China Bank v. Lagon (G.R. No. 160843)

Facts:

Jao asked for a credit accommodation from petitioner bank to be secured by a parcel of land in the name of Maria Lago, as authorized by a SPA. Jao obtained more various loans on the same line, all of which were secured by mortgage over the lots of Maria Lago again allegedly through a SPA. The loans matured but were unpaid and petitioner bank moved for the extra-judicial foreclosure of the said properties but were prevented by a TRO of the court. During the pendency of the case, Jao and Maria Lagon died. The court then rendered a decision in favor of petitioner bank finding that the signatures in the SPA were authentic. CA reversed the decision and declared the SPA and mortagages null and void.

Issue:

Whether or not petitioner bank exercised due diligence in extending the loan to Jao.

Ruling: NO.

Moreover, petitioner could not be considered a mortgagee in good faith. It had knowledge that respondent was in the United States at the time the SPAs were allegedly executed, yet, it did not question their due execution. Though petitioner is not expected to conduct an exhaustive investigation on the history of the mortgagor’s title, it cannot be excused from the duty of exercising the due diligence required of a banking institution. Banks are expected to exercise more care and prudence than private individuals in their dealings, even those that involve registered lands, for their business is affected with public interest.

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