The Importance of Diligence for Banks in Property Transactions

BPI Family Savings Bank, Inc. v. Spouses Jacinto Servo Soriano and Rosita Fernandez Soriano, G.R. No. 214939, June 08, 2020

Imagine purchasing your dream home, only to discover years later that the title you hold is a product of fraud. This nightmare became a reality for the Soriano spouses, leading to a landmark Supreme Court decision that reshaped the responsibilities of banks in property transactions.

The case centered around two parcels of land owned by the Sorianos in Baguio City. Through a series of fraudulent acts, including forged affidavits and deeds, the titles to these properties were transferred to impostors who then used them as collateral for loans. The central legal question was whether the bank, BPI Family Savings Bank, acted in good faith when it accepted these fraudulent titles as security for loans.

Legal Context: The Doctrine of Mortgagee in Good Faith

The doctrine of mortgagee in good faith is a cornerstone of Philippine property law, rooted in the Torrens system of land registration. This system aims to provide certainty in property transactions by allowing parties to rely on the information presented in the certificate of title.

However, the Supreme Court has clarified that this doctrine does not apply to banks in the same way it does to private individuals. Banks are held to a higher standard of diligence due to their role in the economy and the public’s trust in them. As stated in Arguelles v. Malarayat Rural Bank, Inc., “banks are expected to exercise greater care and prudence in their dealings, including those involving registered lands.”

This elevated standard is crucial because it protects not only the bank but also the true owners of the property and innocent third parties. For instance, if a bank fails to verify the authenticity of a title or the authority of the person presenting it, it risks facilitating fraud and leaving rightful owners without recourse.

The relevant legal provision here is Section 4, Rule 74 of the Rules of Court, which deals with the cancellation of liabilities on titles. The Court emphasized that banks must go beyond the face of the title and conduct thorough investigations, especially when the property’s ownership is in question.

Case Breakdown: A Tale of Fraud and Negligence

The Soriano spouses owned two parcels of land in Chapis Village, Baguio City. In 2004, Rey Viado, using forged signatures, caused the execution of an Affidavit of Loss and a Special Power of Attorney, leading to the issuance of new titles in his name.

Subsequently, Viado transferred these titles to Jessica Jose and Vanessa Hufana, who used them to secure loans from Maria Luzviminda Patimo and BPI Family Savings Bank, respectively. The Sorianos, upon discovering these fraudulent transfers, filed cases to annul the sales and reconvey the titles to their names.

The Regional Trial Court (RTC) initially found that the signatures on the documents were forged, but it ruled that both Patimo and BPI Family acted in good faith. The Court of Appeals (CA) disagreed regarding BPI Family, finding that the bank did not exercise the required diligence.

The Supreme Court upheld the CA’s ruling, emphasizing that BPI Family should have been more cautious. The Court noted, “BPI Family could have discovered all these circumstances had it simply contacted the spouses Soriano or their attorney-in-fact Cruz, which it never did.”

The Court further explained that the bank’s failure to verify the ownership status of the property, despite knowing that the title was still in the Sorianos’ name when the loan was applied for, was a clear sign of negligence. “Given the heightened standard of diligence imposed upon it by law, BPI Family should not have presumed… that ‘it was natural and regular that the TCT and other documents of ownership still indicated the spouses Soriano as owners of the property.’”

Practical Implications: Lessons for Future Transactions

This ruling sets a precedent that banks must conduct thorough due diligence when dealing with real property as collateral. It emphasizes the need for banks to verify the authenticity of titles and the authority of the person presenting them, especially when there are red flags, such as a discrepancy in the title’s ownership.

For property owners, this case underscores the importance of safeguarding their titles and being vigilant about any unauthorized transactions. It also highlights the need for prompt action if fraudulent activities are suspected.

Key Lessons:

• Banks must exercise heightened diligence in property transactions, going beyond the face of the title.
• Property owners should regularly monitor their titles and act quickly if they suspect fraud.
• Legal recourse is available to victims of property fraud, but early detection and action are crucial.

Frequently Asked Questions

What is the doctrine of mortgagee in good faith?

The doctrine allows a mortgagee to rely on the certificate of title without needing to investigate further, assuming the title is valid and the property is registered in the mortgagor’s name.

Why are banks held to a higher standard of diligence?

Banks play a vital role in the economy and are entrusted with public funds, necessitating greater care to protect both their interests and those of the public.

What should banks do to verify property titles?

Banks should conduct ocular inspections, verify the title’s history, and confirm the authority of the person presenting the title, especially if there are discrepancies.

Can property owners recover their titles if they are fraudulently transferred?

Yes, but they must act quickly and provide evidence of the fraud. Legal action can lead to the annulment of the fraudulent transfer and the reinstatement of the original title.

What are the potential damages in cases of property fraud?

Victims can seek actual, moral, and exemplary damages, as well as attorney’s fees, depending on the extent of the fraud and the negligence of involved parties.

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