DEFINITION OF ENCUMBRANCE

XXX encumbrance "has been defined to be every right to, or interest in, the land which may subsist in third
persons, to the diminution of the value of the land, but consistent with the passing of the fee by the
conveyance; any (act) that impairs the use or transfer of property or real estate . . ." (42 C.J.S., p. 549).
XXX
XXX encumbrance is sometimes construed broadly to include not only liens such as mortgages and taxes, but
also attachment, LEASES, inchoate dower rights, water rights, easements, and other RESTRICTIONS on
USE." (Capitalization is Ours) (533 Pacific Reporter [second series] 9, 12).
(Melania Roxas v. Hon. Court of Appeals and Antonio Cayetano G.R. No. 92245, June 26, 1991)
Encumbrance has been defined as "[a]nything that impairs the use or transfer of property; anything which
constitutes a burden on the title; a burden or charge upon property; a claim or lien upon property." It may be a
"legal claim on an estate for the discharge of which the estate is liable; and embarrassment of the estate or
property so that it cannot be disposed of without being subject to it; an estate, interest, or right in lands,
diminishing their value to the general owner; a liability resting upon an estate."
(Republic of the Philippines v. CA et al, G.R. No. 100709, November 14, 1997)

RELIANCE OF BANKS ON CLEAN TITLE NOT ENOUGH

Primarily, it bears noting that the doctrine of "mortgagee in good faith" is based on the rule that all
persons dealing with property covered by a Torrens Certificate of Title are not required to go beyond
what appears on the face of the title. This is in deference to the public interest in upholding the
indefeasibility of a certificate of title as evidence of lawful ownership of the land or of any
encumbrance thereon.21 In the case of banks and other financial institutions, however, greater care
and due diligence are required since they are imbued with public interest, failing which renders the
mortgagees in bad faith. 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 genuineness of the title to determine the real owner(s) thereof. 22 The apparent
purpose of an ocular inspection is 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 thereto.23
(Philippine Banking Corporation v. Arturo Dy et al, G.R. No. 183774, November 14, 2012)
The general rule that a mortgagee need not look beyond the title does not apply to banks and other financial
institutions as greater care and due diligence is required of them. 48 Imbued with public interest, they "are
expected to be more cautious than ordinary individuals." 49 Thus, before approving a loan, the standard practice
for banks and other financial institutions is to conduct an ocular inspection of the property offered to be
mortgaged and verify the genuineness of the title to determine the real owner or owners thereof. 50 Failure to do
so makes them mortgagees in bad faith.
(Armando Alano v. Planters Development Bank, G.R. No. 171628, June 13, 2011)