G.R. No.

142411 October 14, 2005

WINIFREDA URSAL, Petitioner,

vs.
COURT OF APPEALS, THE RURAL BANK OF LARENA (SIQUIJOR), INC. and
SPOUSES JESUS MONESET and CRISTITA MONESET, Respondents.

Doctrine:

Banks cannot merely rely on certificates of title in ascertaining the status of mortgaged
properties; as their business is impressed with public interest, they are expected to exercise more
care and prudence in their dealings than private individuals.

Facts:

Spouses Jesus and Cristita Moneset are the registered owners of a land together with a house
thereon situated at Sitio Laguna, Basak, Cebu City. On January 9, 1985, they executed a
"Contract to Sell Lot & House" in favor of petitioner Winifreda Ursal. Petitioner paid the down
payment and took possession of the property but after paying six monthly installments, petitioner
stopped paying due to the Monesets’ failure to deliver to her the transfer certificate of title of the
property as per their agreement. Unknown to petitioner, the Monesets executed another absolute
deed of sale in favor of Dr. Rafael Canora, Jr. and another subsequent sale, this time with pacto
de retro with Restituto Bundalo. On the same day, Bundalo, as attorney-in-fact of the Monesets,
executed a real estate mortgage over said property with Rural Bank of Larena located in Siquijor
for the amount of ₱100,000.00. Ursal filed an action for declaration of non-effectivity of
mortgage against the Bank. She claimed that the Bank acted in bad faith since it granted the real
estate mortgage in spite of its knowledge that the property was in the possession of petitioner.

Issue:

Whether or not the Bank, as mortgagee, failed to look beyond the transfer certificate of title of
the property for which it must be held liable.

Ruling:

Yes. Banks cannot merely rely on certificates of title in ascertaining the status of mortgaged
properties; as their business is impressed with public interest, they are expected to exercise more
care and prudence in their dealings than private individuals. Indeed, the rule that persons dealing
with registered lands can rely solely on the certificate of title does not apply to banks. As
enunciated in Cruz vs. Bancom:

Respondent… is not an ordinary mortgagee; it is a mortgagee-bank. As such, 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. The ascertainment of the status or
condition of a property offered to it as security for a loan must be a standard and
indispensable part of its operations.