GR 200468; (March, 2014) (Digest)
G.R. No. 200468 , March 19, 2014
MACARIA ARGUELLES and the HEIRS OF THE DECEASED PETRONIO ARGUELLES, Petitioners, vs. MALARAYAT RURAL BANK, INC., Respondent.
FACTS
Fermina M. Guia was the registered owner of an agricultural lot (Lot 3). On December 1, 1990, she sold a portion of this lot (approx. 1,350 sqm) to spouses Petronio and Macaria Arguelles. This Deed of Sale was not registered or annotated on the title. Fermina later directed her son, Eddie Guia, and his wife, Teresita, to subdivide the lot and apply for separate titles, with the instruction to deliver the title for the subdivided portion (Lot 3-C) to the Arguelles spouses. The subdivision was accomplished, and TCT No. T-83944 for Lot 3-C was issued in Fermina’s name, but the title was never delivered to the Arguelles spouses. On August 18, 1997, spouses Eddie and Teresita Guia obtained a loan from Malarayat Rural Bank, secured by a Real Estate Mortgage over Lot 3-C, pursuant to a Special Power of Attorney purportedly executed by Fermina. The mortgage was annotated on the title. The Arguelles spouses discovered these facts in 1997 and registered an adverse claim in 1999. They then filed a complaint for Annulment of Mortgage and Cancellation of Mortgage Lien. The Regional Trial Court (RTC) ruled in favor of the Arguelles spouses, declaring the mortgage null and void, finding the bank was not a mortgagee in good faith. The Court of Appeals (CA) reversed the RTC, dismissing the complaint, holding that the unregistered sale could not affect the bank and that the bank was a mortgagee in good faith.
ISSUE
Whether respondent Malarayat Rural Bank is a mortgagee in good faith entitled to protection on its mortgage lien.
RULING
No. The Supreme Court granted the petition, reversed the CA decision, and reinstated the RTC decision. The Court held that Malarayat Rural Bank was not a mortgagee in good faith. The bank failed to exercise the higher degree of diligence required when the mortgagor is not the registered owner. The property was mortgaged by spouses Guia, who were merely attorneys-in-fact under a Special Power of Attorney, not the registered owner (Fermina). The bank was negligent in not verifying the property’s actual condition and possession; the Arguelles spouses were in open, continuous, and notorious possession of the land since 1990, which should have prompted a more thorough investigation. Since the bank was not a mortgagee in good faith, it is not entitled to protection under the law. Consequently, the unregistered sale in favor of the Arguelles spouses prevails over the bank’s mortgage lien. The mortgage, its foreclosure, and the resulting certificate of sale were declared null and void.