Atoy is one of the five children of Jawo. Jawo was the registered owner of a fourhectare parcel of land in Sta. Cruz, Laguna covered by TCT No. 77347. When Jawodied, the owner’s duplicate of the TCT was kept by Jawo’s daughter, Akiko (sister of Atoy), who resided in the said property. Wanting to have the said four-hectare property registered under his name, Atoy got in touch with Franz who had special connections with the Register of Deeds of Sta. Cruz, Laguna. TCT No. 77347 was then cancelled and TCT No. 84660 was issued in Atoy’s name on January 29, 2013. Atoy immediately mortgaged the property to the Rural Bank of Sta. Cruz (RBSC). Upon default and after being declared the winning bidder in the extrajudicial foreclosure sale, RBSC consolidated ownership with the issuance of TCT No. 94477 in its name. How will Akiko and the other heirs of Jawo be able to successfully argue that RBSC is not an innocent purchaser for value? Explain briefly. (5 points)
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Akiko and the heirs can successfully argue that RBSC is not an innocent purchaser for value because banks are bound to exercise extraordinary diligence, requiring ocular inspection and property verification. Under settled jurisprudence, the rule permitting
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Quick check
What standard of diligence is required of banking institutions before accepting a real estate mortgage?
Banking institutions are affected with public interest and must exercise extraordinary diligence and a higher degree of care before accepting a mortgage.
Why does the mirror doctrine protecting innocent purchasers not apply with equal force to banks?
The mirror doctrine does not apply strictly to banks because their public interest status obligates them to look beyond the face of the title.
What specific action must a bank undertake prior to approving a real estate mortgage loan?
Banks are legally required to conduct an ocular inspection and investigate the rights of persons in actual physical possession.
What is the legal effect when a bank accepts a mortgage without investigating the rights of actual occupants residing on the land?
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Why can Akiko and the heirs of Jawo successfully defeat RBSC's claim as an innocent purchaser for value?
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Learn more about these topics
1. Bank Due Diligence
Under settled jurisprudence, banking institutions are affected with public interest and are expected to exercise a higher degree of diligence, care, and prudence than private individuals in their real estate transactions. While ordinary individuals purchasing or accepting a mortgage on registered land may rely on the face of a Torrens certificate of title, this rule does not apply to banks. Banks are required to look beyond the certificate of title and verify the actual physical condition and status of the property being mortgaged.
2. Ocular Inspection Duty
A bank's standard of extraordinary diligence requires conducting a thorough ocular inspection of the mortgaged property prior to approving any loan application. When the property being mortgaged is in the possession of persons other than the mortgagor, the bank is put on inquiry and has a legal duty to investigate the nature and rights of the actual occupants. Failure to conduct an ocular inspection or to inquire into the possessor's title constitutes gross negligence, depriving the bank of the status of a mortgagee in good faith.
3. Forged Certificate Effect
Under the Torrens system of land registration, a certificate of title fraudulently or illegally obtained by an imposter or fraudulent applicant cannot defeat the rights of the true registered owner or legal heirs. When a mortgage is executed on the basis of a fraudulently issued or cancelled title, a bank that fails to exercise extraordinary diligence cannot claim protection as an innocent mortgagee for value. Consequently, the fraudulent title and the subsequent foreclosure sale remain subject to cancellation and reconveyance.