Banking Cases Assignment

FIRST DIVISION

[G.R. No. 138569. September 11, 2003]

THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner, vs. COURT OF APPEALS and L.C. DIAZ and COMPANY, CPAs,respondents. DECISION
CARPIO, J.:

The Case Before us is a petition for review of the Decision [1] of the Court of Appeals dated 27 October 1998 and its Resolution dated 11 May 1999. The assailed decision reversed the Decision[2] of the Regional Trial Court of Manila, Branch 8, absolving petitioner Consolidated Bank and Trust Corporation, now known as Solidbank Corporation (Solidbank), of any liability. The questioned resolution of the appellate court denied the motion for reconsideration of Solidbank but modified the decision by deleting the award of exemplary damages, attorneys fees, expenses of litigation and cost of suit.

The Facts Solidbank is a domestic banking corporation organized and existing under Philippine laws. Private respondent L.C. Diaz and Company, CPAs (L.C. Diaz), is a professional partnership engaged in the practice of accounting. Sometime in March 1976, L.C. Diaz opened a savings account with Solidbank, designated as Savings Account No. S/A 200-16872-6. On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya (Macaraya), filled up a savings (cash) deposit slip for P990 and a savings (checks) deposit slip for P50. Macaraya instructed the messenger of L.C. Diaz, Ismael Calapre (Calapre), to deposit the money with Solidbank. Macaraya also gave Calapre the Solidbank passbook. Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the passbook. The teller acknowledged receipt of the deposit by returning to Calapre

the duplicate copies of the two deposit slips. Teller No. 6 stamped the deposit slips with the words DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD OFFICE. Since the transaction took time and Calapre had to make another deposit for L.C. Diaz with Allied Bank, he left the passbook with Solidbank. Calapre then went to Allied Bank. When Calapre returned to Solidbank to retrieve the passbook, Teller No. 6 informed him that somebody got the passbook.[3] Calapre went back to L.C. Diaz and reported the incident to Macaraya. Macaraya immediately prepared a deposit slip in duplicate copies with a check of P200,000. Macaraya, together with Calapre, went to Solidbank and presented to Teller No. 6 the deposit slip and check. The teller stamped the words DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD OFFICE on the duplicate copy of the deposit slip. When Macaraya asked for the passbook, Teller No. 6 told Macaraya that someone got the passbook but she could not remember to whom she gave the passbook. When Macaraya asked Teller No. 6 if Calapre got the passbook, Teller No. 6 answered that someone shorter than Calapre got the passbook. Calapre was then standing beside Macaraya. Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the deposit of a check for P90,000 drawn on Philippine Banking Corporation (PBC). This PBC check of L.C. Diaz was a check that it had long closed.[4] PBC subsequently dishonored the check because of insufficient funds and because the signature in the check differed from PBCs specimen signature. Failing to get back the passbook, Macaraya went back to her office and reported the matter to the Personnel Manager of L.C. Diaz, Emmanuel Alvarez. The following day, 15 August 1991, L.C. Diaz through its Chief Executive Officer, Luis C. Diaz (Diaz), called up Solidbank to stop any transaction using the same passbook until L.C. Diaz could open a new account.[5] On the same day, Diaz formally wrote Solidbank to make the same request. It was also on the same day that L.C. Diaz learned of the unauthorized withdrawal the day before, 14 August 1991, of P300,000 from its savings account. The withdrawal slip for the P300,000 bore the signatures of the authorized signatories of L.C. Diaz, namely Diaz and Rustico L. Murillo. The signatories, however, denied signing the withdrawal slip. A certain Noel Tamayo received the P300,000. In an Information[6] dated 5 September 1991, L.C. Diaz charged its messenger, Emerano Ilagan (Ilagan) and one Roscon Verdazola with Estafa through Falsification of Commercial Document. The Regional Trial Court of Manila dismissed the criminal case after the City Prosecutor filed a Motion to Dismiss on 4 August 1992. On 24 August 1992, L.C. Diaz through its counsel demanded from Solidbank the return of its money. Solidbank refused. On 25 August 1992, L.C. Diaz filed a Complaint[7] for Recovery of a Sum of Money against Solidbank with the Regional Trial Court of Manila, Branch 8. After trial, the trial court rendered on 28 December 1994 a decision absolving Solidbank and dismissing the complaint.

L.C. Diaz then appealed[8] to the Court of Appeals. On 27 October 1998, the Court of Appeals issued its Decision reversing the decision of the trial court. On 11 May 1999, the Court of Appeals issued its Resolution denying the motion for reconsideration of Solidbank. The appellate court, however, modified its decision by deleting the award of exemplary damages and attorneys fees.

The Ruling of the Trial Court In absolving Solidbank, the trial court applied the rules on savings account written on the passbook. The rules state that possession of this book shall raise the presumption of ownership and any payment or payments made by the bank upon the production of the said book and entry therein of the withdrawal shall have the same effect as if made to the depositor personally.[9] At the time of the withdrawal, a certain Noel Tamayo was not only in possession of the passbook, he also presented a withdrawal slip with the signatures of the authorized signatories of L.C. Diaz. The specimen signatures of these persons were in the signature cards. The teller stamped the withdrawal slip with the words Saving Teller No. 5. The teller then passed on the withdrawal slip to Genere Manuel (Manuel) for authentication. Manuel verified the signatures on the withdrawal slip. The withdrawal slip was then given to another officer who compared the signatures on the withdrawal slip with the specimen on the signature cards. The trial court concluded that Solidbank acted with care and observed the rules on savings account when it allowed the withdrawal of P300,000 from the savings account of L.C. Diaz. The trial court pointed out that the burden of proof now shifted to L.C. Diaz to prove that the signatures on the withdrawal slip were forged. The trial court admonished L.C. Diaz for not offering in evidence the National Bureau of Investigation (NBI) report on the authenticity of the signatures on the withdrawal slip for P300,000. The trial court believed that L.C. Diaz did not offer this evidence because it is derogatory to its action. Another provision of the rules on savings account states that the depositor must keep the passbook under lock and key.[10] When another person presents the passbook for withdrawal prior to Solidbanks receipt of the notice of loss of the passbook, that person is considered as the owner of the passbook. The trial court ruled that the passbook presented during the questioned transaction was now out of the lock and key and presumptively ready for a business transaction.[11] Solidbank did not have any participation in the custody and care of the passbook. The trial court believed that Solidbanks act of allowing the withdrawal of P300,000 was not the direct and proximate cause of the loss. The trial court held that L.C. Diazs negligence caused the unauthorized withdrawal. Three facts establish L.C. Diazs negligence: (1) the possession of the passbook by a person other than the depositor L.C. Diaz; (2) the presentation of a signed withdrawal receipt by an unauthorized person; and (3) the possession by an unauthorized person of a PBC check long

closed by L.C. Diaz, which check was deposited on the day of the fraudulent withdrawal. The trial court debunked L.C. Diazs contention that Solidbank did not follow the precautionary procedures observed by the two parties whenever L.C. Diaz withdrew significant amounts from its account. L.C. Diaz claimed that a letter must accompany withdrawals of more than P20,000. The letter must request Solidbank to allow the withdrawal and convert the amount to a managers check. The bearer must also have a letter authorizing him to withdraw the same amount. Another person driving a car must accompany the bearer so that he would not walk from Solidbank to the office in making the withdrawal. The trial court pointed out that L.C. Diaz disregarded these precautions in its past withdrawal. On 16 July 1991, L.C. Diaz withdrew P82,554 without any separate letter of authorization or any communication with Solidbank that the money be converted into a managers check. The trial court further justified the dismissal of the complaint by holding that the case was a last ditch effort of L.C. Diaz to recover P300,000 after the dismissal of the criminal case against Ilagan. The dispositive portion of the decision of the trial court reads:

IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING the complaint. The Court further renders judgment in favor of defendant bank pursuant to its counterclaim the amount of Thirty Thousand Pesos (P30,000.00) as attorneys fees. With costs against plaintiff. SO ORDERED.
[12]

The Ruling of the Court of Appeals The Court of Appeals ruled that Solidbanks negligence was the proximate cause of the unauthorized withdrawal of P300,000 from the savings account of L.C. Diaz. The appellate court reached this conclusion after applying the provision of the Civil Code on quasi-delict, to wit:

Article 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this chapter.
The appellate court held that the three elements of a quasi-delict are present in this case, namely: (a) damages suffered by the plaintiff; (b) fault or negligence of the

defendant, or some other person for whose acts he must respond; and (c) the connection of cause and effect between the fault or negligence of the defendant and the damage incurred by the plaintiff. The Court of Appeals pointed out that the teller of Solidbank who received the withdrawal slip for P300,000 allowed the withdrawal without making the necessary inquiry. The appellate court stated that the teller, who was not presented by Solidbank during trial, should have called up the depositor because the money to be withdrawn was a significant amount. Had the teller called up L.C. Diaz, Solidbank would have known that the withdrawal was unauthorized. The teller did not even verify the identity of the impostor who made the withdrawal. Thus, the appellate court found Solidbank liable for its negligence in the selection and supervision of its employees. The appellate court ruled that while L.C. Diaz was also negligent in entrusting its deposits to its messenger and its messenger in leaving the passbook with the teller, Solidbank could not escape liability because of the doctrine of last clear chance. Solidbank could have averted the injury suffered by L.C. Diaz had it called up L.C. Diaz to verify the withdrawal. The appellate court ruled that the degree of diligence required from Solidbank is more than that of a good father of a family. The business and functions of banks are affected with public interest. Banks are obligated to treat the accounts of their depositors with meticulous care, always having in mind the fiduciary nature of their relationship with their clients. The Court of Appeals found Solidbank remiss in its duty, violating its fiduciary relationship with L.C. Diaz. The dispositive portion of the decision of the Court of Appeals reads:

WHEREFORE, premises considered, the decision appealed from is hereby REVERSED and a new one entered. 1. Ordering defendant-appellee Consolidated Bank and Trust Corporation to pay plaintiff-appellant the sum of Three Hundred Thousand Pesos (P300,000.00), with interest thereon at the rate of 12% per annum from the date of filing of the complaint until paid, the sum of P20,000.00 as exemplary damages, and P20,000.00 as attorneys fees and expenses of litigation as well as the cost of suit; and Ordering the dismissal of defendant-appellees counterclaim in the amount of P30,000.00 as attorneys fees.
[13]

2.

SO ORDERED.

Acting on the motion for reconsideration of Solidbank, the appellate court affirmed its decision but modified the award of damages. The appellate court deleted the award of exemplary damages and attorneys fees. Invoking Article 2231[14] of the Civil Code, the appellate court ruled that exemplary damages could be granted if the defendant acted

with gross negligence. Since Solidbank was guilty of simple negligence only, the award of exemplary damages was not justified. Consequently, the award of attorneys fees was also disallowed pursuant to Article 2208 of the Civil Code. The expenses of litigation and cost of suit were also not imposed on Solidbank. The dispositive portion of the Resolution reads as follows:

WHEREFORE, foregoing considered, our decision dated October 27, 1998 is affirmed with modification by deleting the award of exemplary damages and attorneys fees, expenses of litigation and cost of suit. SO ORDERED.
[15]

Hence, this petition.

The Issues Solidbank seeks the review of the decision and resolution of the Court of Appeals on these grounds:

I.

THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER BANK SHOULD SUFFER THE LOSS BECAUSE ITS TELLER SHOULD HAVE FIRST CALLED PRIVATE RESPONDENT BY TELEPHONE BEFORE IT ALLOWED THE WITHDRAWAL OF P300,000.00 TO RESPONDENTS MESSENGER EMERANO ILAGAN, SINCE THERE IS NO AGREEMENT BETWEEN THE PARTIES IN THE OPERATION OF THE SAVINGS ACCOUNT, NOR IS THERE ANY BANKING LAW, WHICH MANDATES THAT A BANK TELLER SHOULD FIRST CALL UP THE DEPOSITOR BEFORE ALLOWING A WITHDRAWAL OF A BIG AMOUNT IN A SAVINGS ACCOUNT. THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF LAST CLEAR CHANCE AND IN HOLDING THAT PETITIONER BANKS TELLER HAD THE LAST OPPORTUNITY TO WITHHOLD THE WITHDRAWAL WHEN IT IS UNDISPUTED THAT THE TWO SIGNATURES OF RESPONDENT ON THE WITHDRAWAL SLIP ARE GENUINE AND PRIVATE RESPONDENTS PASSBOOK WAS DULY PRESENTED, AND CONTRARIWISE RESPONDENT WAS NEGLIGENT IN THE SELECTION AND SUPERVISION OF ITS MESSENGER EMERANO

II.

ILAGAN, AND IN THE SAFEKEEPING OF ITS CHECKS AND OTHER FINANCIAL DOCUMENTS. III. THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE INSTANT CASE IS A LAST DITCH EFFORT OF PRIVATE RESPONDENT TO RECOVER ITSP300,000.00 AFTER FAILING IN ITS EFFORTS TO RECOVER THE SAME FROM ITS EMPLOYEE EMERANO ILAGAN. THE COURT OF APPEALS ERRED IN NOT MITIGATING THE DAMAGES AWARDED AGAINST PETITIONER UNDER ARTICLE 2197 OF THE CIVIL CODE, NOTWITHSTANDING ITS FINDING THAT PETITIONER BANKS NEGLIGENCE WAS ONLY CONTRIBUTORY.
[16]

IV.

The Ruling of the Court The petition is partly meritorious. Solidbanks Fiduciary Duty under the Law The rulings of the trial court and the Court of Appeals conflict on the application of the law. The trial court pinned the liability on L.C. Diaz based on the provisions of the rules on savings account, a recognition of the contractual relationship between Solidbank and L.C. Diaz, the latter being a depositor of the former. On the other hand, the Court of Appeals applied the law on quasi-delict to determine who between the two parties was ultimately negligent. The law on quasi-delict or culpa aquiliana is generally applicable when there is no pre-existing contractual relationship between the parties. We hold that Solidbank is liable for breach of contract due to negligence, or culpa contractual. The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan.[17] Article 1980 of the Civil Code expressly provides that x x x savings x x x deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. There is a debtor-creditor relationship between the bank and its depositor. The bank is the debtor and the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand. The savings deposit agreement between the bank and the depositor is the contract that determines the rights and obligations of the parties. The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of Republic Act No. 8791 (RA 8791),[18] which took effect on 13

June 2000, declares that the State recognizes the fiduciary nature of banking that requires high standards of integrity and performance.[19] This new provision in the general banking law, introduced in 2000, is a statutory affirmation of Supreme Court decisions, starting with the 1990 case of Simex International v. Court of Appeals,[20] holding that the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship.[21] This fiduciary relationship means that the banks obligation to observe high standards of integrity and performance is deemed written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family. Article 1172 of the Civil Code states that the degree of diligence required of an obligor is that prescribed by law or contract, and absent such stipulation then the diligence of a good father of a family.[22] Section 2 of RA 8791 prescribes the statutory diligence required from banks that banks must observe high standards of integrity and performance in servicing their depositors. Although RA 8791 took effect almost nine years after the unauthorized withdrawal of the P300,000 from L.C. Diazs savings account, jurisprudence[23] at the time of the withdrawal already imposed on banks the same high standard of diligence required under RA No. 8791. However, the fiduciary nature of a bank-depositor relationship does not convert the contract between the bank and its depositors from a simple loan to a trust agreement, whether express or implied. Failure by the bank to pay the depositor is failure to pay a simple loan, and not a breach of trust.[24] The law simply imposes on the bank a higher standard of integrity and performance in complying with its obligations under the contract of simple loan, beyond those required of non-bank debtors under a similar contract of simple loan. The fiduciary nature of banking does not convert a simple loan into a trust agreement because banks do not accept deposits to enrich depositors but to earn money for themselves. The law allows banks to offer the lowest possible interest rate to depositors while charging the highest possible interest rate on their own borrowers. The interest spread or differential belongs to the bank and not to the depositors who are not cestui que trust of banks. If depositors are cestui que trust of banks, then the interest spread or income belongs to the depositors, a situation that Congress certainly did not intend in enacting Section 2 of RA 8791. Solidbanks Breach of its Contractual Obligation Article 1172 of the Civil Code provides that responsibility arising from negligence in the performance of every kind of obligation is demandable. For breach of the savings deposit agreement due to negligence, or culpa contractual, the bank is liable to its depositor. Calapre left the passbook with Solidbank because the transaction took time and he had to go to Allied Bank for another transaction. The passbook was still in the hands

of the employees of Solidbank for the processing of the deposit when Calapre left Solidbank. Solidbanks rules on savings account require that the deposit book should be carefully guarded by the depositor and kept under lock and key, if possible. When the passbook is in the possession of Solidbanks tellers during withdrawals, the law imposes on Solidbank and its tellers an even higher degree of diligence in safeguarding the passbook. Likewise, Solidbanks tellers must exercise a high degree of diligence in insuring that they return the passbook only to the depositor or his authorized representative. The tellers know, or should know, that the rules on savings account provide that any person in possession of the passbook is presumptively its owner. If the tellers give the passbook to the wrong person, they would be clothing that person presumptive ownership of the passbook, facilitating unauthorized withdrawals by that person. For failing to return the passbook to Calapre, the authorized representative of L.C. Diaz, Solidbank and Teller No. 6 presumptively failed to observe such high degree of diligence in safeguarding the passbook, and in insuring its return to the party authorized to receive the same. In culpa contractual, once the plaintiff proves a breach of contract, there is a presumption that the defendant was at fault or negligent. The burden is on the defendant to prove that he was not at fault or negligent. In contrast, in culpa aquiliana the plaintiff has the burden of proving that the defendant was negligent. In the present case, L.C. Diaz has established that Solidbank breached its contractual obligation to return the passbook only to the authorized representative of L.C. Diaz. There is thus a presumption that Solidbank was at fault and its teller was negligent in not returning the passbook to Calapre. The burden was on Solidbank to prove that there was no negligence on its part or its employees. Solidbank failed to discharge its burden. Solidbank did not present to the trial court Teller No. 6, the teller with whom Calapre left the passbook and who was supposed to return the passbook to him. The record does not indicate that Teller No. 6 verified the identity of the person who retrieved the passbook. Solidbank also failed to adduce in evidence its standard procedure in verifying the identity of the person retrieving the passbook, if there is such a procedure, and that Teller No. 6 implemented this procedure in the present case. Solidbank is bound by the negligence of its employees under the principle of respondeat superior or command responsibility. The defense of exercising the required diligence in the selection and supervision of employees is not a complete defense in culpa contractual, unlike in culpa aquiliana.[25] The bank must not only exercise high standards of integrity and performance, it must also insure that its employees do likewise because this is the only way to insure that the bank will comply with its fiduciary duty. Solidbank failed to present the teller who had the duty to return to Calapre the passbook, and thus failed to prove that this teller exercised the high standards of integrity and performance required of Solidbanks employees.

Proximate Cause of the Unauthorized Withdrawal Another point of disagreement between the trial and appellate courts is the proximate cause of the unauthorized withdrawal. The trial court believed that L.C. Diazs negligence in not securing its passbook under lock and key was the proximate cause that allowed the impostor to withdraw the P300,000. For the appellate court, the proximate cause was the tellers negligence in processing the withdrawal without first verifying with L.C. Diaz. We do not agree with either court. Proximate cause is that cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury and without which the result would not have occurred.[26] Proximate cause is determined by the facts of each case upon mixed considerations of logic, common sense, policy and precedent.[27] L.C. Diaz was not at fault that the passbook landed in the hands of the impostor. Solidbank was in possession of the passbook while it was processing the deposit. After completion of the transaction, Solidbank had the contractual obligation to return the passbook only to Calapre, the authorized representative of L.C. Diaz. Solidbank failed to fulfill its contractual obligation because it gave the passbook to another person. Solidbanks failure to return the passbook to Calapre made possible the withdrawal of the P300,000 by the impostor who took possession of the passbook. Under Solidbanks rules on savings account, mere possession of the passbook raises the presumption of ownership. It was the negligent act of Solidbanks Teller No. 6 that gave the impostor presumptive ownership of the passbook. Had the passbook not fallen into the hands of the impostor, the loss of P300,000 would not have happened. Thus, the proximate cause of the unauthorized withdrawal was Solidbanks negligence in not returning the passbook to Calapre. We do not subscribe to the appellate courts theory that the proximate cause of the unauthorized withdrawal was the tellers failure to call up L.C. Diaz to verify the withdrawal. Solidbank did not have the duty to call up L.C. Diaz to confirm the withdrawal. There is no arrangement between Solidbank and L.C. Diaz to this effect. Even the agreement between Solidbank and L.C. Diaz pertaining to measures that the parties must observe whenever withdrawals of large amounts are made does not direct Solidbank to call up L.C. Diaz. There is no law mandating banks to call up their clients whenever their representatives withdraw significant amounts from their accounts. L.C. Diaz therefore had the burden to prove that it is the usual practice of Solidbank to call up its clients to verify a withdrawal of a large amount of money. L.C. Diaz failed to do so. Teller No. 5 who processed the withdrawal could not have been put on guard to verify the withdrawal. Prior to the withdrawal of P300,000, the impostor deposited with Teller No. 6 the P90,000 PBC check, which later bounced. The impostor apparently deposited a large amount of money to deflect suspicion from the withdrawal of a much bigger amount of money. The appellate court thus erred when it imposed on Solidbank

the duty to call up L.C. Diaz to confirm the withdrawal when no law requires this from banks and when the teller had no reason to be suspicious of the transaction. Solidbank continues to foist the defense that Ilagan made the withdrawal. Solidbank claims that since Ilagan was also a messenger of L.C. Diaz, he was familiar with its teller so that there was no more need for the teller to verify the withdrawal. Solidbank relies on the following statements in the Booking and Information Sheet of Emerano Ilagan:

xxx Ilagan also had with him (before the withdrawal) a forged check of PBC and indicated the amount of P90,000 which he deposited in favor of L.C. Diaz and Company. After successfully withdrawing this large sum of money, accused Ilagan gave alias Rey (Noel Tamayo) his share of the loot. Ilagan then hired a taxicab in the amount of P1,000 to transport him (Ilagan) to his home province at Bauan, Batangas. Ilagan extravagantly and lavishly spent his money but a big part of his loot was wasted in cockfight and horse racing. Ilagan was apprehended and meekly admitted his guilt. (Emphasis supplied.)
[28]

L.C. Diaz refutes Solidbanks contention by pointing out that the person who withdrew the P300,000 was a certain Noel Tamayo. Both the trial and appellate courts stated that this Noel Tamayo presented the passbook with the withdrawal slip. We uphold the finding of the trial and appellate courts that a certain Noel Tamayo withdrew the P300,000. The Court is not a trier of facts. We find no justifiable reason to reverse the factual finding of the trial court and the Court of Appeals. The tellers who processed the deposit of the P90,000 check and the withdrawal of the P300,000 were not presented during trial to substantiate Solidbanks claim that Ilagan deposited the check and made the questioned withdrawal. Moreover, the entry quoted by Solidbank does not categorically state that Ilagan presented the withdrawal slip and the passbook.

Doctrine of Last Clear Chance The doctrine of last clear chance states that where both parties are negligent but the negligent act of one is appreciably later than that of the other, or where it is impossible to determine whose fault or negligence caused the loss, the one who had the last clear opportunity to avoid the loss but failed to do so, is chargeable with the loss.[29] Stated differently, the antecedent negligence of the plaintiff does not preclude him from recovering damages caused by the supervening negligence of the defendant, who had the last fair chance to prevent the impending harm by the exercise of due diligence.[30] We do not apply the doctrine of last clear chance to the present case. Solidbank is liable for breach of contract due to negligence in the performance of its contractual obligation to L.C. Diaz. This is a case of culpa contractual, where neither the contributory negligence of the plaintiff nor his last clear chance to avoid the loss, would

exonerate the defendant from liability.[31] Such contributory negligence or last clear chance by the plaintiff merely serves to reduce the recovery of damages by the plaintiff but does not exculpate the defendant from his breach of contract. [32]

Mitigated Damages Under Article 1172, liability (for culpa contractual) may be regulated by the courts, according to the circumstances. This means that if the defendant exercised the proper diligence in the selection and supervision of its employee, or if the plaintiff was guilty of contributory negligence, then the courts may reduce the award of damages. In this case, L.C. Diaz was guilty of contributory negligence in allowing a withdrawal slip signed by its authorized signatories to fall into the hands of an impostor. Thus, the liability of Solidbank should be reduced. In Philippine Bank of Commerce v. Court of Appeals,[33] where the Court held the depositor guilty of contributory negligence, we allocated the damages between the depositor and the bank on a 40-60 ratio. Applying the same ruling to this case, we hold that L.C. Diaz must shoulder 40% of the actual damages awarded by the appellate court. Solidbank must pay the other 60% of the actual damages. WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION. Petitioner Solidbank Corporation shall pay private respondent L.C. Diaz and Company, CPAs only 60% of the actual damages awarded by the Court of Appeals. The remaining 40% of the actual damages shall be borne by private respondent L.C. Diaz and Company, CPAs. Proportionate costs. SO ORDERED. Davide, Jr., C.J., (Chairman), Vitug, and Ynares-Santiago, JJ., concur. Azcuna, J., on official leave.

[1]

Penned by Associate Justice Eugenio S. Labitoria with Associate Justices Jesus M. Elbinias, Marina L. Buzon, Godardo A. Jacinto and Candido V. Rivera, concurring, Fourth Division (Special Division of Five Justices). Penned by Judge Felixberto T. Olalia, Jr. Rollo, p. 119. Ibid., p. 229. The account must have been long dormant. Records, p. 9. Ibid., p. 34. Docketed as Civil Case No. 92-62384. Docketed as CA-G.R. CV No. 49243.

[2]

[3]

[4]

[5]

[6]

[7]

[8]

[9]

Rollo, p. 231. Ibid., p. 233. Ibid., p. 60. Ibid., p. 66. Rollo, pp. 49-50. Art. 2231. In quasi-delicts, exemplary damages may be granted if the defendant acted with gross negligence. Rollo, p. 43. Ibid., pp. 33-34. Article 1953 of the Civil Code provides: A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay the creditor an equal amount of the same kind and quality. The General Banking Law of 2000. In the United States, the prevailing rule, as enunciated by the U.S. Supreme Court in Bank of Marin v. England, 385 U.S.

[10]

[11]

[12]

[13]

[14]

[15]

[16]

[17]

[18]

[19]

Padilla, Davide, Jr., Bellosillo and Kapunan, JJ., concur.

The Lawphil Project - Arellano Law Foundation

Consolidated Bank vs CA GR No. 114286, 19 April 2001 356 SCRA 671 FACTS Continental Cement Corp obtained from Consolidated Bank letter of credit used to purchased 500,000 liters of bunker fuel oil. Respondent Corporation made a marginal deposit to petitioner. A trust receipt was executed by respondent corporation, with respondent Gregory Lim as signatory. Claiming that respondents failed to turn over the goods or proceeds, petitioner filed a complaint for sum of money before the RTC of Manila. In their answer, respondents aver that the transaction was a simple loan and not a trust receipt one, and tht the amount claimed by petitioner did not take into account payments already made by them. The court dismissed the complaint, CA affirmed the same. ISSUE Whether or not the marginal deposit should not be deducted outright from the amount of the letter of credit. HELD No. petitioner argues that the marginal deposit should be considered only after computing the principal plus accrued interest and other charges. It could be onerous to compute interest and other charges on the face value of the letter of credit which a bank issued, without first crediting or setting off the marginal deposit which the borrower paid to it-compensation is proper and should take effect by

operation of law because the requisited in Art. 1279 are present and should extinguish both debts to the concurrent amount. Unjust enrichment.

SECOND DIVISION G.R. No. 142668.August 31, 2004 UNITED COCONUT PLANTERS BANK and LUIS MA. ONGSIAPCO, Petitioners, vs. RUBEN E. BASCO, Respondent. DECISION CALLEJO, SR., J.: This is a petition for review on certiorari assailing the Decision[1 of the Court of Appeals dated March 30, 2000, affirming, with modifications, the Decision[2 of the Regional Trial Court (RTC), Makati City, Branch 146, which found the petitioner bank liable for payment of damages and attorneys fees. The Case for the Respondent Respondent Ruben E. Basco had been employed with the petitioner United Coconut Planters Bank (UCPB) for seventeen (17) years.[3 He was also a stockholder thereof and owned 804 common shares of stock at the par value of P1.00.[4 He likewise maintained a checking account with the bank at its Las Pias Branch under Account No. 117-001520-6.[5 Aside from his employment with the bank, the respondent also worked as an underwriter at the United Coconut Planters Life Association (Coco Life), a subsidiary of UCPB since December, 1992.[6 The respondent also solicited insurance policies from UCPB employees. On June 19, 1995, the respondent received a letter from the UCPB informing him of the termination of his employment with the bank for grave abuse of discretion and authority, and breach of trust in the conduct of his job as Bank Operations Manager of its Olongapo Branch.The respondent thereafter filed a complaint for illegal dismissal, non-payment of salaries, and damages against the bank in the National Labor Relations Commission (NLRC), docketed as NLRC Cases Nos. 00-09-05354-92 and 0009-05354-93.However, the respondent still frequented the UCPB main office in Makati City to solicit insurance policies from the employees thereat.He also discussed the complaint he filed against the bank with the said employees.[7 The respondent was also employed by All-Asia Life Insurance Company as an underwriter. At one time, the lawyers of the UCPB had an informal conference with him at the head office of the bank, during which the respondent was offered money so that the case could be amicably settled.The respondent revealed the incident to some of the bank employees.[8 On November 15, 1995, Luis Ma. Ongsiapco, UCPB First Vice-President, Human Resource Division, issued a Memorandum to Jesus Belanio, the Vice-President of the Security Department, informing him that the respondents employment had been terminated as of June 19, 1995, that the latter filed charges against the bank and that the case was still on-going. Ongsiapco instructed Belanio not to allow the respondent access to all bank premises.[9 Attached to the Memorandum was a passport-size picture of the respondent. The next day, the security guards on duty were directed to strictly impose the security procedure in conformity with Ongsiapcos Memorandum.[10 On December 7, 1995, the respondent, through counsel, wrote Ongsiapco, requesting that such Memorandum be reconsidered, and that he be allowed entry into the bank premises.[11 His counsel emphasized that

In the meantime, we are more concerned with your denying Mr. Basco access to all bank premises. As you may know, he is currently connected with Cocolife as insurance agent. Given his 17-year tenure with your bank, he has established good relationships with many UCPB employees, who comprise the main source of his solicitations.In the

course of his work as insurance agent, he needs free access to your bank premises, within reason, to add the unnecessary.Your memorandum has effectively curtailed his livelihood and he is once again becoming a victim of another illegal termination, so to speak.And Shakespeare said: You take his life when you do take the means whereby he lives. Mr. Bascos work as an insurance agent directly benefits UCPB, Cocolifes mother company.He performs his work in your premises peacefully without causing any disruption of bank operations.To deny him access to your premises for no reason except the pendency of the labor case, the outcome of which is still in doubt his liability, if any, certainly has not been proven is a clear abuse of right in violation of our clients rights.Denying him access to the bank, which is of a quasi-public nature, is an undue restriction on his freedom of movementand right to make a livelihood, comprising gross violations of his basic human rights.(This is Human Rights Week, ironically). We understand that Mr. Basco has been a stockholder of record of 804 common shares of the capital stock of UCPB since July 1983.As such, he certainly deserves better treatment than the one he has been receiving from your office regarding property he partly owns.He is a particle of corporate sovereignty.We doubt that you can impose the functional equivalent of the penalty ofdestierro on our client who really wishes only to keep his small place in the sun, to survive and breathe.No activity can be more legitimate than to toil for a living.Let us live and let live.[12 In his reply dated December 12, 1995, Ongsiapco informed the respondent that his request could not be granted: As you understand, we are a banking institution; and as such, we deal with matters involving confidences of clients. This is among the many reasons why we, as a matter of policy, do not allow non-employees to have free access to areas where our employees work.Of course, there are places where visitors may meet our officers and employees to discuss business matters; unfortunately, we have limited areas where our officers and employees can entertain non-official matters. Furthermore, in keeping with good business practices, the Bank prohibits solicitation, peddling and selling of goods, service and other commodities within its premises as it disrupts the efficient performance and function of the employees. Please be assured that it is farthest from our intention to discriminate against your client.In the same vein, it is highly improper for us to carve exceptions to our policies simply to accommodate your clients business ventures.[13 The respondent was undaunted. At 5:30 p.m. of December 21, 1995, he went to the office of Junne Cacay, the Assistant Manager of the Makati Branch. Cacay was then having a conference with Bong Braganza, an officer of the UCPB Sucat Branch.Cacay entertained the respondent although the latter did have an appointment. Cacay even informed him that he had a friend who wanted to procure an insurance policy.[14 Momentarily, a security guard of the bank approached the respondent and told him that it was already past office hours. He was also reminded not to stay longer than he should in the bank premises.[15 Cacay told the guard that the respondent would be leaving shortly.[16 The respondent was embarrassed and told Cacay that he was already leaving.[17 At 1:30 p.m. of January 31, 1996, the respondent went to the UCPB Makati Branch to receive a check from Rene Jolo, a bank employee, and to deposit money with the bank for a friend.[18 He seated himself on a sofa fronting the tellers booth[19 where other people were also seated.[20 Meanwhile, two security guards approached the respondent. The guards showed him the Ongsiapcos Memorandum and told him to leave the bank premises. The respondent pleaded that he be allowed to finish his transaction before leaving. One of the security guards contacted the management and was told to allow the respondent to finish his transaction with the bank. Momentarily, Jose Regino Casil, an employee of the bank who was in the 7 th floor of the building, was asked by Rene Jolo to bring a check to the respondent, who was waiting in the lobby in front of the

tellers booth.[21 Casil agreed and went down to the ground floor of the building, through the elevator.He was standing in the working area near the Automated Teller Machine (ATM) Section[22 in the ground floor when he saw the respondent standing near the sofa[23 near the two security guards.[24He motioned the respondent to come and get the check, but the security guard tapped the respondent on the shoulder and prevented the latter from approaching Casil.The latter then walked towards the respondent and handed him the check from Jolo. Before leaving, the respondent requested the security guard to log his presence in the logbook.The guard did as requested and the respondents presence was recorded in the logbook.[25 On March 11, 1996, the respondent filed a complaint for damages against the petitioners UCPB and Ongsiapco in the RTC of Manila, alleging inter alia, that 12. It is readily apparent from this exchange of correspondence that defendant bank' acknowledged reason for barring plaintiff from its premises - the pending labor case is a mere pretense for its real vindictive and invidious intent: to prevent plaintiff, and plaintiff alone, from carrying out his trade as an insurance agent among defendant banks employees, a practice openly and commonly allowed and tolerated (encouraged even, for some favored proverbial sacred cows) in the bank premises, now being unjustly denied to plaintiff on spurious grounds. 13. Defendants, to this day, have refused to act on plaintiffs claim to be allowed even in only the limited areas where [the banks] officers and employees can entertain non-official matters and have maintained the policy banning plaintiff from all bank premises.As he had dared exercised his legal right to question his dismissal, he is being penalized with a variation of destierro, available in criminal cases where the standard however, after proper hearing, is much more stringent and based on more noble grounds than mere pique or vindictiveness. 14. This appallingly discriminatory policy resulted in an incident on January 31, 1996 at 1:30 p.m. at defendant banks branch located at its head office, which caused plaintiff tremendous undeserved humiliation, embarrassment, and loss of face.[26 15. Defendants memorandum and the consequent acts of defendants security guards, together with defendant Ongsiapcos disingenuous letter of December 12, 1995, are suggestive of malice and bad faith in derogation of plaintiffs right and dignity as a human being and citizen of this country, which acts have caused him considerable undeserved embarrassment.Even if defendants, for the sake of argument, may be acting within their rights, they cannot exercise same abusively, as they must, always, act with justice and in good faith, and give plaintiff his due.[27 The respondent prayed that, after trial, judgment be rendered in his favor, as follows: WHEREFORE, it is respectfully prayed that judgment issue ordering defendants: 1. To rescind the directive to its agents barring plaintiff from all bank premises as embodied in the memorandum of November 15, 1995, and allow plaintiff access to the premises of defendant bank, including all its branches, which are open to members of the general public, during reasonable hours, to be able to conduct lawful business without being subject to invidious discrimination; and 2. To pay plaintiff P100,000.00 as moral damages, P100,000.00 as exemplary damages, and P50,000.00 by way of attorneys fees. Plaintiff likewise prays for costs, interest, the disbursements of this action, and such other further relief as may be deemed just and equitable in the premises.[28 In their Answer to the complaint, the petitioners interposed the following affirmative defenses:

9. Plaintiff had been employed as Branch Operations Officer, Olongapo Branch, of defendant United Coconut Planters Bank. In or about the period May to June 1992, he was, together with other fellow officers and employees, investigated by the bank in connection with various anomalies.As a result of the investigation, plaintiff was recommended terminated on findings of fraud and abuse of discretion in the performance of his work.He was found by the banks Committee on Employee Discipline to have been guilty of committing or taking part in the commission of the following: a. Abuse of discretion in connection with actions taken beyond or outside the limits of his authority. b. Borrowing money from a bank client. c. Gross negligence or dereliction of duty in the implementation of bank policies or valid orders from management. d. Direct refusal or willful failure to perform, or delay in performing, an assigned task. e. Fraud or willful breach of trust in the conduct of his work. f. Falsification or forgery of bank records/documents. 10. Plaintiff thereafter decided to contest his termination by filing an action for illegal dismissal against the bank. Despite the pendency of this litigation, plaintiff was reported visiting employees of the bank in their place of work during work hours, and circulating false information concerning the status of his case against the bank, including alleged offers by management of a monetary settlement for his illegal dismissal. 11. Defendants acted to protect the banks interest by preventing plaintiffs access to the banks offices, and at the same time informing him of that decision. Plaintiff purported to insist on seeing and talking to the banks employees despite this decision, claiming he needed to do this in connection with his insurance solicitation activities, but the bank has not reconsidered. 12. The complaint states, and plaintiff has, no cause of action against defendants.[29 The petitioners likewise interposed compulsory counterclaims for damages. The Case for the Petitioners The petitioners adduced evidence that a day or so before November 15, 1995, petitioner Ongsiapco was at the 10th floor of the main office of the bank where the training room of the Management Development Training Office was located. Some of the banks management employees were then undergoing training. The bank also kept important records in the said floor.When Ongsiapco passed by, he saw the respondent talking to some of the trainees. Ongsiapco was surprised because nonparticipants in the training were not supposed to be in the premises.[30 Besides, the respondent had been dismissed and had filed complaints against the bank with the NLRC.Ongsiapco was worried that bank records could be purloined and employees could be hurt. The next day, Ongsiapco contacted the training supervisor and inquired why the respondent was in the training room the day before.The supervisor replied that he did not know why.[31 Thus, on November 15, 1995, Ongsiapco issued a Memorandum to Belanio, the Vice-President for Security Services, directing the latter not to allow the respondent access to the bank premises near the working area.[32 The said Memorandum was circulated by the Chief of Security to the security guards and bank employees.

At about 12:30 p.m. on January 31, 1996, Security Guard Raul Caspe, a substitute for the regular guard who was on leave, noticed the respondent seated on the sofa in front of the tellers booth.[33 Caspe notified his superior of the respondents presence, and was instructed not to confront the respondent if the latter was going to make a deposit or withdrawal.[34 Caspe was also instructed not to allow the respondent to go to the upper floors of the building.[35 The respondent went to the tellers booth and, after a while, seated himself anew on the sofa.Momentarily, Caspe noticed Casil, another employee of the bank who was at the working section of the Deposit Service Department (DSD), motioning to the respondent to get the check. The latter stood up and proceeded in the direction of Casils workstation.After the respondent had taken about six to seven paces from the sofa, Caspe and the company guard approached him. The guards politely showed Ongsiapcos Memorandum to the respondent and told the latter that he was not allowed to enter the DSD working area;it was lunch break and no outsider was allowed in that area.[36 The respondent looked at the Memorandum and complied. On May 29, 1998, the trial court rendered judgment in favor of the respondent.The fallo of the decision reads: WHEREFORE, premises considered, defendants are hereby adjudged liable to plaintiff and orders them to rescind and set-aside the Memorandum of November 15, 1995 and orders them to pay plaintiff the following: 1) the amount of P100,000.00 as moral damages; 2) the amount of P50,000.00 as exemplary damages; 3) P50,000.00 for and as attorneys fees; 4) Cost of suit. Defendants counterclaim is dismissed for lack of merit. SO ORDERED.[37 The trial court held that the petitioners abused their right; hence, were liable to the respondent for damages under Article 19 of the New Civil Code. The petitioners appealed the decision to the Court of Appeals and raised the following issues: 4.1 Did the appellants abuse their right when they issued the Memorandum? 4.2 Did the appellants abuse their right when Basco was asked to leave the bank premises, in implementation of the Memorandum, on 21 December 1995? 4.3. Did the appellants abuse their right when Basco was asked to leave the bank premises, in implementation of the Memorandum, on 31 January 1995? 4.4. Is Basco entitled to moral and exemplary damages and attorneys fees? 4.5. Are the appellants entitled to their counterclaim?[38 The CA rendered a Decision on March 30, 2000, affirming the decision of the RTC with modifications. The CA deleted the awards for moral and exemplary damages, but ordered the petitioner bank to pay nominal damages on its finding that latter abused its right when its security guards stopped the

respondent from proceeding to the working area near the ATM section to get the check from Casil.The decretal portion of the decision reads: WHEREFORE, the Decision of the Regional Trial Court dated May 29, 1998 is hereby MODIFIED as follows: 1. The awards for moral and exemplary damages are deleted; 2. The award for attorneys fees is deleted; 3. The order rescinding Memorandum dated November 15, 1995 is set aside; and 4. UCPB is ordered to pay nominal damages in the amount of P25,000.00 to plaintiff-appellee. Costs de oficio.[39 The Present Petition The petitioners now raise the following issues before this Court: I.Whether or not the appellate court erred when it found that UCPB excessively exercised its right to self-help to the detriment of Basco as a depositor, when on January 31, 1996, its security personnel stopped respondent from proceeding to the area restricted to UCPBs employees. II.Whether or not the appellate court erred when it ruled that respondent is entitled to nominal damages. III.
Whether or not the appellate court erred when it did not award the petitioners valid and lawful counterclaim.[40

The core issues are the following: (a) whether or not the petitioner bank abused its right when it issued, through petitioner Ongsiapco, the Memorandum barring the respondent access to all bank premises; (b) whether or not petitioner bank is liable for nominal damages in view of the incident involving its security guard Caspe, who stopped the respondent from proceeding to the working area of the ATM section to get the check from Casil; and (c) whether or not the petitioner bank is entitled to damages on its counterclaim. The Ruling of the Court On the first issue, the petitioners aver that the petitioner bank has the right to prohibit the respondent from access to all bank premises under Article 429 of the New Civil Code, which provides that: Art. 429. The owner or lawful possessor of a thing has the right to exclude any person from the enjoyment and disposal thereof. For this purpose, he may use such force as may be reasonably necessary to repel or prevent an actual or threatened unlawful physical invasion or usurpation of his property. The petitioners contend that the provision which enunciates the principle of self-help applies when there is a legitimate necessity to personally or through another, prevent not only an unlawful, actual, but also a threatened unlawful aggression or usurpation of its properties and records, and its personnel and customers/clients who are in its premises.The petitioners assert that petitioner Ongsiapco issued his Memorandum dated November 15, 1995 because the respondent had been dismissed from his employment for varied grave offenses; hence, his presence in the premises of the bank posed a threat to the integrity of its records and to the persons of its personnel. Besides, the

petitioners contend, the respondent, while in the bank premises, conversed with bank employees about his complaint for illegal dismissal against the petitioner bank then pending before the Labor Arbiter, including negotiations with the petitioner banks counsels for an amicable settlement of the said case. The respondent, for his part, avers that Article 429 of the New Civil Code does not give to the petitioner bank the absolute right to exclude him, a stockholder and a depositor, from having access to the bank premises, absent any clear and convincing evidence that his presence therein posed an imminent threat or peril to its property and records, and the persons of its customers/clients. We agree with the respondent bank that it has the right to exclude certain individuals from its premises or to limit their access thereto as to time, to protect, not only its premises and records, but also the persons of its personnel and its customers/clients while in the premises.After all, by its very nature, the business of the petitioner bank is so impressed with public trust; banks are mandated to exercise a higher degree of diligence in the handling of its affairs than that expected of an ordinary business enterprise.[41 Banks handle transactions involving millions of pesos and properties worth considerable sums of money.The banking business will thrive only as long as it maintains the trust and confidence of its customers/clients.Indeed, the very nature of their work, the degree of responsibility, care and trustworthiness expected of officials and employees of the bank is far greater than those of ordinary officers and employees in the other business firms.[42 Hence, no effort must be spared by banks and their officers and employees to ensure and preserve the trust and confidence of the general public and its customers/clients, as well as the integrity of its records and the safety and well being of its customers/clients while in its premises.For the said purpose, banks may impose reasonable conditions or limitations to access by non-employees to its premises and records, such as the exclusion of non-employees from the working areas for employees, even absent any imminent or actual unlawful aggression on or an invasion of its properties or usurpation thereof, provided that such limitations are not contrary to the law.[43 It bears stressing that property rights must be considered, for many purposes, not as absolute, unrestricted dominions but as an aggregation of qualified privileges, the limits of which are prescribed by the equality of rights, and the correlation of rights and obligations necessary for the highest enjoyment of property by the entire community of proprietors.[44 Indeed, in Rellosa vs. Pellosis,[45 we held that: Petitioner might verily be the owner of the land, with the right to enjoy and to exclude any person from the enjoymentand disposal thereof, but the exercise of these rights is not without limitations. The abuse of rights rule established in Article 19 of the Civil Code requires every person to act with justice, to give everyone his due; and to observe honesty and good faith. When right is exercised in a manner which discards these norms resulting in damage to another, a legal wrong is committed for which the actor can be held accountable. Rights of property, like all other social and conventional rights, are subject to such reasonable limitations in their enjoyment and to such reasonable restraints established by law.[46 In this case, the Memorandum of the petitioner Ongsiapco dated November 15, 1995, reads as follows: MEMO TO:MR. JESUS M. BELANIO Vice President Security Department D A T E:15 November 1995 R E :MR. RUBEN E. BASCO

Please be advised that Mr. Ruben E. Basco was terminated for a cause by the Bank on 19 June 1992.He filed charges against the bank and the case is still on-going. In view of this, he should not be allowed access to all bank premises. (Sgd.) LUIS MA. ONGSIAPCO First Vice President Human Resource Division

16 November 1995 TO:ALL GUARDS ON DUTY Strictly adhere/impose Security Procedure RE: Admission to Bank premises. For your compliance. (Signature)11/16/95 JOSE G. TORIAGA[47 On its face, the Memorandum barred the respondent, a stockholder of the petitioner bank and one of its depositors, from gaining access to all bank premises under all circumstances.The said Memorandum is all-embracing and admits of no exceptions whatsoever.Moreover, the security guards were enjoined to strictly implement the same. We agree that the petitioner may prohibit non-employees from entering the working area of the ATM section. However, under the said Memorandum, even if the respondent wished to go to the bank to encash a check drawn and issued to him by a depositor of the petitioner bank in payment of an obligation, or to withdraw from his account therein, or to transact business with the said bank and exercise his right as a depositor, he could not do so as he was barred from entry into the bank.Even if the respondent wanted to go to the petitioner bank to confer with the corporate secretary in connection with his shares of stock therein, he could not do so, since as stated in the Memorandum of petitioner Ongsiapco, he would not be allowed access to all the bank premises. The said Memorandum, as worded, violates the right of the respondent as a stockholder or a depositor of the petitioner bank, for being capricious and arbitrary. The Memorandum even contravenes Article XII, paragraph 4 (4.1 and 4.2) of the Code of Ethics issued by the petitioner bank itself, which provides that one whose employment had been terminated by the petitioner bank may, nevertheless, be allowed access to bank premises, thus: 4.1 As a client of the Bank in the transaction of a regular bank-client activity. 4.2 When the offending party is on official business concerning his employment with the Bank with the prior approval and supervisionof the Head of HRD or of the Division Head, or of the Branch Head in case of branches.[48 For another, the Memorandum, as worded, is contrary to the intention of the petitioners.Evidently, the petitioners did not intend to bar the respondent from access to all bank premises under all

circumstances. When he testified, petitioner Ongsiapco admitted that a bank employee whose services had been terminated may be allowed to see an employee of the bank and may be allowed access to the bank premises under certain conditions, viz: ATTY. R. ALIKPALA QSo the permission you are referring to is merely a permission to be granted by the security guard? ANo, sir, not the security guard.The security will call the office where they are going.Because this is the same procedure they do for visitors.Anybody who wants to see anybody in the bank before they are allowed access or entry, they call up the department or the division. QSo I want to clarify, Mr. Witness.Former bank employees are not allowed within the bank premises until after the security guard call, which ever department they are headed for, and that they give the permission and they tell the security guard to allow the person? AYes, Sir, that is the usual procedure. QIf an employee resigned from the bank, same treatment? AYes, Sir. QIf an employee was terminated by the bank for cause, same treatment? AYes, Sir. QOutsiders who are not employees or who were never employees of the bank also must ask permission? AYes, Sir.Because there is a security control at the lobby. QYou mentioned that this is a general rule? AYes, Sir. QIs this rule written down in black and white anywhere? AI think this is more of a security procedure. QBut being a huge financial institution, we expect Cocobank has its procedure written down in black and white? ATTY. A. BATUHAN Your Honor, objection.Argumentative, Your Honor. There is no question posed at all, Your Honor. COURT Answer.Is there any guideline? AThere must be a guideline of the security.

QBut you are not very familiar about the security procedures? AYes, Sir. ATTY. R. ALIKPALA QMr. Ongsiapco, the agency that you hired follows certain procedures? AYes, Sir. QWhich of course are under the direct control and supervision of the bank? AYes, Sir. QAnd did the security agency have any of this procedure written down? AIt will be given to them by the Security Department, because they are under the Security Department. QBut if an employee is only entering the ground floor bank area, where customers of the bank are normally allowed, whether depositors or not, they dont need to ask for express permission, is that correct? AYes, if they are client. QEven if they are not client, but let us say they have to encash a check paid to them by someone? AHe is a client then. QBut he is not yet a client when he enters the bank premises.He only becomes you know because you do not all these people, you do not know every client of the bank so you just allow them inside the bank? AYes, the premises.[49 Petitioner Ongsiapco also testified that a former employee who is a customer/client of the petitioner bank also has access to the bank premises, except those areas reserved for its officers and employees, such as the working areas: ATTY. R. ALIKPALA QSo Mr. Witness, just for the sake of clarity.The ground floor area is where the regular consumer banking services are held?What do you call this portion? AThat is the Deposit Servicing Department. QWhere the . AWhere the people transact business. ATTY. R. ALIKAPALA QThey are freely allowed in this area?

AYes, Sir. QThis is the area where there are counters, Teller, where a personwould normally go to let us say open a bank account or to request for managers check, is that correct? AYes, Sir. QSo, in this portion, no, I mean beyond this portion, meaning the working areas and second floor up, outsiders will have to ask express permission from the security guard? AYes, Sir. QAnd you say that the security guards are instructed to verify the purpose of every person who goes into this area? AAs far as I know, sir.[50 It behooved the petitioners to revise such Memorandum to conform to its Code of Ethics and their intentions when it was issued, absent facts and circumstances that occurred pendente lite which warrant the retention of the Memorandum as presently worded. On the second issue, the Court of Appeals ruled that the petitioner bank is liable for nominal damages to the respondent despite its finding that the petitioners had the right to issue the Memorandum.The CA ratiocinated that the petitioner bank should have allowed the respondent to walk towards the restricted area of the ATM section until they were sure that he had entered such area, and only then could the guards enforce the Memorandum of petitioner Ongsiapco.The Court of Appeals ruled that for such failure of the security guards, the petitioner bank thereby abused its right of self-help and violated the respondent's right as one of its depositors: With respect, however, to the second incident on January 31, 1996, it appears that although according to UCPB security personnel they tried to stop plaintiff-appellee from proceeding to the stairs leading to the upper floors, which were limited to bank personnel only (TSN, pp. 6-9, June 4, 1997), the said act exposed plaintiff-appellee to humiliation considering that it was done in full view of other bank customers.UCPB security personnel should have waited until they were sure that plaintiff-appellee had entered the restricted areas and then implemented the memorandum order by asking him to leave the premises.Technically, plaintiff-appellee was still in the depositing area when UCPB security personnel approached him.In this case, UCPBs exercise of its right to self-help was in excess and abusive to the detriment of the right of plaintiff-appellee as depositor of said Bank, hence, warranting the award of nominal damages in favor of plaintiff-appellee.Nominal damages are adjudicated in order that a right of a plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized andnot for the purpose of indemnifying any loss suffered by him (Japan Airlines vs. Court of Appeals, 294 SCRA 19).[51 The petitioners contend that the respondent is not entitled to nominal damages and that the appellate court erred in so ruling for the following reasons: (a) the respondent failed to prove that the petitioner bank violated any of his rights; (b) the respondent did not suffer any humiliation because of the overt acts of the security guards; (c) even if the respondent did suffer humiliation, there was no breach of duty committed by the petitioner bank since its security guards politely asked the respondent not to proceed to the working area of the ATM section because they merely acted pursuant to the Memorandum of petitioner Ongsiapco, and accordingly, under Article429 of the New Civil Code, this is a case of damnum absque injuria;[52 and (d) the respondent staged the whole incident so that he could create evidence to file suit against the petitioners. We rule in favor of the petitioners.

The evidence on record shows that Casil was in the working area of the ATM section on the ground floor when he motioned the respondent to approach him and receive the check.The respondent then stood up and walked towards the direction of Casil.Indubitably, the respondent was set to enter the working area, where non-employees were prohibited entry; from there, the respondent could go up to the upper floors of the banks premises through the elevator or the stairway.Caspe and the company guard had no other recourse but prevent the respondent from going to and entering such working area.The security guards need not have waited for the respondent to actually commence entering the working area before stopping the latter.Indeed, it would have been more embarrassing for the respondent to have started walking to the working area only to be halted by two uniformed security guards and disallowed entry, in full view of bank customers.It bears stressing that the security guards were polite to the respondent and even apologized for any inconvenience caused him.The respondent could have just motioned to Casil to give him the check at the lobby near the tellers booth, instead of proceeding to and entering the working area himself, which the respondent knew to be an area offlimits to non-employees. He did not. The respondent failed to adduce evidence other than his testimony that people in the ground floor of the petitioner bank saw him being stopped from proceeding to the working area of the bank.Evidently, the respondent did not suffer embarrassment, inconvenience or discomfort which, however, partakes of the nature of damnum absque injuria, i.e. damage without injury or damage inflicted without injustice, or loss or damage without violation of legal rights, or a wrong due to a pain for which the law provides no remedy.[53 Hence, the award of nominal damages by the Court of Appeals should be deleted. On the third issue, we now hold that the petitioner bank is not entitled to damages and attorneys fees as its counterclaim.There is no evidence on record that the respondent acted in bad faith or with malice in filing his complaint against the petitioners.Well-settled is the rule that the commencement of an action does not per se make the action wrongful and subject the action to damages, for the law could not have meant to impose a penalty on the right to litigate. We reiterate case law that if damages result from a partys exercise of a right, it is damnum absque injuria.[54 IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed Decision of the Court of Appeals is REVERSED and SET ASIDE.The complaint of the respondent in the trial court and the counterclaims of the petitioners are DISMISSED. No costs. SO ORDERED. Austria-Martinez, (Acting Chairman), Tinga, and Chico-Nazario, JJ., concur. Puno, (Chairman), J., on official leave.

Endnotes:
[1 Penned by Justice Salome M. Montoya (retired), with Associate Justices Bernardo Ll. Salas (retired) and Presbitero J. Velasco (now SC Court Administrator), concurring.

FIRST DIVISION

SPOUSES VIRGILIO AND DIGNA ANASTACIO-CALINA, Petitioners,

G.R. No. 159748

Present: PUNO, C.J., Chairperson, SANDOVAL-GUTIERREZ, CORONA, AZCUNA, and GARCIA, JJ.

- versus -

DEVELOPMENT BANK OF THE PHILIPPINES, Respondent.

Promulgated: July 31, 2007

x------------------------------------------------x

DECISION PUNO, C.J.:

Before the Court is a petition for review on certiorari filed under Rule 45 of the Revised Rules of Court. Petitioner spouses VIRGILIO AND DIGNA ANASTACIO-CALINA (Spouses Calina) seek to reverse the decision[1] of the Court of Appeals in CA-G.R. CV No. 570655, which set aside the decision of the trial court dated October 14, 1996. On July 16, 1975, the Spouses Calina and respondent DEVELOPMENT BANK OF THE PHILIPPINES (DBP) entered into an agricultural (deep-sea fishing) loan agreement, whereby respondent lent to petitioners the amount of P1,356,000.00.

On July 24, 1975, as security for payment of the loan, petitioners executed a promissory note[2] in favor of respondent, promising to pay the aforementioned sum, together with 12% interest per annum, in the following manner:
- At the end of the third month after date of full release or completion of boat (if full release is not availed of), only interest and advances due shall be paid; - Thereafter, the loan shall be repayable within five (5) years, the first payment to be made on ____________ and the subsequent payments on the _____day of every three (3) months thereafter, and each of all such payments shall be NINETY ONE THOUSAND ONE HUNDRED FORTY FOUR AND 50/100 PESOS (P91,144.50), which shall cover amortizations on the principal and interest at the above mentioned rate.[3]

On the same date, petitioners also executed a Deed of Undertaking, [4] which provided the following pertinent conditions for the loan:
1. That the loan shall be utilized specifically to finance 80% of the total fixed cost portion of the loan as follows: P1,345,258.00 Acquisition of one (1) unit Purse Seine Type fishing vessel complete with engine and accessories; and Purchase of Purse Seine nets and accessories Total Fixed Cost Borrowers Equity DBP/IBRD Fund

350,000.00 P1,695,258.00 P 339,258.00 P1,356,000.00 -

2. Borrower shall put up out of his own funds the amount of P614,658.00 (P339,258.00 for fixed cost and P275,400.00 for operating cost) representing his counterpart of total project costs to be financed. Borrower shall show proof of the availability of the amount of P275,400.00 required for operating cost before initial release of the loan. 3. Borrower shall avail of the proceeds of the loan within a period of six (6) months from date of perfection of documents for the loan. xxx 5. This loan shall be secured by chattel mortgage on one (1) unit Purse Seine type fishing boat, complete with engine and accessories, including purse seine nets. xxx

10. That should the borrower fail to avail of the loan or any balance thereof within the said period and should he request for the extension thereof, he shall thereby be obligated to pay thereafter a commitment fee of of 1% per month on the unreleased proceeds of the loan until the same are fully released or cancelled upon written request of the borrower. This provision is, however, without prejudice to the right of the Bank to cancel the loan, recover such amounts as may have been already released therefrom and/or avail of the remedies provided for in the promissory note and mortgage contract or alternatively, the ordinary remedies in law should the delays in the borrowers availing of the proceeds of the loan constitute a violation of the promissory note and mortgage contract in accordance with the provisions thereof, and/or impair the security position of the Bank. 11. That the Bank reserves the right to reduce or stop releases/advances if after inspection and verification the accomplishment in the financed project does not justify giving full amount, or if the conditions of the project do not show improvements commensurate with the amounts already advanced/released. In such an event or in the event of abandonment of the project, all advances/releases made shall automatically become due and demandable and the Bank shall take such legal steps as are necessary to protect its interest. xxx 17. That the fishing vessel to be mortgaged in favor of DBP shall be covered by an all risk insurance policy. In the event that any of the fishing vessel(s) become uninsurable the borrower shall reduce the outstanding balance of the loan to the loan value of the remaining acceptable securities. xxx 21. That the borrower shall secure and submit the following: xxx c. A performance bond equivalent to 80% of hull cost to guarantee that the fishing vessel shall be constructed in accordance with the plan approved by the said Commission, within one (1) year from date of first release of loan, said performance bond to be cancelled only upon completion of the vessel and presentation to the DBP of a Certificate of Admeasurement and Safety issued by said Commission for the vessel. x x x.

Pursuant to the conditions set by the Deed of Undertaking, on July 31, 1975, Towers Assurance Corporation, acting as surety for petitioners, executed a Performance Bond for the amount of P319,085.60. In August 1975, using the first release of the loan from DBP and their own funds to pay for materials and labor costs, the Spouses Calina commenced the construction of a fishing boat on a beach in Panakan, Palawan. [5] In September 1975, the second release of the loan was given to petitioners by DBP. Petitioners used 95% of this amount to purchase one unit of a Cummins Marine Diesel Engine. Prior to installation in the fishing boat, the engine was placed in storage. On September 25, 1975, the third release of the loan was given to purchase other equipment. At this point, DBP had already released P451,589.80 to petitioners. In December 1975, petitioners requested DBP to conduct its inspection of the partially completed keel of the fishing boat. However, the inspectors of DBP were unavailable and failed to visit the construction site. In the last week of January 1976, typhoon Asyang hit Palawan, and totally destroyed the fishing boat under construction. All materials were washed out to sea. On January 26, 1978, petitioner Virgilio Calina informed the DBP of his decision to abandon the project.[6] He requested the DBP to grant him 60 days within which to sell the Cummins Marine Diesel Engine and out of the proceeds thereof, pay all his obligations to DBP. On October 3, 1978, the DBP wrote a letter to the petitioners, demanding immediate payment of P666,195.55, representing the amount of their obligation plus interest from August 18, 1978, excluding daily additional interest.[7] On December 11, prayer for the issuance Marine Diesel Engine, Corporation. Defendant 1980, DBP filed a complaint for sum of money, with a of a writ of preliminary attachment for the Cummins against the Spouses Calina and Towers Assurance Towers Assurance Corporation raised the defenses of

laches and of the fact that the surety bond was never exposed to any risk, as the amount of the debt was used for the purchase of the Cummins Marine Diesel Engine, and not for the purpose of constructing the fishing vessel. [8] The Spouses Calina filed their Answer with Counterclaim[9] for payment of damages on August 14, 1981. On October 20, 1981, the court issued the writ of attachment against the Cummins Marine Diesel Engine. In a bid to settle their financial obligations to DBP, petitioners sought buyers for the Cummins Marine Diesel Engine by advertising in several newspapers. OnSeptember 17, 1984, Pacific Power and Process Corporation offered to buy the Cummins Marine Diesel Engine [10] [11] for P600,000.00. On October 29, 1984, petitioners requested the DBP to signify its conformity to the sale. The DBP refused, and decided to sell the engine at public auction. The auction was held on March 8, 1985, but no bids were made for the engine. On August 26, 1985, DBP wrote petitioners a letter,[12] finally agreeing to the sale of the engine for P600,000.00, and the payment of the proceeds thereof as settlement for their agricultural (deep-sea fishing) loan. DBP also agreed to condone any penalty charges and interest on past due interest computed up to the date of payment of the said amount. Unfortunately, the petitioners buyer had already lost interest. [13] They tried to find other buyers but to no avail. Thus, the Cummins Marine Diesel Engine remained unsold. In the course of the trial, the parties finally came to an agreement for the disposition of the engine. On August 28, 1989, they filed a Joint Motion to Lift the Writ of Attachment so that they could sell the engine pending litigation and apply the proceeds of the sale to the payment of the Spouses Calinas outstanding account with DBP, without prejudice to whatever negotiation and agreements that the parties may enter into to settle the case amicably in the event the sales proceeds of the Cummins Marine Diesel Engine is not sufficient to pay off the total obligation.[14] The trial court granted the motion.

On February 3, 1992, the engine was sold for the sum of P550,000.00, and the amount was applied to the loan. The parties, however, could not agree whether the total amount of the loan had been fully settled, hence the trial continued. Finally, the trial court rendered its decision, the dispositive portion of which stated:
FINDINGS AND CONCLUSIONS: The Court finds that the CALINA (sic) received from DBP only the amount of P451,589.80 of the agreed P1,356,000.00 loan, and this amount was used to purchase the subject Cummins Engine. The non-completion of the vessel was caused by fortuitous event which affected both parties that the DBP novated the contract when it agreed to condone the interest and penalties but was revoked by the failure of CALINA to pay the amount of P600,000.00. However, the Court finds that the subsequent agreement of both parties to sell the subject Engine forP550,000.00 is considered by the Court as substantial compliance of the novated contract for the DBP to condone the interests and penalties, and is in fact more than sufficient to offset the loan of P451,589.80 after condonation of the interest and penalties. On the above findings, the Court concludes that, based on the subsequent novation of the contract after the project was discontinued due to fortuitous event, and with the proceeds of the mutually agreed sale of the subject Cummins Engine absorbed by the DBP, the loan obligation is considered as settled and/or fully paid. WHEREFORE, premises above considered, this case is hereby DISMISSED.[15]

On July 29, 1998, DBP filed a petition for review[16] with the Court of Appeals, assigning the following errors to the decision of the trial court:
1. The court a quo gravely erred in concluding that DBP novated the contract when it agreed to condone the interest and penalties but was revoked by the failure of Calina to pay the amount of P600,000.00; 2. The court a quo gravely erred in concluding that the subsequent agreement of both parties to sell the subject engine for P550,000.00 is considered by the [c]ourt as substantial compliance of the novated contract for the DBP to condone the interests and penalties;

3. The court a quo gravely erred in concluding that the receipt of DBP of the amount of P550,000.00 realized from the sale of the marine diesel engine is more than sufficient to offset the loan of P451,589.80 after condonation of interest and penalties. Hence, the loan obligation x x x is considered as settled and/or fully paid; and 4. The court a quo gravely erred is (sic) not ordering the defendantsappellees Spouses Virgilio G. Calina and Digna Anastacio to pay DBP the remaining balance of their loan obligation, plus interest until fully paid, and the pre-agreed attorneys fees.

It was also averred that even if the DBP through its Board of Governors expressly approved and agreed not only to condone the penalty charges and interest, but also the dismissal of the complaint upon payment of P600,000.00,[17] this issue of novation is already moot as it had been revoked by the petitioners failure to pay the said amount. On August 27, 2003, the appellate court rendered its Decision,[18] reversing the trial court, viz:
WHEREFORE, in view of the foregoing, the October 14, 1996 Decision of Branch 61, Regional Trial Court, Makati City in Civil Case No. 1622 is REVERSED and SET ASIDEand a new one entered ordering defendantsappellees, Spouses Virgilio Calina and Digna Anastacio, to pay plaintiffappellant, Development Bank of the Philippines, the amount of P666,195.55 plus 12% interest from August 18, 1878 (sic) until fully paid to be computed based on diminishing balance method less the P550,000.00 proceeds from the sale of the aforesaid Cummins Engine and 10% attorneys fees.[19]

In their Petition for Review on Certiorari,[20] petitioners assigned the following errors to the appellate courts decision:
1. The Court of Appeals gravely erred when it required petitioners to pay interest on the advance of P451,589.80 made by DBP, in violation of the Agreement between the parties and without any valid document in support thereof. 2. The Court of Appeals gravely erred when it ruled that there was partial condonation of the interest due, but the said condonation was revoked when petitioners still did not pay the loan despite the reduction in interest.

3. The Court of Appeals seriously erred when it failed to consider and appreciate that what transpired between the parties, after the filing of the complaint in the trial court, was a compromise settlement and not a condonation of interest. 4. The Court of Appeals erred in not holding that the P550,000.00 proceeds in the sale of the Cummins Diesel engine was more than sufficient to offset the principal loan of P451,589.80. 5. The Court of Appeals gravely erred in awarding 10% attorneys fees despite the absence of bad faith on the part of petitioners, and neither does this case fall under any of the circumstances provided for in Art. 2208 of our Civil Code. 6. In the remote possibility, this Honorable Court is not persuaded by petitioners argument, it is respectfully submitted that the interest to be awarded should be reckoned from the date of the compromise settlement between the parties, and only on the remaining balance of P50,000.00.

In its Comment, [21] respondent DBP contended:

1. The petition raises only questions of fact, and should not be given due course. 2. The Court of Appeals did not err when it ordered petitioners to pay interest on the amount actually received as proceeds of their loan, as the promissory note they executed provides for this. Moreover, as petitioners were in default in the payment of their debt, they are liable to pay additional interest equal to 12% of the entire unpaid obligation as indemnity for damages sustained by the respondent. 3. The petitioners did not challenge the finding of the court a quo that although the DBP novated the contract by agreeing to condone interest and penalties, this condonation was revoked by the petitioners failure to pay the agreed amount. Therefore, the petitioners could not state as erroneous the decision of the Court of Appeals when it affirmed the aforestated finding of the trial court and not as a compromise settlement. The July 14, 1989 Motion (Exhibit 16) was not connected to DBPs letter dated August 26, 1985 (Exhibit 13). Since the petitioners raised the defense of novation before the trial court and the Court of Appeals, it is now barred from abandoning this theory and adopting a new one. They can no longer claim that there had been no novation, but that the parties had entered into a compromise agreement. Respondent never entered into any compromise agreement with petitioners. What it only sought was the trial courts approval to sell the Cummins engine and to partially apply the proceeds thereof to the outstanding obligations of petitioners.

4. The CA did not err in finding that the proceeds from the sale of the Cummins engine was not sufficient to fully offset the petitioners outstanding obligation to respondent. As of August 18, 1978, petitioners already owed respondent P666,195.55. Petitioners are liable to pay 12% regular interest per annum to the principal obligation (P451,589.80), plus attorneys fees of 10%. 5. In the promissory note and the deed of undertaking, petitioners agreed to pay attorneys fees in case the respondent is forced to engage a lawyer to enforce its right against the petitioners. 6. Because the compromise agreement based on DBPs letter (exhibit 13) did not come to fruition, the amount of petitioners debt to the respondent cannot be pegged at P600,000.00 only.

We affirm the ruling of the appellate court with modifications. First, it is a fact that petitioners owe respondent a debt of money. Both parties agree that of the amount stipulated in the promissory note, P451,589.80 had already been given to petitioners by the respondent. When petitioners informed respondent of their intention to desist from continuing the project due to the impossibility of complying with the conditions in the promissory note and deed of undertaking, that immediately rendered due and demandable any amount advanced to them by the respondent. From this time onward, petitioners had the obligation to pay respondent the amount of P451,589.80. On October 3, 1978, pursuant to paragraph 11 of the Deed of Undertaking, the respondent formalized its demand and wrote the petitioners, seeking immediate payment of P666,195.55, representing the amount of petitioners obligation plus interest from August 18, 1978, excluding daily additional interest. Second, it is improper for this Court to determine whether there was a compromise agreement entered into by the parties. This Court is not a trier of facts, nor will it disturb the trial courts findings of fact, such findings being, as a rule, binding and conclusive.[22] This doctrine admits of only a few exceptions, such as when the findings are grounded entirely on speculation, surmises or conjectures; when an interference made by the appellate court from its factual findings is manifestly mistaken, absurd or impossible; when there is grave abuse of

discretion in the appreciation of facts; when the findings of the appellate court go beyond the issues of the case, run contrary to the admissions of the parties to the case or fail to notice certain relevant facts which, if properly considered, will justify a different conclusion; when there is a misappreciation of facts; when the findings of fact are conclusions without mention of the specific evidence on which they are based, are premised on the absence of evidence or are contradicted by evidence on record.[23] None of these exceptions are present in the case at bar. From the onset of the trial, the Spouses Calina had advocated the theory that there had been a novation of the contract they had entered into with DBP. Based on this stance and the evidence presented by both parties, the trial court declared that it is an admitted fact that the DBP considered to condone interest and penalties, but this was subsequently revoked when CALINA failed to comply with the condition to pay the amount of P600,000.00 and that the DBP novated the contract when it agreed to condone the interest and penalties but was revoked by the failure of CALINA to pay the amount of P600,000.00. Petitioners did not challenge this ruling of the trial court in the appellate court. They cannot now raise this issue in their petition before this Court. To countenance such action would be unfair to the respondent and offensive to the basic rules of fair play, justice and due process.[24] There is no question that petitioners failed to comply with the original terms of the agreement. It is erroneous for the petitioners to blame the respondent for their failure to comply with their contract. The respondent was well within right when it sought to sell the engine at public auction. Indeed, if the auction succeeded, it would have benefited all the parties concerned, as the engine could have been sold at a much higher price. We note that throughout the proceedings before the trial court, the appellate court and before this Court, petitioners have not assailed the computation of their debt. Thus, it is settled that as of August 18, 1978, petitioners owed P666,195.55 to the respondent. As of February 3, 1992, petitioners had paid P550,000.00 to the respondent.

Plainly, the petitioners have not fully paid their obligation to the respondent. Persons who receive loans of money are bound by law to pay to the creditor an equal amount of the same quality.[25] In addition, respondent had the right to demand interest on its loan based on their contract. In their promissory note,[26] petitioners agreed to pay 12% interest per annum on their loan. Article 1253 of the New Civil Code provides that, if the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered. The respondent is a bank. To hold that bank debtors should not pay interest on their loans would be anathema to the nature of any banks business. The charging of interest for loans forms a very essential and fundamental element of the banking business. In fact, it may be considered to be the very core of the bankings existence or being.[27] We now determine the obligation owed by petitioners to respondent. It is clear that petitioners have to pay P666,195.55, plus 12% interest based on the principal amount of the debt, computed from August 18, 1978 to February 2, 1992. From this sum, the P550,000.00 paid by petitioners must be deducted. The remaining balance, plus 12% interest thereto until the date of full payment, constitute the liability of the petitioners to the respondent. Finally, we disallow the payment of attorneys fees awarded by the appellate court. Attorneys fees partake of the nature of liquidated damages. It is true that the promissory note and the deed of undertaking executed by the petitioners provided for the payment of attorneys fees should respondent be forced to litigate. However, a fortuitous event, typhoon Asyang, caused the destruction of the fishing boat subject of the project. This supervening event, independent of the will of the obligor, cannot render the latter liable[28] beyond the restitution of what they may have received in advance from the

creditor. Consequently, petitioners cannot be made to pay attorneys fees on damages.[29] IN VIEW WHEREOF, the decision of the Court of Appeals is affirmed, with the modification that the petitioners are ordered to pay to respondent the amount of P666,195.55, plus 12% interest computed from August 18, 1978 until February 2, 1992. From this sum, P550,000.00, representing the previous payment of the petitioners, must be deducted. On the remaining balance shall be added the payment of 12% interest, to be computed from February 3, 1992 until full payment. The award of attorneys fees is deleted. No pronouncement as to costs. SO ORDERED.

[G.R. No. 128229. March 18, 2005]

JOSELITO P. GARAYGAY, CENTURY REALTY and DEVELOPMENT CORPORATION, petitioners, vs. HON. COURT OF APPEALS, LIBERATO G. YAMBAO, JESUS B. RODRIGUEZ and JESUS D. MORALES, respondents. DECISION
GARCIA, J.:

Before the Court are these three (3) separate petitions for review on certiorari under Rule 45 of the Rules of Court to nullify and set aside the Decision[1] dated November 29, 1995 and Resolution[2] dated February 6, 1997 of the Court of Appeals in CA-G.R. CV 42121. The first assailed issuance affirmed an earlier decision [3] dated January 28, 1993 of the Regional Trial Court at Quezon City, Branch 88 in its Civil Case No. Q-92-8455,

declaring, inter alia, herein private respondents, as plaintiffs therein, Liberato G. Yambao, Jesus B. Rodriquez and Jesus D. Morales (Yambao, Rodriquez and Morales, respectively), as rightful owners of the land subject of this case. The second assailed issuance, on the other hand, denied reconsideration of the first. At the core of the controversy is a 2,660-square meter parcel of land, denominated as Lot 23 of the subdivision plan Fls-2804-D of SWO-17514, registered under TCT No. 9780of the Manila Registry, located as it were in Matandang Balara, which used to be a part of the then district of Caloocan, City of Manila. The creation of Quezon City which found Lot 23within its borders saw the transfer of the corresponding property records to the new political unit and the generation of new certificates of title to reflect territorial changes. As thus transferred, TCT No. 9780 was assigned title number TCT No. 9780 (693). The evidence on record disclose the following factual antecedents: Two (2) different persons with exactly the same name, i.e., Vicente T. Garaygay, each claimed exclusive ownership of Lot 23 by virtue of an owners duplicate certificate each had possession of during the period material covering said lot. One held TCT No. 9780, supra, and the other, TCT No. 9780 (693), supra. The technical description of the land appearing in one copy corresponds exactly with that in the other. The date June 14, 1944 appears on the face of both copies as a common date of entry. One, however, contained certain features, markings, and/or entries not found in the other and vice versa. On April 17, 1979, one of the two Vicente T. Garaygays, a resident of Cebu City (hereinafter referred to as Garaygay of Cebu), executed a deed of sale[4] over the lot described in and covered by his TCT No. 9780 (693) in favor of his nephew, Joselito P. Garaygay (Joselito, hereinafter). The sale notwithstanding, the owners duplicate certificate remained for some time in the sellers possession. In another transaction, the other Vicente T. Garaygay, a resident of Rizal (hereinafter referred to as Garaygay of Rizal), sold to Liberto G. Yambao and Jesus B. Rodriguez the same property described in TCT 9780. YCM Compound, Angono, Rizal is set out in the February 11, 1986 conveying deed [5] as the sellers residence. Buyers Yambao and Rodriquez would later sell a portion of their undivided interests on the land to Jesus D. Morales.[6] Then came the June 11, 1988 fire that gutted a portion of the Quezon City hall and destroyed in the process the original copy of TCT No. 9780 (693) on file with the Registry of Deeds of Quezon City. Barely a month later, a certain Engr. Hobre filed an application, signed by Garaygay of Cebu, for the reconstitution of the burned original on the basis of the latters owners duplicate certificate. One Engr. Felino Cortez of the Land Registration Authority (LRA) did the follow-up on the application. After due proceedings, the LRA issued an order of reconstitution,[7] by virtue of which Garaygay of Cebu acquired reconstituted TCT No. RT-1764 (9780) (693).[8] Meanwhile, or on May 26, 1989, the deed of sale executed by Garaygay of Cebu in favor of his nephew Joselito was registered, paving the issuance in the latters name of TCT No. 12183.[9] Thereafter, thru the efforts of same Engr. Cortez,[10] Lot 23 was

subdivided into three (3) lots, namely: Lot 23-A, Lot 23-B and Lot 23-C for which TCT Nos. 14414, 14415 and 14416, respectively,[11] were issued. Joselito posthaste sold Lot 23-A to Lilian Toundjis who, pursuant to a Contract to Sell executed on March 23, 1990,[12] undertook to pay Joselito the P.5 Million balance of the P2.5 Million purchase price once she is placed in possession of a fenced-off property. And, for shares of stock, Joselito assigned on February 26, 1991, the other two (2) lots, i.e., Lot 23-B and Lot 23-C to Century Realty and Development Corporation (Century Realty) which, after securing TCT Nos. 34390 and 34391 therefor, mortgaged[13] the same to Premiere Development Bank, Inc. (Premiere Bank) to secure a P2.5 Million loan. Clashing claims of ownership first came to a head when, sometime in May 1990, Liberato G. Yambao and his agents forcibly prevented Joselitos hired hands from concrete-fencing the subject property. The police and eventually the National Bureau of Investigation (NBI) entered into the picture. In the meantime, Yambao, Rodriquez and Morales as pro indiviso buyers of Lot No. 23, caused the annotation on December 17, 1990, January 16, 1991 and February 15, 1991 of their respective adverse claims on Joselitos TCT Nos. 14414, 14415 and 14416. They then filed with the Regional Trial Court at Quezon City suit against Joselito, CenturyRealty and Premiere Bank for quieting of title and annulment of said defendants fake titles with prayer for damages. In their amended complaint,[14] docketed as Civil Case No. Q-92-8455 and raffled to Branch 88 of the court, Yambao, Rodriguez and Morales alleged, inter alia, the following: 1. That Joselito, taking advantage of the 1988 burning of the Quezon City Hall, and using an impostor, who pretended to be Vicente Garaygay, by means of fraud, deceit, and unlawful manipulation succeeded in administratively reconstituting the aforesaid property (sic) in 1990 on the basis of an alleged owners copy, which on its face is patently fake and spurious and fake title bearing [TCT] No. 9780 (693). 2. That a reconstituted title secured by means of fraud, deceit, or other machinations is void ab initio under Section 11 of Republic Act (R.A.) 6732; 3. That after causing the reconstitution of the title, Joselito acted fast to consummate his scheme of depriving the plaintiffs of their ownership . . . of the [disputed] land by the following successive acts, referring to Joselitos act of securing title in his name, subdividing Lot No. 23 and securing titles to and disposing of the subdivided lots; 4. That they (Yambao, Rodriguez and Morales) filed their separate adverse claims and caused the same to be annotated at the back of Joselitos TCT Nos. 14414, 14415 and 14416; that while the adverse claim of Rodriquez was still valid, Joselito executed on February 26, 1991 a Deed of Assignment in favor of Century Realty, which thus made the latter a transferee in bad faith; that on March 26, 1991, Century Realty executed a mortgage contract in favor of Premiere Bank, a mortgagee in bad faith; and

5. That at the time the mortgage was executed, the houses of plaintiffs caretaker and a chapel belonging to them were standing on the two lots in question. Answering, principal defendants Joselito and Century Realty denied plaintiffs material allegations and asserted, by way of affirmative defense, the validity of (a) the reconstitution of TCT No. 9780 (693); (b) the assignment of real property in favor of Century Realty; and (c) the mortgage made by Century Realty in favor of Premiere Bank. In their separate answers, also with crossclaim and counterclaim, Lilian Toundjis, who was allowed to intervene to oppose the action thus filed, and Premiere Bank virtually adopted Joselitos position and pleaded, in addition, their right as bona fide purchaser or mortgagee for value, as the case may be, of the subject property. Issues having been joined, trial ensued with plaintiffs Yambao, Rodriguez and Morales offering in evidence several documents. Foremost of these was Exhibit B[15] which is the owners duplicate copy of TCT No. 9780 of the Registry of Manila once in the possession of Garaygay of Rizal. On the other hand, the principal defendants presented no less than 38 pieces of marked and sub-marked documentary evidence, among which was Exhibit. 1,[16] identical to Exhibit D, which is the duplicate copy of TCT No. 9780 (693) that pertained to Garaygay of Cebu and used in the reconstitution of the burned original thereof. In his testimony, Yambao stated having noticed, when Garaygay of Rizal offered to sell Lot 23, that the corners and the portion of Exhibit B containing the owners personal circumstances were torn and related the owners explanation as to how these oddities came about. Yambao related that owing to the physical appearance of Exhibit B, the recording of the Garaygay of Rizal - Yambao/Rodriguez deed of sale (Exh. A) was refused since the more crucial document, i.e., the torn owners copy was itself not registrable unless it is first reconstituted. He also testified that, to assure himself of the genuineness of the sellers owners duplicate certificate, he and Garaygay of Rizal repaired to the Quezon City Registry to compare his (Garaygay of Rizals) copy with the original copy on file with the registry, and discovered that the only difference was that the owners duplicate bears the title number 9780, while the original had 9780 (693) typewritten on a straight line.[17] As told by Yambao, Garaygay of Rizals explanation for the figure difference is that 693 was not affixed on his (Garaygay of Rizals) title because he never, in first place, presented the same to the Quezon City Registry for correction or affixture. Yambao also testified that Garaygay of Rizal, when asked to show proof of his identity, presented a voters ID with his picture,[18] a Commission of Elections (COMELEC) certification attesting to his being a registered voter in Precinct No. 21 in Angono, Rizal[19] and a certification of residence issued by the barangay captain of the place.[20] Yambao added that before concluding the sale, he, together with the prospective seller, proceeded to the land site where the residents and/or caretakers thereat assured him that his companion, Garaygay of Rizal, was actually the landowner.

For their part, defendants presented Garaygay of Cebu who alleged, among other things, having acquired Lot 23 from one Macaria Lim vda. Arambulo sometime in 1944, having paid taxes thereon for the period 1949-1990[21] and mortgaging in 1949 the titled property with Meralco Employees Savings & Loan Association, with the mortgage deed and later the discharge of mortgage being annotated on his title. [22] Joselito also took the witness stand in defense of his ownership of Lot 23 and the transactions he entered into involving the lot. Eventually, the trial court rendered judgment finding for the plaintiffs and against the defendants, declaring Joselitos TCT No. 9780 (693) and all subsequent titles traceable to it and transactions involving its derivatives as null and void. To the trial court, plaintiffs evidence preponderated over those of the defendants whose main witness, Garaygay of Cebu, gave inconsistent testimony, while Joselito hedged on his answer regarding a cousin connected with LRA. Going against the defendants cause, the trial court further observed dubious circumstances surrounding the reconstitution of TCT 9780 (693), the more disturbing of which is the admitted participation of LRA personnel in the reconstitution process. Dated January 28, 1993, the trial courts decision[23] dispositively reads:

WHEREFORE, in view of the foregoing, the Court renders the following judgment to wit: 1. Plaintiffs Liberato G.Yambao, Jesus B. Rodriguez and Jesus D. Morales are hereby declared the rightful owners and possessors of the land described in TCT No. 9780 marked as Exh. B; 2. Defendants title, TCT No. 9780 (693), marked as Exh. 1 (p. 349, Rollo, identical to Exh. D, p. 493 Rollo); the LRA Order of Reconstitution . . .; defendants reconstituted title No. RT-1764 (9780) (693) marked as Exh. 4 . . .; the cancelled title TCT No. 12183 and its derivative titles, TCT Nos. 14414, 14415, and 14416, all in the name of defendant Joselito P. Garaygay and intervenor Lilian M. Toundjis involving TCT 14414; the Deed of Assignment and Transfer between Joselito P. Garaygay and Century Realty involving TCT Nos. 14415 and 14416; [the derivative] titles of defendant Century Realty . . . namely TCT Nos. 34390 . . . and 34391 . . .; and the Deed of Real Estate Mortgage executed by Century Realty . . . in favor of defendant Premiere Bank, Inc. are all declared null and void and without force and effect; 3. The Register of Deeds of Quezon City to strike out the reconstituted title [but already cancelled] No. 1764 (9780) (693) and TCT No. 12183, . . . ; to cancel TCT 14414 . . .; to cancel the Deed of Assignment and Transfer between Joselito P. Garaygay and Century Realty . . . covered by TCT Nos. 14415 and 14416, and necessarily cancel TCT Nos. 34390 and 34391 . . .; to cancel the Deed of Real Estate Mortgage over TCT Nos. 34390 and 34390 . . .; and thereafter, to enter and register

the Deeds of Sale, dated February 11, 1986 (Exh. A) and July 10, 1988 (Exh. C) and forthwith issue corresponding new title/s in the names of the plaintiffs, free from all encumbrances, except those entered into by them, upon payment of all taxes and fees prescribed by law; 4. Defendant Joselito P. Garaygay is sentenced to pay each of the [three] plaintiffs . . ., the sum of P100,000. 00 as moral damages; 5. Defendants Joselito P. Garaygay, Century Realty . . . and Premiere Bank, Inc. are sentenced to pay jointly and severally each of the two plaintiffs, namely Liberato Yambao and Jesus Morales, the sum of P25,000.00 as exemplary damages and to plaintiff Jesus B. Rodriquez the sum of P25,000.00 as nominal damages The defendants are also sentenced to pay jointly and severally the sum of P20,000.00 as attorneys fees and the cost of suit; 6. Defendant Joselito P. Garaygay is further sentenced to reimburse Lilian M. Toundjis the sum of P2,000,000.00 with interest thereon at 6% per annum from the date of judgment; 7. With the annulment of the [aforementioned] Deed of Assignment and Transfer between defendant Joselito P. Garaygay and defendant Century Realty . . . and the Deed of Real Estate Mortgage . . . between defendant Century Realty . . . and defendant Premiere Bank, Inc., all aforementioned defendants who are respective parties to the named deeds are hereby ordered to make a full return and restitution to each other of all monies, things and objects they have received thereunder without interest within fifteen days from finality of this judgment; 8. All other claims are dismissed. SO ORDERED. [Words in bracket added]
In time, herein petitioners appealed to the Court of Appeals whereat their recourse was docketed as CA- G.R. CV No. 42121. In its Decision of November 29, 1995,[24] the Court of Appeals affirmed in toto the appealed decision of the trial court, the affirmance being predicated on the following main justifications:

All in all, the Court agrees with the trial court in giving low rating to both Vicente Garaygay of Cebu and appellant JOSELITO as witnesses. The court notes that Vicente T. Garaygay of Cebu has no explanation why the deed of sale between him and Arambulo was not adduced in evidence x x x

In view of the foregoing questionable actuations of Vicente T. Garaygay of Cebu and his nephew . . . and their cohorts, the trial court (sic) is constrained to declare that the defendants mother title TCT No. 9780 (693) marked as Exhibit 1, which served as the basis of the reconstitution is a fake and spurious title. x x x Thus, all titles in the name of Vicente T. Garaygay of Cebu and Joselito Garaygay are null and void. x x x . On the other hand, the claim of appellees that their certificate of title is a genuine title is supported with credible and sufficient evidence. The contention of the appellants that the appellees title should not be accepted as genuine because it is not authenticated lacks merit. The owners copy of the title of appellees is a public document (Broce vs. Broce, 4 Phil. 611). Unlike a private document which must be authenticated before its admission . . ., there is no need to authenticate a public document to make it admissible in evidence (Rule 132, Sec 24). The rule that a document must be authenticated before it is admissible in evidence does not apply to public documents which are admissible without further proof of their due execution or genuineness x x x. Public documents are already authenticated by the official signature and seal which they bear, of which this Court takes judicial notice (Apostol, Essentials of Evidence, 1991, ed., p. 430) (Underscoring added).
Their motion for reconsideration having been denied by the appellate court in its Resolution of February 6, 1997,[25] petitioners have separately come to this Court. That of petitioner Premier Bank was docketed as G.R. No. 128122; that of Toundjis as G.R. No. 128184; and that of Joselito Garaygay and Century Realty as G.R. No. 128229. Per this Courts Resolution dated June 18, 1997,[26] the three (3) separate petitions were, upon private respondents motion, ordered consolidated. The principal issue tendered in the separate petitions, albeit formulated a bit differently, comes down to the following: whether or not the Court of Appeals erred in holdingGaraygay of Rizal, instead of Garaygay of Cebu, as the real owner of Lot 23. Behind this issue is the corollary question of whether or not the same court erred in finding Garaygay of Rizals owners copy, TCT No. 9780, instead of the Garaygay of Cebus copy, TCT No. 9780 (693), as the authentic title covering Lot 23. Petitioners urge reversal on the submission that, unlike Garaygay of Cebu who came forward and took the witness stand, the identity of Garaygay of Rizal - who they stressed at every turn had not been presented to testify - has not been established. Albeit they do not say so, the inference of their posture is that an impostor has taken the identity of Vicente T. Garaygay. Corollarily, they also contend that the authenticity of the impostor Garaygays adverted owners copy of TCT No. 9780 has remained unproven. The desired reversal cannot be granted. Both defining documents, Exhibit 1 and Exhibit B, appear to have been issued by the appropriate Registry of Deeds and as such would ordinarily enjoy the guarantees

flowing from the legal presumption of regularity of issuance. [27] But how and precisely when the legal aberration occurred where two (2) owners duplicate certificates ended up in the hands of two (2) distinct persons, complete strangers to each other, are questions which the records do not provide clear answer. It may not be idle to speculate, though, that fraud or other improper manipulations had been employed along the way, with likely the willing assistance of land registry official/s, to secure what for the nonce may be tagged as the other title. Consistent with the presumption of regularity of issuance, however, the authenticity of one copy has to be recognized. And necessarily, one of the two (2) outstanding owners copies has to be struck down as wrongly issued, if not plainly spurious, under the governing Torrens system of land registration. For, a piece of land cannot plausibly be covered at the same time, under the same concept of ownership, by two (2) outstanding certificates of title, each having the same validity, force and effect. One has to be spurious, or at least one has to prevail over the other.[28] Else, the ideal sought to be achieved by the Torrens system would be illusory. As it were, the Torrens system of land registration aims to obviate possible conflicts of title by giving the public the right to rely upon the face of the Torrens certificate and to dispense, as a rule, with the necessity of inquiring further;[29] on the part of the registered owner, the system gives him complete peace of mind that he would be secured in his ownership as long as he has not voluntarily disposed of any right over the covered property.[30] The categorical conclusion of the Court of Appeals confirmatory of that of the trial court is that Exhibit B is genuine and that Garaygay of Rizal is a real person. On the other hand, Exhibit 1 was adjudged spurious. These factual determinations as a matter of long and sound appellate practice must be accorded great weight, and, as rule, should not be disturbed on appeal,[31] save for the most compelling and cogent reasons,[32] like when such factual findings were drawn from a vacuum, or, in fine, reached arbitrarily.[33] To be sure, arbitrariness cannot contextually be imputed on the appellate court. Its finding that Garaygay of Rizal is an authentic person, once residing in and a registered voter of Angono, Rizal has adequate evidentiary support in his voters ID, the COMELEC and barangay certifications aforementioned and the testimony of an occupant of Lot 23. And for whatever it is worth, Garaygay of Cebu no less testified that there are three (3) Vicente T. Garaygay in the Philippines.[34] The reality that the private respondents failed to putGaraygay of Rizal on the witness box to identify his copy of the title and defend his erstwhile ownership of Lot 23 may perhaps support petitioners claim about his being fictitious if his whereabouts during the trial, if still alive then, was known. But, as found by the appellate court, Yambao never heard from or about Garaygay of Rizal after they have executed the Deed of Absolute Sale (Exh. A, supra) on February 11, 1986. Petitioners attribution of error on the part of the appellate courts declaring Garaygay of Rizal as owner of the disputed parcel of land is untenable. It cannot be overemphasized that the possessor-owner of the authentic copy of TCT No. 9780 was necessary the real owner of Lot 23. That possessory distinction happened to belong to Garaygay of Rizal.

Moreover, facts and reasonable inferences drawn therefrom point to Exhibit 1 as being spurious, necessarily leaving Exhibit B as the authentic duplicate copy. For starters, there is the appearance and physical condition of the owners copies in question which, if properly evaluated in the light of attendant circumstances, would help in determining which is genuine and which is sham.[35] For, the condition and physical appearance of a document would, to borrow from Junquera, reveal, albeit silently, the naked truth, hiding nothing, forgetting nothing and exaggerating nothing. As aptly observed by the appellate court, rationalizing its conclusion adverted to above, Exhibit B has no defect, except for its partly being torn. Respondents explanation for the defective state of Exhibit B, as related to them by Garaygay of Rizal, i.e., it was due to exposure of the document to the elements, like rain, following his evacuation from Manila to a small nipa hut in Angono, Rizal during the Japanese occupation, [36] merited approval from the trial court and the Court of Appeals. Both courts, being in a better position to pass upon the credibility of petitioners witness and appreciate his testimony respecting the less than usual appearance of Exhibit B, their findings command the respect of this Court. Lest it be overlooked, what might be considered as defects in Garaygay of Cebus copy are, at bottom, the combined effects thereon of the passage of time and the elements. Standing alone, these defects do not, in our view, undermine the integrity of the document. However, unlike Exhibit B, Exhibit 1 contained entries and other uncommon markings or features which could not have existed without human intervention. Although any one of them may perhaps not be appreciable in isolation, these features and/or markings, taken together, indeed put the integrity of Exhibit 1 under heavy cloud and indeed cast doubt on its genuineness. The irregularities listed in the appealed decision may be summed up in the following wise: 1. Two (2) Victory stamps issued after liberation were strangely pasted on the seal of Garaygay of Cebus title Exhibit 1 - when such stamps were not yet in existence when such title was entered in the Registry of Deeds of Manila on June 14, 1944; 2. Exhibit 1 was prepared on Judicial Form No. 109-D Revised June 1945, which came into circulation after June 14, 1944; 3. Exhibit 1 bears the handwritten figure 9780 in ink above the typewritten number 693. There is no initial to suggest that the handwritten number 9780 over the typewritten title number 693 was officially authorized; 4. The first letter Y in the surname Garaygay in Exhibit 1 was inserted in ink. In contrast, there is no such insertion in Exhibit B; and 5. Exhibit 1 carries the annotation subject to further disposition by the government with respect to real estate transactions consummated during the Japanese regime, and subject to the provisions of Sec. 4, Rule 74 of the New Rules of Court. [37] Such annotation is supposed to have been contemporaneously made on the date of the issuance of the title in 1944. Yet, in what appears to be an anomalous instance,

advertence is made to transactions consummated during the Japanese regime and to Rule 74 of the Rules of Court, logically implying, as aptly observed by the Court of Appeals, that the annotation was entered after liberation and also after 1964 when the New Rules of Court came into effect. Almost as if it were an afterthought, petitioners explained that the Victory stamps could have been pasted, the 1945 revised judicial form utilized, and the annotations referred to in item # (5) entered when the TCT of Garaygay of Cebu was reissued. Anent the number 9780 appearing in ink, the proffered explanation was that the handwritten 9780 was a mere provisional marking. The foregoing explanations are, at best speculative, thus correctly struck down by the appellate court. And unfortunately, Garaygay of Cebu, the best person to shed light on the foregoing unusual situations and help the limping case of the petitioners, could not himself offer an explanation. Petitioners insistence that the inscription on Garaygay of Cebus copy of the deed of mortgage and the discharge of mortgage he constituted over Lot 23 in favor of Meralco Employees Savings and Loan Association proves the authenticity of the latters owner duplicate is valid to a point. But, to suggest that such inscription could not have been possible were his title spurious is altogether a different matter. We need not cite cases memorialized in books of jurisprudence where land dealings are annotated on reconstituted certificates secured thru fraud or otherwise issued irregularly. Stated a little differently, an annotation of what is otherwise a bona-fide land transaction is not a peremptory argument against the spurious character, if that be the case, of the document on which it is annotated. In the same token, the payment by Garaygay of Cebu of land taxes on Lot 23 does not also necessary detract from the spurious nature of his title, Exhibit 1. After all, any one can pay real estate taxes on a given property without being quizzed by the local treasury whether or not the payor owns the real property in question. This is not to say of course that tax receipts are evidence of ownership, since they are not, albeit they are good indicia of possession in the concept of owner, for no one would ordinarily be paying taxes for a property not in his actual or at least constructive possession.[38] Other than paying taxes from 1949 to 1990 [39] (mistakenly stated by respondent court as from 1949 to 1960), however, Garaygay of Cebu and this holds true for his nephewJoselito - did not appear before the current stand-off to have exercised dominion over Lot 23. For one, it has not been shown that Garaygay of Cebu was at any time in possession of the property in question, unlike his namesake from Rizal who managed to place the property under the care of certain individuals who built semipermanent structure-dwelling houses thereon without so much of a protest from Garaygay of Cebu or his nephew Joselito after the latter purportedly bought the property. For another, neither Garaygay of Cebu nor his nephew Joselito ever instituted any action to eject or recover possession from the occupants of Lot 23. This passivity bespeaks strongly against their claim of ownership. It has been said that a partys failure to raise a restraining arm or a shout of dissent to anothers possession for an unreasonably long period is simply contrary to his claim of ownership.[40] Not lost on this Court are circumstances noted by the trial court which negatively reflect on Garaygay of

Cebus and his nephews claim of ownership. Some excerpts of what the trial court wrote:

On its face, Exh. 5 [the original copy of the deed of sale between Garaygay and his nephew] was notarized by one Armando Pulgado. However, there are certifications by both the Bureau of National Archives that no Notarial records of Armando Pulgado exist in Manila. (Exh. KK) or in Quezon City (Exh. LL), and by the Clerk of Court that Atty. Armando Pulgado was not appointed as notary public for and in the City of Manila for the year 1979 (Exh. MM) Exh. 5 dated April 17, 1979 was registered only on May 26, 1989, over 10 years from the sale. JOSELITO could not explain how thereafter his own title (TCT 12183) was issued in his name since it was not he who registered the Deed of Sale, Exh. 5. In other words, someone else registered it for him. Neither JOSELITO nor his uncle . . .followed up the petition for reconstitution which was prepared, filed and processed by interested persons in Manila, which scenario prompted plaintiffs counsel to observe that the reconstitution was among the first of all applicants in Quezon City to be approved (p. 32, TSN August 17, 1992). Of these interested persons, the most unthinkable was Engr. Felino Cortez of the LRA who did the follow-ups on the application in Manila. It is remarkable why Cortez, who is neither a friend nor relative, took special interest in not only following up the application for reconstitution but in effecting the subdivision of TCT 12183 into [3 lots], for which three derivative titles of TCT 12183 were issued . . . . Again JOSELITO had no knowledge of this fact of subdivision until his uncle, . . . telephoned him with the information that the land was already subdivided. In short, it appears to the Court that without doing anything, Vicente T. Garaygay of Cebu has his title (Exh. 1) reconstituted. On the other hand, without knowing anything, JOSELITO obtained TCT 12183 in his name and had the land subdivided and sold. These circumstances demonstrate that neither JOSELITO nor his uncle, Vicente T. Garaygay of Cebu acted ante litem motam like the true owners they claim to be in their respective times. xxx Several questions confound the Courts curiosity. Why were some LRA officials so interested in the speedy reconstitution and in the subdivision of the land in excess of their bureaucratic duties? Where did Vicente T. Garaygay of Cebu get his owners copy, Exh. 1. Did some conniving LRA officers supply the judicial form and Victory stamps? Why was JOSELITO so evasive about his cousin in the LRA as shown in his examination?

xxx xxx

xxx

As the Court sees it, the Deed of Sale (Exh. 5 was a simulated transaction because both JOSELITO and his uncle admit this was a joint venture to sell the property in question. However, the facts suggest that the joint venture was not limited to the two of them. The persons who prepared and filed the application for reconstitution, and those officers in the LRA who followed it up and who thereafter subdivided the land into three lots for easier sale, those at the NBI who tried to persuade Yambao and Morales to settle the dispute . . . are apparently part of the joint venture or stand to profit from it
This brings us to the core of Toundjis and Premiere Banks petitions. The first asserts the rights of a purchaser and the other, that of a mortgagee, in good faith and for value of Lot 23, a status respectively denied them by the appellate court. The rule that a subsequent declaration of a title as null and void is not a ground for nullifying the contractual right of a purchaser, rmortgagee or other transferees in good faith, with the exceptions thereto, is well-settled. Where the certificate of title is in the name of the seller or mortgagor, the innocent purchaser or mortgagee for value has the right to rely on what appears on the certificate without inquiring further. [41] In the absence of anything to excite or arouse suspicion, or except when the party concerned had actual knowledge of facts or circumstances that should impel a reasonably cautious person to make such further inquiry, said purchaser or mortgagee is without obligation to look beyond the certificate and investigate the title of the seller or mortgagor. Thus, where innocent third persons, relying on the correctness of the certificate, acquire rights over the property as buyer or mortgagee, the subsequent declaration of nullity of title is not a ground for nullifying the right of such buyer or mortgagee.[42] Tested by the above norm, may Toundjis be considered, as she has claimed, an innocent purchaser for value, meaning one who buys or acquires, for valuable consideration, a piece of land of another without notice that some other person has a right to, or interest in, such property at the time of purchase, or before he has notice of the claim or interest of some other persons in the property.[43] The Court of Appeals rejected the claim of Toundjis, and rightly so. A study of the record shows that TCT 14414 covering Lot. 23-A that Toundjis contracted to buy from Joselito carried an annotation that it was administratively reconstituted. Records also indicate that Toundjis knew at the time of the sale that Joselito did not have possession of the lot inasmuch as she agreed to pay the balance of the purchase price as soon as the seller can fence off the property and surrender physical possession thereof to her. Even for these two (2) reasons alone, which should have placed Toundjis on guard respecting Joselitos title, her claim of being a bona fide purchaser for value must fail. The rejection, therefore, by the Court of Appeals of such claim is correct. Likewise acceptable is the appellate courts holding, citing Republic vs. Court of Appeals,[44] that a purchaser of a property cannot be in good faith where the title thereof shows that it

was reconstituted. Noted with approval, too, is the appellate courts observation that the contract to sell (Exh. 44) which is unregistered and not annotated at the back of the title of the property [cannot adversely affect appellees] for the reason that under Sec. 51 of PD 1529 (Property Registration Act), the act of registration shall be the operative act to convey or affect the land in so far (sic) as third parties are concerned.[45] Premiere Bank cannot also be accorded the status of an innocent mortgagee for value vis--vis the mortgage of the lots covered by TCT Nos. 34390 and 34391 constituted in its favor by Century Realty. Apart from the annotations that said titles are only administratively reconstituted,[46] the appellate court provided the ensuing compelling reasons:

Premiere inspected the property to be mortgaged xxx on March 6, and 11, 1991 as can be seen in its Real Estate Appraisal Report (Exhs. EE, EE-1). The adverse claim of Jesus Rodriguez was cancelled on March 26, 1991 xxx Hence, when Premiere inspected the property xxx, it was aware of the existence of Rodriquez adverse claim. This is admitted by Premieres witness xxx. The adverse claim of Rodriquez annotated at the back of TCT No. 14415 and marked as Exhibit I-3 and also at the back of TCT No. 14416 (Exh. J) marked as Exhibit J-3 declares that he is the vendee of the land described. There are buildings of strong material on the land in dispute xxx. Premiere is aware of the existence of these structures as can be seen in its real estate report (Exh. EE). Said report states that there are shanties erected in the property in dispute. But despite the existence of alleged shanties which are in fact and in truth big structures, two of them being concrete buildings (Exhs. 0 to O-3), Premiere Bank proceeded in the execution of the mortgage contract. xxx. If the land mortgaged is in the possession of a person other than the mortgagor, the mortgagee is required to go beyond the certificate of title and make inquiries as to the rights of the actual possessors. Failure to do so would make him a mortgagee in bad faith (Sunshine Finance vs. IAC, 203 SCRA 213; Conspecto vs. Fruto, 31 Phil 144).
It cannot be overemphasized that Premiere Bank, being in the business of extending loans secured by real estate mortgage, is familiar with rules on land registration. As such, it was, as here, expected to exercise more care and prudence than private individuals in their dealing with registered lands.[47] Accordingly, given inter alia the suspicion-provoking presence of occupants other than the owner on the land to be mortgaged, it behooved Premiere Bank to conduct a more exhaustive investigation on the history of the mortgagors title. That Premiere Bank accepted in mortgage the property in question notwithstanding the existence of structures on the property and

which were in actual, visible and public possession of a person other than the mortgagor, constitutes gross negligence amounting to bad faith.[48] Premier Bank is thus not entitled to have its lien annotated on the genuine title.[49] A final consideration: Petitioners maintain that the appellate court erred in annulling the LRA order of reconstitution (Exh. 3), even if such relief was not prayed for in private respondents amended complaint and notwithstanding the fact that the LRA was not impleaded as an indispensable party in Civil Case No. Q-92-8455. The contention is far from tenable. An action for quieting of title, as here, is equivalent to an action for reconveyance of title wrongfully or erroneously registered in anothers name. The successful outcome of such action would in most cases necessarily entail the cancellation of existing title wrongly issued to another, which in turn requires the action of the LRA and/or the proper Register of Deeds. As in the past, this Court, to obviate multiplicity of suits, had ordered the LRA or the Register of Deeds, albeit not impleaded below, to cancel such erroneously issued titles. Before writing finis to this ponencia, two (2) peripheral matters raised need to be addressed. First, petitioner Toundjis has, as an alternative prayer, asked that the appealed decision ordering Joselito to reimburse her the sum of P2,000,000.00 be modified, such that the reimbursable amount shall bear interest of nineteen (19%) percent (down from the 25% she sought in her answer-in-intervention) instead of six (6%) per annum reckoned from March 23, 1990, instead of from January 28, 1993, the date of judgment of the trial court. Absent an explanation with cogent legal support why her plea for a modificatory ruling should be favorably considered, this Court denies the same. Second, petitioners have invited attention to and made much of this Courts per curiam Decision dated April 7, 1993[50] in A.M. P-91-593, entitled Office of the Court Administrator vs. Atty. Liberato Yambao et al.[51] In it, the Court dismissed herein respondent Yambao from the service as then Clerk of Court, RTC, Quezon City, Branch 80 for, among other things, having in his possession a forged deed of sale executed by Vicente T. Garaygay. It should be stressed in this regard, however, that this Court, in its Resolution of May 18, 1994,[52] resolved to SUSPEND the implementation of the effects of the decision of April 7, 1993 pending the judicious review by the Court of Appeals of the decision of the Regional Trial Court, Branch 80, Quezon City in Civil Case No. Q92-8455. This Court need not belabor the effects on A.M. P-91-593 of the appealed decision of the Court of Appeals, as hereby affirmed. WHEREFORE, the instant petitions are DENIED and the impugned Decision of the Court of Appeals AFFIRMED. Costs against petitioners. SO ORDERED.

Panganiban, JJ., concur.

(Chairman),

Sandoval-Gutierrez,

Corona, and Carpio-Morales,