The Importance of Good Faith in Mortgage and Property Transactions

Spouses Nestor Cabasal and Ma. Belen Cabasal v. BPI Family Savings Bank, Inc. and Alma De Leon, G.R. No. 233846, November 18, 2020

Imagine you’re about to close a deal on your dream property, only to have it fall through due to a misunderstanding about the terms of your mortgage. This scenario is not just a hypothetical; it’s the real-life situation faced by the Cabasals, whose attempt to sell their property was thwarted by a bank’s strict policy on mortgage assumptions. At the heart of their case lies the principle of abuse of rights under Philippine law, which underscores the necessity of good faith in all transactions.

In this case, the Supreme Court of the Philippines was tasked with determining whether a bank employee’s strict adherence to bank policy constituted an abuse of rights, leading to damages for the property owners. The central question was whether the actions of the bank and its employee were in bad faith, thus warranting legal relief for the petitioners.

Legal Context: Understanding the Principle of Abuse of Rights

The principle of abuse of rights, enshrined in Article 19 of the New Civil Code of the Philippines, mandates that every person must act with justice, give everyone their due, and observe honesty and good faith in the exercise of their rights. This principle is not a standalone cause of action but must be paired with other provisions, such as Articles 20 and 21, to establish liability.

Article 20 states, “Every person who, contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the same.” This article focuses on violations of existing laws that lead to injury. Meanwhile, Article 21 covers acts that, while not necessarily illegal, contravene the standards of care required by Article 19.

In the context of property and mortgage transactions, these principles ensure that all parties act fairly and transparently. For example, if a bank were to enforce its policies in a way that deliberately harms a client’s ability to sell their property, it might be considered an abuse of rights.

Case Breakdown: The Cabasals’ Journey Through the Courts

Nestor and Ma. Belen Cabasal, the petitioners, had secured a credit line from BPI Family Savings Bank to finance their build-and-sell business. They purchased two properties using this credit line and subsequently sought to sell these properties to Eloisa Guevarra Co, who agreed to assume their mortgage.

However, when Nestor approached BPI to facilitate the transfer, Alma De Leon, a bank employee, informed him that BPI would not recognize the transaction because Eloisa was not a client of the bank. Despite Nestor’s pleas and references to a previous similar transaction, De Leon insisted that the bank’s policy prohibited such an arrangement.

The deal with Eloisa fell through, and the Cabasals defaulted on their loan, leading to the foreclosure of their property by BPI. The Cabasals then filed a case for damages against BPI and De Leon, alleging bad faith and negligence.

The Regional Trial Court (RTC) initially ruled in favor of the Cabasals, finding that De Leon’s actions constituted a violation of Articles 19 and 20 of the Civil Code. However, the Court of Appeals (CA) reversed this decision, stating that De Leon’s actions were not in bad faith but were based on the bank’s policy.

The Supreme Court upheld the CA’s decision, emphasizing that bad faith must be proven by clear and convincing evidence. The Court noted, “Bad faith does not simply connote bad judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious doing of a wrong.”

The Court further explained, “The settled rule is that bad faith should be established by clear and convincing evidence since the law always presumes good faith.” In this case, the Court found no evidence that De Leon or BPI intended to cause harm to the Cabasals.

Practical Implications: Navigating Mortgage and Property Transactions

This ruling underscores the importance of understanding and adhering to the terms of mortgage agreements. For property owners, it highlights the need to carefully review and possibly negotiate the terms of their mortgage to avoid potential pitfalls in future transactions.

For banks and financial institutions, the decision reinforces the importance of clear communication of policies to clients and the need to balance strict adherence to policy with fair treatment of clients.

Key Lessons:

• Always read and understand the terms of your mortgage agreement, especially provisions related to the sale or transfer of the property.
• Communicate openly with your bank or lender about any planned transactions involving the mortgaged property.
• If faced with a policy that seems to hinder your plans, seek clarification and possibly negotiate terms with your lender.

Frequently Asked Questions

What is the principle of abuse of rights?
The principle of abuse of rights, under Article 19 of the New Civil Code, requires that individuals act with justice, fairness, and good faith in exercising their rights.

Can a bank’s strict policy be considered an abuse of rights?
A bank’s strict policy is not inherently an abuse of rights unless it is applied in bad faith or with the intent to cause harm.

What should I do if a bank’s policy affects my ability to sell my property?
Seek clarification from the bank about the policy and explore alternative solutions, such as negotiating the terms of your mortgage or finding a buyer who can secure their own financing.

How can I prove bad faith in a legal dispute?
Bad faith must be proven by clear and convincing evidence, showing a dishonest purpose or a conscious intent to cause harm.

What are the implications of this ruling for future mortgage transactions?
This ruling emphasizes the need for clear communication and understanding between borrowers and lenders regarding mortgage terms and policies.

ASG Law specializes in property and mortgage law. Contact us or email hello@asglawpartners.com to schedule a consultation.