OBLIGATIONS AND CONTRACTS

G.R. No. 147788Date: 19 March 2002

EDILBERTO CRUZ, ET AL. vs. BANCOM FINANCE CORPORATION (NOW UNIONBANK OF THE PHILIPPINES),Petitioner(s): Edilberto Cruz ET ALRespondent: Bancom Finance Corporation.

Facts:

In 1978, Norma Sulit offered to purchase an agricultural land owned by brothers Rev.

Fr.Edilberto Cruz and Simplicio Cruz. The asking price was P700,000, but Sulit only had

P25,000,which Fr. Cruz accepted as earnest money. Sulit failed to pay the

balance.Capitalizing on the close relationship of a Candelaria Sanchez with the brothers,

Sulit succeededin having Cruz execute a document of sale of the land in favor of Sanchez for

P150,000.Pursuant to the sale, Sulit was able to transfer the title of the land in her

name.Evidence show that aside from the P150,000, Sanchez undertook to pay the brothers

the amountof P655,000, representing the balance of the actual price of the land. Later, in a

SpecialAgreement, Sulit assumed Sanchez’s obligation to pay said amount. Unbeknownst to

the Cruz brothers, Sulit managed to obtain a loan from Bancom secured by a mortgage over

the land.Upon failure on the part of Sulit to pay the balance, the Cruz brothers filed this

complaint for reconveyance of the land.Meanwhile, Sulit defaulted in her payment to the

bank so her mortgage was foreclosed. Bancomwas declared the highest bidder and was

issued a certificate of title over the land

Mark Buñag ART 1345-1346(Essential Requisites of Contracts)02/ 21/ 2013

OBLIGATIONS AND CONTRACTS

Issue(s):

Whether or not Bancom was a mortgagee in good faith.

Held:

NO. As a general rule, every person dealing with registered land may safely rely on the

correctness of the certificate of title and is no longer required to look behind the certificate

in order todetermine the actual owner.This rule is, however, subject to the right of a person

deprived of land through fraud to bring anaction for reconveyance, provided the rights of

innocent purchasers for value and in good faithare not prejudiced. An innocent purchaser

for value or any equivalent phrase shall be deemed,under Section 38 of the Act 496, to

include an innocent lessee, mortgagee or any other encumbrancer for value.Bancom claims

that, being an innocent mortgagee, it should not be required to conduct anexhaustive

investigation on the history of the mortgagor’s title before it could extend a loan.Bancom,

however, is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike

privateindividuals, it is expected to exercise greater care and prudence in its dealings,

including thoseinvolving registered lands. A banking institution is expected to exercise due

diligence beforeentering into a mortgage contract. The ascertainment of the status or

condition of a propertyoffered to it as security for a loan must be a standard and

indispensable part of its operations

Mark Buñag ART 1345-1346(Essential Requisites of Contracts)02/ 21/ 2013