Why are banks expected to exercise highest degree of diligence?

Date Published:
In the case of BANTA v. EQUITABLE BANK ET AL. (G.R. No. 223694. February 10, 2021), the Supreme Court held that banks are required to exercise the highest degree of diligence, to wit:

Time and again, the [Supreme] Court has emphasized that it is required and expected of banks to exercise the highest degree of diligence, along with high standards of integrity and performance in view of its significant role in commercial transactions, not to mention its contribution, to the economy in general.[1] "Since their business and industry are imbued with public interest, banks are required to exercise extraordinary diligence, which is more than that of a Roman paterfamilias or a good father of a family, in handling their transactions."[2] Even as a mortgagee, a bank is not relieved of its responsibility to exercise a higher degree of caution. In Land Bank of the Philippines v. Belle Corporation[3] the Court underscored the following:
When the purchaser or the mortgagee is a bank, the rule on innocent purchasers or mortgagees for value is applied more strictly. Being in the business of extending loans secured by real estate mortgage, banks are presumed to be familiar with the rules on land registration. Since the banking business is impressed with public interest, they are expected to be more cautious, to exercise a higher degree of diligence, care and prudence, than private individuals in their dealings, even those involving registered lands. Banks may not simply rely on the face of the certificate of title. Hence, they cannot assume that, simply because the title offered as security is on its face free of any encumbrances or lien, they are relieved of the responsibility of taking further steps to verify the title and inspect the properties to be mortgaged. As expected, the ascertainment of the status or condition of a properly offered to it as security for a loan must be a standard and indispensable part of a bank's operations.[4] (Citations omitted)

[1] Philippine National Bank v. Vila, 792 Phil. 86, 98-99 (2016).

[2] Philippine National Bank v. Raymundo, 802 Phil. 617, 631-632 (2016).

[3] 768 Phil. 368 (2015).

[4] Id. at 385-386.