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OBLIGATIONS AND CONTRACTS

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

EDILBERTO CRUZ, ET AL. vs. BANCOM FINANCE CORPORATION (NOW UNIONBANK OF THE PHILIPPINES),
Petitioner(s): Edilberto Cruz ET AL Respondent: 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 Sanchezs 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 Buag Contracts) 02/ 21/ 2013

ART 1345-1346(Essential Requisites of

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 mortgagors 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 Buag Contracts) 02/ 21/ 2013

ART 1345-1346(Essential Requisites of