HEIRS OF NATALIA S. CAPILI, REPRESENTED BY THEIR ATTORNEY- IN-FACT, CESAR S. CAPILI, PLAINTIFFS-APPELLEES, VS. BMS RURAL BANK, INC. AND ASTRID MEDINA, DEFENDANTS-APPELLANTS.

Heirs of Natalia Capili versus BMS Rural Bank

The Case

This is a case about the extraordinary diligence owed by a bank before it accepts a mortgage over titled property. The heirs of Natalia Capili, represented by her son Cesar Capili, sued BMS Rural Bank and Astrid Medina, the head of its Loan Department, to annul a real estate mortgage that an impostor had executed over Natalia's condominium unit. The trial court annulled the mortgage and the bank appealed. The case matters because it fixes the standard a Bar candidate must apply whenever a bank invokes the doctrine of mortgagee in good faith: a bank cannot shelter behind the face of a Torrens title when the warning signs were there for the asking.

Procedural History

Natalia Capili, represented by Cesar, filed a complaint for annulment of mortgage with damages against BMS Rural Bank, Astrid Medina, and the private individuals who allegedly conspired in the scheme. Natalia died in the United States in 2005 and was substituted by her heirs. The Regional Trial Court of Pasig City, Branch 160, rendered judgment in favor of the plaintiffs, declaring the real estate mortgage, the foreclosure proceedings, and the certificate of sale null and void, ordering the return of the owner's copy of the title, cancelling the annotations on the title, and awarding moral damages, exemplary damages, and attorney's fees. The bank appealed, assigning as errors the findings that it failed to exercise the diligence required of banks, that it was not a mortgagee in good faith, that the signature was forged, that no valid mortgage existed, and that damages were proper. The Court of Appeals is not mentioned in the decision text; the appeal was resolved by the Supreme Court, which denied it and affirmed the trial court.

Facts

Natalia Capili was the registered owner of a condominium unit in San Juan, Metro Manila, covered by a condominium certificate of title. In 2003, her son Cesar received a call from an anonymous caller who told him that the unit had been illegally mortgaged to BMS Rural Bank as security for a loan of 1,235,000 pesos supposedly obtained by Natalia. Cesar was astonished, because his mother was then residing in the United States and had last visited the Philippines in 1995. The caller said the scheme was contrived by Fe Manubay, Dina Vitor, Cecile dela Cruz, and several bank personnel. Cesar recalled that he had once lent Fe the original copy of the title, and that when it was returned and checked with the Registry of Deeds, the copy in his possession turned out to be spurious.

Cesar wrote the bank and asked it not to take further action that would aggravate the matter. The bank refused and proceeded with the foreclosure of the mortgage. It emerged as the highest bidder at the public auction, and a certificate of sale was issued in its favor. In the annulment suit, Natalia presented a Questioned Documents Report from the National Bureau of Investigation concluding that her signature on the real estate mortgage was forged, and an examiner testified to the significant differences between the questioned and the standard signatures. She also presented a Bureau of Immigration certification and various passports showing that she had neither left the United States nor set foot in the Philippines since 2001.

The bank insisted that it had observed its standard procedure and acted in good faith. Its loan officer, Eric Gonzales, testified that he checked the title with the Registry of Deeds, visited the declared residence, spoke to two persons who claimed to be Natalia's employees and to a lady outside, visited the North Harbor to check on her fruit dealership, and accompanied the applicant to the condominium and to the office of the lawyer of Dr. Jose Mendiola, to whom the title had supposedly been previously mortgaged, so that a partial release of 500,000 pesos could pay off that prior obligation. On the other hand, he admitted that he did not verify whether the passport and other documents shown were genuine, did not investigate the alleged prior mortgage, did not inquire why the business registration with the Department of Trade and Industry was barely eleven days old, and did not ask neighbors or barangay officials to confirm the applicant's identity.

Issues

• Whether or not the bank exercised the extraordinary diligence required of banking institutions in approving the loan and accepting the mortgage.
• Whether or not the bank was a mortgagee in good faith.
• Whether or not the signature of Natalia Capili on the real estate mortgage was forged.
• Whether or not a valid and perfected contract of mortgage existed between Natalia Capili and the bank.
• Whether or not the real estate mortgage, the foreclosure proceedings, and the certificate of sale are null and void.
• Whether or not the award of damages and attorney's fees was proper.

Applicable Provisions

The decision does not quote any statutory provision. It rests on the doctrine of the mortgagee in good faith, which it states in these words:

This is in deference to the public interest in upholding the indefeasibility of a certificate of title as evidence of lawful ownership of the land or of any encumbrance thereon.

That doctrine, as the Court qualifies it, is the measure against which the bank's conduct was tested.

Ruling

On the first issue, the Court held that the bank failed to exercise extraordinary diligence. The doctrine of mortgagee in good faith rests on the rule that persons dealing with property covered by a Torrens title need not go beyond what appears on its face, but banks and other financial institutions are imbued with public interest and are held to greater care and due diligence, failing which they are mortgagees in bad faith. The Court counted the omissions of the loan officer: he did not verify the genuineness of the passport and other documents, did not investigate the alleged prior mortgage in favor of Dr. Mendiola, did not inquire why the business registration was only eleven days old, and did not confirm the applicant's identity with neighbors or barangay officials. It noted the further warning signs: the name of Natalia was the only one not typewritten on the association's expense report, and the address on the title was in San Francisco, California, not the declared Cavite residence. These omissions, the Court said, are hardly indicative of good faith.

On the second issue, for the same reasons, the bank was not a mortgagee in good faith. On the third issue, the Court held that forgery was duly established. Forgery cannot be presumed and must be proved by clear, positive, and convincing evidence, and the best evidence of a forged signature is the instrument itself, established by comparison with the authentic signature. The NBI examiner demonstrated the peculiar differences in handwriting characteristics and positively declared the disputed signatures forgeries. Juxtaposed with the evidence that Natalia had not left the United States since 2001, the finding of forgery became even more relevant, for it was downright impossible for her to appear before the bank and sign the mortgage in 2003.

On the remaining issues, the Court found no justification to doubt the conclusions of the trial court and saw no reason to delve into the other issues raised. The mortgage, the foreclosure, and the certificate of sale therefore stand annulled, and the awards of moral damages, exemplary damages, and attorney's fees stand.

Doctrine

A person dealing with property covered by a Torrens certificate of title is generally not required to go beyond what appears on the face of the title, in deference to the indefeasibility of that title. But a bank or other financial institution is imbued with public interest and must exercise greater care and extraordinary diligence; failing that, it is a mortgagee in bad faith and cannot invoke the doctrine. Forgery cannot be presumed; it must be proved by clear, positive, and convincing evidence, and the fact of forgery is established by comparing the alleged forged signature with the authentic signature of the person whose signature is said to have been forged. Where the registered owner could not possibly have signed because she was abroad, the mortgage executed by an impostor is void and may be annulled.

Disposition

The Supreme Court denied the appeal and affirmed the decision of the Regional Trial Court of Pasig City, Branch 160, annulling the real estate mortgage, the foreclosure proceedings, and the certificate of sale, and upholding the awards of damages and attorney's fees in favor of the heirs of Natalia Capili.

Remember This

Memorize the line: a bank is not an ordinary mortgagee in good faith; it is held to greater care and extraordinary diligence, and failing that it is in bad faith. Examiners use this case to test the mortgagee in good faith doctrine against a forged signature and an impostor, and to test the clear and convincing evidence required to prove forgery.