G.R. No. 177803 - SPOUSES EMILIANO L. JALBAY, SR. AND MAMERTA C. JALBAY, VS. PHILIPPINE NATIONAL BANK.

Ruling

accordingly we deliberated the loan. We found nothing wrong with both appraisal and investigation reports. Q. And so, after you found nothing wrong in the loan application, what happened next? A. We approve the application, we required them to submit the original TCT. After which we prepared the corresponding Credit Agreement, the R.E.M. and we sent that to the Register of Deeds for registration. After the Register of Deeds registered, then the parties concerned signed the Credit Agreement. We gave them also the Promissory Note for them to sign as evidence that the money or funds will be released to them. [4] Verily, PNB exerted the necessary diligence in granting the loan and entering into the assailed real estate mortgage. Not only did it require Emiliano, Jr., Cinco, and the Spouses Agus to submit their biodata, duly accomplished loan application and the TCT covering the mortgaged lot, it likewise caused the subject property to be inspected and appraised, and conducted a thorough credit investigation on the persons of the borrowers. True, banks, in handling real estate transactions, are required to exert a higher degree of diligence, care, and prudence than individuals. Unlike private individuals, it is expected to exercise greater care and prudence in its dealings, including those involving registered lands. A banking institution is expected to exercise due diligence before entering into a mortgage contract. [5] Indeed, there is a situation where, despite the fact that the mortgagor is not the owner of the mortgaged property, his title being fraudulent, the mortgage contract and any foreclosure sale arising therefrom are given effect by reason of public policy. This is the doctrine of "the mortgagee in good faith," wherein buyers or mortgagees dealing with property covered by a Torrens Certificate of Title are no longer required to go beyond what appears on the face of the title. [6] However, the rule that persons dealing with registered lands can rely solely on the certificate of title is not applicable 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 veracity of the title to determine its real owners. An ocular inspection is necessary 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. [7] Here, the Court finds that PNB has complied with the required degree of diligence, prudence, and care in dealing with the mortgagor. There was also no sign or circumstance which could have possibly triggered suspicion on the banks part. Aside from the fact that the certificate of title to the subject lot is authentic and issued in the name of Emiliano Jalbay , he also appeared to have been the one occupying said property. Hence, there is no compelling reason to depart from