Overvaluing Property When Does It Become A Crime Under Philippine Banking Laws

The Supreme Court recently clarified a critical question for bank employees and property appraisers: when does overvaluing a property become a criminal offense under Philippine banking laws? In Mejia v. People (G.R. No. 253026, December 6, 2023), the Court ruled that not every overvaluation is a crime — the prosecution must prove that the appraiser acted with the specific intent to influence the bank's decision.

The Case: An Appraiser's Inflated Report

Aaron Christopher Mejia worked as an in-house property appraiser for BPI Family Savings Bank. He prepared an appraisal report for a property in Antipolo City offered as collateral for a housing loan. Mejia valued the property at PHP 22,815,328.00, which became the basis for approving a loan of PHP 18,253,062.40.

When the borrower defaulted, the bank foreclosed on the property. At the public auction, the bank bid only PHP 10,333,000.00 — the value determined by an external appraiser, Royal Asia Appraisal Corporation. The bank lost PHP 7,920,062.00.

The discrepancy was striking. Mejia reported the main building as a two-storey structure with a floor area of 843.52 square meters. Both Royal Asia and the bank's own appraisal unit found the building was only one-storey (a split-level type), with a floor area of just 265 and 244.81 square meters, respectively.

The Legal Question: Malum Prohibitum or Malum In Se?

Mejia was charged with violating Section 55.1(d) of Republic Act No. 8791 (General Banking Law of 2000), in relation to Section 66 of the same law and Section 36 of Republic Act No. 7653 (New Central Bank Act).

The Regional Trial Court convicted Mejia, ruling that the offense was malum prohibitum — meaning the mere act of overvaluing was punishable regardless of intent. The Court of Appeals disagreed on this point but still affirmed the conviction.

The Supreme Court sided with the Court of Appeals: the offense is malum in se, requiring proof of criminal intent. The Court explained that while special laws generally create mala prohibita offenses, this is not an absolute rule. What controls is the text of the law. Section 55.1(d) expressly requires that the overvaluation be done "for the purpose of influencing in any way the actions of the bank." This specific intent is an essential element that the prosecution must prove beyond reasonable doubt.

Why Mejia's Conviction Stood

Despite agreeing that intent must be proven, the Court affirmed Mejia's conviction. The evidence showed more than just a difference in measurements:

• Gross disparity in valuation: Mejia's figures were more than double those of the two other appraisals.
• Misrepresentation of the building's nature: Mejia knew the building was split-level, not two-storey, yet indicated "2" in the software field.
• Failure to note the discrepancy: Mejia could have written in the remarks section that the building was split-type, but he did not. The Court found this omission telling — an appraiser acting in good faith would have flagged such an important detail.

Mejia argued that the bank's software did not recognize "1.5" as a valid number of storeys, so he entered "2" instead. The Court rejected this defense: his awareness that the figures were inaccurate, combined with his failure to clarify this in his report, showed his intent to influence the bank's lending decision.

Practical Takeaways

• Intent matters: Under Section 55.1(d) of the General Banking Law, overvaluing property is a crime only when done with the specific purpose of influencing the bank's action. A mere error in valuation, without proof of intent, may not be criminal.
• Documentation is critical: Appraisers should note any assumptions, limitations, or software-related adjustments in the remarks section of their reports. Silence on material discrepancies can be construed as evidence of bad faith.
• Gross disparity raises red flags: A valuation that is wildly out of line with independent appraisals invites scrutiny and can support an inference of criminal intent.
• Supervisor approval is not a defense: Mejia's report was approved by his supervisor, but this did not absolve him. Each person involved in the appraisal process may be held accountable for their own acts.
• Applies beyond appraisers: The prohibition covers directors, officers, employees, or agents of any bank. Anyone who aids in overvaluing security for the purpose of influencing a bank's decision may be liable.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.