank was a mortgagee in good
faith as it sufficiently demonstrated due diligence in approving the loan application of the
spouses Guia. Aggrieved, the petitioners filed the instant petition raismg the following issues for
resolution:
Hence, this petition
ISSUES:
The issue in this case is whether the respondent Malarayat Rural Bank is a mortgagee in good
faith who is entitled to protection on its mortgage lien.
HELD:
NO.
In Ursal v. Court of Appeals, we held that where the mortgagee is a bank, it cannot rely merely
on the certificate of title offered by the mortgagor in ascertaining the status of mortgaged
properties. Since its business is impressed with public interest, the mortgagee-bank is duty-bound
to be more cautious even in dealing with registered lands. Indeed, the rule that person dealing
with registered lands can rely solely on the certificate of title does not apply to banks. Thus,
before approving a loan application, it is a standard operating practice for these institutions to
conduct an ocular inspection of the property offered for mortgage and to verify the genuineness
of the title to determine the real owners thereof. The apparent purpose of an ocular inspection is
to protect the "true owner" of the property as well as innocent third parties with a right, interest
or claim thereon from a usurper who may have acquired a fraudulent certificate of title thereto.
In this case, we find that the respondent Malarayat Rural Bank fell short of the required degree of
diligence, prudence, and care in approving the loan application of the spouses Guia.
Respondent should have diligently conducted an investigation of the land offered as collateral.
Although the Report of Inspection and Credit Investigation found at the dorsal portion of the
Application for Agricultural Loan proved that the respondent Malarayat Rural Bank inspected
the land, the respondent turned a blind eye to the finding therein that the "lot is planted with
sugarcane with annual yield (crops) in the amount of ₱15,000."
We disagree with respondent's stance that the mere planting and harvesting of sugarcane cannot
reasonably trigger suspicion that there is adverse possession over the land offered as mortgage.
Indeed, such fact should have immediately prompted the respondent to conduct further inquiries,
especially since the spouses Guia were not the registered owners of the land being mortgaged.
They merely derived the authority to mortgage the lot from the Special Power of Attorney
allegedly executed by the late Fermina M. Guia. Hence, it was incumbent upon the respondent
Malarayat Rural Bank to be more cautious in dealing with the spouses Guia, and inquire further
regarding the identity and possible adverse claim of those in actual possession of the property.
Pertinently, in Land Bank of the Philippines v. Poblete, we ruled that "where the mortgagee
acted with haste in granting the mortgage loan and did not ascertain the ownership of the land
being mortgaged, as well as the authority of the supposed agent executing the mortgage, it
cannot be considered an innocent mortgagee."
Since the subject land was not mortgaged by the owner thereof and since the respondent
Malarayat Rural Bank is not a mortgagee in good faith, said bank is not entitled to protection
under the law. The unregistered sale in favor of the spouses Arguelles must prevail over the
mortgage lien of respondent Malarayat Rural Bank.
