Banta vs. Equitable Bank, Inc.

Factual Background

The parties’ factual narrative was undisputed. Remedios T. Banta and Antonio Banta married in 1975 but ceased cohabitation in 1991. In June 1997 the petitioner discovered that Antonio had, by forging her signature, executed a Deed of Real Estate Mortgage dated September 1, 1994, over properties in Malabon City registered under TCT Nos. M-10421, M-10422, and M-9155, securing a purported loan of P1,000,000 from Equitable Bank, Inc. She also discovered an Amendment to Real Estate Mortgage dated May 11, 1995, with additional collateral covering five properties under TCT Nos. M-1989, R-41303, R-49374, R-34869, and R-41682 securing loans of P4,500,000, likewise bearing her forged signature.

Complaint and Forensic Evidence

The petitioner filed a Complaint for Annulment of Deed of Real Estate Mortgage with Damages in the RTC of Malabon City against the Bank, Antonio, Armando, Sonia, Erlinda, and the Register of Deeds. Handwriting experts from the Philippine National Police and the National Bureau of Investigation testified and produced unrebutted evidence establishing that the petitioner’s signature was forged in the questioned documents.

RTC Ruling

The RTC rendered a Decision dated August 17, 2009. It dismissed the petitioner’s cause of action as to Armando, Sonia, and Erlinda insofar as the properties covered by TCT Nos. M-10421, M-10422, and M-9155 were registered under Armando and Erlinda. The RTC declared void the Amendment to Real Estate Mortgage covering the petitioner's and Antonio’s titled properties under TCT Nos. M-1989, R-41303, R-49374, R-34869, and R-41682, having found the petitioner’s signatures forged. The RTC found the Bank negligent for failing to exercise extraordinary diligence in accepting those properties as security without authenticating the petitioner’s signature. The RTC ordered Antonio and the Bank to cancel the mortgage agreement and to jointly and severally pay the petitioner P50,000 as attorney’s fees.

Appeals and Relief Sought

Both the petitioner and the Bank appealed to the Court of Appeals. The petitioner sought moral damages, exemplary damages, and an increase in attorney’s fees. The Bank appealed against its being held jointly and severally liable with Antonio, arguing absence of bad faith or conspiracy and contending that negligence alone did not justify imposition of damages or attorney’s fees.

Court of Appeals Ruling

The Court of Appeals in a Decision dated July 8, 2015 partly granted the appeals. It affirmed the RTC’s nullification of the Amendment to Real Estate Mortgage but modified the damages. The CA ordered Antonio to pay the petitioner moral damages of P300,000, exemplary damages of P100,000, and attorney’s fees of P100,000. The CA deleted the joint liability of Equitable Bank for attorney’s fees, reasoning that there was no showing that the Bank participated in Antonio’s forgery or acted in bad faith. The CA sustained moral and exemplary damages on the basis of Antonio’s bad faith and the petitioner’s proven psychological and mental trauma.

Issue on Appeal to the Supreme Court

The question presented to the Supreme Court was whether Equitable Bank, Inc. should be held jointly and severally liable with Antonio for the payment of moral and exemplary damages and attorney’s fees awarded to the petitioner, given the Bank’s failure to verify the authenticity of the petitioner’s signature and the evidentiary findings of forgery.

Parties’ Contentions Before the Supreme Court

The petitioner argued that the Bank, by virtue of being a financial institution, owed and failed to exercise a higher degree of diligence and prudence and that its negligence in accepting forged documents sufficed to impose joint and several liability with Antonio. The Bank countered that neither the RTC nor the CA ascribed bad faith to it and that, absent bad faith or conspiracy with Antonio, negligence alone did not warrant awards of moral or exemplary damages or attorney’s fees against a bank.

Legal Analysis and Reasoning

The Supreme Court reiterated that banks are required to exercise extraordinary diligence in their transactions and that this duty is stricter when the bank acts as purchaser or mortgagee. The Court cited precedents including Land Bank of the Philippines v. Belle Corporation, Bank of Commerce v. Spouses San Pablo, and Philippine National Bank v. Vila to articulate that banks may not rely solely on the face of certificates of title and must take further steps to verify title and inspect properties offered as security. The Court found that the Bank failed to demonstrate any procedure it actually adopted to ascertain the petitioner’s identity or the genuineness of her signature on the Amendment to Real Estate Mortgage. The Bank did not show contact with the petitioner in relation to the loan or mortgage, nor did it rebut the handwriting experts’ findings. The Court concluded that the Bank’s lapses amounted to negligence that fell short of the extraordinary diligence the banking business demands and that a bank in such circumstances is not an innocent mortgagee in good faith.

Application of Civil Code Provi