Oblicon_Central Bank vs CA

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46 SUPREME COURT REPORTS ANNOTATED

Central Bank of the Philippines vs. Court of Appeals

No. L-45710. October 3, 1985.*

CENTRAL BANK OF THE PHILIPPINES and ACTINGDIRECTOR ANTONIO T. CASTRO, JR. OF THEDEPARTMENT OF COMMERCIAL AND SAVINGSBANK, in his capacity as statutory receiver of IslandSavings Bank, petitioners, vs. THE HONORABLE COURTOF APPEALS and SULPICIO M. TOLENTINO,respondents.

Banks; Obligations; Loans; Where a bank approved a loan for P80,000.00 but was able to deliver only P1 7,000.00, it is in default for P63,000.00 to the borrower.When Island Savings Bank andSulpicio M. Tolentino entered into an P80,000.00 loan agreementon April 28, 1965, they undertook reciprocal obligations. Inreciprocal obligations, the obligation or promise of each party isthe consideration for that of the other (Penaco vs. Ruaya, 110SCRA 46 [1981]; Vda. de Quirino vs. Pelarca, 29 SCRA 1 [1969]);and when one party has performed or is ready and willing toperform his part of the contract, the other party who has notperformed or is not ready and willing to perform incurs in delay(Art. 1169 of the Civil Code). The promise of Sulpicio M. Tolentinoto pay was the consideration for the obligation of Island SavingsBank to furnish the ?80,000.00 loan. When Sulpicio M. Tolentinoexecuted a real estate mortgage on April 28, 1965, he signified his

willingness to pay the P80,000.00 loan. From such date, theobligation of Island Savings Bank to furnish the P80,000.00 loanaccrued. Thus, the Bank's delay in furnishing the entire loanstarted

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* SECOND DIVISION.


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VOL. 139, OCTOBER 3, 1985 47


on April 28, 1965, and lasted for a period of 3 years or when theMonetary Board of the Central Bank issued Resolution No. 967 onJune 14, 1968, which prohibited Island Savings Bank from doingfurther business. Such prohibition made it legally impossible forIsland Savings Bank to furnish the P63,000.00 balance of theP80,000.00 loan. The power of the Monetary Board to take overinsolvent banks for the protection of the public is recognized bySection 29 of R.A. No. 265, which took effect on June 15, 1948, the

validity of which is not in question.Same; Same; Same; The fact that the creditor is insolvent or

was stopped by the Central Bank from granting further loans is nodefense to its fulfillment to extend the loan applied for andapproved by it to the full amount.The Monetary BoardResolution No. 1049 issued on August 13, 1965 cannot interruptthe default of Island Savings Bank in complying with itsobligation of releasing the P63,000.00 balance because saidresolution merely prohibited the Bank from making new loans

and investments, and nowhere did it prohibit Island SavingsBank from releasing the balance of loan agreements previouslycontracted. Besides, the mere pecuniary inability to fulfill anengagement does not discharge the obligation of the contract, nordoes it constitute any defense to a decree of specific performance(Gutierrez Repide vs. Afzelius and Afzelius, 39 Phil. 190 [1918]).

And, the mere fact of insolvency of a debtor is never an excuse forthe non-fulfillment of an obligation but instead it is taken as abreach of the contract by him (Vol. 17A, 1974 ed., CJS p. 650).

Same; Same; Same; Acceptance of refund of excess pre-deducted interest for a supposed loan of P80,000.00 does notconstitute a waiver of right to collect the P63,000.00 unreleasedbalance of the P80,000.00 loans.The fact that Sulpicio M.Tolentino demanded and accepted the refund of the pre-deductedinterest amounting to P4,800.00 for the supposed P80,000.00 loancovering a 6-month period cannot be taken as a waiver of his rightto collect the P63,000.00 balance. The act of Island Savings Bank,


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in asking the advance interest for 6 months on the supposedP80,000.00 loan, was improper considering that only P17,000.00out of the P80,000.00 loan was released. A person cannot belegally charged interest for a non-existing debt. Thus, the receiptby Sulpicio M. Tolentino of the pre-deducted interest was anexercise of his right to it, which right exist independently of hisright to demand the completion of the P80,000.00 loan. The

exercise of one right does not affect, much less neutralize, theexercise of the other.

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Same; Same; Same; The bank must not rely onrepresentations by its borrowers of the value of their collaterals.The bank shall bear the risk in case of over-valuation.The merereliance by bank officials and employees on their customer'srepresentation regarding the loan collateral being offered as loansecurity is a patent non-performance of this responsibility. If ever,bank officials and employees totally rely on the representation of their customers as to the valuation of the loan collateral, the bankshall bear the risk in case the collateral turn out to be over-valued. The representation made by the customer is immaterial to

the bank's responsibility to conduct its own investigation.Furthermore, the lower court, on objections of Sulpicio M.Tolentino, had enjoined petitioners from presenting proof on thealleged over-valuation because of their failure to raise the same intheir pleadings (pp. 198-199, t.s.n., Sept. 15, 1971). The lowercourt's action is sanctioned by the Rules of Court, Section 2, Rule9, which states that "defenses and objections not pleaded either ina motion to dismiss or in the answer are deemed waived."Petitioners, thus, cannot raise the same issue before the SupremeCourt.

Same; Same; Same; Due to CB prohibition, release of theentire loan cannot be granted; only rescission of the loanagreement to the extent of the unreleased loan balance can be

granted by the courts. Rescission is the only alternative remedyleft. WE rule, however, that rescission is only for the P63,000.00balance of the P80,000.00 loan, because the bank is in default onlyinsofar as such amount is concerned, as there is no doubt that the


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bank failed to give the P63,000.00. As far as the partial release of P17,000.00, which Sulpicio M. Tolentino accepted and executed apromissory note to cover it, the bank was deemed to havecomplied with its reciprocal obligation to furnish a P17,000.00loan.

Same; Same; Same; A bank borrower who did not pay the partial loan release as per the terms of the promissory note signed

by him is in default to that extent even if the entire loan cannot bereleased anymore.The promissory note gave rise to Sulpicio M.Tolentino's reciprocal obligation to pay the P17,000.00 loan whenit falls due. His failure to pay the overdue amortizations underthe promissory note made him a party in default, hence notentitled to rescission (Article 1191 of the Civil Code). If there is aright to rescind the promissory note, it shall belong to theaggrieved party, that is, Island Savings Bank. If Tolentino hadnot signed a promissory note setting the date for payment of P17,000.00 within 3 years, he would be entitled to ask forrescission of the entire loan because he cannot possibly be in

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VOL. 139, OCTOBER 3, 1985 49


default as there was no date for him to perform his reciprocalobligation to pay.

Same; Same; Same; Damages; Where the bank failed torelease the entire approved loan, but the borrower also failed to

pay the partial loan release he got after it fell due, both are indefault and their respective liability for damages shall be offsetequitably, exclusive of the interest due on the overdue loan portion.

Article 1192 of the Civil Code provides that in case both partieshave committed a breach of their reciprocal obligations, theliability of the first infractor shall be equitably tempered by thecourts, WE rule that the liability of Island Savings Bank fordamages in not furnishing the entire loan is offset by the liabilityof Sulpicio M. Tolentino for damages, in the form of penalties andsurcharges, for not paying his overdue P17,000.00 debt. Theliability of Sulpicio M. Tolentino for interest on his P17,000.00debt shall not be included in offsetting the liabilities of both


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parties. Since Sulpicio M. Tolentino derived some benefit for hisuse of the P17,000.00, it is just that he should account for theinterest thereon.

Same; Same; Same; Mortgages; Where only P 17,000.00 of theapproved P80,000.00 loan was released, the real estate mortgagethereon can be foreclosed only to the extent of 21.25%.SinceIsland Savings Bank failed to furnish the P63,000.00 balance of

the P80,000.00 loan, the real estate mortgage of Sulpicio M.Tolentino became unenforceable to such extent. P63,000.00 is78.75% of P80,000.00, hence the real estate mortgage covering100 hectares is unenforceable to the extent of 78.75 hectares, Themortgage covering the remainder of 21.25 hectares subsists as asecurity for the P17,000.00 debt 21.25 hectares is more thansufficient to secure a P17,000.00 debt.

Same; Same; Same; Same; Rule of indivisibility of a mortgageunder Art. 2089, NCC does not apply where bank released only

part of the approved mortgage loan.The rule of indivisibility, of a real estate mortgage provided for by Article 2089 of the CivilCode is inapplicable to the facts of this case. x x x The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted presupposes several heirs of the debtor or creditor whichdoes not obtain in this case. Hence, the rule of indivisibility of amortgage cannot apply.

PETITION for certiorari to review the decision of the Courtof Appeals.

The facts are stated in the opinion of the Court.

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I.B. Regalado, Jr. , Fabian S. Lombos and Marino E.Eslao for petitioners.

Antonio R. Tupaz for private respondent,

MAKASIAR, C.J.:

This is a petition for review on certiorari to set aside asnull and void the decision of the Court of Appeals, in C.A.-G.R. No. 52253-R dated February 11, 1977, modifying the


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decision dated February 15, 1972 of the Court of FirstInstance of Agusan, which dismissed the petition of respondent Sulpicio M. Tolentino for injunction, specificperformance or rescission, and damages with preliminaryinjunction.

On April 28, 1965, Island Savings Bank, upon favorablerecommendation of its legal department, approved the loan

application for P80,000.00 of Sulpicio M. Tolentino, who, asa security for the loan. executed on the same day a realestate mortgage over his 100-hectare land located in Cubo,Las Nieves, Agusan, and covered by TCT No. T-305, andwhich mortgage was annotated on the said title the nextday. The approved loan application called for a lump sumP80,000.00 loan, repayable in semi-annual installments fora period of 3 years, with 12% annual interest. It wasrequired that Sulpicio M. Tolentino shall use the loanproceeds solely as an additional capital to develop his otherproperty into a subdivision.

On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the Bank; and SulpicioM. Tolentino and his wife Edita Tolentino signed apromissory note for P17,000.00 at 12% annual interest,payable within 3 years from the date of execution of thecontract at semi-annual installments of P3,459.00 (p. 64,rec.). An advance interest for the P80,000.00 loan coveringa 6-month period amounting to P4,800.00 was deducted

from the partial release of P17,000.00. But this pre-deducted interest was refunded to Sulpicio M. Tolentino onJuly 23, 1965, after being informed by the Bank that therewas no fund yet available for the release of the P63,000.00balance (p. 47, rec.). The Bank, thru its vicepresident andtreasurer, promised repeatedly the release of theP63,000.00 balance (p. 113, rec.).

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On August 13, 1965, the Monetary Board of the CentralBank, after finding Island Savings Bank was sufferingliquidity problems, issued Resolution No. 1049, whichprovides:


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"In view of the chronic reserve deficiencies of the Island SavingsBank against its deposit liabilities, the Board, by unanimous vote,decided as follows:

"1) To prohibit the bank from making new loans and investments [except

investments in government securities] excluding extensions or renewals

of already approved loans, provided that such extensions or renewals

shall be subject to review by the Superintendent of Banks, who may

impose such limitations as may be necessary to insure correction of the

bank's deficiency as soon as possible;

x x x x" (p. 46, rec.).

On June 14, 1968, the Monetary Board, after finding thatIsland Savings Bank failed to put up the required capital torestore its solvency, issued Resolution No. 967 whichprohibited Island Savings Bank from doing business in thePhilippines and instructed the Acting Superintendent of Banks to take charge of the assets of Island Savings Bank(pp. 48-49, rec.).

On August 1, 1968, Island Savings Bank, in view of nonpayment of the P 17,000.00 covered by the promissorynote, filed an application for the extra-judicial foreclosureof the real estate mortgage covering the 100-hectare land of Sulpicio M. Tolentino; and the sheriff scheduled the auctionfor January 22, 1969.

On January 20, 1969, Sulpicio M. Tolentino filed apetition with the Court of First Instance of Agusan for

injunction, specific performance or rescission and damageswith preliminary injunction, alleging that since IslandSavings Bank failed to deliver the P63,000.00 balance of the P80,000.00 loan. he is entitled to specific performanceby ordering Island Savings Bank to deliver the P63,000.00with interest of 12% per annum from April 28, 1965, and if said balance cannot be delivered, to rescind the real estatemortgage (pp. 32-43, rec.).

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On January 21, 1969, the trial court, upon the filing of aP5,000.00 surety bond, issued a temporary restrainingorder enjoining the Island Savings Bank from continuing


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1.

2.

3.

with the foreclosure of the mortgage (pp. 86-87, rec.).On January 29, 1969, the trial court admitted the

answer in intervention praying for the dismissal of thepetition of Sulpicio M. Tolentino and the setting aside of the restraining order, filed by the Central Bank and by the

Acting Superintendent of Banks (pp. 65-76, rec.).On February 15, 1972, the trial court, after trial on the

merits, rendered its decision, finding unmeritorious thepetition of Sulpicio M. Tolentino, ordering him to payIsland Savings Bank the amount of P17,000.00 plus legalinterest and legal charges due thereon, and lifting therestraining order so that the sheriff may proceed with theforeclosure (pp. 135-136, rec.).

On February 11, 1977, the Court of Appeals, on appealby Sulpicio M. Tolentino, modified the Court of FirstInstance decision by affirming the dismissal of Sulpicio M.Tolentino's petition for specific performance, but it ruledthat Island Savings Bank can neither foreclose the realestate mortgage nor collect the P1 7,000.00 loan (pp. 30-31,rec.).

Hence, this instant petition by the Central Bank.The issues are:

Can the action of Sulpicio M. Tolentino for specificperformance prosper?Is Sulpicio M. Tolentino liable to pay the P1

7,000.00 debt covered by the promissory note?If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists, can his real estate mortgage beforeclosed to satisfy said amount?

When Island Savings Bank and Sulpicio M. Tolentinoentered into an P80,000.00 loan agreement on April 28,1965, they undertook reciprocal obligations. In reciprocalobligations, the obligation or promise of each party is theconsideration for that of the other (Penaco vs. Ruaya, 110SCRA 46

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VOL. 139, OCTOBER 3, 1985 53

Central Bank of the Philippines vs, Court of Appeals


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[1981]; Vda. de Quirino vs. Pelarca, 29 SCRA 1 [1969]); andwhen one party has performed or is ready and willing toperform his part of the contract, the other party who hasnot performed or is not ready and willing to perform incursin delay (Art. 1169 of the Civil Code). The promise of Sulpicio M. Tolentino to pay was the consideration for theobligation of Island Savings Bank to furnish the P80,000.00

loan. When Sulpicio M. Tolentino executed a real estatemortgage on April 28, 1965, he signified his willingness topay the P80,000.00 loan. From such date, the obligation of Island Savings Bank to furnish the P80,000.00 loanaccrued. Thus, the Bank's delay in furnishing the entireloan started on April 28, 1965, and lasted for a period of 3years or when the Monetary Board of the Central Bankissued Resolution No. 967 on June 14, 1968, whichprohibited Island Savings Bank from doing furtherbusiness. Such prohibition made it legally impossible forIsland Savings Bank to furnish the P63,000.00 balance of the P80,000.00 loan. The power of the Monetary Board totake over insolvent banks for the protection of the public isrecognized by Section 29 of R.A. No. 265, which took effecton June 15, 1948, the validity of which is not in question.

The Monetary Board Resolution No. 1049 issued on August 13, 1965 cannot interrupt the default of IslandSavings Bank in complying with its obligation of releasingthe P63,000.00 balance because said resolution merely

prohibited the Bank from making new loans andinvestments, and nowhere did it prohibit Island SavingsBank from releasing the balance of loan agreementspreviously contracted. Besides, the mere pecuniaryinability to fulfill an engagement does not discharge theobligation of the contract, nor does it constitute any defenseto a decree of specific performance (Gutierrez Repide vs.

Afzelius and Afzelius, 39 Phil. 190 [1918]), And, the merefact of insolvency of a debtor is never an excuse for thenonfulfillment of an obligation but instead it is taken as a

breach of the contract by him (Vol. 17A, 1974 ed., CJS p.650).

The fact that Sulpicio M. Tolentino demanded andaccepted the refund of the pre-deducted interest amountingto P4,800.00 for the supposed P80,000.00 loan .covering a6-month period cannot be taken as a waiver of his right tocollect the


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P63,000.00 balance. The act of Island Savings Bank, in

asking the advance interest for 6 months on the supposedP80,000.00 loan, was improper considering that only P17,000.00 out of the P80,000.00 loan was released. A personcannot be legally charged interest for a non-existing debt.Thus, the receipt by Sulpicio M. Tolentino of the pre-deducted interest was an exercise of his right to it, whichright exist independently of his right to demand thecompletion of the P80,000.00 loan. The exercise of one rightdoes not affect, much less neutralize, the exercise of theother.

The alleged discovery by Island Savings Bank of theovervaluation of the loan collateral cannot exempt it fromcomplying with its reciprocal obligation to furnish theentire P80,000.00 loan. This Court previously ruled thatbank officials and employees are expected to exercisecaution and prudence in the discharge of their functions(Rural Bank of Caloocan, Inc. vs. C.A., 104 SCRA 151[1981]). It is the obligation of the bank's officials andemployees that before they approve the loan application of

their customers, they must investigate the existence andvaluation of the properties being offered as a loan security.The recent rush of events where collaterals for bank loansturn out to be non-existent or grossly over-valuedunderscore the importance of this responsibility. The merereliance by bank officials and employees on theircustomer's representation regarding the loan collateralbeing offered as loan security is a patent non-performanceof this responsibility. If ever, bank officials and employeestotally rely on the representation of their customers as tothe valuation of the loan collateral, the bank shall bear therisk in case the collateral turn out to be over-valued. Therepresentation made by the customer is immaterial to thebank's responsibility to conduct its own investigation.Furthermore, the lower court, on objections of Sulpicio M.Tolentino, had enjoined petitioners from presenting proof on the alleged over-valuation because of their failure toraise the same in their pleadings (pp. 198-199, t.s.n., Sept.


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15, 1971). The lower court's action is sanctioned by theRules of Court, Section 2, Rule 9, which states that"defenses and objections not pleaded either in a motion todismiss or in the answer are deemed waived." Petitioners,thus, cannot raise the same issue before the SupremeCourt.

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Since Island Savings Bank was in default in fulfilling itsreciprocal obligation under their loan agreement, SulpicioM. Tolentino, under Article 1191 of the Civil Code, maychoose between specific performance or rescission with

damages in either case. But since Island Savings Bank isnow prohibited from doing further business by MonetaryBoard Resolution No. 967, WE cannot grant specificperformance in favor of Sulpicio M. Tolentino.

Rescission is the only alternative remedy left. WE rule,however, that rescission is only for the P63,000.00 balanceof the P80,000.00 loan, because the bank is in default onlyinsofar as such amount is concerned, as there is no doubtthat the bank failed to give the P63,000.00. As far as thepartial release of P17,000.00, which Sulpicio M. Tolentinoaccepted and executed a promissory note to cover it, thebank was deemed to have complied with its reciprocalobligation to furnish a P17,000.00 loan. The promissorynote gave rise to Sulpicio M. Tolentino's reciprocalobligation to pay the P17,000.00 loan when it falls due. Hisfailure to pay the overdue amortizations under thepromissory note made him a party in default, hence notentitled to rescission (Article 1191 of the Civil Code). If there is a right to rescind the promissory note, it shall

belong to the aggrieved party, that is, Island Savings Bank.If Tolentino had not signed a promissory note setting thedate for payment of P17,000.00 within 3 years, he would beentitled to ask for rescission of the entire loan because hecannot possibly be in default as there was no date for himto perform his reciprocal obligation to pay.

Since both parties were in def ault in the perf ormanceof their respective reciprocal obligations, that is, Island


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Savings Bank failed to comply with its obligation to furnishthe entire loan and Sulpicio M. Tolentino failed to complywith his obligation to pay his P17,000.00 debt within 3years as stipulated, they are both liable for damages.

Article 1192 of the Civil Code provides that in case bothparties have committed a breach of their reciprocalobligations, the liability of the first infractor shall be

equitably tempered by the courts. WE rule that the liabilityof Island Savings Bank for damages in not furnishing theentire loan is offset by

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the liability of Sulpicio M. Tolentino for damages, in theform of penalties and surcharges, for not paying hisoverdue P17,000.00 debt. The liability of Sulpicio M.Tolentino for interest on his P17,000.00 debt shall not beincluded in offsetting the liabilities of both parties. SinceSulpicio M. Tolentino derived some benefit for his use of the P17,000.00, it is just that he should account for theinterest thereon.

WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be entirely foreclosed tosatisfy his P17,000.00 debt.

The consideration of the accessory contract of real estatemortgage is the same as that of the principal contract(Banco de Oro vs. Bayuga, 93 SCRA 443 [1979]). For thedebtor, the consideration of his obligation to pay is theexistence of a debt. Thus, in the accessory contract of realestate mortgage, the consideration of the debtor infurnishing the mortgage is the existence of a valid,voidable, or unenforceable debt (Art. 2086, in relation to

Art. 2052, of the Civil Code).The fact that when Sulpicio M. Tolentino executed his

real estate mortgage, no consideration was then inexistence, as there was no debt yet because Island SavingsBank had not made any release on the loan, does not makethe real estate mortgage void for lack of consideration. It isnot necessary that any consideration should pass at thetime of the execution of the contract of real mortgage


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(Bonnevie vs. C.A., 125 SCRA 122 [1983]). It may either bea prior or subsequent matter. But when the considerationis subsequent to the mortgage, the mortgage can take effectonly when the debt secured by it is created as a bindingcontract to pay (Parks vs. Sherman, Vol. 176 N.W. p. 583,cited in the 8th ed., Jones on Mortgage, Vol. 2, pp. 5-6).

And, when there is partial failure of consideration, the

mortgage becomes unenforceable to the extent of suchfailure (Dow, et al. vs. Poore, Vol. 172 N.E. p. 82, cited in Vol. 59, 1974 ed. CJS, p. 138). Where the indebtednessactually owing to the holder of the mortgage is less thanthe sum named in the mortgage, the mortgage cannot beenforced for more than the actual sum due (MetropolitanLife Ins. Co. vs. Peterson, Vol. 19, F(2d) p. 88, cited in 5thed., Wiltsie on Mortgage, Vol. 1, p. 180).

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Since Island Savings Bank failed to furnish the P63,000.00balance of the P80,000.00 loan, the real estate mortgage of Sulpicio M. Tolentino became unenforceable to such extent.P63,000.00 is 78.75% of P80,000.00, hence the real estatemortgage covering 100 hectares is unenforceable to theextent of 78.75 hectares. The mortgage covering theremainder of 21.25 hectares subsists as a security for theP1 7,000.00 debt. 21.25 hectares is more than sufficient tosecure a P1 7,000.00 debt.

The rule of indivisibility of a real estate mortgageprovided for by Article 2089 of the Civil Code isinapplicable to the facts of this case.

Article 2089 provides:

"A pledge or mortgage is indivisible even though the debt may bedivided among the successors in interest of the debtor or creditor.

'Therefore, the debtor's heirs who has paid a part of the debtcan not ask for the proportionate extinguishment of the pledge ormortgage as long as the debt is not completely satisfied.

"Neither can the creditor's heir who have received his share of the debt return the pledge or cancel the mortgage, to the prejudiceof other heirs who have not been paid."


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1.

2.

3.

The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted presupposes several heirs of thedebtor or creditor which does not obtain in this case.Hence, the rule of indivisibility of a mortgage cannot apply.

WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11, 1977 IS HEREBY MODIFIED, AND

SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREINPETITIONERS THE SUM OF P17,000.00, PLUSP41,210.00 REPRESENTING 12% INTEREST PER

ANNUM COVERING THE PERIOD FROM MAY 22, 1965 TO AUGUST 22. 1985, AND 12%INTEREST ON THE TOTAL AMOUNT COUNTEDFROM AUGUST 22, 1985 UNTIL PAID;IN CASE SULPICIO M. TOLENTINO FAILS

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TO PAY, HIS REAL ESTATE MORTGAGECOVERING 21.25 HECTARES SHALL BE

FORECLOSED TO SATISFY HIS TOTALINDEBTEDNESS; ANDTHE REAL ESTATE MORTGAGE COVERING78.75 HECTARES IS HEREBY DECLAREDUNENFORCEABLE AND IS HEREBY ORDEREDRELEASED IN FAVOR OF SULPICIO M.TOLENTINO.

NO COSTS. SO ORDERED.

Concepcion, Jr., Escolin, Cuevas and Alampay, JJ.,concur.

Aquino (Chairman) and Abad Santos, JJ., no part.

Decision modified.

Notes .A bank is a moneyed institute founded tofacilitate the borrowing, lending, and safekeeping of money


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and to deal in notes, bills of exchange and credits.(Republic vs. Security Credit and Acceptance Corporation,19 SCRA 58.)

It is incumbent on the part of the mortgagee bank toprove its allegation that it was in good faith in extending amortgage loan to a person who later appeared to havedeceived the court into issuing to her a new Torrens Title

based on her petition when she was not actually an heir of the registered owner who is still alive. (Tomas vs. Tomas,97 SCRA 280.)

A bank is required to exercise due care and prudence bymaking proper inquiry where a person borrows money andmortgages another person's property to secure the loan.(Rural Bank of Caloocan us. Court of Appeals, 104 SCRA 151.)

Where Torrens Title were issued as a result of regularland registration proceedings and were later given assecurity to a bank loan, the subsequent declaration of saidtorrens titles as null and void, does not authorize thecancellation of the mortgaged rights of the bank whichacted in good faith. (Penuliar vs. Philippine National Bank,120 SCRA 171.)

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