Key Takeaway: Banks Must Exercise Extraordinary Diligence to Avoid Liability in Mortgage Fraud

Remedios T. Banta v. Equitable Bank, Inc. (now BDO Unibank, Inc.), G.R. No. 223694, February 10, 2021

Imagine discovering that your spouse has forged your signature on mortgage documents, putting your family’s home at risk. This nightmare became a reality for Remedios T. Banta, leading to a landmark Supreme Court decision that underscores the critical role of banks in preventing mortgage fraud. In this case, the Supreme Court ruled that banks must exercise extraordinary diligence in verifying the authenticity of signatures on mortgage documents, or risk being held liable for damages.

The case of Remedios T. Banta against Equitable Bank (now BDO Unibank, Inc.) and her estranged husband, Antonio Banta, revolved around the forgery of Remedios’ signature on mortgage documents. Antonio had used these forged documents to secure loans from the bank, putting at risk properties jointly owned by Remedios and himself. The central legal question was whether the bank could be held jointly and severally liable for damages due to its negligence in verifying the authenticity of Remedios’ signature.

Legal Context: The Role of Banks in Mortgage Transactions

Banks in the Philippines are expected to uphold a high standard of diligence due to their role in the economy and the public’s trust in their operations. The Civil Code mandates that banks exercise extraordinary diligence, a standard higher than that expected of a good father of a family. This is articulated in Article 1173 of the Civil Code, which states, “The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place.”

In the context of mortgage transactions, banks are required to verify the authenticity of signatures and the authority of individuals to mortgage properties. Failure to do so can lead to liability under the concept of quasi-delict, as outlined in Article 2176 of the Civil Code: “Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done.”

An example of this principle in action is the case of Land Bank of the Philippines v. Belle Corporation, where the Supreme Court emphasized that banks must go beyond the face of the certificate of title and take additional steps to verify the status of the property being mortgaged.

Case Breakdown: The Journey of Remedios T. Banta

Remedios and Antonio Banta were married in 1975 but had been living separately since 1991. In 1997, Remedios discovered that Antonio had forged her signature on a Deed of Real Estate Mortgage in favor of Equitable Bank, securing a loan of P1,000,000.00. Later, another document, an “Amendment to Real Estate Mortgage,” was executed with additional collateral, again bearing Remedios’ forged signature, securing a loan of P4,500,000.00.

Remedios filed a complaint for annulment of the mortgage and damages against the bank, Antonio, and others involved. The Regional Trial Court (RTC) ruled that the amendment was null and void due to the forgery but initially held the bank jointly liable with Antonio for damages. On appeal, the Court of Appeals (CA) affirmed the nullity of the amendment but absolved the bank from joint liability, arguing that there was no evidence of bad faith on the bank’s part.

Remedios appealed to the Supreme Court, arguing that the bank’s negligence in verifying her signature should hold it liable. The Supreme Court agreed, stating, “The Bank’s failure to observe the degree of diligence expected of it clearly constitutes negligence.” The Court further emphasized, “As the Bank is not a mortgagee in good faith, it should be held jointly and severally liable with Antonio in the payment of moral damages, exemplary damages, and attorney’s fees in favor of the petitioner.”

The procedural journey involved:

• Filing of the complaint in the RTC of Malabon City.
• RTC ruling on the nullity of the mortgage amendment and initial joint liability of the bank.
• Appeal to the CA, which modified the RTC’s decision by removing the bank’s joint liability.
• Final appeal to the Supreme Court, which reinstated the bank’s joint liability based on its negligence.

Practical Implications: What This Means for You

This ruling sets a precedent that banks cannot simply rely on the face of documents when accepting properties as mortgage collateral. They must actively verify the authenticity of signatures and the authority of individuals to mortgage properties. For property owners, this case highlights the importance of monitoring mortgage transactions and immediately addressing any unauthorized actions.

Key Lessons:

• Banks must implement robust verification processes to avoid liability for negligence.
• Property owners should regularly check their property titles and mortgage status.
• Individuals affected by forgery should seek legal recourse promptly to protect their rights.

Frequently Asked Questions

What is extraordinary diligence?

Extraordinary diligence is a higher standard of care required of banks and other institutions involved in public interest, going beyond the care a good father of a family would exercise.

Can a bank be held liable for accepting a forged signature?

Yes, if a bank fails to verify the authenticity of a signature and accepts it negligently, it can be held liable for damages.

What should I do if I suspect my signature has been forged on a mortgage document?

Seek legal advice immediately. File a complaint with the appropriate court and gather evidence, such as expert opinions on the forgery.

How can I protect my property from unauthorized mortgages?

Regularly monitor your property titles and mortgage status. Consider setting up alerts with the Register of Deeds for any changes to your property records.

What damages can I claim if my signature was forged on a mortgage?

You may be entitled to moral damages for the emotional distress caused, exemplary damages to set an example, and attorney’s fees if you were compelled to litigate to protect your rights.

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