A forged signature of a co-owner does not express that owner’s true intent. Where the transferee later mortgages the property, the bank’s status as a good-faith third party depends on whether it exercised the necessary degree of care when appraising and verifying the property.
Scenario overview
A house and its associated land-use rights are jointly owned by a married couple. One spouse unilaterally forges the other spouse’s signature to transfer the property to Party C. Although the certificate has been registered in Party C’s name, the couple remains in direct possession, management and use of the house and land.
Legal analysis
1. The forged signature does not reflect the co-owner’s true will
One spouse’s unilateral forgery of the other spouse’s signature is fraudulent conduct, violates a prohibition of law and does not reflect the true will of the owner of the jointly owned property. Therefore, the transfer to Party C has no legal effect from the time it was established.
2. Registration in Party C’s name does not by itself cure the invalid transaction
Although Party C has been registered as the holder on the certificate, the factual possession and use of the property remain relevant. In this scenario, the married couple continues to occupy, manage and use the house and land directly.
3. The bank must demonstrate the necessary degree of care
When appraising the mortgaged property, if the bank did not conduct an on-site inspection and therefore did not discover that the married couple was still managing and using the property, the bank has not exercised the necessary degree of care.
The same concern arises where the bank states that it conducted an appraisal but cannot provide documents or evidence showing that the couple knew of and agreed to the mortgage over the property.
The mortgage contract is also declared invalid.
In these circumstances, the bank does not satisfy the required standard of care and cannot be treated as a good-faith third party under Clause 2, Article 133 of the 2015 Civil Code. Accordingly, the mortgage contract entered into between Party C and the bank is declared invalid.
Principal provisions
- Article 123 of the 2015 Civil Code.
- Article 133 of the 2015 Civil Code, particularly Clause 2.
- Guidance in Section 1, Part II of Official Letter No. 64/TANDTC-PC dated 3 April 2019 of the Supreme People’s Court.
This article is provided for general reference and does not constitute legal advice for a specific matter. The outcome of an actual dispute depends on the documents, evidence and circumstances of each case.