EDILBERTO CRUZ, ET AL. vs.

BANCOM FINANCE CORPORATION (NOW UNIONBANK

OF THE PHILIPPINES), G.R. No. 147788, 19 March 2002
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.
Issue: whether or not Bancom was a mortgagee in good faith.
Ruling: 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 operation