BANKING.docx

Banking system is an indispensable institution in the

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banking system is an indispensable institution in the modern world and plays a vital role in the economic life of every civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce, banks have become an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and, most of all, confidence. Consequently, the highest degree of diligence is expected, and high standards of integrity and performance are even required, of it . 64 (Emphasis and underscoring supplied) ChanRoblesVirtualawlibrary In loan transactions, banks have the particular obligation of ensuring that clients comply with all the documentary requirements pertaining to the approval of their loan applications and the subsequent release of their proceeds. 65 If only the Bank exercised the highest degree of diligence required by the nature of its business as a financial institution, it would have discovered that (i) Golden Dragon did not comply with the approval requirement imposed by Section 18 of PD 957, and (ii) that Rapanot already paid a reservation fee and had made several installment payments in favor of Golden Dragon, with a view of acquiring Unit 2308-B2. 66 The Bank's failure to exercise the diligence required of it constitutes negligence, and negates its assertion that it is a mortgagee in good faith. On this point, this Court's ruling in the case of Far East Bank & Trust Co. v. Marquez 67 is instructive: chanRoblesvirtualLawlibrary Petitioner argues that it is an innocent mortgagee whose lien must be respected and protected, since the title offered as security was clean of any encumbrance or lien. We do not agree. "x x x As a general rule, where there is nothing on the certificate of title to indicate any cloud or vice in the ownership of the property, or any encumbrance thereon, the purchaser is not required to explore further than what the Torrens Title upon its face indicates in quest for any hidden defect or inchoate right that may subsequently defeat his right thereto. This rule, however, admits of an exception as where the purchaser or mortgagee has knowledge of a defect or lack of title in the vendor, or that he was aware of sufficient facts to induce a reasonably prudent man to inquire into the status of the property in litigation." ChanRoblesVirtualawlibrary
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Petitioner bank should have considered that it was dealing with a town house project that was already in progress. A reasonable person should have been aware that, to finance the project, sources of funds could have been used other than the loan, which was intended to serve the purpose only partially. Hence, there was need to verity whether any part of the property was already the subject of any other contract involving buyers or potential buyers. In granting the loan, petitioner bank should not have been content merely with a clean title, considering the presence of circumstances indicating the need for a thorough investigation of the existence of buyers like respondent.
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