UNITED COCONUT PLANTERS BANK, petitioner, vs. TEOFILO C.

RAMOS,
respondent.
DECISION
CALLEJO, SR., J.:
Before us is a petition for review on certiorari of the March 30, 2001
Decision[1] of the Court of Appeals in CA-G.R. CV No. 56737 which affirmed
the Decision[2] of the Regional Trial Court (RTC) of Makati City, Branch 148, in
Civil Case No. 94-1822.
The Antecedents
On December 22, 1983, the petitioner United Coconut Planters Bank (UCPB)
granted a loan of P2,800,000 to Zamboanga Development Corporation (ZDC)
with Venicio Ramos and the Spouses Teofilo Ramos, Sr. and Amelita Ramos as
sureties. Teofilo Ramos, Sr. was the Executive Officer of the Iglesia ni Cristo.
In March 1984, the petitioner granted an additional loan to ZDC, again with
Venicio Ramos and the Spouses Teofilo Ramos and Amelita Ramos as
sureties.[3] However, the ZDC failed to pay its account to the petitioner
despite demands. The latter filed a complaint with the RTC of Makati against
the ZDC, Venicio Ramos and the Spouses Teofilo Ramos, Sr. for the collection
of the corporations account. The case was docketed as Civil Case No. 16453.
On February 15, 1989, the RTC of Makati, Branch 134, rendered judgment in
favor of the petitioner and against the defendants. The decretal portion of the
decision reads:
1. To pay plaintiff the sum of THREE MILLION ONE HUNDRED FIFTY THOUSAND
PESOS (P3,150,000.00) plus interest, penalties and other charges;
2. To pay plaintiff the sum of P20,000.00 for attorneys fees; and
3. To pay the cost of suit.[4]
The decision became final and executory. On motion of the petitioner, the
court issued on December 18, 1990 a writ of execution for the enforcement of
its decision ordering Deputy Sheriff Pioquinto P. Villapaa to levy and attach all
the real and personal properties belonging to the aforesaid defendants to
satisfy the judgment.[5] In the writ of execution, the name of one of the
defendants was correctly stated as Teofilo Ramos, Sr.
To help the Sheriff implement the writ, Atty. Cesar Bordalba, the head of the
Litigation and Enforcement Division (LED) of the petitioner, requested
Eduardo C. Reniva, an appraiser of the petitioners Credit and Appraisal
Investigation Department (CAID) on July 17, 1992 to ascertain if the
defendants had any leviable real and personal property. The lawyer furnished
Reniva with a copy of Tax Declaration B-023-07600-R covering a property in
Quezon City.[6] In the course of his investigation, Reniva found that the
property was a residential lot, identified as Lot 12, Block 5, Ocampo Avenue,
Don Jose Subdivision, Quezon City, with an area of 400 square meters,
covered by TCT No. 275167 (PR-13108) under the name of Teofilo C. Ramos,
President and Chairman of the Board of Directors of the Ramdustrial
Corporation, married to Rebecca F. Ramos.[7] The property was covered by

Tax Declaration No. B-023-07600-R under the names of the said spouses.
Reniva went to the property to inspect it and to verify the identity of the
owner thereof. He saw workers on the property constructing a bungalow.[8]
However, he failed to talk to the owner of the property. Per information
gathered from the neighborhood, Reniva confirmed that the Spouses Teofilo
C. Ramos and Rebecca Ramos owned the property.
On July 22, 1992, Reniva submitted a report on his appraisal of the property.
He stated therein that the fair market value of the property as of August 1,
1992 was P900,000 and that the owner thereof was Teofilo C. Ramos, married
to Rebecca Ramos. When appraised by the petitioner of the said report, the
Sheriff prepared a notice of levy in Civil Case No. 16453 stating, inter alia,
that the defendants were Teofilo Ramos, Sr. and his wife Amelita Ramos and
caused the annotation thereof by the Register of Deeds on the said title.[9]
Meanwhile, in August of 1993, Ramdustrial Corporation applied for a loan
with the UCPB, a sister company of the petitioner, using the property covered
by TCT No. 275167 (PR-13108) as collateral therefor. The Ramdustrial
Corporation intended to use the proceeds of the loan as additional capital as
it needed to participate in a bidding project of San Miguel Corporation.[10] In
a meeting called for by the UCPB, the respondent was informed that upon
verification, a notice of levy was annotated in TCT No. 275167 in favor of the
petitioner as plaintiff in Civil Case No. 16453, entitled United Coconut Planters
Bank v. Zamboanga Realty Development Corporation, Venicio A. Ramos and
Teofilo Ramos, Sr., because of which the bank had to hold in abeyance any
action on its loan application.
The respondent was shocked by the information. He was not a party in the
said case; neither was he aware that his property had been levied by the
sheriff in the said case. His blood temperature rose so much that immediately
after the meeting, he proceeded to his doctor, Dr. Gatchalian, at the St. Lukes
Medical Center, who gave the respondent the usual treatment and
medication for cardio-vascular and hypertension problems.[11]
Upon advise from his lawyer, Atty. Carmelito Montano, the respondent
executed an affidavit of denial[12] declaring that he and Teofilo Ramos, Sr.,
one of the judgment debtors in Civil Case No. 16453, were not one and the
same person. On September 30, 1993, the respondent, through counsel, Atty.
Carmelito A. Montano, wrote Sheriff Villapaa, informing him that a notice of
levy was annotated on the title of the residential lot of the respondent,
covered by TCT No. 275167 (PR-13108); and that such annotation was
irregular and unlawful considering that the respondent was not Teofilo Ramos,
Sr. of Iglesia ni Cristo, the defendant in Civil Case No. 16453. He demanded
that Sheriff Villapaa cause the cancellation of the said annotation within five
days from notice thereof, otherwise the respondent would take the
appropriate civil, criminal or administrative action against him. Appended
thereto was the respondents affidavit of denial. For his part, Sheriff Villapaa
furnished the petitioner with a copy of the said letter.
In a conversation over the phone with Atty. Carmelito Montano, Atty. Cesar

Bordalba, the head of the petitioners LED, suggested that the respondent file
the appropriate pleading in Civil Case No. 16453 to prove his claim that Atty.
Montanos client, Teofilo C. Ramos, was not defendant Teofilo Ramos, Sr., the
defendant in Civil Case No. 16453.
On October 21, 1993, the respondent was informed by the UCPB that
Ramdustrial Corporations credit line application for P2,000,000 had been
approved.[13] Subsequently, on October 22, 1993, the respondent, in his
capacity as President and Chairman of the Board of Directors of Ramdustrial
Corporation, and Rebecca F. Ramos executed a promissory note for the said
amount payable to the UCPB in installments for a period of 180 days.[14]
Simultaneously, the respondent and his wife Rebecca F. Ramos acted as
sureties to the loan of Ramdustrial Corporation.[15] However, the respondent
was concerned because when the proceeds of the loan were released, the
bidding period for the San Miguel Corporation project had already elapsed.
[16] As business did not go well, Ramdustrial Corporation found it difficult to
pay the loan. It thus applied for an additional loan with the UCPB which was,
however, denied. The corporation then applied for a loan with the Planters
Development Bank (PDB), the proceeds of which would be used to pay its
account to the UCPB. The respondent offered to use his property covered by
TCT No. 275167 as collateral for its loan. PDB agreed to pay off the
outstanding loan obligation of Ramdustrial Corporation with UCPB, on the
condition that the mortgage with the latter would be released. UCPB agreed.
Pending negotiations with UCPB, the respondent discovered that the notice of
levy annotated on TCT No. 275167 (PR-13108) at the instance of the
petitioner had not yet been cancelled.[17] When apprised thereof, PDB
withheld the release of the loan pending the cancellation of the notice of levy.
The account of Ramdustrial Corporation with UCPB thus remained
outstanding. The monthly amortization on its loan from UCPB became due
and remained unpaid. When the respondent went to the petitioner for the
cancellation of the notice of levy annotated on his title, the petitioners
counsel suggested to the respondent that he file a motion to cancel the levy
on execution to enable the court to resolve the issue. The petitioner assured
the respondent that the motion would not be opposed. Rather than wait for
the petitioner to act, the respondent, through counsel, filed the said motion
on April 8, 1994. As promised, the petitioner did not oppose the motion. The
court granted the motion and issued an order on April 12, 1994 ordering the
Register of Deeds to cancel the levy. The Register of Deeds of Quezon City
complied and cancelled the notice of levy.[18]
Despite the cancellation of the notice of levy, the respondent filed, on May
26, 1994, a complaint for damages against the petitioner and Sheriff Villapaa
before the RTC of Makati City, raffled to Branch 148 and docketed as Civil
Case No. 94-1822. Therein, the respondent (as plaintiff) alleged that he was
the owner of a parcel of land covered by TCT No. 275167; that Teofilo Ramos,
Sr., one of the judgment debtors of UCPB in Civil Case No. 16453, was only
his namesake; that without any legal basis, the petitioner and Sheriff Villapaa
caused the annotation of a notice to levy on the TCT of his aforesaid property
which caused the disapproval of his loan from UCPB and, thus made him lose
an opportunity to participate in the bidding of a considerable project; that by

reason of such wrongful annotation of notice of levy, he suffered sleepless

nights, moral shock, mental anguish and almost a heart attack due to high
blood pressure. He thus prayed:
WHEREFORE, premises considered, it is most respectfully prayed of the
Honorable Regional Trial Court that after due hearing, judgment be rendered
in his favor by ordering defendants jointly and severally, to pay as follows:
1. P3,000,000.00 as moral damages;
2. 300,000.00 as exemplary damages;
3. 200,000.00 as actual damages;
4. 200,000.00 as attorneys fees;
5. Cost of suit.[19]
In its answer, the petitioner, while admitting that it made a mistake in
causing the annotation of notice of levy on the TCT of the respondent, denied
that it was motivated by malice and bad faith. The petitioner alleged that
after ascertaining that it indeed made a mistake, it proposed that the
respondent file a motion to cancel levy with a promise that it would not
oppose the said motion. However, the respondent dilly-dallied and failed to
file the said motion; forthwith, if any damages were sustained by the
respondent, it was because it took him quite a long time to file the motion.
The petitioner should not thus be made to suffer for the consequences of the
respondents delay.
The petitioner further asserted that it had no knowledge that there were two
persons bearing the same name Teofilo Ramos; it was only when Sheriff
Villapaa notified the petitioner that a certain Teofilo C. Ramos who appeared
to be the registered owner of TCT No. 275167 that it learned for the first time
the notice of levy on the respondents property; forthwith, the petitioner held
in abeyance the sale of the levied property at public auction; barred by the
failure of the respondent to file a third-party claim in Civil Case No. 16453,
the petitioner could not cause the removal of the levy; in lieu thereof, it
suggested to the respondent the filing of a motion to cancel levy and that the
petitioner will not oppose such motion; surprisingly, it was only on April 12,
1994 that the respondent filed such motion; the petitioner was thus surprised
that the respondent filed an action for damages against it for his failure to
secure a timely loan from the UCPB and PDB. The petitioner thus prayed:
WHEREFORE, in view of the foregoing premises, it is respectfully prayed of
this Honorable Court that judgment be rendered in favor of defendant UCPB,
dismissing the complaint in toto and ordering the plaintiff to:
1. pay moral damages in the amount of PESOS: THREE MILLION
P3,000,000.00 and exemplary damages in the amount of PESOS: FIVE
HUNDRED THOUSAND P500,000.00;

2. pay attorneys fees and litigation expenses in an amount of not less than
PESOS: TWO HUNDRED THOUSAND P200,000.00;
Other reliefs and remedies deemed just and equitable under the premises are
also prayed for.[20]
In the meantime, in 1995, PDB released the proceeds of the loan of
Ramdustrial Corporation which the latter remitted to UCPB.
On March 4, 1997, the RTC rendered a decision in favor of the respondent.
The complaint against Sheriff Villapaa was dismissed on the ground that he
was merely performing his duties. The decretal part of the decision is herein
quoted:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
the plaintiff and against the defendant UCPB, and the latter is hereby ordered
to pay the following:
(1)
(2)
(3)
(4)

P800,000.00 as moral damages;

P100,000.00 as exemplary damages;
P100,000.00 as attorneys fees;
Cost of suit.[21]

The trial court found that contrary to the contention of the petitioner, it acted
with caution in looking for leviable properties of the judgment
debtors/defendants in Civil Case No. 16453, it proceeded with haste as it did
not take into consideration that the defendant Teofilo Ramos was married to
Amelita Ramos and had a Sr. in his name, while the respondent was married
to Rebecca Ramos and had C for his middle initial. The investigation
conducted by CAID appraiser Eduardo C. Reniva did not conclusively
ascertain if the respondent and Teofilo Ramos, Sr. were one and the same
person.
The trial court further stated that while it was Ramdustrial Corporation which
applied for a loan with UCPB and PDB, the respondent, as Chairman of
Ramdustrial Corporation, with his wife Rebecca Ramos, signed in the
promissory note and acted as sureties on the said obligations. Moreover, the
property which was levied was the respondents only property where he and
his family resided. Thus, the thought of losing it for reasons not of his own
doing gave rise to his entitlement to moral damages.
The trial court further ruled that the mere fact that the petitioner did not file
an opposition to the respondents motion to cancel levy did not negate its
negligence and bad faith. However, the court considered the cancellation of
annotation of levy as a mitigating factor on the damages caused to the
respondent. For failure to show that he suffered actual damages, the court a
quo dismissed the respondents claim therefor.
Dissatisfied, the petitioner interposed an appeal to the Court of Appeals (CA).

On March 30, 2001, the CA rendered a decision affirming, in toto, the decision
of the trial court, the decretal portion of which is herein quoted:
WHEREFORE, based on the foregoing premises, the assailed decision is
hereby AFFIRMED.[22]
The CA ruled that the petitioner was negligent in causing the annotation of
notice of levy on the title of the petitioner for its failure to determine with
certainty whether the defendant Teofilo Ramos, Sr. in Civil Case No. 16453
was the registered owner of the property covered by TCT No. 275167, and to
inform the sheriff that the registered owners of the property were the
respondent and his wife Rebecca Ramos, and thereafter request for the
cancellation of the motion of levy on the property.
Disappointed, the petitioner filed this instant petition assigning the following
errors:
I
IN AFFIRMING THE TRIAL COURTS ORDER, THE COURT OF APPEALS
COMMITTED
MANIFESTLY
MISTAKEN
INFERENCES
AND
EGREGIOUS
MISAPPREHENSION OF FACTS AND GRAVE ERRORS OF LAW, CONSIDERING
THAT:
A. ON THE EVIDENCE, THE BORROWER OF THE LOAN, WHICH RESPONDENT
RAMOS CLAIMED HE TRIED TO OBTAIN, WAS RAMDUSTRIAL CORPORATION.
HENCE, ANY DAMAGE RESULTING FROM THE ANNOTATION WAS SUFFERED BY
THE CORPORATION AND NOT BY RESPONDENT RAMOS.
B. THE DELAY IN THE CANCELLATION OF THE ANNOTATION WAS OF
RESPONDENT RAMOSS (SIC) OWN DOING.
C. THE LOAN APPLICATIONS WITH UNITED COCONUT SAVINGS BANK AND
PLANTERS DEVELOPMENT BANK WERE GRANTED PRIOR TO THE
CANCELLATION OF THE ANNOTATION ON THE TITLE OF THE SUBJECT
PROPERTY.
II
THE COURT OF APPEALS DECISION AFFIRMING THE TRIAL COURTS AWARD OF
MORAL DAMAGES TO RESPONDENT RAMOS IN THE AMOUNT OF P800,000 ON
A FINDING OF NEGLIGENCE IS CONTRARY TO LAW AND EVIDENCE.
A. UCPB WAS NOT NEGLIGENT WHEN IT CAUSED THE LEVY ON THE SUBJECT
PROPERTY.
B. AS A MATTER OF LAW, MORAL DAMAGES CANNOT BE AWARDED ON A
FINDING OF MERE NEGLIGENCE.
C. IN ANY EVENT, THE AWARD OF MORAL DAMAGES TO RESPONDENT RAMOS

WAS UNREASONABLE AND OPPRESSIVE.

III
THE AWARD OF EXEMPLARY DAMAGES AND ATTORNEYS FEES IS CONTRARY
TO LAW SINCE THE AWARD OF MORAL DAMAGES WAS IMPROPER IN THE
FIRST PLACE.[23]
UCPB prayed that:
WHEREFORE, petitioner UNITED COCONUT PLANTERS BANK respectfully prays
that this Honorable Court render judgment reversing and setting aside the
Court of Appeals Decision dated 30 March 2001, and ordering the dismissal of
respondent Ramos Complaint dated 05 May 1994.[24]
In his comment, the respondent alleged that the CA did not err in affirming, in
toto, the decision of the trial court. He prayed that the petition be denied due
course.
The issues posed for our resolution are the following: (a) whether or not the
petitioner acted negligently in causing the annotation of levy on the title of
the respondent; (b) if so, whether or not the respondent was the real party-ininterest as plaintiff to file an action for damages against the petitioner
considering that the loan applicant with UCPB and PDB was RAMDUSTRIAL
CORPORATION; (c) if so, whether or not the respondent is entitled to moral
damages, exemplary damages and attorneys fees.
On the first issue, we rule that the petitioner acted negligently when it
caused the annotation of the notice of levy in TCT No. 275167.
It bears stressing that the petitioner is a banking corporation, a financial
institution with power to issue its promissory notes intended to circulate as
money (known as bank notes); or to receive the money of others on general
deposit, to form a joint fund that shall be used by the institution for its own
benefit, for one or more of the purposes of making temporary loans and
discounts, of dealing in notes, foreign and domestic bills of exchange, coin
bullion, credits, and the remission of money; or with both these powers, and
with the privileges, in addition to these basic powers, of receiving special
deposits, and making collection for the holders of negotiable paper, if the
institution sees fit to engage in such business.[25] In funding these
businesses, the bank invests the money that it holds in trust of its depositors.
For this reason, we have held that the business of a bank is one affected with
public interest, for which reason the bank should guard against loss due to
negligence or bad faith.[26] In approving the loan of an applicant, the bank
concerns itself with proper informations regarding its debtors. The petitioner,
as a bank and a financial institution engaged in the grant of loans, is
expected to ascertain and verify the identities of the persons it transacts
business with.[27] In this case, the petitioner knew that the sureties to the
loan granted to ZDC and the defendants in Civil Case No. 94-1822 were the
Spouses Teofilo Ramos, Sr. and Amelita Ramos. The names of the Spouses

Teofilo Ramos, Sr. and Amelita Ramos were specified in the writ of execution
issued by the trial court.
The petitioner, with Atty. Bordalba as the Chief of LED and handling lawyer of
Civil Case No. 16453, in coordination with the sheriff, caused the annotation
of notice of levy in the respondents title despite its knowledge that the
property was owned by the respondent and his wife Rebecca Ramos, who
were not privies to the loan availment of ZDC nor parties-defendants in Civil
Case No. 16453. Even when the respondent informed the petitioner, through
counsel, that the property levied by the sheriff was owned by the respondent,
the petitioner failed to have the annotation cancelled by the Register of
Deeds.
In determining whether or not the petitioner acted negligently, the constant
test is: Did the defendant in doing the negligent act use that reasonable care
and caution which an ordinarily prudent person would have used in the same
situation? If not, then he is guilty of negligence.[28] Considering the
testimonial and documentary evidence on record, we are convinced that the
petitioner failed to act with the reasonable care and caution which an
ordinarily prudent person would have used in the same situation.
The petitioner has access to more facilities in confirming the identity of their
judgment debtors. It should have acted more cautiously, especially since
some uncertainty had been reported by the appraiser whom the petitioner
had tasked to make verifications. It appears that the petitioner treated the
uncertainty raised by appraiser Eduardo C. Reniva as a flimsy matter. It
placed more importance on the information regarding the marketability and
market value of the property, utterly disregarding the identity of the
registered owner thereof.
It should not be amiss to note that the judgment debtors name was Teofilo
Ramos, Sr. We note, as the Supreme Court of Washington in 1909 had, that a
legal name consists of one given name and one surname or family name, and
a mistake in a middle name is not regarded as of consequence. However,
since the use of initials, instead of a given name, before a surname, has
become a practice, the necessity that these initials be all given and correctly
given in court proceedings has become of importance in every case, and in
many, absolutely essential to a correct designation of the person intended.
[29] A middle name is very important or even decisive in a case in which the
issue is as between two persons who have the same first name and surname,
did the act complained of, or is injured or sued or the like.[30]
In this case, the name of the judgment debtor in Civil Case No. 16453 was
Teofilo Ramos, Sr., as appearing in the judgment of the court and in the writ
of execution issued by the trial court. The name of the owner of the property
covered by TCT No. 275167 was Teofilo C. Ramos. It behooved the petitioner
to ascertain whether the defendant Teofilo Ramos, Sr. in Civil Case No. 16453
was the same person who appeared as the owner of the property covered by
the said title. If the petitioner had done so, it would have surely discovered
that the respondent was not the surety and the judgment debtor in Civil Case

No. 16453. The petitioner failed to do so, and merely assumed that the
respondent and the judgment debtor Teofilo Ramos, Sr. were one and the
same person.
In sum, we find that the petitioner acted negligently in causing the
annotation of notice of levy in the title of the herein respondent, and that its
negligence was the proximate cause of the damages sustained by the
respondent.
On the second issue, the petitioner insists that the respondent is not the real
party-in-interest to file the action for damages, as he was not the one who
applied for a loan from UCPB and PDB but Ramdustrial Corporation, of which
he was merely the President and Chairman of the Board of Directors.
We do not agree. The respondent very clearly stated in his complaint that as
a result of the unlawful levy by the petitioner of his property, he suffered
sleepless nights, moral shock, and almost a heart attack due to high blood
pressure.[31]
It must be underscored that the registered owner of the property which was
unlawfully levied by the petitioner is the respondent. As owner of the
property, the respondent has the right to enjoy, encumber and dispose of his
property without other limitations than those established by law. The owner
also has a right of action against the holder and possessor of the thing in
order to recover it.[32] Necessarily, upon the annotation of the notice of levy
on the TCT, his right to use, encumber and dispose of his property was
diminished, if not negated. He could no longer mortgage the same or use it
as collateral for a loan.
Arising from his right of ownership over the said property is
against persons or parties who have disturbed his rights as
an owner, he is one who would be benefited or injured by
who is entitled to the avails of the suit[34] for an action for
one who disturbed his right of ownership.

a cause of action
an owner.[33] As
the judgment, or
damages against

Hence, regardless of the fact that the respondent was not the loan applicant
with the UCPB and PDB, as the registered owner of the property whose
ownership had been unlawfully disturbed and limited by the unlawful
annotation of notice of levy on his TCT, the respondent had the legal standing
to file the said action for damages. In both instances, the respondents
property was used as collateral of the loans applied for by Ramdustrial
Corporation. Moreover, the respondent, together with his wife, was a surety
of the aforesaid loans.
While it is true that the loss of business opportunities cannot be used as a
reason for an action for damages arising from loss of business opportunities
caused by the negligent act of the petitioner, the respondent, as a registered
owner whose right of ownership had been disturbed and limited, clearly has
the legal personality and cause of action to file an action for damages. Not
even the respondents failure to have the annotation cancelled immediately

after he came to know of the said wrongful levy negates his cause of action.
On the third issue, for the award of moral damages to be granted, the
following must exist: (1) there must be an injury clearly sustained by the
claimant, whether physical, mental or psychological; (2) there must be a
culpable act or omission factually established; (3) the wrongful act or
omission of the defendant is the proximate cause of the injury sustained by
the claimant; and (4) the award for damages is predicated on any of the
cases stated in Article 2219 of the Civil Code.[35]
In the case at bar, although the respondent was not the loan applicant and
the business opportunities lost were those of Ramdustrial Corporation, all four
requisites were established. First, the respondent sustained injuries in that his
physical health and cardio-vascular ailment were aggravated; his fear that his
one and only property would be foreclosed, hounded him endlessly; and his
reputation as mortgagor had been tarnished. Second, the annotation of
notice of levy on the TCT of the private respondent was wrongful, arising as it
did from the petitioners negligent act of allowing the levy without verifying
the identity of its judgment debtor. Third, such wrongful levy was the
proximate cause of the respondents misery. Fourth, the award for damages is
predicated on Article 2219 of the Civil Code, particularly, number 10 thereof.
[36]
Although the respondent was able to establish the petitioners negligence, we
cannot, however, allow the award for exemplary damages, absent the private
respondents failure to show that the petitioner acted with malice and bad
faith. It is a requisite in the grant of exemplary damages that the act of the
offender must be accompanied by bad faith or done in a wanton, fraudulent
or malevolent manner.[37]
Attorneys fees may be awarded when a party is compelled to litigate or to
incur expenses to protect his interest by reason of an unjustified act of the
other party. In this case, the respondent was compelled to engage the
services of counsel and to incur expenses of litigation in order to protect his
interest to the subject property against the petitioners unlawful levy. The
award is reasonable in view of the time it has taken this case to be resolved.
[38]
In sum, we rule that the petitioner acted negligently in levying the property of
the respondent despite doubts as to the identity of the respondent vis--vis its
judgment debtor. By reason of such negligent act, a wrongful levy was made,
causing physical, mental and psychological injuries on the person of the
respondent. Such injuries entitle the respondent to an award of moral
damages in the amount of P800,000. No exemplary damages can be awarded
because the petitioners negligent act was not tainted with malice and bad
faith. By reason of such wrongful levy, the respondent had to hire the
services of counsel to cause the cancellation of the annotation; hence, the
award of attorneys fees.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 56737 is

AFFIRMED WITH MODIFICATION. The award for exemplary damages is

deleted. No costs.
SO ORDERED.
G.R. No. 88013

March 19, 1990

SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and TRADERS
respondents.

ROYAL

BANK,

Don P. Porcuincula for petitioner.

San Juan, Gonzalez, San Agustin & Sinense for private respondent.

CRUZ, J.:
We are concerned in this case with the question of damages, specifically
moral and exemplary damages. The negligence of the private respondent has
already been established. All we have to ascertain is whether the petitioner is
entitled to the said damages and, if so, in what amounts.
The parties agree on the basic facts. The petitioner is a private corporation
engaged in the exportation of food products. It buys these products from
various local suppliers and then sells them abroad, particularly in the United
States, Canada and the Middle East. Most of its exports are purchased by the
petitioner on credit.
The petitioner was a depositor of the respondent bank and maintained a
checking account in its branch at Romulo Avenue, Cubao, Quezon City. On
May 25, 1981, the petitioner deposited to its account in the said bank the
amount of P100,000.00, thus increasing its balance as of that date to
P190,380.74. 1 Subsequently, the petitioner issued several checks against its
deposit but was suprised to learn later that they had been dishonored for
insufficient funds.
The dishonored checks are the following:
1.
Check No. 215391 dated May 29, 1981, in favor of California
Manufacturing Company, Inc. for P16,480.00:
2.
Check No. 215426 dated May 28, 1981, in favor of the Bureau of
Internal Revenue in the amount of P3,386.73:
3.
Check No. 215451 dated June 4, 1981, in favor of Mr. Greg Pedreo in
the amount of P7,080.00;
4.

Check No. 215441 dated June 5, 1981, in favor of Malabon Longlife

Trading Corporation in the amount of P42,906.00:

5.
Check No. 215474 dated June 10, 1981, in favor of Malabon Longlife
Trading Corporation in the amount of P12,953.00:
6.
Check No. 215477 dated June 9, 1981, in favor of Sea-Land Services,
Inc. in the amount of P27,024.45:
7.
Check No. 215412 dated June 10, 1981, in favor of Baguio Country
Club Corporation in the amount of P4,385.02: and
8.
Check No. 215480 dated June 9, 1981, in favor of Enriqueta Bayla in
the amount of P6,275.00. 2
As a consequence, the California Manufacturing Corporation sent on June 9,
1981, a letter of demand to the petitioner, threatening prosecution if the
dishonored check issued to it was not made good. It also withheld delivery of
the order made by the petitioner. Similar letters were sent to the petitioner by
the Malabon Long Life Trading, on June 15, 1981, and by the G. and U.
Enterprises, on June 10, 1981. Malabon also canceled the petitioner's credit
line and demanded that future payments be made by it in cash or certified
check. Meantime, action on the pending orders of the petitioner with the
other suppliers whose checks were dishonored was also deferred.
The petitioner complained to the respondent bank on June 10, 1981. 3
Investigation disclosed that the sum of P100,000.00 deposited by the
petitioner on May 25, 1981, had not been credited to it. The error was
rectified on June 17, 1981, and the dishonored checks were paid after they
were re-deposited. 4
In its letter dated June 20, 1981, the petitioner demanded reparation from the
respondent bank for its "gross and wanton negligence." This demand was not
met. The petitioner then filed a complaint in the then Court of First Instance
of Rizal claiming from the private respondent moral damages in the sum of
P1,000,000.00 and exemplary damages in the sum of P500,000.00, plus 25%
attorney's fees, and costs.
After trial, Judge Johnico G. Serquinia rendered judgment holding that moral
and exemplary damages were not called for under the circumstances.
However, observing that the plaintiff's right had been violated, he ordered
the defendant to pay nominal damages in the amount of P20,000.00 plus
P5,000.00 attorney's fees and costs. 5 This decision was affirmed in toto by
the respondent court. 6
The respondent court found with the trial court that the private respondent
was guilty of negligence but agreed that the petitioner was nevertheless not
entitled to moral damages. It said:
The essential ingredient of moral damages is proof of bad faith (De Aparicio
vs. Parogurga, 150 SCRA 280). Indeed, there was the omission by the

defendant-appellee bank to credit appellant's deposit of P100,000.00 on May

25, 1981. But the bank rectified its records. It credited the said amount in
favor of plaintiff-appellant in less than a month. The dishonored checks were
eventually paid. These circumstances negate any imputation or insinuation of
malicious, fraudulent, wanton and gross bad faith and negligence on the part
of the defendant-appellant.
It is this ruling that is faulted in the petition now before us.
This Court has carefully examined the facts of this case and finds that it
cannot share some of the conclusions of the lower courts. It seems to us that
the negligence of the private respondent had been brushed off rather lightly
as if it were a minor infraction requiring no more than a slap on the wrist. We
feel it is not enough to say that the private respondent rectified its records
and credited the deposit in less than a month as if this were sufficient
repentance. The error should not have been committed in the first place. The
respondent bank has not even explained why it was committed at all. It is
true that the dishonored checks were, as the Court of Appeals put it,
"eventually" paid. However, this took almost a month when, properly, the
checks should have been paid immediately upon presentment.
As the Court sees it, the initial carelessness of the respondent bank,
aggravated by the lack of promptitude in repairing its error, justifies the grant
of moral damages. This rather lackadaisical attitude toward the complaining
depositor constituted the gross negligence, if not wanton bad faith, that the
respondent court said had not been established by the petitioner.
We also note that while stressing the rectification made by the respondent
bank, the decision practically ignored the prejudice suffered by the petitioner.
This was simply glossed over if not, indeed, disbelieved. The fact is that the
petitioner's credit line was canceled and its orders were not acted upon
pending receipt of actual payment by the suppliers. Its business declined. Its
reputation was tarnished. Its standing was reduced in the business
community. All this was due to the fault of the respondent bank which was
undeniably remiss in its duty to the petitioner.
Article 2205 of the Civil Code provides that actual or compensatory damages
may be received "(2) for injury to the plaintiff s business standing or
commercial credit." There is no question that the petitioner did sustain actual
injury as a result of the dishonored checks and that the existence of the loss
having been established "absolute certainty as to its amount is not required."
7 Such injury should bolster all the more the demand of the petitioner for
moral damages and justifies the examination by this Court of the validity and
reasonableness of the said claim.
We agree that moral damages are not awarded to penalize the defendant but
to compensate the plaintiff for the injuries he may have suffered. 8 In the
case at bar, the petitioner is seeking such damages for the prejudice
sustained by it as a result of the private respondent's fault. The respondent
court said that the claimed losses are purely speculative and are not

supported by substantial evidence, but if failed to consider that the amount

of such losses need not be established with exactitude precisely because of
their nature. Moral damages are not susceptible of pecuniary estimation.
Article 2216 of the Civil Code specifically provides that "no proof of pecuniary
loss is necessary in order that moral, nominal, temperate, liquidated or
exemplary damages may be adjudicated." That is why the determination of
the amount to be awarded (except liquidated damages) is left to the sound
discretion of the court, according to "the circumstances of each case."
From every viewpoint except that of the petitioner's, its claim of moral
damages in the amount of P1,000,000.00 is nothing short of preposterous. Its
business certainly is not that big, or its name that prestigious, to sustain such
an extravagant pretense. Moreover, a corporation is not as a rule entitled to
moral damages because, not being a natural person, it cannot experience
physical suffering or such sentiments as wounded feelings, serious anxiety,
mental anguish and moral shock. The only exception to this rule is where the
corporation has a good reputation that is debased, resulting in its social
humiliation. 9
We shall recognize that the petitioner did suffer injury because of the private
respondent's negligence that caused the dishonor of the checks issued by it.
The immediate consequence was that its prestige was impaired because of
the bouncing checks and confidence in it as a reliable debtor was diminished.
The private respondent makes much of the one instance when the petitioner
was sued in a collection case, but that did not prove that it did not have a
good reputation that could not be marred, more so since that case was
ultimately settled. 10 It does not appear that, as the private respondent
would portray it, the petitioner is an unsavory and disreputable entity that
has no good name to protect.
Considering all this, we feel that the award of nominal damages in the sum of
P20,000.00 was not the proper relief to which the petitioner was entitled.
Under Article 2221 of the Civil Code, "nominal damages are adjudicated in
order that a right of the plaintiff, which has been violated or invaded by the
defendant, may be vindicated or recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered by him." As we have found that
the petitioner has indeed incurred loss through the fault of the private
respondent, the proper remedy is the award to it of moral damages, which we
impose, in our discretion, in the same amount of P20,000.00.
Now for the exemplary damages.
The pertinent provisions of the Civil Code are the following:
Art. 2229.
Exemplary or corrective damages are imposed, by way of
example or correction for the public good, in addition to the moral,
temperate, liquidated or compensatory damages.
Art. 2232.
In contracts and quasi-contracts, the court may award
exemplary damages if the defendant acted in a wanton, fraudulent, reckless,

oppressive, or malevolent manner.

The banking system is an indispensable institution in the modern world and
plays a vital role in the economic life of every civilized nation. Whether as
mere passive entities for the safekeeping and saving of money or as active
instruments of business and commerce, banks have become an ubiquitous
presence among the people, who have come to regard them with respect and
even gratitude and, most of all, confidence. Thus, even the humble wageearner has not hesitated to entrust his life's savings to the bank of his choice,
knowing that they will be safe in its custody and will even earn some interest
for him. The ordinary person, with equal faith, usually maintains a modest
checking account for security and convenience in the settling of his monthly
bills and the payment of ordinary expenses. As for business entities like the
petitioner, the bank is a trusted and active associate that can help in the
running of their affairs, not only in the form of loans when needed but more
often in the conduct of their day-to-day transactions like the issuance or
encashment of checks.
In every case, the depositor expects the bank to treat his account with the
utmost fidelity, whether such account consists only of a few hundred pesos or
of millions. The bank must record every single transaction accurately, down
to the last centavo, and as promptly as possible. This has to be done if the
account is to reflect at any given time the amount of money the depositor
can dispose of as he sees fit, confident that the bank will deliver it as and to
whomever he directs. A blunder on the part of the bank, such as the dishonor
of a check without good reason, can cause the depositor not a little
embarrassment if not also financial loss and perhaps even civil and criminal
litigation.
The point is that as a business affected with public interest and because of
the nature of its functions, 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. In the case at bar, it is obvious that the
respondent bank was remiss in that duty and violated that relationship. What
is especially deplorable is that, having been informed of its error in not
crediting the deposit in question to the petitioner, the respondent bank did
not immediately correct it but did so only one week later or twenty-three days
after the deposit was made. It bears repeating that the record does not
contain any satisfactory explanation of why the error was made in the first
place and why it was not corrected immediately after its discovery. Such
ineptness comes under the concept of the wanton manner contemplated in
the Civil Code that calls for the imposition of exemplary damages.
After deliberating on this particular matter, the Court, in the exercise of its
discretion, hereby imposes upon the respondent bank exemplary damages in
the amount of P50,000.00, "by way of example or correction for the public
good," in the words of the law. It is expected that this ruling will serve as a
warning and deterrent against the repetition of the ineptness and
indefference that has been displayed here, lest the confidence of the public in
the banking system be further impaired.

ACCORDINGLY, the appealed judgment is hereby

respondent is ordered to pay the petitioner, in
moral damages in the amount of P20,000.00, and
amount of P50,000.00 plus the original award
amount of P5,000.00, and costs.

MODIFIED and the private

lieu of nominal damages,
exemplary damages in the
of attorney's fees in the

SO ORDERED.
G.R. No. 127469

January 15, 2004

PHILIPPINE BANKING CORPORATION, petitioner,

vs.
COURT OF APPEALS and LEONILO MARCOS, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review of the Decision1 of the Court of Appeals in
CA-G.R. CV No. 34382 dated 10 December 1996 modifying the Decision2 of
the Regional Trial Court, Fourth Judicial Region, Assisting Court, Bian, Laguna
in Civil Case No. B-3148 entitled "Leonilo Marcos v. Philippine Banking
Corporation."
The Antecedent Facts
On 30 August 1989, Leonilo Marcos ("Marcos") filed with the trial court a
Complaint for Sum of Money with Damages3 against petitioner Philippine
Banking Corporation ("BANK").4
Marcos alleged that sometime in 1982, the BANK through Florencio B.
Pagsaligan ("Pagsaligan"), one of the officials of the BANK and a close friend
of Marcos, persuaded him to deposit money with the BANK. Marcos yielded to
Pagsaligans persuasion and claimed he made a time deposit with the BANK
on two occasions. The first was on 11 March 1982 for P664,897.67. The BANK
issued Receipt No. 635734 for this time deposit. On 12 March 1982, Marcos
claimed he again made a time deposit with the BANK for P764,897.67. The
BANK did not issue an official receipt for this time deposit but it
acknowledged a deposit of this amount through a letter-certification
Pagsaligan issued. The time deposits earned interest at 17% per annum and
had a maturity period of 90 days.
Marcos alleged that Pagsaligan kept the various time deposit certificates on
the assurance that the BANK would take care of the certificates, interests and
renewals. Marcos claimed that from the time of the deposit, he had not

received the principal amount or its interest.

Sometime in March 1983, Marcos wanted to withdraw from the BANK his time
deposits and the accumulated interests to buy materials for his construction
business. However, the BANK through Pagsaligan convinced Marcos to keep
his time deposits intact and instead to open several domestic letters of credit.
The BANK required Marcos to give a marginal deposit of 30% of the total
amount of the letters of credit. The time deposits of Marcos would secure
70% of the letters of credit. Since Marcos trusted the BANK and Pagsaligan,
he signed blank printed forms of the application for the domestic letters of
credit, trust receipt agreements and promissory notes.
Marcos executed three Trust Receipt Agreements totalling P851,250, broken
down as follows: (1) Trust Receipt No. CD 83.7 dated 8 March 1983 for
P300,000; (2) Trust Receipt No. CD 83.9 dated 15 March 1983 for P300,000;
and (3) Trust Receipt No. CD 83.10 dated 15 March 1983 for P251,250.
Marcos deposited the required 30% marginal deposit for the trust receipt
agreements. Marcos claimed that his obligation to the BANK was therefore
only P595,875 representing 70% of the letters of credit.
Marcos believed that he and the BANK became creditors and debtors of each
other. Marcos expected the BANK to offset automatically a portion of his time
deposits and the accumulated interest with the amount covered by the three
trust receipts totalling P851,250 less the 30% marginal deposit that he had
paid. Marcos argued that if only the BANK applied his time deposits and the
accumulated interest to his remaining obligation, which is 70% of the total
amount of the letters of credit, he would have paid completely his debt.
Marcos further pointed out that since he did not apply for a renewal of the
trust receipt agreements, the BANK had no right to renew the same.
Marcos accused the BANK of unjustly demanding payment for the total
amount of the trust receipt agreements without deducting the 30% marginal
deposit that he had already made. He decried the BANKs unlawful charging
of accumulated interest because he claimed there was no agreement as to
the payment of interest. The interest arose from numerous alleged extensions
and penalties. Marcos reiterated that there was no agreement to this effect
because his time deposits served as the collateral for his remaining
obligation.
Marcos also denied that he obtained another loan from the BANK for
P500,000 with interest at 25% per annum supposedly covered by Promissory
Note No. 20-979-83 dated 24 October 1983. Marcos bewailed the BANKs
belated claim that his time deposits were applied to this void promissory note
on 12 March 1985.
In sum, Marcos claimed that:
(1) his time deposit with the BANK "in the total sum of P1,428,795.345 has
earned accumulated interest since March 1982 up to the present in the total
amount of P1,727,305.45 at the rate of 17% per annum so his total money

with defendant (the BANK) is P3,156,100.79 less the amount of P595,875

representing the 70% balance of the marginal deposit and/or balance of the
trust agreements;" and
(2) his indebtedness was only P851,250 less the 30% paid as marginal
deposit or a balance of P595,875, which the BANK should have automatically
deducted from his time deposits and accumulated interest, leaving the
BANKs indebtedness to him at P2,560,025.79.
Marcos prayed the trial court to declare Promissory Note No. 20-979-83 void
and to order the BANK to pay the amount of his time deposits with interest.
He also sought the award of moral and exemplary damages as well as
attorneys fees for P200,000 plus 25% of the amount due.
On 18 September 1989, summons and a copy of the complaint were served
on the BANK.6
On 9 October 1989, the BANK filed its Answer with Counterclaim. The BANK
denied the allegations in the complaint. The BANK believed that the suit was
Marcos desperate attempt to avoid liability under several trust receipt
agreements that were the subject of a criminal complaint.
The BANK alleged that as of 12 March 1982, the total amount of the various
time deposits of Marcos was only P764,897.67 and not P1,428,795.357 as
alleged in the complaint. The P764,897.67 included the P664,897.67 that
Marcos deposited on 11 March 1982.
The BANK pointed out that Marcos delivered to the BANK the time deposit
certificates by virtue of the Deed of Assignment dated 2 June 1989. Marcos
executed the Deed of Assignment to secure his various loan obligations. The
BANK claimed that these loans are covered by Promissory Note No. 20-756-82
dated 2 June 1982 for P420,000 and Promissory Note No. 20-979-83 dated 24
October 1983 for P500,000. The BANK stressed that these obligations are
separate and distinct from the trust receipt agreements.
When Marcos defaulted in the payment of Promissory Note No. 20-979-83,
the BANK debited his time deposits and applied the same to the obligation
that is now considered fully paid.8 The BANK insisted that the Deed of
Assignment authorized it to apply the time deposits in payment of Promissory
Note No. 20-979-83.
In March 1982, the wife of Marcos, Consolacion Marcos, sought the advice of
Pagsaligan. Consolacion informed Pagsaligan that she and her husband
needed to finance the purchase of construction materials for their business,
L.A. Marcos Construction Company. Pagsaligan suggested the opening of the
letters of credit and the execution of trust receipts, whereby the BANK would
agree to purchase the goods needed by the client through the letters of
credit. The BANK would then entrust the goods to the client, as entrustee,
who would undertake to deliver the proceeds of the sale or the goods
themselves to the entrustor within a specified time.

The BANK claimed that Marcos freely entered into the trust receipt
agreements. When Marcos failed to account for the goods delivered or for the
proceeds of the sale, the BANK filed a complaint for violation of Presidential
Decree No. 115 or the Trust Receipts Law. Instead of initiating negotiations for
the settlement of the account, Marcos filed this suit.
The BANK denied falsifying Promissory Note No. 20-979-83. The BANK
claimed that the promissory note is supported by documentary evidence such
as Marcos application for this loan and the microfilm of the cashiers check
issued for the loan. The BANK insisted that Marcos could not deny the
agreement for the payment of interest and penalties under the trust receipt
agreements. The BANK prayed for the dismissal of the complaint, payment of
damages, attorneys fees and cost of suit.
On 15 December 1989, the trial court on motion of Marcos counsel issued an
order declaring the BANK in default for filing its answer five days after the 15day period to file the answer had lapsed.9 The trial court also held that the
answer is a mere scrap of paper because a copy was not furnished to Marcos.
In the same order, the trial court allowed Marcos to present his evidence ex
parte on 18 December 1989. On that date, Marcos testified and presented
documentary evidence. The case was then submitted for decision.
On 19 December 1989, Marcos received a copy of the BANKs Answer with
Compulsory Counterclaim.
On 29 December 1989, the BANK filed an opposition to Marcos motion to
declare the BANK in default. On 9 January 1990, the BANK filed a motion to
lift the order of default claiming that it had only then learned of the order of
default. The BANK explained that its delayed filing of the Answer with
Counterclaim and failure to serve a copy of the answer on Marcos was due to
excusable negligence. The BANK asked the trial court to set aside the order of
default because it had a valid and meritorious defense.
On 7 February 1990, the trial court issued an order setting aside the default
order and admitting the BANKs Answer with Compulsory Counterclaim. The
trial court ordered the BANK to present its evidence on 12 March 1990.
On 5 March 1990, the BANK filed a motion praying to cross-examine Marcos
who had testified during the ex-parte hearing of 18 December 1989. On 12
March 1990, the trial court denied the BANKs motion and directed the BANK
to present its evidence. Trial then ensued.
The BANK presented two witnesses, Rodolfo Sales, the Branch Manager of the
BANKs Cubao Branch since 1987, and Pagsaligan, the Branch Manager of the
same branch from 1982 to 1986.
On 24 April 1990, the counsel of Marcos cross-examined Pagsaligan. Due to
lack of material time, the trial court reset the continuation of the crossexamination and presentation of other evidence. The succeeding hearings

were postponed, specifically on 24, 27 and 28 of August 1990, because of the

BANKs failure to produce its witness, Pagsaligan. The BANK on these
scheduled hearings also failed to present other evidence.
On 7 September 1990, the BANK moved to postpone the hearing on the
ground that Pagsaligan could not attend the hearing because of illness. The
trial court denied the motion to postpone and on motion of Marcos counsel
ruled that the BANK had waived its right to present further evidence. The trial
court considered the case submitted for decision. The BANK moved for
reconsideration, which the trial court denied.
On 8 October 1990, the trial court rendered its decision in favor of Marcos.
Aggrieved, the BANK appealed to the Court of Appeals.
On 10 December 1996, the Court of Appeals modified the decision of the trial
court by reducing the amount of actual damages and deleting the attorneys
fees awarded to Marcos.
The Ruling of the Trial Court
The trial court ruled that the total amount of time deposits of Marcos was
P1,429,795.34 and not only P764,897.67 as claimed by the BANK. The trial
court found that Marcos made a time deposit on two occasions. The first time
deposit was made on 11 March 1982 for P664,897.67 as shown by Receipt
No. 635743. On 12 March 1982, Marcos again made a time deposit for
P764,897.67 as acknowledged by Pagsaligan in a letter of certification. The
two time deposits thus amounted to P1,429,795.34.
The trial court pointed out that no receipt was issued for the 12 March 1982
time deposit because the letter of certification was sufficient. The trial court
made a finding that the certification letter did not include the time deposit
made on 11 March 1982. The 12 March 1982 deposit was in cash while the 11
March 1982 deposit was in checks which still had to clear. The checks were
not included in the certification letter since the BANK could not credit the
amounts of the checks prior to clearing. The trial court declared that even the
Deed of Assignment acknowledged that Marcos made several time deposits
as the Deed stated that the assigment was charged against "various" time
deposits.
The trial court recognized the existence of the Deed of Assignment and the
two loans that Marcos supposedly obtained from the BANK on 28 May 1982
for P340,000 and on 2 June 1982 for P420,000. The two loans amounted to
P760,000. On 2 June 1982, the same day that he secured the second loan,
Marcos executed a Deed of Assignment assigning to the BANK P760,000 of
his time deposits. The trial court concluded that obviously the two loans were
immediately paid by virtue of the Deed of Assignment.
The trial court found it strange that Marcos borrowed money from the BANK
at a higher rate of interest instead of just withdrawing his time deposits. The
trial court saw no rhyme or reason why Marcos had to secure the loans from

the BANK. The trial court was convinced that Marcos did not know that what
he had signed were loan applications and a Deed of Assignment in payment
for his loans. Nonetheless, the trial court recognized "the said loan of
P760,000 and its corresponding payment by virtue of the Deed of Assignment
for the equal sum."10
If the BANKs claim is true that the time deposits of Marcos amounted only to
P764,897.67 and he had already assigned P760,000 of this amount, the trial
court pointed out that what would be left as of 3 June 1982 would only be
P4,867.67.11 Yet, after the time deposits had matured, the BANK allowed
Marcos to open letters of credit three times. The three letters of credit were
all secured by the time deposits of Marcos after he had paid the 30%
marginal deposit. The trial court opined that if Marcos time deposit was only
P764,897.67, then the letters of credit totalling P595,875 (less 30% marginal
deposit) was guaranteed by only P4,867.67,12 the remaining time deposits
after Marcos had executed the Deed of Assignment for P760,000.
According to the trial court, a security of only P4,867.6713 for a loan worth
P595,875 (less 30% marginal deposit) is not only preposterous, it is also
comical. Worse, aside from allowing Marcos to have unsecured trust receipts,
the BANK still claimed to have granted Marcos another loan for P500,000 on
25 October 1983 covered by Promissory Note No. 20-979-83. The BANK is a
commercial bank engaged in the business of lending money. Allowing a loan
of more than a million pesos without collateral is in the words of the trial
court, "an impossibility and a gross violation of Central Bank Rules and
Regulations, which no Bank Manager has such authority to grant."14 Thus,
the trial court held that the BANK could not have granted Marcos the loan
covered by Promissory Note No. 20-979-83 because it was unsecured by any
collateral.
The trial court required the BANK to produce the original copies of the loan
application and Promissory Note No. 20-979-83 so that it could determine
who applied for this loan. However, the BANK presented to the trial court only
the "machine copies of the duplicate" of these documents.
Based on the "machine copies of the duplicate" of the two documents, the
trial court noticed the following discrepancies: (1) Marcos signature on the
two documents are merely initials unlike in the other documents submitted
by the BANK; (2) it is highly unnatural for the BANK to only have duplicate
copies of the two documents in its custody; (3) the address of Marcos in the
documents is different from the place of residence as stated by Marcos in the
other documents annexed by the BANK in its Answer; (4) Pagsaligan made it
appear that a check for the loan proceeds of P470,588 less bank charges was
issued to Marcos but the checks payee was one ATTY. LEONILO MARCOS and,
as the trial court noted, Marcos is not a lawyer; and (5) Pagsaligan was not
sure what branch of the BANK issued the check for the loan proceeds. The
trial court was convinced that Marcos did not execute the questionable
documents covering the P500,000 loan and Pagsaligan used these
documents as a means to justify his inability to explain and account for the
time deposits of Marcos.

The trial court noted the BANKs "defective" documentation of its transaction
with Marcos. First, the BANK was not in possession of the original copies of
the documents like the loan applications. Second, the BANK did not have a
ledger of the accounts of Marcos or of his various transactions with the BANK.
Last, the BANK did not issue a certificate of time deposit to Marcos. Again,
the trial court attributed the BANKs lapses to Pagsaligans scheme to defraud
Marcos of his time deposits.
The trial court also took note of Pagsaligans demeanor on the witness stand.
Pagsaligan evaded the questions by giving unresponsive or inconsistent
answers compelling the trial court to admonish him. When the trial court
ordered Pagsaligan to produce the documents, he "conveniently became
sick"15 and thus failed to attend the hearings without presenting proof of his
physical condition.
The trial court disregarded the BANKs assertion that the time deposits were
converted into a savings account at 14% or 10% per annum upon maturity.
The BANK never informed Marcos that his time deposits had already matured
and these were converted into a savings account. As to the interest due on
the trust receipts, the trial court ruled that there is no basis for such a charge
because the documents do not stipulate any interest.
In computing the amount due to Marcos, the trial court took into account the
marginal deposit that Marcos had already paid which is equivalent to 30% of
the total amount of the three trust receipts. The three trust receipts totalling
P851,250 would then have a balance of P595,875. The balance became due
in March 1987 and on the same date, Marcos time deposits of P669,932.30
had already earned interest from 1983 to 1987 totalling P569,323.21 at 17%
per annum. Thus, the trial court ruled that the time deposits in 1987 totalled
P1,239,115. From this amount, the trial court deducted P595,875, the amount
of the trust receipts, leaving a balance on the time deposits of P643,240 as of
March 1987. However, since the BANK failed to return the time deposits of
Marcos, which again matured in March 1990, the time deposits with interest,
less the amount of trust receipts paid in 1987, amounted to P971,292.49 as
of March 1990.
In the alternative, the trial court ruled that even if Marcos had only one time
deposit of P764,897.67 as claimed by the BANK, the time deposit would have
still earned interest at the rate of 17% per annum. The time deposit of
P650,163 would have increased to P1,415,060 in 1987 after earning interest.
Deducting the amount of the three trust receipts, Marcos time deposits still
totalled P1,236,969.30 plus interest.
The dispositive portion of the decision of the trial court reads:
WHEREFORE, under the foregoing circumstances, judgment is hereby
rendered in favor of Plaintiff, directing Defendant Bank as follows:
1) to return to Plaintiff his time deposit in the sum of P971,292.49 with

interest thereon at the legal rate, until fully restituted;

2) to pay attorneys fees of P200,000.00; [and]
3) [to pay the] cost of these proceedings.
IT IS SO ORDERED.16
The Ruling of the Court of Appeals
The Court of Appeals addressed the procedural and substantive issues that
the BANK raised.
The appellate court ruled that the trial court committed a reversible error
when it denied the BANKs motion to cross-examine Marcos. The appellate
court ruled that the right to cross-examine is a fundamental right that the
BANK did not waive because the BANK vigorously asserted this right. The
BANKs failure to serve a notice of the motion to Marcos is not a valid ground
to deny the motion to cross-examine. The appellate court held that the
motion to cross-examine is one of those non-litigated motions that do not
require the movant to provide a notice of hearing to the other party.
The Court of Appeals pointed out that when the trial court lifted the order of
default, it had the duty to afford the BANK its right to cross-examine Marcos.
This duty assumed greater importance because the only evidence supporting
the complaint is Marcos ex-parte testimony. The trial court should have
tested the veracity of Marcos testimony through the distilling process of
cross-examination. The Court of Appeals, however, believed that the case
should not be remanded to the trial court because Marcos testimony on the
time deposits is supported by evidence on record from which the appellate
court could make an intelligent judgment.
On the second procedural issue, the Court of Appeals held that the trial court
did not err when it declared that the BANK had waived its right to present its
evidence and had submitted the case for decision. The appellate court agreed
with the grounds relied upon by the trial court in its Order dated 7 September
1990.
The Court of Appeals, however, differed with the finding of the trial court as
to the total amount of the time deposits. The appellate court ruled that the
total amount of the time deposits of Marcos is only P764,897.67 and not
P1,429,795.34 as found by the trial court. The certification letter issued by
Pagsaligan showed that Marcos made a time deposit on 12 March 1982 for
P764,897.67. The certification letter shows that the amount mentioned in the
letter was the aggregate or total amount of the time deposits of Marcos as of
that date. Therefore, the P764,897.67 already included the P664,897.67 time
deposit made by Marcos on 11 March 1982.
The Court of Appeals further explained:

Besides, the Official Receipt (Exh. "B", p. 32, Records) dated March 11, 1982
covering the sum of P664,987.67 time deposit did not provide for a maturity
date implying clearly that the amount covered by said receipt forms part of
the total sum shown in the letter-certification which contained a maturity
date. Moreover, it taxes ones credulity to believe that appellee would make a
time deposit on March 12, 1982 in the sum of P764,897.67 which except for
the additional sum of P100,000.00 is practically identical (see underlined
figures) to the sum of P664,897.67 deposited the day before March 11, 1982.
Additionally, We agree with the contention of the appellant that the lower
court wrongly appreciated the testimony of Mr. Pagsaligan. Our finding is
strengthened when we consider the alleged application for loan by the
appellee with the appellant in the sum of P500,000.00 dated October 24,
1983. (Exh. "J", p. 40, Records), wherein it was stated that the loan is for
additional working capital versus the various time deposit amounting to
P760,000.00.17 (Emphasis supplied)
The Court of Appeals sustained the factual findings of the trial court in ruling
that Promissory Note No. 20-979-83 is void. There is no evidence of a bank
ledger or computation of interest of the loan. The appellate court blamed the
BANK for failing to comply with the orders of the trial court to produce the
documents on the loan. The BANK also made inconsistent statements. In its
Answer to the Complaint, the BANK alleged that the loan was fully paid when
it debited the time deposits of Marcos with the loan. However, in its
discussion of the assigned errors, the BANK claimed that Marcos had yet to
pay the loan.
The appellate court deleted the award of attorneys fees. It noted that the
trial court failed to justify the award of attorneys fees in the text of its
decision. The dispositive portion of the decision of the Court of Appeals reads:
WHEREFORE, premises considered, the appealed decision is SET ASIDE. A
new judgment is hereby rendered ordering the appellant bank to return to the
appellee his time deposit in the sum of P764,897.67 with 17% interest within
90 days from March 11, 1982 in accordance with the letter-certification and
with legal interest thereafter until fully paid. Costs against the appellant.
SO ORDERED.18 (Emphasis supplied)
The Issues
The BANK anchors this petition on the following issues:
1) WHETHER OR NOT THE PETITIONER [sic] ABLE TO PROVE THE PRIVATE
RESPONDENTS OUTSTANDING OBLIGATIONS SECURED BY THE ASSIGNMENT
OF TIME DEPOSITS?
1.1) COROLLARILY, WHETHER OR NOT THE PROVISIONS OF SECTION 8 RULE
10 OF [sic] THEN REVISED RULES OF COURT BE APPLIED [sic] SO AS TO
CREATE A JUDICIAL ADMISSION ON THE GENUINENESS AND DUE EXECUTION

OF THE ACTIONABLE
ANSWER?

DOCUMENTS

APPENDED

TO

THE

PETITIONERS

2) WHETHER OR NOT PETITIONER [sic] DEPRIVED OF DUE PROCESS WHEN

THE LOWER COURT HAS [sic] DECLARED PETITIONER TO HAVE WAIVED
PRESENTATION OF FURTHER EVIDENCE AND CONSIDERED THE CASE
SUBMITTED FOR RESOLUTION?19
The Ruling of the Court
The petition is without merit.
Procedural Issues
There was no violation of the BANKs right to procedural due process when
the trial court denied the BANKs motion to cross-examine Marcos. Prior to
the denial of the motion, the trial court had properly declared the BANK in
default. Since the BANK was in default, Marcos was able to present his
evidence ex-parte including his own testimony. When the trial court lifted the
order of default, the BANK was restored to its standing and rights in the
action. However, as a rule, the proceedings already taken should not be
disturbed.20 Nevertheless, it is within the trial courts discretion to reopen
the evidence submitted by the plaintiff and allow the defendant to challenge
the same, by cross-examining the plaintiffs witnesses or introducing
countervailing evidence.21 The 1964 Rules of Court, the rules then in effect
at the time of the hearing of this case, recognized the trial courts exercise of
this discretion. The 1997 Rules of Court retained this discretion.22 Section 3,
Rule 18 of the 1964 Rules of Court reads:
Sec. 3. Relief from order of default. A party declared in default may any
time after discovery thereof and before judgment file a motion under oath to
set aside the order of default upon proper showing that his failure to answer
was due to fraud, accident, mistake or excusable neglect and that he has a
meritorious defense. In such case the order of default may be set aside on
such terms and conditions as the judge may impose in the interest of justice.
(Emphasis supplied)
The records show that the BANK did not ask the trial court to restore its right
to cross-examine Marcos when it sought the lifting of the default order on 9
January 1990. Thus, the order dated 7 February 1990 setting aside the order
of default did not confer on the BANK the right to cross-examine Marcos. It
was only on 2 March 1990 that the BANK filed the motion to cross-examine
Marcos. During the 12 March 1990 hearing, the trial court denied the BANKs
oral manifestation to grant its motion to cross-examine Marcos because there
was no proof of service on Marcos. The BANKs counsel pleaded for
reconsideration but the trial court denied the plea and ordered the BANK to
present its evidence. Instead of presenting its evidence, the BANK moved for
the resetting of the hearing and when the trial court denied the same, the
BANK informed the trial court that it was elevating the denial to the "upper
court."23

To repeat, the trial court had previously declared the BANK in default. The
trial court therefore had the right to decide whether or not to disturb the
testimony of Marcos that had already been terminated even before the trial
court lifted the order of default.
We do not agree with the appellate courts ruling that a motion to crossexamine is a non-litigated motion and that the trial court gravely abused its
discretion when it denied the motion to cross-examine. A motion to crossexamine is adversarial. The adverse party in this case had the right to resist
the motion to cross-examine because the movant had previously forfeited its
right to cross-examine the witness. The purpose of a notice of a motion is to
avoid surprises on the opposite party and to give him time to study and meet
the arguments.24 In a motion to cross-examine, the adverse party has the
right not only to prepare a meaningful opposition to the motion but also to be
informed that his witness is being recalled for cross-examination. The proof of
service was therefore indispensable and the trial court was correct in denying
the oral manifestation to grant the motion for cross-examination.
We find no justifiable reason to relax the application of the rule on notice of
motions25 to this case. The BANK could have easily re-filed the motion to
cross-examine with the requisite notice to Marcos. It did not do so. The BANK
did not make good its threat to elevate the denial to a higher court. The BANK
waited until the trial court rendered a judgment on the merits before
questioning the interlocutory order of denial.
While the right to cross-examine is a vital element of procedural due process,
the right does not necessarily require an actual cross-examination, but
merely an opportunity to exercise this right if desired by the party entitled to
it.26 Clearly, the BANKs failure to cross-examine is imputable to the BANK
when it lost this right27 as it was in default and failed thereafter to exhaust
the remedies to secure the exercise of this right at the earliest opportunity.
The two other procedural lapses that the BANK attributes to the appellate and
trial courts deserve scant consideration.
The BANK raises for the very first time the issue of judicial admission on the
part of Marcos. The BANK even has the audacity to fault the Court of Appeals
for not ruling on this issue when it never raised this matter before the
appellate court or before the trial court. Obviously, this issue is only an
afterthought. An issue raised for the first time on appeal and not raised
timely in the proceedings in the lower court is barred by estoppel.28
The BANK cannot claim that Marcos had admitted the due execution of the
documents attached to its answer because the BANK filed its answer late and
even failed to serve it on Marcos. The BANKs answer, including the
actionable documents it pleaded and attached to its answer, was a mere
scrap of paper. There was nothing that Marcos could specifically deny under
oath. Marcos had already completed the presentation of his evidence when
the trial court lifted the order of default and admitted the BANKs answer. The

provision of the Rules of Court governing admission of actionable documents

was not enacted to reward a party in default. We will not allow a party to gain
an advantage from its disregard of the rules.
As to the issue of its right to present additional evidence, we agree with the
Court of Appeals that the trial court correctly ruled that the BANK had waived
this right. The BANK cannot now claim that it was deprived of its right to
conduct a re-direct examination of Pagsaligan. The BANK postponed the
hearings three times29 because of its inability to secure Pagsaligans
presence during the hearings. The BANK could have presented another
witness or its other evidence but it obstinately insisted on the resetting of the
hearing because of Pagsaligans absence allegedly due to illness.
The BANKs propensity for postponements had long delayed the case. Its
motion for postponement based on Pagsaligans illness was not even
supported by documentary evidence such as a medical certificate.
Documentary evidence of the illness is necessary before the trial court could
rule that there is a sufficient basis to grant the postponement.30
The BANKs Fiduciary Duty to its Depositor
The BANK is liable to Marcos for offsetting his time deposits with a fictitious
promissory note. The existence of Promissory Note No. 20-979-83 could have
been easily proven had the BANK presented the original copies of the
promissory note and its supporting evidence. In lieu of the original copies, the
BANK presented the "machine copies of the duplicate" of the documents.
These substitute documents have no evidentiary value. The BANKs failure to
explain the absence of the original documents and to maintain a record of the
offsetting of this loan with the time deposits bring to fore the BANKs dismal
failure to fulfill its fiduciary duty to Marcos.
Section 2 of Republic Act No. 8791 (General Banking Law of 2000) expressly
imposes this fiduciary duty on banks when it declares that the State
recognizes the "fiduciary nature of banking that requires high standards of
integrity and performance." This statutory declaration merely echoes the
earlier pronouncement of the Supreme Court in Simex International (Manila)
Inc. v. Court of Appeals31 requiring banks to "treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature
of their relationship."32 The Court reiterated this fiduciary duty of banks in
subsequent cases.33
Although RA No. 8791 took effect only in the year 2000,34 at the time that
the BANK transacted with Marcos, jurisprudence had already imposed on
banks the same high standard of diligence required under RA No. 8791.35
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. Thus, the BANKs

fiduciary duty imposes upon it a higher level of accountability than that

expected of Marcos, a businessman, who negligently signed blank forms and
entrusted his certificates of time deposits to Pagsaligan without retaining
copies of the certificates.
The business of banking is imbued with public interest. The stability of banks
largely depends on the confidence of the people in the honesty and efficiency
of banks. In Simex International (Manila) Inc. v. Court of Appeals36 we
pointed out the depositors reasonable expectations from a bank and the
banks corresponding duty to its depositor, as follows:
In every case, the depositor expects the bank to treat his account with the
utmost fidelity, whether such account consists only of a few hundred pesos or
of millions. The bank must record every single transaction accurately, down
to the last centavo, and as promptly as possible. This has to be done if the
account is to reflect at any given time the amount of money the depositor
can dispose of as he sees fit, confident that the bank will deliver it as and to
whomever he directs.
As the BANKs depositor, Marcos had the right to expect that the BANK was
accurately recording his transactions with it. Upon the maturity of his time
deposits, Marcos also had the right to withdraw the amount due him after the
BANK had correctly debited his outstanding obligations from his time
deposits.
By the very nature of its business, the BANK should have had in its
possession the original copies of the disputed promissory note and the
records and ledgers evidencing the offsetting of the loan with the time
deposits of Marcos. The BANK inexplicably failed to produce the original
copies of these documents. Clearly, the BANK failed to treat the account of
Marcos with meticulous care.
The BANK claims that it is a reputable banking institution and that it has no
reason to forge Promissory Note No. 20-979-83. The trial court and appellate
court did not rule that it was the bank that forged the promissory note. It was
Pagsaligan, the BANKs branch manager and a close friend of Marcos, whom
the trial court categorically blamed for the fictitious loan agreements. The
trial court held that Pagsaligan made up the loan agreement to cover up his
inability to account for the time deposits of Marcos.
Whether it was the BANKs negligence and inefficiency or Pagsaligans
misdeed that deprived Marcos of the amount due him will not excuse the
BANK from its obligation to return to Marcos the correct amount of his time
deposits with interest. The duty to observe "high standards of integrity and
performance" imposes on the BANK that obligation. The BANK cannot also
unjustly enrich itself by keeping Marcos money.
Assuming Pagsaligan was behind the spurious promissory note, the BANK
would still be accountable to Marcos. We have held that a bank is liable for
the wrongful acts of its officers done in the interest of the bank or in their

dealings as bank representatives but not for acts outside the scope of their
authority.37 Thus, we held:
A bank holding out its officers and agents as worthy of confidence will not be
permitted to profit by the frauds they may thus be enabled to perpetrate in
the apparent scope of their employment; nor will it be permitted to shirk its
responsibility for such frauds, even though no benefit may accrue to the bank
therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is liable
to innocent third persons where the representation is made in the course of
its business by an agent acting within the general scope of his authority even
though, in the particular case, the agent is secretly abusing his authority and
attempting to perpetrate a fraud upon his principal or some other person, for
his own ultimate benefit.38
The Existence of Promissory Note No. 20-979-83 was not Proven
The BANK failed to produce the best evidence the original copies of the
loan application and promissory note. The Best Evidence Rule provides that
the court shall not receive any evidence that is merely substitutionary in its
nature, such as photocopies, as long as the original evidence can be had.39
Absent a clear showing that the original writing has been lost, destroyed or
cannot be produced in court, the photocopy must be disregarded, being
unworthy of any probative value and being an inadmissible piece of
evidence.40
What the BANK presented were merely the "machine copies of the duplicate"
of the loan application and promissory note. No explanation was ever offered
by the BANK for its inability to produce the original copies of the documentary
evidence. The BANK also did not comply with the orders of the trial court to
submit the originals.
The purpose of the rule requiring the production of the best evidence is the
prevention of fraud.41 If a party is in possession of evidence and withholds it,
and seeks to substitute inferior evidence in its place, the presumption
naturally arises that the better evidence is withheld for fraudulent purposes,
which its production would expose and defeat.42
The absence of the original of the documentary evidence casts suspicion on
the existence of Promissory Note No. 20-979-83 considering the BANKs
fiduciary duty to keep efficiently a record of its transactions with its
depositors. Moreover, the circumstances enumerated by the trial court
bolster the conclusion that Promissory Note No. 20-979-83 is bogus. The
BANK has only itself to blame for the dearth of competent proof to establish
the existence of Promissory Note No. 20-979-83.
Total Amount Due to Marcos
The BANK and Marcos do not now dispute the ruling of the Court of Appeals
that the total amount of time deposits that Marcos placed with the BANK is
only P764,897.67 and not P1,429,795.34 as found by the trial court. The

BANK has always argued that Marcos time deposits only totalled
P764,897.67.43 What the BANK insists on in this petition is the trial courts
violation of its right to procedural due process and the absence of any
obligation to pay or return anything to Marcos. Marcos, on the other hand,
merely prays for the affirmation of either the trial court or appellate court
decision.44 We uphold the finding of the Court of Appeals as to the amount of
the time deposits as such finding is in accord with the evidence on record.
Marcos claimed that the certificates of time deposit were with Pagsaligan for
safekeeping. Marcos was only able to present the receipt dated 11 March
1982 and the letter-certification dated 12 March 1982 to prove the total
amount of his time deposits with the BANK. The letter-certification issued by
Pagsaligan reads:
March 12, 1982
Dear Mr. Marcos:
This is to certify that we are taking care in your behalf various Time Deposit
Certificates with an aggregate value of PESOS: SEVEN HUNDRED SIXTY FOUR
THOUSAND EIGHT HUNDRED NINETY SEVEN AND 67/100 (P764,897.67) ONLY,
issued today for 90 days at 17% p.a. with the interest payable at maturity on
June 10, 1982.
Thank you.
Sgd. FLORENCIO B. PAGSALIGAN
Branch Manager45
The foregoing certification is clear. The total amount of time deposits of
Marcos as of 12 March 1982 is P764,897.67, inclusive of the sum of
P664,987.67 that Marcos placed on time deposit on 11 March 1982. This is
plainly seen from the use of the word "aggregate."
We are not swayed by Marcos testimony that the certification is actually for
the first time deposit that he placed on 11 March 1982. The letter-certification
speaks of "various Time Deposits Certificates with an aggregate value of
P764,897.67." If the amount stated in the letter-certification is for a single
time deposit only, and did not include the 11 March 1982 time deposit, then
Marcos should have demanded a new letter of certification from Pagsaligan.
Marcos is a businessman. While he already made an error in judgment in
entrusting to Pagsaligan the certificates of time deposits, Marcos should have
known the importance of making the letter-certification reflect the true nature
of the transaction. Marcos is bound by the letter-certification since he was the
one who prodded Pagsaligan to issue it.
We modify the amount that the Court of Appeals ordered the BANK to return
to Marcos. The appellate court did not offset Marcos outstanding debt with
the BANK covered by the three trust receipt agreements even though Marcos
admits his obligation under the three trust receipt agreements. The total

amount of the trust receipts is P851,250 less the 30% marginal deposit of
P255,375 that Marcos had already paid the BANK. This reduced Marcos total
debt with the BANK to P595,875 under the trust receipts.
The trial and appellate courts found that the parties did not agree on the
imposition of interest on the loan covered by the trust receipts and thus no
interest is due on this loan. However, the records show that the three trust
receipt agreements contained stipulations for the payment of interest but the
parties failed to fill up the blank spaces on the rate of interest. Put differently,
the BANK and Marcos expressly agreed in writing on the payment of
interest46 without, however, specifying the rate of interest. We, therefore,
impose the legal interest of 12% per annum, the legal interest for the
forbearance of money,47 on each of the three trust receipts.
Based on Marcos testimony48 and the BANKs letter of demand,49 the trust
receipt agreements became due in March 1987. The records do not show
exactly when in March 1987 the obligation became due. In accordance with
Article 2212 of the Civil Code, in such a case the court shall fix the period of
the duration of the obligation.50 The BANKs letter of demand is dated 6
March 1989. We hold that the trust receipts became due on 6 March 1987.
Marcos payment of the marginal deposit of P255,375 for the trust receipts
resulted in the proportionate reduction of the three trust receipts. The
reduced value of the trust receipts and their respective interest as of 6 March
1987 are as follows:
1. Trust Receipt No. CD 83.7 issued on 8 March 1983 originally for P300,000
was reduced to P210,618.75 with interest of P101,027.76.51
2. Trust Receipt No. CD 83.9 issued on 15 March 1983 originally for P300,000
was reduced to P210,618.75 with interest of P100,543.04.52
3. Trust Receipt No. CD 83.10 issued on 15 March 1983 originally for
P251,250 was reduced to P174,637.5 with interest of P83,366.68. 53
When the trust receipts became due on 6 March 1987, Marcos owed the
BANK P880,812.48. This amount included P595,875, the principal value of the
three trust receipts after payment of the marginal deposit, and P284,937.48,
the interest then due on the three trust receipts.
Upon maturity of the three trust receipts, the BANK should have
automatically deducted, by way of offsetting, Marcos outstanding debt to the
BANK from his time deposits and its accumulated interest. Marcos time
deposits of P764,897.67 had already earned interest54 of P616,318.92 as of 6
March 1987.55 Thus, Marcos total funds with the BANK amounted to
P1,381,216.59 as of the maturity of the trust receipts. After deducting
P880,812.48, the amount Marcos owed the BANK, from Marcos funds with
the BANK of P1,381,216.59, Marcos remaining time deposits as of 6 March
1987 is only P500,404.11. The accumulated interest on this P500,404.11 as
of 30 August 1989, the date of filing of Marcos complaint with the trial court,

is P211,622.96.56 From 30 August 1989, the interest due on the accumulated

interest of P211,622.96 should earn legal interest at 12% per annum
pursuant to Article 221257 of the Civil Code.
The BANKs dismal failure to account for Marcos money justifies the award of
moral58 and exemplary damages.59 Certainly, the BANK, as employer, is
liable for the negligence or the misdeed of its branch manager which caused
Marcos mental anguish and serious anxiety.60 Moral damages of P100,000 is
reasonable and is in accord with our rulings in similar cases involving banks
negligence with regard to the accounts of their depositors.61
We also award P20,000 to Marcos as exemplary damages. The law allows the
grant of exemplary damages by way of example for the public good.62 The
public relies on the banks fiduciary duty to observe the highest degree of
diligence. The banking sector is expected to maintain at all times this high
level of meticulousness.63
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with
MODIFICATION. Petitioner Philippine Banking Corporation is ordered to return
to private respondent Leonilo Marcos P500,404.11, the remaining principal
amount of his time deposits, with interest at 17% per annum from 30 August
1989 until full payment. Petitioner Philippine Banking Corporation is also
ordered to pay to private respondent Leonilo Marcos P211,622.96, the
accumulated interest as of 30 August 1989, plus 12% legal interest per
annum from 30 August 1989 until full payment. Petitioner Philippine Banking
Corporation is further ordered to pay P100,000 by way of moral damages and
P20,000 as exemplary damages to private respondent Leonilo Marcos.
Costs against petitioner.
SO ORDERED.]
GREGORIO H. REYES and CONSUELO PUYAT-REYES, petitioners, vs. THE HON.
COURT OF APPEALS and FAR EAST BANK AND TRUST COMPANY, respondents.
DECISION
DE LEON, JR., J.:
Before us is a petition for review of the Decision[1] dated July 22, 1994 and
Resolution[2] dated December 29, 1994 of the Court of Appeals[3] affirming
with modification the Decision[4] dated November 12, 1992 of the Regional
Trial Court of Makati, Metro Manila, Branch 64, which dismissed the complaint
for damages of petitioners spouses Gregorio H. Reyes and Consuelo PuyatReyes against respondent Far East Bank and Trust Company.
The undisputed facts of the case are as follows:
In view of the 20th Asian Racing Conference then scheduled to be held in
September, 1988 in Sydney, Australia, the Philippine Racing Club, Inc. (PRCI,
for brevity) sent four (4) delegates to the said conference. Petitioner Gregorio
H. Reyes, as vice-president for finance, racing manager, treasurer, and

director of PRCI, sent Godofredo Reyes, the clubs chief cashier, to the
respondent bank to apply for a foreign exchange demand draft in Australian
dollars.
Godofredo went to respondent banks Buendia Branch in Makati City to apply
for a demand draft in the amount One Thousand Six Hundred Ten Australian
Dollars (AU$1,610.00) payable to the order of the 20th Asian Racing
Conference Secretariat of Sydney, Australia. He was attended to by
respondent banks assistant cashier, Mr. Yasis, who at first denied the
application for the reason that respondent bank did not have an Australian
dollar account in any bank in Sydney. Godofredo asked if there could be a
way for respondent bank to accommodate PRCIs urgent need to remit
Australian dollars to Sydney. Yasis of respondent bank then informed
Godofredo of a roundabout way of effecting the requested remittance to
Sydney thus: the respondent bank would draw a demand draft against
Westpac Bank in Sydney, Australia (Westpac-Sydney for brevity) and have the
latter reimburse itself from the U.S. dollar account of the respondent in
Westpac Bank in New York, U.S.A (Westpac-New York for brevity). This
arrangement has been customarily resorted to since the 1960s and the
procedure has proven to be problem-free. PRCI and the petitioner Gregorio H.
Reyes, acting through Godofredo, agreed to this arrangement or approach in
order to effect the urgent transfer of Australian dollars payable to the
Secretariat of the 20th Asian Racing Conference.
On July 28, 1988, the respondent bank approved the said application of PRCI
and issued Foreign Exchange Demand Draft (FXDD) No. 209968 in the sum
applied for, that is, One Thousand Six Hundred Ten Australian Dollars
(AU$1,610.00), payable to the order of the 20th Asian Racing Conference
Secretariat of Sydney, Australia, and addressed to Westpac-Sydney as the
drawee bank.
On August 10, 1988, upon due presentment of the foreign exchange demand
draft, denominated as FXDD No. 209968, the same was dishonored, with the
notice of dishonor stating the following: xxx No account held with Westpac.
Meanwhile, on August 16, 1988, Westpac-New York sent a cable to
respondent bank informing the latter that its dollar account in the sum of One
Thousand Six Hundred Ten Australian Dollars (AU$1,610.00) was debited. On
August 19, 1988, in response to PRCIs complaint about the dishonor of the
said foreign exchange demand draft, respondent bank informed WestpacSydney of the issuance of the said demand draft FXDD No. 209968, drawn
against the Westpac-Sydney and informing the latter to be reimbursed from
the respondent banks dollar account in Westpac-New York. The respondent
bank on the same day likewise informed Westpac-New York requesting the
latter to honor the reimbursement claim of Westpac-Sydney. On September
14, 1988, upon its second presentment for payment, FXDD No. 209968 was
again dishonored by Westpac-Sydney for the same reason, that is, that the
respondent bank has no deposit dollar account with the drawee WestpacSydney.
On September 17, 1988 and September 18, 1988, respectively, petitioners

spouses Gregorio H. Reyes and Consuelo Puyat-Reyes left for Australia to

attend the said racing conference. When petitioner Gregorio H. Reyes arrived
in Sydney in the morning of September 18, 1988, he went directly to the
lobby of Hotel Regent Sydney to register as a conference delegate. At the
registration desk, in the presence of other delegates from various member
countries, he was told by a lady member of the conference secretariat that he
could not register because the foreign exchange demand draft for his
registration fee had been dishonored for the second time. A discussion
ensued in the presence and within the hearing of many delegates who were
also registering. Feeling terribly embarrassed and humiliated, petitioner
Gregorio H. Reyes asked the lady member of the conference secretariat that
he be shown the subject foreign exchange demand draft that had been
dishonored as well as the covering letter after which he promised that he
would pay the registration fees in cash. In the meantime he demanded that
he be given his name plate and conference kit. The lady member of the
conference secretariat relented and gave him his name plate and conference
kit. It was only two (2) days later, or on September 20, 1988, that he was
given the dishonored demand draft and a covering letter. It was then that he
actually paid in cash the registration fees as he had earlier promised.
Meanwhile, on September 19, 1988, petitioner Consuelo Puyat-Reyes arrived
in Sydney. She too was embarrassed and humiliated at the registration desk
of the conference secretariat when she was told in the presence and within
the hearing of other delegates that she could not be registered due to the
dishonor of the subject foreign exchange demand draft. She felt herself
trembling and unable to look at the people around her. Fortunately, she saw
her husband coming toward her. He saved the situation for her by telling the
secretariat member that he had already arranged for the payment of the
registration fees in cash once he was shown the dishonored demand draft.
Only then was petitioner Puyat-Reyes given her name plate and conference
kit.
At the time the incident took place, petitioner Consuelo Puyat-Reyes was a
member of the House of Representatives representing the lone Congressional
District of Makati, Metro Manila. She has been an officer of the Manila
Banking Corporation and was cited by Archbishop Jaime Cardinal Sin as the
top lady banker of the year in connection with her conferment of the ProEcclesia et Pontifice Award. She has also been awarded a plaque of
appreciation from the Philippine Tuberculosis Society for her extraordinary
service as the Societys campaign chairman for the ninth (9th) consecutive
year.
On November 23, 1988, the petitioners filed in the Regional Trial Court of
Makati, Metro Manila, a complaint for damages, docketed as Civil Case No.
88-2468, against the respondent bank due to the dishonor of the said foreign
exchange demand draft issued by the respondent bank. The petitioners claim
that as a result of the dishonor of the said demand draft, they were exposed
to unnecessary shock, social humiliation, and deep mental anguish in a
foreign country, and in the presence of an international audience.

On November 12, 1992, the trial court rendered judgment in favor of the
defendant (respondent bank) and against the plaintiffs (herein petitioners),
the dispositive portion of which states:
WHEREFORE, judgment is hereby rendered in favor of the defendant,
dismissing plaintiffs complaint, and ordering plaintiffs to pay to defendant, on
its counterclaim, the amount of P50,000.00, as reasonable attorneys fees.
Costs against the plaintiff.
SO ORDERED.[5]
The petitioners appealed the decision of the trial court to the Court of
Appeals. On July 22, 1994, the appellate court affirmed the decision of the
trial court but in effect deleted the award of attorneys fees to the defendant
(herein respondent bank) and the pronouncement as to the costs. The
decretal portion of the decision of the appellate court states:
WHEREFORE, the judgment appealed from, insofar as it dismisses plaintiffs
complaint, is hereby AFFIRMED, but is hereby REVERSED and SET ASIDE in all
other respect. No special pronouncement as to costs.
SO ORDERED.[6]
According to the appellate court, there is no basis to hold the respondent
bank liable for damages for the reason that it exerted every effort for the
subject foreign exchange demand draft to be honored. The appellate court
found and declared that:
xxx xxx xxx
Thus, the Bank had every reason to believe that the transaction finally went
through smoothly, considering that its New York account had been debited
and that there was no miscommunication between it and Westpac-New York.
SWIFT is a world wide association used by almost all banks and is known to
be the most reliable mode of communication in the international banking
business. Besides, the above procedure, with the Bank as drawer and
Westpac-Sydney as drawee, and with Westpac-New York as the
reimbursement Bank had been in place since 1960s and there was no reason
for the Bank to suspect that this particular demand draft would not be
honored by Westpac-Sydney.
From the evidence, it appears that the root cause of the miscommunications
of the Banks SWIFT message is the erroneous decoding on the part of
Westpac-Sydney of the Banks SWIFT message as an MT799 format. However,
a closer look at the Banks Exhs. 6 and 7 would show that despite what
appears to be an asterisk written over the figure before 99, the figure can still
be distinctly seen as a number 1 and not number 7, to the effect that
Westpac-Sydney was responsible for the dishonor and not the Bank.
Moreover, it is not said asterisk that caused the misleading on the part of the

Westpac-Sydney of the numbers 1 to 7, since Exhs. 6 and 7 are just

documentary copies of the cable message sent to Westpac-Sydney. Hence, if
there was mistake committed by Westpac-Sydney in decoding the cable
message which caused the Banks message to be sent to the wrong
department, the mistake was Westpacs, not the Banks. The Bank had done
what an ordinary prudent person is required to do in the particular situation,
although appellants expect the Bank to have done more. The Bank having
done everything necessary or usual in the ordinary course of banking
transaction, it cannot be held liable for any embarrassment and
corresponding damage that appellants may have incurred.[7]
xxx xxx xxx
Hence, this petition, anchored on the following assignment of errors:
I
THE HONORABLE COURT OF APPEALS ERRED IN FINDING PRIVATE
RESPONDENT NOT NEGLIGENT BY ERRONEOUSLY APPLYING THE STANDARD
OF DILIGENCE OF AN ORDINARY PRUDENT PERSON WHEN IN TRUTH A
HIGHER DEGREE OF DILIGENCE IS IMPOSED BY LAW UPON THE BANKS.
II
THE HONORABLE COURT OF APPEALS ERRED IN ABSOLVING PRIVATE
RESPONDENT FROM LIABILITY BY OVERLOOKING THE FACT THAT THE
DISHONOR OF THE DEMAND DRAFT WAS A BREACH OF PRIVATE
RESPONDENTS WARRANTY AS THE DRAWER THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT AS
SHOWN OVERWHELMINGLY BY THE EVIDENCE, THE DISHONOR OF THE
DEMAND DRAFT WAS DUE TO PRIVATE RESPONDENTS NEGLIGENCE AND NOT
THE DRAWEE BANK.[8]
The petitioners contend that due to the fiduciary nature of the relationship
between the respondent bank and its clients, the respondent bank should
have exercised a higher degree of diligence than that expected of an ordinary
prudent person in the handling of its affairs as in the case at bar. The
appellate court, according to petitioners, erred in applying the standard of
diligence of an ordinary prudent person only. Petitioners also claim that the
respondent bank violated Section 61 of the Negotiable Instruments Law[9]
which provides the warranty of a drawer that xxx on due presentment, the
instrument will be accepted or paid, or both, according to its tenor xxx. Thus,
the petitioners argue that respondent bank should be held liable for damages
for violation of this warranty. The petitioners pray this Court to re-examine
the facts to cite certain instances of negligence.
It is our view and we hold that there is no reversible error in the decision of

the appellate court.

Section 1 of Rule 45 of the Revised Rules of Court provides that (T)he petition
(for review) shall raise only questions of law which must be distinctly set
forth. Thus, we have ruled that factual findings of the Court of Appeals are
conclusive on the parties and not reviewable by this Court and they carry
even more weight when the Court of Appeals affirms the factual findings of
the trial court.[10]
The courts a quo found that respondent bank did not misrepresent that it was
maintaining a deposit account with Westpac-Sydney. Respondent banks
assistant cashier explained to Godofredo Reyes, representating PRCI and
petitioner Gregorio H. Reyes, how the transfer of Australian dollars would be
effected through Westpac-New York where the respondent bank has a dollar
account to Westpac-Sydney where the subject foreign exchange demand
draft (FXDD No. 209968) could be encashed by the payee, the 20th Asian
Racing Conference Secretatriat. PRCI and its Vice-President for finance,
petitioner Gregorio H. Reyes, through their said representative, agreed to that
arrangement or procedure. In other words, the petitioners are estopped from
denying the said arrangement or procedure. Similar arrangements have been
a long standing practice in banking to facilitate international commercial
transactions. In fact, the SWIFT cable message sent by respondent bank to
the drawee bank, Westpac-Sydney, stated that it may claim reimbursement
from its New York branch, Westpac-New York where respondent bank has a
deposit dollar account.
The facts as found by the courts a quo show that respondent bank did not
cause an erroneous transmittal of its SWIFT cable message to WestpacSydney. It was the erroneous decoding of the cable message on the part of
Westpac-Sydney that caused the dishonor of the subject foreign exchange
demand draft. An employee of Westpac-Sydney in Sydney, Australia
mistakenly read the printed figures in the SWIFT cable message of
respondent bank as MT799 instead of as MT199. As a result, Westpac-Sydney
construed the said cable message as a format for a letter of credit, and not
for a demand draft. The appellate court correctly found that the figure before
99 can still be distinctly seen as a number 1 and not number 7. Indeed, the
line of a 7 is in a slanting position while the line of a 1 is in a horizontal
position. Thus, the number 1 in MT199 cannot be construed as 7.[11]
The evidence also shows that the respondent bank exercised that degree of
diligence expected of an ordinary prudent person under the circumstances
obtaining. Prior to the first dishonor of the subject foreign exchange demand
draft, the respondent bank advised Westpac-New York to honor the
reimbursement claim of Westpac-Sydney and to debit the dollar account[12]
of respondent bank with the former. As soon as the demand draft was
dishonored, the respondent bank, thinking that the problem was with the
reimbursement and without any idea that it was due to miscommunication,
re-confirmed the authority of Westpac-New York to debit its dollar account for
the purpose of reimbursing Westpac-Sydney.[13] Respondent bank also sent
two (2) more cable messages to Westpac-New York inquiring why the demand

draft was not honored.[14]

With these established facts, we now determine the degree of diligence that
banks are required to exert in their commercial dealings. In Philippine Bank of
Commerce v. Court of Appeals[15] upholding a long standing doctrine, we
ruled that the degree of diligence required of banks, is more than that of a
good father of a family where the fiduciary nature of their relationship with
their depositors is concerned. In other words banks are duty bound to treat
the deposit accounts of their depositors with the highest degree of care. But
the said ruling applies only to cases where banks act under their fiduciary
capacity, that is, as depositary of the deposits of their depositors. But the
same higher degree of diligence is not expected to be exerted by banks in
commercial transactions that do not involve their fiduciary relationship with
their depositors.
Considering the foregoing, the respondent bank was not required to exert
more than the diligence of a good father of a family in regard to the sale and
issuance of the subject foreign exchange demand draft. The case at bar does
not involve the handling of petitioners deposit, if any, with the respondent
bank. Instead, the relationship involved was that of a buyer and seller, that is,
between the respondent bank as the seller of the subject foreign exchange
demand draft, and PRCI as the buyer of the same, with the 20th Asian Racing
Conference Secretariat in Sydney, Australia as the payee thereof. As earlier
mentioned, the said foreign exchange demand draft was intended for the
payment of the registration fees of the petitioners as delegates of the PRCI to
the 20th Asian Racing Conference in Sydney.
The evidence shows that the respondent bank did everything within its power
to prevent the dishonor of the subject foreign exchange demand draft. The
erroneous reading of its cable message to Westpac-Sydney by an employee
of the latter could not have been foreseen by the respondent bank. Being
unaware that its employee erroneously read the said cable message,
Westpac-Sydney merely stated that the respondent bank has no deposit
account with it to cover for the amount of One Thousand Six Hundred Ten
Australian Dollar (AU$1610.00) indicated in the foreign exchange demand
draft. Thus, the respondent bank had the impression that Westpac-New York
had not yet made available the amount for reimbursement to WestpacSydney despite the fact that respondent bank has a sufficient deposit dollar
account with Westpac-New York. That was the reason why the respondent
bank had to re-confirm and repeatedly notify Westpac-New York to debit its
(respondent banks) deposit dollar account with it and to transfer or credit the
corresponding amount to Westpac-Sydney to cover the amount of the said
demand draft.
In view of all the foregoing, and considering that the dishonor of the subject
foreign exchange demand draft is not attributable to any fault of the
respondent bank, whereas the petitioners appeared to be under estoppel as
earlier mentioned, it is no longer necessary to discuss the alleged application
of Section 61 of the Negotiable Instruments Law to the case at bar. In any
event, it was established that the respondent bank acted in good faith and

that it did not cause the embarrassment of the petitioners in Sydney,

Australia. Hence, the Court of Appeals did not commit any reversable error in
its challenged decision.
WHEREFORE, the petition is hereby DENIED, and the assailed decision of the
Court of Appeals is AFFIRMED. Costs against the petitioners.
SO ORDERED.
BANK OF COMMERCE,
Petitioner,

- versus -

SPS. PRUDENCIO SAN PABLO, JR., and NATIVIDAD O. SAN PABLO,

Respondents.
G.R. No. 167848
Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
CHICO-NAZARIO, and
NACHURA, JJ.

Promulgated:
April 27, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the
Revised Rules of Court, filed by petitioner Bank of Commerce seeking to
reverse and set aside the Decision[1] of the Court of Appeals dated 10
September 2004, and its Resolution[2] dated 10 March 2005. The Court of
Appeals, in its assailed Decision and Resolution reversed the Decision[3] of
the Regional Trial Court (RTC) of Mandaue City, Branch 56 dated 25 June
2002, which affirmed the Decision,[4] of the Municipal Trial Court (MTC) of
Mandaue City, Branch 2, dismissing for lack of merit the complaint against
Melencio Santos (Santos) and the Bank of Commerce filed by the respondent
Spouses Prudencio (Prudencio) and Natividad (Natividad) San Pablo for the
declaration of nullity of the Special Power of Attorney (SPA) and cancellation
of Real Estate Mortgage. The dispositive portion of the Court of Appeals
Decision reads:
WHEREFORE, the Petition for review is GRANTED and the assailed Decision
and Order of the Regional Trial Court, Branch 56, Mandaue City, Cebu, in Civil
Case 4135-A must be as they are hereby, SET ASIDE. We therefore declare
the so-called Special Power of Attorney, the Deed of Real Estate Mortgage
and the Foreclosure proceedings to be NULL and VOID ab initio. And, in the
meantime, if the subject Lot No. 1882-C-1-A covered by Transfer Certificate of
Title No. (26469)-7561 has been sold and a new transfer certificate of title
had been issued, let the Registry of deeds of Mandaue City cancel the new
title and issue a new one in favor of Natividad O. San Pablo, unless the new
title holder is a purchaser in good faith and for value. In the latter case,
respondent Bank of Commerce and respondent Melencio G. Santos are
hereby held jointly and severally liable to petitioners for the fair market value
of the property as of the date of finality of this decision. Moreover, private
respondents are likewise held jointly and severally liable to petitioners
P50,000.00 as moral damages, P25,000.00 as exemplary damages,
P25,000.00 plus P1,000.00 per count appearance as attorneys fees and
P10,000.00 as litigation expenses. No costs.
The antecedent factual and procedural facts of this case are as follows:
On 20 December 1994, Santos obtained a loan from Direct Funders
Management and Consultancy Inc., (Direct Funders) in the amount of
P1,064,000.40.[5]
As a security for the loan obligation, Natividad executed a SPA[6] in favor of
Santos, authorizing the latter to mortgage to Direct Funders a paraphernal
real property registered under her name and covered by Transfer Certificate
of Title (TCT) No. (26469)-7561[7] (subject property).
In the Deed of Real Estate Mortgage[8] executed in favor of Direct Funders,
Natividad and her husband, Prudencio, signed as the co-mortgagors of
Santos. It was, however, clear between the parties that the loan obligation
was for the sole benefit of Santos and the spouses San Pablo merely signed
the deed in order to accommodate the former.
The aforesaid accommodation transaction was made possible because
Prudencio and Santos were close friends and business associates. Indeed,

Prudencio was an incorporator and a member of the Board of Directors of

Intergems Fashion Jewelries Corporation (Intergems), a domestic corporation
in which Santos acted as the President.
Sometime in June 1995, the spouses San Pablo received a letter from Direct
Funders informing them that Santos failed to pay his loan obligation with the
latter. When confronted with the matter, Santos promised to promptly settle
his obligation with Direct Funders, which he actually did the following month.
Upon learning that Santos debt with Direct Funders had been fully settled, the
spouses San Pablo then demanded from Santos to turn over to them the TCT
of the subject property but the latter failed to do so despite repeated
demands. Such refusal prompted the spouses San Pablo to inquire as to the
status of the TCT of the subject property with the Register of Deeds of
Mandaue City and to their surprise, they discovered that the property was
again used by Santos as collateral for another loan obligation he secured
from the Bank of Commerce.
As shown in the annotation stamped at the back of the title, the spouses San
Pablo purportedly authorized Santos to mortgage the subject property to the
Bank of Commerce, as evidenced by the SPA allegedly signed by Natividad on
29 March 1995. It was further shown from the annotation at the back of the
title that the spouses San Pablo signed a Deed of Real Estate Mortgage over
the subject property in favor of Bank of Commerce, which they never did.[9]
In order to free the subject property from unauthorized encumbrances, the
spouses San Pablo, on 22 December 1995, filed a Complaint seeking for the
Quieting of Title and Nullification of the SPA and the deed of real estate
mortgage with the prayer for damages against Santos and the Bank of
Commerce before the MTC of Mandaue City, Branch 2.
In their complaint, the spouses San Pablo claimed that their signatures on the
SPA and the Deed of Real Estate Mortgage allegedly executed to secure a
loan with the Bank of Commerce were forged. They claimed that while the
loan with the Direct Funders was obtained with their consent and direct
participation, they never authorized the subsequent loan obligation with the
Bank of Commerce.
During the pendency of the case, the Bank of Commerce, for non-payment of
the loan, initiated the foreclosure proceedings on the strength of the
contested Deed of Real Estate Mortgage. During the auction sale, the Bank of
Commerce emerged as the highest bidder and thus a Certificate of Sale was
issued under its name. Accordingly, the spouses San Pablo amended their
complaint to include the prayer for annulment of the foreclosure sale.[10]
In his Answer,[11] Santos countered that the loan with the Bank of Commerce
was deliberately resorted to with the consent, knowledge and direct
participation of the spouses San Pablo in order to pay off the obligation with
Direct Funders. In fact, it was Prudencio who caused the preparation of the
SPA and together with Santos, they went to the Bank of Commerce, Cebu City
Branch to apply for the loan. In addition, Santos averred that the spouses San
Pablo were receiving consideration from Intergems for extending

accommodation transactions in favor of the latter.

For its part, Bank of Commerce filed an Answer with Compulsory
Counterclaim,[12] alleging that the spouses San Pablo, represented by their
attorney-in-fact, Santos, together with Intergems, obtained a loan in the
amount of P1,218,000.00. It denied the allegation advanced by the spouses
San Pablo that the SPA and the Deed of Real Estate Mortgage were spurious.
Since the loan already became due and demandable, the Bank of Commerce
sought the foreclosure of the subject property.
After the Pre-Trial Conference, trial on the merits ensued.
During the trial, Anastacio Barbarona, Jr., the Manager of the Bank of
Commerce, Cebu City Branch, testified that the spouses San Pablo personally
signed the Deed of Real Estate Mortgage in his presence.[13] The testimony
of a document examiner and a handwriting expert, however, belied this
claim. The expert witness, after carefully examining the loan documents with
the Bank of Commerce, attested that the signatures of the spouses San Pablo
on the SPA and the Deed of Real Estate Mortgage were forged.[14]
On 10 July 2001, the MTC rendered a Decision,[15] dismissing the complaint
for lack of merit. The MTC declared that while it was proven that the
signatures of the spouses San Pablo on the loan documents were forged, the
Bank of Commerce was nevertheless in good faith. The dispositive portion of
the decision reads:
WHEREFORE, foregoing considered, the instant complaint is hereby ordered
DISMISSED for lack of merit. The dismissal of this case is without prejudice to
the filing of the appropriate criminal action against those responsible for the
falsification of the questioned special power of attorney and deed of real
estate mortgage.
Aggrieved, the spouses San Pablo appealed the adverse decision to the RTC
of Mandaue City, Branch 56, which, in turn, affirmed the unfavorable ruling of
the MTC in its Decision[16] promulgated on 25 June 2002. The decretal part of
the said decision reads:
WHEREFORE, in view of the foregoing, the Court hereby resolves to affirm the
assailed Decision.
Similarly ill-fated was the Motion for Reconsideration filed by the spouses San
Pablo which was denied by the RTC for lack of merit.[17]
Unyielding, the spouses San Pablo elevated the matter before the Court of
Appeals through a Petition for Review under Rule 42 of the Revised Rules of
Court,[18] assailing the adverse decisions of the MTC and RTC.
In a Decision[19] dated 10 September 2004, the appellate court granted the
petition filed by the spouses San Pablo and reversed the decisions of the MTC
and RTC. In setting aside the rulings of the lower courts, the Court of Appeals
ruled that since it was duly proven that the signatures of the spouses San

Pablo on the loan documents were forged, then such spurious documents
could never become a valid source of title. The mortgage contract executed
by Santos over the subject property in favor of Bank of Commerce, without
the authority of the spouses San Pablo, was therefore unenforceable, unless
ratified.
The Bank of Commerce is now before this Court assailing the adverse
decision rendered by the Court of Appeals.[20] For the resolution of this Court
are the following issues:
I.
WHETHER OR NOT THE MTC HAS JURISDICTION TO HEAR THE CASE FILED BY
THE SPOUSES SAN PABLO.
II.
WHETHER OR NOT THE FORGED SPA AND SPECIAL POWER OF ATTORNEY
COULD BECOME A VALID SOURCE OF A RIGHT TO FORECLOSE A PROPERTY.
III.
WHETHER OR NOT THE AWARDS OF DAMAGES, ATTRONEYS FEES AND
LITIGATION EXPENSES ARE PROPER IN THE INSTANT CASE.
In questioning the adverse ruling of the appellate court, the Bank of
Commerce, for the first time in more than 10 years of pendency of the instant
case, raises the issue of jurisdiction. It asseverates that since the subject
matter of the case is incapable of pecuniary estimation, the complaint for
quieting of title and annulment of the SPA, the Deed of Real Estate Mortgage,
and foreclosure proceedings should have been originally filed with the RTC
and not with the MTC. The decision rendered by the MTC, which did not
acquire jurisdiction over the subject matter of the case, is therefore void from
the very beginning. Necessarily, the Court of Appeals erred in giving due
course to the petition when the tribunal originally trying the case had no
authority to try the issue.
We do not agree.
Upon cursory reading of the records, we gathered that the case filed by the
spouses San Pablo before the MTC was an action for quieting of title, and
nullification of the SPA, Deed of Real Estate Mortgage, and foreclosure
proceedings. While the body of the complaint consists mainly of allegations of
forgery, however, the primary object of the spouses San Pablo in filing the
same was to effectively free the title from any unauthorized lien imposed
upon it.
Clearly, the crux of the controversy before the MTC chiefly hinges on the
question of who has the better title over the subject property. Is it the
spouses San Pablo who claim that their signatures on the loan document

were forged? Or is it the Bank of Commerce which maintains that the SPA and
the Deed of Real Estate Mortgage were duly executed and, therefore, a valid
source of its right to foreclose the subject property for non-payment of loan?
An action for quieting of title is a common law remedy for the removal of any
cloud upon or doubt or uncertainty with respect to title to real property. As
clarified by this Court in Baricuatro, Jr. v. Court of Appeals[21]:
x x x Originating in equity jurisprudence, its purpose is to secure an
adjudication that a claim of title to or an interest in property, adverse to that
of the complainant, is invalid, so that the complainant and those claiming
under him may be forever afterward free from any danger or hostile claim. In
an action for quieting of title, the competent court is tasked to determine the
respective rights of the complainant and other claimants, not only to place
things in their proper place, to make the one who has no rights to said
immovable respect and not disturb the other, but also for the benefit of both,
so that he who has the right would see every cloud of doubt over the
property dissipated, and he could afterwards without fear introduce the
improvements he may desire, to use, and even to abuse the property as he
deems best (citation omitted). Such remedy may be availed of under the
circumstances enumerated in the Civil Code:
ART. 476. Whenever there is a cloud on title to real property or any interest
therein, by reason of any instrument, record, claim, encumbrance or
proceeding which is apparently valid or effective but is in truth and in fact
invalid, ineffective, voidable, or unenforceable, and may be prejudicial to said
title, an action may be brought to remove such cloud or to quiet the title,
An action may also be brought to prevent a cloud from being cast upon title
to real property or any interest therein.
The mortgage of the subject property to the Bank of Commerce, annotated
on the Spouses San Pablos TCT, constitutes a cloud on their title to the
subject property, which may, at first, appear valid and effective, but is
allegedly invalid or voidable for having been made without their knowledge
and authority as registered owners. We thus have established that the case
filed by the spouses San Pablo before the MTC is actually an action for
quieting of title, a real action, the jurisdiction over which is determined by the
assessed value of the property.[22] The assessed value of the subject
property located in Mandaue City, as alleged in the complaint, is P4,900.00,
which aptly falls within the jurisdiction of the MTC.
According to Section 33 of Batas Pambansa Blg. 129, as amended, otherwise
known as The Judiciary Reorganization Act of 1980:
Sec. 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts in Civil Cases. Metropolitan Trial Courts,
Municipal Trial Courts, and Municipal Circuit Trial Courts shall exercise:
xxxx

(3) Exclusive original jurisdiction in all civil actions which involve title to, or
possession of, real property, or any interest therein where the assessed value
of the property or interest therein does not exceed twenty thousand pesos
(P20,000.00) or, in civil actions in Metro Manila, where such assessed value
does not exceed Fifty thousand pesos (P50,000.0) exclusive of interest,
damages of whatever kind, attorneys fees litigation expenses and costs:
Provided, That in cases of land not declared for taxation purposes, the value
of such property shall be determined by the assessed value of the adjacent
lots. (As amended, R.A. No. 7691.)
Even granting for the sake of argument that the MTC did not have jurisdiction
over the case, the Bank of Commerce is nevertheless estopped from
repudiating the authority of the court to try and decide the case after having
actively participated in the proceedings before it and invoking its jurisdiction
by seeking an affirmative relief therefrom.
As we have explained quite frequently, a party may be barred from raising
questions of jurisdiction when estoppel by laches has set in. Estoppel by
laches is failure or neglect for unreasonable and unexplained length of time
to do what, by exercising due diligence, ought to have been done earlier,
warranting the presumption that the party entitled to assert it has either
abandoned it or has acquiesced to the correctness or fairness of its
resolution. This doctrine is based on grounds of public policy which, for the
peace of the society, requires the discouragement of stale claims, and, unlike
the statute of limitations, is not a mere question of time but is principally an
issue of inequity or unfairness in permitting a right or claim to be enforced or
espoused.[23]
In Soliven v. Fastforms Philippines, Inc., we thus ruled:
While it is true that jurisdiction may be raised at any time, this rule
presupposes that estoppel has not supervened. In the instant case,
respondent actively participated in all stages of the proceedings before the
trial court and invoked its authority by asking for an affirmative relief. Clearly,
respondent is estopped from challenging the trial courts jurisdiction,
especially when the adverse judgment is rendered.[24]
Participation in all stages before the trial court, that included invoking its
authority in asking for affirmative relief, effectively bars the party by estoppel
from challenging the courts jurisdiction.[25] The Court frowns upon the
undesirable practice of a party participating in the proceedings and
submitting his case for decision and then accepting the judgment, only if
favorable, and attacking it for lack of jurisdiction when adverse.[26]
We now proceed to resolve the issue of whether a forged SPA or Deed of Real
Estate Mortgage could be a source of a valid title. Settled is the fact, as found
by the MTC and as affirmed by both the RTC and the Court of Appeals, that
the SPA and the Deed of Real Estate Mortgage had been forged. Such fact is
no longer disputed by the parties. Thus, the only issue remaining to be

threshed out in the instant petition is whether the Bank of Commerce is a

mortgagee in good faith. The MTC and the RTC held that the Bank of
Commerce acted in good faith in entering into the loan transaction with
Santos, while the Court of Appeals, on the other hand, ruled otherwise.
The Bank of Commerce posits that it is a mortgagee in good faith and
therefore entitled to protection under the law. It strenuously asserts that it is
an innocent party who had no knowledge that the right of Santos to
mortgage the subject property was merely simulated.
In Cavite Development Bank v. Spouses Lim, [27] the Court explained the
doctrine of mortgagee in good faith, thus:
There is, however, a situation where, despite the fact that the mortgagor is
not the owner of the mortgaged property, his title being fraudulent, the
mortgage contract and any foreclosure sale arising there from are given
effect by reason of public policy. This is the doctrine of the mortgagee in good
faith based on the rule that all persons dealing with property covered by the
Torrens Certificates of Title, as buyers or mortgagees, are not required to go
beyond what appears on the face of the title. The public interest in upholding
the indefeasibility of a certificate of title, as evidence of lawful ownership of
the land or of any encumbrance thereon, protects a buyer or mortgagee who,
in good faith, relied upon what appears on the face of the certificate of title.
Indeed, a mortgagee has a right to rely in good faith on the certificate of title
of the mortgagor of the property given as security, and in the absence of any
sign that might arouse suspicion, the mortgagee has no obligation to
undertake further investigation. This doctrine pre-supposes, however, that
the mortgagor, who is not the rightful owner of the property, has already
succeeded in obtaining Torrens title over the property in his name and that,
after obtaining the said title, he succeeds in mortgaging the property to
another who relies on what appears on the title. This is not the situation in
the case at bar since Santos was not the registered owner for he merely
represented himself to be the attorney-in-fact of the spouses San Pablo.
In cases where the mortgagee does not directly deal with the registered
owner of real property, the law requires that a higher degree of prudence be
exercised by the mortgagee. As we have enunciated in the case of Abad v.
Guimba:[28]
x x x While one who buys from the registered owner does not need to look
behind the certificate of title, one who buys from one who is not a registered
owner is expected to examine not only the certificate of title but all the
factual circumstances necessary for [one] to determine if there are any flaws
in the title of the transferor, or in [the] capacity to transfer the land. Although
the instant case does not involve a sale but only a mortgage, the same rule
applies inasmuch as the law itself includes a mortgagee in the term
purchaser.
This principle is applied more strenuously when the mortgagee is a bank or a

banking institution. In the case of Cruz v. Bancom Finance Corporation, We

ruled:
Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank.
As such, unlike private individuals, it is expected to exercise greater care and
prudence in its dealings, including those involving registered lands. A banking
institution is expected to exercise due diligence before entering into a
mortgage contract. The ascertainment of the status or condition of a property
offered to it as security for a loan must be a standard and indispensable part
of its operations.[29]
We never fail to stress the remarkable significance of a banking institution to
commercial transactions, in particular, and to the countrys economy in
general. The banking system is an indispensable institution in the modern
world and plays a vital role in the economic life of every civilized nation.
Whether as mere passive entities for the safekeeping and saving of money or
as active instruments of business and commerce, banks have become an
ubiquitous presence among the people, who have come to regard them with
respect and even gratitude and, most of all, confidence.[30] Consequently,
the highest degree of diligence is expected, and high standards of integrity
and performance are even required, of it. [31]
The Bank of Commerce clearly failed to observe the required degree of
caution in ascertaining the genuineness and extent of the authority of Santos
to mortgage the subject property. It should not have simply relied on the face
of the documents submitted by Santos, as its undertaking to lend a
considerable amount of money required of it a greater degree of diligence.
That the person applying for the loan is other than the registered owner of
the real property being mortgaged should have already raised a red flag and
which should have induced the Bank of Commerce to make inquiries into and
confirm Santos authority to mortgage the Spouses San Pablos property. A
person who deliberately ignores a significant fact that could create suspicion
in an otherwise reasonable person is not an innocent purchaser for value.[32]
Having laid that the bank of Commerce is not in good faith necessitates us to
award moral damages, exemplary damages, attorneys fees and costs of
litigation in favor of the spouses San Pablo. Moral damages are not awarded
to penalize the defendant but to compensate the plaintiff for the injuries he
may have suffered.[33] Willful injury to property may be a legal ground for
awarding moral damages if the court should find that, under the
circumstances, such damages are justly due.[34] In the instant case, we find
that the award of moral damages is proper. The Bank of Commerce, in
allowing Santos to secure a loan out of the property belonging to the spouses
San Pablo, without taking the necessary precaution demanded by the
circumstances owing to the public policy imbued in the banking business,
caused injury to the latter which calls for the imposition of moral damages. As
for the award of exemplary damages, we deem that the same is proper for
the Bank of Commerce was remiss in its obligation to inquire into the veracity
of Santos authority to mortgage the subject property, causing damage to the
spouses San Pablo.[35] Finally, we rule that the award of attorneys fees and

litigation expenses is valid since the spouses San Pablo were compelled to
litigate and thus incur expenses in order to protect its rights over the subject
property.[36]
Prescinding from the above, we thus rule that the forged SPA and Deed of
Real Estate Mortgage is void ab initio. Consequently, the foreclosure
proceedings conducted on the strength of the said SPA and Deed of Real
Estate Mortgage, is likewise void ab initio. Since the Bank of Commerce is not
a mortgagee in good faith or an innocent purchaser for value on the auction
sale, it is not entitled to the protection of its rights to the subject property.
Considering further that it was not shown that the Bank of Commerce has
already transferred the subject property to a third person who is an innocent
purchaser for value (since no intervention or third-party claim was interposed
during the pendency of this case), it is but proper that the subject property
should be retained by the Spouses San Pablo.
WHEREFORE, in view of the foregoing, the instant petition is DENIED. The
Decision dated 10 September 2004 rendered by the Court of Appeals in CAG.R. SP No. 76562, is hereby AFFIRMED. The SPA, the Deed of Real Estate
Mortgage, and the Foreclosure Proceedings conducted in pursuant to said
deed, are hereby declared VOID AB INITIO. The Register of Deeds of Mandaue
City is hereby DIRECTED to cancel Entry Nos. 9089-V.9-D.B and 9084-V.9-D.B
annotated on TCT No.-(26469)-7561 in the name of Natividad Opolontesima
San Pablo. The Bank of Commerce is hereby ORDERED to pay the spouses
San Pablo P50,000.00 as moral damages, P25,000.00 as exemplary damages,
P20,000.00 as attorneys fees and P20,000.00 as litigation expenses. Cost
against the petitioner.
LILLIAN N. MERCADO, CYNTHIA M. FEKARIS, and JULIAN MERCADO, JR.,
represented by their Attorney-In-Fact, ALFREDO M. PEREZ,
Petitioners,
- versus ALLIED BANKING CORPORATION,
Respondent.
G.R. No. 171460
Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO, and
NACHURA, JJ.

Promulgated:
July 24, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the
Revised Rules of Court, filed by petitioners Lillian N. Mercado, Cynthia M.
Fekaris and Julian Mercado, Jr., represented by their Attorney-In-Fact, Alfredo
M. Perez, seeking to reverse and set aside the Decision[1] of the Court of
Appeals dated 12 October 2005, and its Resolution[2] dated 15 February
2006 in CA-G.R. CV No. 82636. The Court of Appeals, in its assailed Decision
and Resolution, reversed the Decision[3] of the Regional Trial Court (RTC) of
Quezon City, Branch 220 dated 23 September 2003, declaring the deeds of
real estate mortgage constituted on TCT No. RT-18206 (106338) null and
void. The dispositive portion of the assailed Court of Appeals Decision thus
reads:
WHEREFORE, the appealed decision is REVERSED and SET ASIDE, and a new
judgment is hereby entered dismissing the [petitioners] complaint.[4]
Petitioners are heirs of Perla N. Mercado (Perla). Perla, during her lifetime,
owned several pieces of real property situated in different provinces of the
Philippines.
Respondent, on the other hand, is a banking institution duly authorized as
such under the Philippine laws.
On 28 May 1992, Perla executed a Special Power of Attorney (SPA) in favor of
her husband, Julian D. Mercado (Julian) over several pieces of real property
registered under her name, authorizing the latter to perform the following
acts:
1. To act in my behalf, to sell, alienate, mortgage, lease and deal otherwise
over the different parcels of land described hereinafter, to wit:
a)
Calapan, Oriental Mindoro Properties covered by Transfer
Certificates of Title Nos. T-53618 - 3,522 Square Meters, T-46810 3,953
Square Meters, T-53140 177 Square Meters, T-21403 263 square Meters, T46807 39 Square Meters of the Registry of Deeds of Oriental Mindoro;
b)

Susana Heights, Muntinlupa covered by Transfer Certificates of

Title Nos. T-108954 600 Square Meters and RT-106338 805 Square Meters of
the Registry of Deeds of Pasig (now Makati);
c)
Personal property 1983 Car with Vehicle Registration No. R16381; Model 1983; Make Toyota; Engine No. T- 2464
2.
To sign for and in my behalf any act of strict dominion or
ownership any sale, disposition, mortgage, lease or any other transactions
including quit-claims, waiver and relinquishment of rights in and over the
parcels of land situated in General Trias, Cavite, covered by Transfer
Certificates of Title Nos. T-112254 and T-112255 of the Registry of Deeds of
Cavite, in conjunction with his co-owner and in the person ATTY. AUGUSTO F.
DEL ROSARIO;
3.
To exercise any or all acts of strict dominion or ownership over
the above-mentioned properties, rights and interest therein. (Emphasis
supplied.)
On the strength of the aforesaid SPA, Julian, on 12 December 1996, obtained
a loan from the respondent in the amount of P3,000,000.00, secured by real
estate mortgage constituted on TCT No. RT-18206 (106338) which covers a
parcel of land with an area of 805 square meters, registered with the Registry
of Deeds of Quezon City (subject property).[5]
Still using the subject property as security, Julian obtained an additional loan
from the respondent in the sum of P5,000,000.00, evidenced by a Promissory
Note[6] he executed on 5 February 1997 as another real estate mortgage
(REM).
It appears, however, that there was no property identified in the SPA as TCT
No. RT 18206 (106338) and registered with the Registry of Deeds of Quezon
City. What was identified in the SPA instead was the property covered by TCT
No. RT-106338 registered with the Registry of Deeds of Pasig.
Subsequently, Julian defaulted on the payment of his loan obligations. Thus,
respondent initiated extra-judicial foreclosure proceedings over the subject
property which was subsequently sold at public auction wherein the
respondent was declared as the highest bidder as shown in the Sheriffs
Certificate of Sale dated 15 January 1998.[7]
On 23 March 1999, petitioners initiated with the RTC an action for the
annulment of REM constituted over the subject property on the ground that
the same was not covered by the SPA and that the said SPA, at the time the
loan obligations were contracted, no longer had force and effect since it was
previously revoked by Perla on 10 March 1993, as evidenced by the
Revocation of SPA signed by the latter.[8]
Petitioners likewise alleged that together with the copy of the Revocation of
SPA, Perla, in a Letter dated 23 January 1996, notified the Registry of Deeds

of Quezon City that any attempt to mortgage or sell the subject property
must be with her full consent documented in the form of an SPA duly
authenticated before the Philippine Consulate General in New York. [9]
In the absence of authority to do so, the REM constituted by Julian over the
subject property was null and void; thus, petitioners likewise prayed that the
subsequent extra-judicial foreclosure proceedings and the auction sale of the
subject property be also nullified.
In its Answer with Compulsory Counterclaim,[10] respondent averred that,
contrary to petitioners allegations, the SPA in favor of Julian included the
subject property, covered by one of the titles specified in paragraph 1(b)
thereof, TCT No. RT- 106338 registered with the Registry of Deeds of Pasig
(now Makati). The subject property was purportedly registered previously
under TCT No. T-106338, and was only subsequently reconstituted as TCT RT18206 (106338). Moreover, TCT No. T-106338 was actually registered with
the Registry of Deeds of Quezon City and not before the Registry of Deeds of
Pasig (now Makati). Respondent explained that the discrepancy in the
designation of the Registry of Deeds in the SPA was merely an error that must
not prevail over the clear intention of Perla to include the subject property in
the said SPA. In sum, the property referred to in the SPA Perla executed in
favor of Julian as covered by TCT No. 106338 of the Registry of Deeds of Pasig
(now Makati) and the subject property in the case at bar, covered by RT
18206 (106338) of the Registry of Deeds of Quezon City, are one and the
same.
On 23 September 2003, the RTC rendered a Decision declaring the REM
constituted over the subject property null and void, for Julian was not
authorized by the terms of the SPA to mortgage the same. The court a quo
likewise ordered that the foreclosure proceedings and the auction sale
conducted pursuant to the void REM, be nullified. The dispositive portion of
the Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
the [herein petitioners] and against the [herein respondent] Bank:
1. Declaring the Real Estate Mortgages constituted and registered under
Entry Nos. PE-4543/RT-18206 and 2012/RT-18206 annotated on TCT No. RT18206 (106338) of the Registry of Deeds of Quezon City as NULL and VOID;
2. Declaring the Sheriffs Sale and Certificate of Sale under FRE No. 2217
dated January 15, 1998 over the property covered by TCT No. RT-18206
(106338) of the Registry of Deeds of Quezon City as NULL and VOID;
3. Ordering the defendant Registry of Deeds of Quezon City to cancel the
annotation of Real Estate Mortgages appearing on Entry Nos. PE-4543/RT18206 and 2012/RT-18206 on TCT No. RT-18206 (106338) of the Registry of
Deeds of Quezon City;
4. Ordering the [respondent] Bank to deliver/return to the [petitioners]

represented by their attorney-in-fact Alfredo M. Perez, the original Owners

Duplicate Copy of TCT No. RT-18206 (106338) free from the encumbrances
referred to above; and
5. Ordering the [respondent] Bank to pay the [petitioners] the amount of
P100,000.00 as for attorneys fees plus cost of the suit.
The other claim for damages and counterclaim are hereby DENIED for lack of
merit.[11]
Aggrieved, respondent appealed the adverse Decision before the Court of
Appeals.
In a Decision dated 12 October 2005, the Court of Appeals reversed the RTC
Decision and upheld the validity of the REM constituted over the subject
property on the strength of the SPA. The appellate court declared that Perla
intended the subject property to be included in the SPA she executed in favor
of Julian, and that her subsequent revocation of the said SPA, not being
contained in a public instrument, cannot bind third persons.
The Motion for Reconsideration interposed by the petitioners was denied by
the Court of Appeals in its Resolution dated 15 February 2006.
Petitioners are now before us assailing the Decision and Resolution rendered
by the Court of Appeals raising several issues, which are summarized as
follows:
I WHETHER OR NOT THERE WAS A VALID MORTGAGE CONSTITUTED OVER
SUBJECT PROPERTY.
II WHETHER OR NOT THERE WAS A VALID REVOCATION OF THE SPA.
III WHETHER OR NOT THE RESPONDENT WAS A MORTGAGEE-IN- GOOD FAITH.
For a mortgage to be valid, Article 2085 of the Civil Code enumerates the
following essential requisites:
Art. 2085. The following requisites are essential to the contracts of pledge
and mortgage:
(1) That they be constituted to secure the fulfillment of a principal obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing pledged
or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free
disposal of their property, and in the absence thereof, that they be legally
authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the
latter by pledging or mortgaging their own property.
In the case at bar, it was Julian who obtained the loan obligations from
respondent which he secured with the mortgage of the subject property. The
property mortgaged was owned by his wife, Perla, considered a third party to
the loan obligations between Julian and respondent. It was, thus, a situation
recognized by the last paragraph of Article 2085 of the Civil Code aforequoted. However, since it was not Perla who personally mortgaged her own
property to secure Julians loan obligations with respondent, we proceed to
determining if she duly authorized Julian to do so on her behalf.
Under Article 1878 of the Civil Code, a special power of attorney is necessary
in cases where real rights over immovable property are created or conveyed.
[12] In the SPA executed by Perla in favor of Julian on 28 May 1992, the latter
was conferred with the authority to sell, alienate, mortgage, lease and deal
otherwise the different pieces of real and personal property registered in
Perlas name. The SPA likewise authorized Julian [t]o exercise any or all acts of
strict dominion or ownership over the identified properties, and rights and
interest therein. The existence and due execution of this SPA by Perla was not
denied or challenged by petitioners.
There is no question therefore that Julian was vested with the power to
mortgage the pieces of property identified in the SPA. However, as to whether
the subject property was among those identified in the SPA, so as to render
Julians mortgage of the same valid, is a question we still must resolve.
Petitioners insist that the subject property was not included in the SPA,
considering that it contained an exclusive enumeration of the pieces of
property over which Julian had authority, and these include only: (1) TCT No.
T-53618, with an area of 3,522 square meters, located at Calapan, Oriental
Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (2)
TCT No. T-46810, with an area of 3,953 square meters, located at Calapan,
Oriental Mindoro, and registered with the Registry of Deeds of Oriental
Mindoro; (3) TCT No. T-53140, with an area of 177 square meters, located at
Calapan, Oriental Mindoro, and registered with the Registry of Deeds of
Oriental Mindoro; (4) TCT No. T-21403, with an area of 263 square meters,
located at Calapan, Oriental Mindoro, and registered with the Registry of
Deeds of Oriental Mindoro; (5) TCT No. T- 46807, with an area of 39 square
meters, located at Calapan, Oriental Mindoro, and registered with the
Registry of Deeds of Oriental Mindoro; (6) TCT No. T-108954, with an area of
690 square meters and located at Susana Heights, Muntinlupa; (7) RT-106338
805 Square Meters registered with the Registry of Deeds of Pasig (now
Makati); and (8) Personal Property consisting of a 1983 Car with Vehicle
Registration No. R-16381, Model 1983, Make Toyota, and Engine No. T- 2464.
Nowhere is it stated in the SPA that Julians authority extends to the subject
property covered by TCT No. RT 18206 (106338) registered with the Registry
of Deeds of Quezon City. Consequently, the act of Julian of constituting a

mortgage over the subject property is unenforceable for having been done
without authority.
Respondent, on the other hand, mainly hinges its argument on the
declarations made by the Court of Appeals that there was no property
covered by TCT No. 106338 registered with the Registry of Deeds of Pasig
(now Makati); but there exists a property, the subject property herein,
covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds
of Quezon City. Further verification would reveal that TCT No. RT-18206 is
merely a reconstitution of TCT No. 106338, and the property covered by both
certificates of title is actually situated in Quezon City and not Pasig. From the
foregoing circumstances, respondent argues that Perla intended to include
the subject property in the SPA, and the failure of the instrument to reflect
the recent TCT Number or the exact designation of the Registry of Deeds,
should not defeat Perlas clear intention.
After an examination of the literal terms of the SPA, we find that the subject
property was not among those enumerated therein. There is no obvious
reference to the subject property covered by TCT No. RT-18206 (106338)
registered with the Registry of Deeds of Quezon City.
There was also nothing in the language of the SPA from which we could
deduce the intention of Perla to include the subject property therein. We
cannot attribute such alleged intention to Perla who executed the SPA when
the language of the instrument is bare of any indication suggestive of such
intention. Contrariwise, to adopt the intent theory advanced by the
respondent, in the absence of clear and convincing evidence to that effect,
would run afoul of the express tenor of the SPA and thus defeat Perlas true
intention.
In cases where the terms of the contract are clear as to leave no room for
interpretation, resort to circumstantial evidence to ascertain the true intent of
the parties, is not countenanced. As aptly stated in the case of JMA House,
Incorporated v. Sta. Monica Industrial and Development Corporation,[13]
thus:
[T]he law is that if the terms of a contract are clear and leave no doubt upon
the intention of the contracting parties, the literal meaning of its stipulation
shall control. When the language of the contract is explicit, leaving no doubt
as to the intention of the drafters, the courts may not read into it [in] any
other intention that would contradict its main import. The clear terms of the
contract should never be the subject matter of interpretation. Neither
abstract justice nor the rule on liberal interpretation justifies the creation of a
contract for the parties which they did not make themselves or the imposition
upon one party to a contract or obligation not assumed simply or merely to
avoid seeming hardships. The true meaning must be enforced, as it is to be
presumed that the contracting parties know their scope and effects.[14]
Equally relevant is the rule that a power of attorney must be strictly

construed and pursued. The instrument will be held to grant only those
powers which are specified therein, and the agent may neither go beyond nor
deviate from the power of attorney.[15] Where powers and duties are
specified and defined in an instrument, all such powers and duties are limited
and are confined to those which are specified and defined, and all other
powers and duties are excluded.[16] This is but in accord with the
disinclination of courts to enlarge the authority granted beyond the powers
expressly given and those which incidentally flow or derive therefrom as
being usual and reasonably necessary and proper for the performance of
such express powers.[17]
Even the commentaries of renowned Civilist Manresa[18] supports a strict
and limited construction of the terms of a power of attorney:
The law, which must look after the interests of all, cannot permit a man to
express himself in a vague and general way with reference to the right he
confers upon another for the purpose of alienation or hypothecation, whereby
he might be despoiled of all he possessed and be brought to ruin, such
excessive authority must be set down in the most formal and explicit terms,
and when this is not done, the law reasonably presumes that the principal did
not mean to confer it.
In this case, we are not convinced that the property covered by TCT No.
106338 registered with the Registry of Deeds of Pasig (now Makati) is the
same as the subject property covered by TCT No. RT-18206 (106338)
registered with the Registry of Deeds of Quezon City. The records of the case
are stripped of supporting proofs to verify the respondents claim that the two
titles cover the same property. It failed to present any certification from the
Registries of Deeds concerned to support its assertion. Neither did
respondent take the effort of submitting and making part of the records of
this case copies of TCTs No. RT-106338 of the Registry of Deeds of Pasig (now
Makati) and RT-18206 (106338) of the Registry of Deeds of Quezon City, and
closely comparing the technical descriptions of the properties covered by the
said TCTs. The bare and sweeping statement of respondent that the
properties covered by the two certificates of title are one and the same
contains nothing but empty imputation of a fact that could hardly be given
any evidentiary weight by this Court.
Having arrived at the conclusion that Julian was not conferred by Perla with
the authority to mortgage the subject property under the terms of the SPA,
the real estate mortgages Julian executed over the said property are
therefore unenforceable.
Assuming arguendo that the subject property was indeed included in the SPA
executed by Perla in favor of Julian, the said SPA was revoked by virtue of a
public instrument executed by Perla on 10 March 1993. To address
respondents assertion that the said revocation was unenforceable against it
as a third party to the SPA and as one who relied on the same in good faith,
we quote with approval the following ruling of the RTC on this matter:

Moreover, an agency is extinguished, among others, by its revocation (Article

1999, New Civil Code of the Philippines). The principal may revoke the agency
at will, and compel the agent to return the document evidencing the agency.
Such revocation may be express or implied (Article 1920, supra).
In this case, the revocation of the agency or Special Power of Attorney is
expressed and by a public document executed on March 10, 1993.
The Register of Deeds of Quezon City was even notified that any attempt to
mortgage or sell the property covered by TCT No. [RT-18206] 106338 located
at No. 21 Hillside Drive, Blue Ridge, Quezon City must have the full consent
documented in the form of a special power of attorney duly authenticated at
the Philippine Consulate General, New York City, N.Y., U.S.A.
The non-annotation of the revocation of the Special Power of Attorney on TCT
No. RT-18206 is of no consequence as far as the revocations existence and
legal effect is concerned since actual notice is always superior to constructive
notice. The actual notice of the revocation relayed to defendant Registry of
Deeds of Quezon City is not denied by either the Registry of Deeds of Quezon
City or the defendant Bank. In which case, there appears no reason why
Section 52 of the Property Registration Decree (P.D. No. 1529) should not
apply to the situation. Said Section 52 of P.D. No. 1529 provides:
Section 52. Constructive notice upon registration. Every conveyance,
mortgage, lease, lien, attachment, order, judgment, instrument or entry
affecting registered land shall, if registered, filed or entered in the Office of
the Register of Deeds for the province or city where the land to which it
relates lies, be constructive notice to all persons from the time of such
registering, filing or entering. (Pres. Decree No. 1529, Section 53) (emphasis
ours)
It thus developed that at the time the first loan transaction with defendant
Bank was effected on December 12, 1996, there was on record at the Office
of the Register of Deeds of Quezon City that the special power of attorney
granted Julian, Sr. by Perla had been revoked. That notice, works as
constructive notice to third parties of its being filed, effectively rendering
Julian, Sr. without authority to act for and in behalf of Perla as of the date the
revocation letter was received by the Register of Deeds of Quezon City on
February 7, 1996.[19]
Given that Perla revoked the SPA as early as 10 March 1993, and that she
informed the Registry of Deeds of Quezon City of such revocation in a letter
dated 23 January 1996 and received by the latter on 7 February 1996, then
third parties to the SPA are constructively notified that the same had been
revoked and Julian no longer had any authority to mortgage the subject
property. Although the revocation may not be annotated on TCT No. RT-18206
(106338), as the RTC pointed out, neither the Registry of Deeds of Quezon
City nor respondent denied that Perlas 23 January 1996 letter was received
by and filed with the Registry of Deeds of Quezon City. Respondent would

have undoubtedly come across said letter if it indeed diligently investigated

the subject property and the circumstances surrounding its mortgage.
The final issue to be threshed out by this Court is whether the respondent is a
mortgagee-in-good faith. Respondent fervently asserts that it exercised
reasonable diligence required of a prudent man in dealing with the subject
property.
Elaborating, respondent claims to have carefully verified Julians authority
over the subject property which was validly contained in the SPA. It stresses
that the SPA was annotated at the back of the TCT of the subject property.
Finally, after conducting an investigation, it found that the property covered
by TCT No. 106338, registered with the Registry of Deeds of Pasig (now
Makati) referred to in the SPA, and the subject property, covered by TCT No.
18206 (106338) registered with the Registry of Deeds of Quezon City, are one
and the same property. From the foregoing, respondent concluded that Julian
was indeed authorized to constitute a mortgage over the subject property.
We are unconvinced. The property listed in the real estate mortgages Julian
executed in favor of PNB is the one covered by TCT#RT-18206(106338). On
the other hand, the Special Power of Attorney referred to TCT No. RT-106338
805 Square Meters of the Registry of Deeds of Pasig now Makati. The palpable
difference between the TCT numbers referred to in the real estate mortgages
and Julians SPA, coupled with the fact that the said TCTs are registered in the
Registries of Deeds of different cities, should have put respondent on guard.
Respondents claim of prudence is debunked by the fact that it had
conveniently or otherwise overlooked the inconsistent details appearing on
the face of the documents, which it was relying on for its rights as
mortgagee, and which significantly affected the identification of the property
being mortgaged. In Arrofo v. Quio,[20] we have elucidated that:
[Settled is the rule that] a person dealing with registered lands [is not
required] to inquire further than what the Torrens title on its face indicates.
This rule, however, is not absolute but admits of exceptions. Thus, while its is
true, x x x that a person dealing with registered lands need not go beyond
the certificate of title, it is likewise a well-settled rule that a purchaser or
mortgagee cannot close his eyes to facts which should put a reasonable man
on his guard, and then claim that he acted in good faith under the belief that
there was no defect in the title of the vendor or mortgagor. His mere refusal
to face up the fact that such defect exists, or his willful closing of his eyes to
the possibility of the existence of a defect in the vendors or mortgagors title,
will not make him an innocent purchaser for value, if it afterwards develops
that the title was in fact defective, and it appears that he had such notice of
the defect as would have led to its discovery had he acted with the measure
of precaution which may be required of a prudent man in a like situation.
By putting blinders on its eyes, and by refusing to see the patent defect in
the scope of Julians authority, easily discernable from the plain terms of the
SPA, respondent cannot now claim to be an innocent mortgagee.
Further, in the case of Abad v. Guimba,[21] we laid down the principle that

where the mortgagee does not directly deal with the registered owner of real
property, the law requires that a higher degree of prudence be exercised by
the mortgagee, thus:
While [the] one who buys from the registered owner does not need to look
behind the certificate of title, one who buys from [the] one who is not [the]
registered owner is expected to examine not only the certificate of title but all
factual circumstances necessary for [one] to determine if there are any flaws
in the title of the transferor, or in [the] capacity to transfer the land. Although
the instant case does not involve a sale but only a mortgage, the same rule
applies inasmuch as the law itself includes a mortgagee in the term
purchaser.[22]
This principle is applied more strenuously when the mortgagee is a bank or a
banking institution. Thus, in the case of Cruz v. Bancom Finance Corporation,
[23] we ruled:
Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank.
As such, unlike private individuals, it is expected to exercise greater care and
prudence in its dealings, including those involving registered lands. A banking
institution is expected to exercise due diligence before entering into a
mortgage contract. The ascertainment of the status or condition of a property
offered to it as security for a loan must be a standard and indispensable part
of its operations.[24]
Hence, considering that the property being mortgaged by Julian was not his,
and there are additional doubts or suspicions as to the real identity of the
same, the respondent bank should have proceeded with its transactions with
Julian only with utmost caution. As a bank, respondent must subject all its
transactions to the most rigid scrutiny, since its business is impressed with
public interest and its fiduciary character requires high standards of integrity
and performance.[25] Where respondent acted in undue haste in granting the
mortgage loans in favor of Julian and disregarding the apparent defects in the
latters authority as agent, it failed to discharge the degree of diligence
required of it as a banking corporation.
Thus, even granting for the sake of argument that the subject property and
the one identified in the SPA are one and the same, it would not elevate
respondents status to that of an innocent mortgagee. As a banking
institution, jurisprudence stringently requires that respondent should take
more precautions than an ordinary prudent man should, to ascertain the
status and condition of the properties offered as collateral and to verify the
scope of the authority of the agents dealing with these. Had respondent
acted with the required degree of diligence, it could have acquired knowledge
of the letter dated 23 January 1996 sent by Perla to the Registry of Deeds of
Quezon City which recorded the same. The failure of the respondent to
investigate into the circumstances surrounding the mortgage of the subject
property belies its contention of good faith.

On a last note, we find that the real estate mortgages constituted over the
subject property are unenforceable and not null and void, as ruled by the RTC.
It is best to reiterate that the said mortgage was entered into by Julian on
behalf of Perla without the latters authority and consequently, unenforceable
under Article 1403(1) of the Civil Code. Unenforceable contracts are those
which cannot be enforced by a proper action in court, unless they are ratified,
because either they are entered into without or in excess of authority or they
do not comply with the statute of frauds or both of the contracting parties do
not possess the required legal capacity.[26] An unenforceable contract may
be ratified, expressly or impliedly, by the person in whose behalf it has been
executed, before it is revoked by the other contracting party.[27] Without
Perlas ratification of the same, the real estate mortgages constituted by Julian
over the subject property cannot be enforced by any action in court against
Perla and/or her successors in interest.
In sum, we rule that the contracts of real estate mortgage constituted over
the subject property covered by TCT No. RT 18206 (106338) registered with
the Registry of Deeds of Quezon City are unenforceable. Consequently, the
foreclosure proceedings and the auction sale of the subject property
conducted in pursuance of these unenforceable contracts are null and void.
This, however, is without prejudice to the right of the respondent to proceed
against Julian, in his personal capacity, for the amount of the loans.
WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition is GRANTED.
The Decision dated 12 October 2005 and its Resolution dated 15 February
2006 rendered by the Court of Appeals in CA-G.R. CV No. 82636, are hereby
REVERSED. The Decision dated 23 September 2003 of the Regional Trial Court
of Quezon City, Branch 220, in Civil Case No. Q-99-37145, is hereby
REINSTATED and AFFIRMED with modification that the real estate mortgages
constituted over TCT No. RT 18206 (106338) are not null and void but
UNENFORCEABLE. No costs.
SECOND DIVISION
HEIRS OF EDUARDO MANLAPAT, G.R. No. 125585
represented by GLORIA MANLAPATBANAAG and LEON M. BANAAG, JR., Petitioners, Present:
PUNO, J.,*
Chairman,
- versus - AUSTRIA-MARTINEZ,
Acting Chairman,
CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.
HON. COURT OF APPEALS,
RURAL BANK OF SAN PASCUAL,
INC., and JOSE B. SALAZAR,
CONSUELO CRUZ and Promulgated:
ROSALINA CRUZ-BAUTISTA,
and the REGISTER OF DEEDS of

Meycauayan, Bulacan, June 8, 2005

Respondents.
x-------------------------------------------------------------------x
DECISION
TINGA, J.:
Before this Court is a Rule 45 petition assailing the Decision[1] dated 29
September 1994 of the Court of Appeals that reversed the Decision[2] dated
30 April 1991 of the Regional Trial Court (RTC) of Bulacan, Branch 6, Malolos.
The trial court declared Transfer Certificates of Title (TCTs) No. T-9326-P(M)
and No. T-9327-P(M) as void ab initio and ordered the restoration of Original
Certificate of Title (OCT) No. P-153(M) in the name of Eduardo Manlapat
(Eduardo), petitioners predecessor-in-interest.
The controversy involves Lot No. 2204, a parcel of land with an area of 1,058
square meters, located at Panghulo, Obando, Bulacan. The property had been
originally in the possession of Jose Alvarez, Eduardos grandfather, until his
demise in 1916. It remained unregistered until 8 October 1976 when OCT No.
P-153(M) was issued in the name of Eduardo pursuant to a free patent issued
in Eduardos name[3] that was entered in the Registry of Deeds of
Meycauayan, Bulacan.[4] The subject lot is adjacent to a fishpond owned by
one
Ricardo Cruz (Ricardo), predecessor-in-interest of respondents Consuelo Cruz
and Rosalina Cruz-Bautista (Cruzes).[5]
On 19 December 1954, before the subject lot was titled, Eduardo sold a
portion thereof with an area of 553 square meters to Ricardo. The sale is
evidenced by a deed of sale entitled Kasulatan ng Bilihang Tuluyan ng Lupang
Walang Titulo (Kasulatan)[6] which was signed by Eduardo himself as vendor
and his wife Engracia Aniceto with a certain Santiago Enriquez signing as
witness. The deed was notarized by Notary Public Manolo Cruz.[7] On 4 April
1963, the Kasulatan was registered with the Register of Deeds of Bulacan.[8]
On 18 March 1981, another Deed of Sale[9] conveying another portion of the
subject lot consisting of 50 square meters as right of way was executed by
Eduardo in favor of Ricardo in order to reach the portion covered by the first
sale executed in 1954 and to have access to his fishpond from the provincial
road.[10] The deed was signed by Eduardo himself and his wife Engracia
Aniceto, together with Eduardo Manlapat, Jr. and Patricio Manlapat. The same
was also duly notarized on 18 July 1981 by Notary Public Arsenio Guevarra.
[11]
In December 1981, Leon Banaag, Jr. (Banaag), as attorney-in-fact of his
father-in-law Eduardo, executed a mortgage with the Rural Bank of San

Pascual, Obando Branch (RBSP), for P100,000.00 with the subject lot as
collateral. Banaag deposited the owners duplicate certificate of OCT No. P153(M) with the bank.
On 31 August 1986, Ricardo died without learning of the prior issuance of
OCT No. P-153(M) in the name of Eduardo.[12] His heirs, the Cruzes, were not
immediately aware of the consummated sale between Eduardo and Ricardo.
Eduardo himself died on 4 April 1987. He was survived by his heirs, Engracia
Aniceto, his spouse; and children, Patricio, Bonifacio, Eduardo, Corazon,
Anselmo, Teresita and Gloria, all surnamed Manlapat.[13] Neither did the
heirs of Eduardo (petitioners) inform the Cruzes of the prior sale in favor of
their predecessor-in-interest, Ricardo. Yet subsequently, the Cruzes came to
learn about the sale and the issuance of the OCT in the name of Eduardo.
Upon learning of their right to the subject lot, the Cruzes immediately tried to
confront petitioners on the mortgage and obtain the surrender of the OCT.
The Cruzes, however, were thwarted in their bid to see the heirs. On the
advice of the Bureau of Lands, NCR Office, they brought the matter to the
barangay captain of Barangay Panghulo, Obando, Bulacan. During the
hearing, petitioners were informed that the Cruzes had a legal right to the
property covered by OCT and needed the OCT for the purpose of securing a
separate title to cover the interest of Ricardo. Petitioners, however, were
unwilling to surrender the OCT.[14]
Having failed to physically obtain the title from petitioners, in July 1989, the
Cruzes instead went to RBSP which had custody of the owners duplicate
certificate of the OCT, earlier surrendered as a consequence of the mortgage.
Transacting with RBSPs manager, Jose Salazar (Salazar), the Cruzes sought to
borrow the owners duplicate certificate for the purpose of photocopying the
same and thereafter showing a copy thereof to the Register of Deeds. Salazar
allowed the Cruzes to bring the owners duplicate certificate outside the bank
premises when the latter showed the Kasulatan.[15] The Cruzes returned the
owners duplicate certificate on the same day after having copied the same.
They then brought the copy of the OCT to Register of Deeds Jose Flores
(Flores) of Meycauayan and showed the same to him to secure his legal
opinion as to how the Cruzes could legally protect their interest in the
property and register the same.[16] Flores suggested the preparation of a
subdivision plan to be able to segregate the area purchased by Ricardo from
Eduardo and have the same covered by a separate title.[17]
Thereafter, the Cruzes solicited the opinion of Ricardo Arandilla (Arandilla),
Land Registration Officer, Director III, Legal Affairs Department, Land
Registration Authority at Quezon City, who agreed with the advice given by
Flores.[18] Relying on the suggestions of Flores and Arandilla, the Cruzes
hired two geodetic engineers to prepare the corresponding subdivision plan.
The subdivision plan was presented to the Land Management Bureau, Region
III, and there it was approved by a certain Mr. Pambid of said office on 21 July
1989.

After securing the approval of the subdivision plan, the Cruzes went back to
RBSP and again asked for the owners duplicate certificate from Salazar. The
Cruzes informed him that the presentation of the owners duplicate certificate
was necessary, per advise of the Register of Deeds, for the cancellation of the
OCT and the issuance in lieu thereof of two separate titles in the names of
Ricardo and Eduardo in accordance with the approved subdivision plan.[19]
Before giving the owners duplicate certificate, Salazar required the Cruzes to
see Atty. Renato Santiago (Atty. Santiago), legal counsel of RBSP, to secure
from the latter a clearance to borrow the title. Atty. Santiago would give the
clearance on the condition that only Cruzes put up a substitute collateral,
which they did.[20] As a result, the Cruzes got hold again of the owners
duplicate certificate.
After the Cruzes presented the owners duplicate certificate, along with the
deeds of sale and the subdivision plan, the Register of Deeds cancelled the
OCT and issued in lieu thereof TCT No. T-9326-P(M) covering 603 square
meters of Lot No. 2204 in the name of Ricardo and TCT No. T-9327-P(M)
covering the remaining 455 square meters in the name of Eduardo.[21]
On 9 August 1989, the Cruzes went back to the bank and surrendered to
Salazar TCT No. 9327-P(M) in the name of Eduardo and retrieved the title they
had earlier given as substitute collateral. After securing the new separate
titles, the Cruzes furnished petitioners with a copy of TCT No. 9327-P(M)
through the barangay captain and paid the real property tax for 1989.[22]
The Cruzes also sent a formal letter to Guillermo Reyes, Jr., Director,
Supervision Sector, Department III of the Central Bank of the Philippines,
inquiring whether they committed any violation of existing bank laws under
the circumstances. A certain Zosimo Topacio, Jr. of the Supervision Sector
sent a reply letter advising the Cruzes, since the matter is between them and
the bank, to get in touch with the bank for the final settlement of the case.
[23]
In October of 1989, Banaag went to RBSP, intending to tender full payment of
the mortgage obligation. It was only then that he learned of the dealings of
the Cruzes with the bank which eventually led to the subdivision of the
subject lot and the issuance of two separate titles thereon. In exchange for
the full payment of the loan, RBSP tried to persuade petitioners to accept TCT
No. T-9327-P(M) in the name of Eduardo.[24]
As a result, three (3) cases were lodged, later consolidated, with the trial
court, all involving the issuance of the TCTs, to wit:
(1) Civil Case No. 650-M-89, for reconveyance with damages filed by the heirs
of Eduardo Manlapat against Consuelo Cruz, Rosalina Cruz-Bautista, Rural
Bank of San Pascual, Jose Salazar and Jose Flores, in his capacity as Deputy
Registrar, Meycauayan Branch of the Registry of Deeds of Bulacan;
(2) Civil Case No. 141-M-90 for damages filed by Jose Salazar against
Consuelo Cruz, et. [sic] al.; and

(3) Civil Case No. 644-M-89, for declaration of nullity of title with damages
filed by Rural Bank of San Pascual, Inc. against the spouses Ricardo Cruz and
Consuelo Cruz, et al.[25]
After trial of the consolidated cases, the RTC of Malolos rendered a decision in
favor of the heirs of Eduardo, the dispositive portion of which reads:
WHEREFORE, premised from the foregoing, judgment is hereby rendered:
1.Declaring Transfer Certificates of Title Nos. T-9326-P(M) and T-9327-P(M) as
void ab initio and ordering the Register of Deeds, Meycauayan Branch to
cancel said titles and to restore Original Certificate of Title No. P-153(M) in the
name of plaintiffs predecessor-in-interest Eduardo Manlapat;
2.-Ordering the defendants Rural Bank of San Pascual, Jose Salazar, Consuelo
Cruz and Rosalina Cruz-Bautista, to pay the plaintiffs Heirs of Eduardo
Manlapat, jointly and severally, the following:
a)P200,000.00 as moral damages;
b)P50,000.00 as exemplary damages;
c)P20,000.00 as attorneys fees; and
d)the costs of the suit.
3.Dismissing the counterclaims.
SO ORDERED.[26]
The trial court found that petitioners were entitled to the reliefs of
reconveyance and damages. On this matter, it ruled that petitioners were
bona fide mortgagors of an unclouded title bearing no annotation of any lien
and/or encumbrance. This fact, according to the trial court, was confirmed by
the bank when it accepted the mortgage unconditionally on 25 November
1981. It found that petitioners were complacent and unperturbed, believing
that the title to their property, while serving as security for a loan, was safely
vaulted in the impermeable confines of RBSP. To their surprise and prejudice,
said title was subdivided into two portions, leaving them a portion of 455
square meters from the original total area of 1,058 square meters, all
because of the fraudulent and negligent acts of respondents and RBSP. The
trial court ratiocinated that even assuming that a portion of the subject lot
was sold by Eduardo to Ricardo, petitioners were still not privy to the
transaction between the bank and the Cruzes which eventually led to the
subdivision of the OCT into TCTs No. T-9326-P(M) and No. T-9327-P(M), clearly
to the damage and prejudice of petitioners.[27]
Concerning the claims for damages, the trial court found the same to be
bereft of merit. It ruled that although the act of the Cruzes could be deemed
fraudulent, still it would not constitute intrinsic fraud. Salazar, nonetheless,
was clearly guilty of negligence in letting the Cruzes borrow the owners

duplicate certificate of the OCT. Neither the bank nor its manager had
business entrusting to strangers titles mortgaged to it by other persons for
whatever reason. It was a clear violation of the mortgage and banking laws,
the trial court concluded.
The trial court also ruled that although Salazar was personally responsible for
allowing the title to be borrowed, the bank could not escape liability for it was
guilty of contributory negligence. The evidence showed that RBSPs legal
counsel was sought for advice regarding respondents request. This could only
mean that RBSP through its lawyer if not through its manager had known in
advance of the Cruzes intention and still it did nothing to prevent the
eventuality. Salazar was not even summarily dismissed by the bank if he was
indeed the sole person to blame. Hence, the banks claim for damages must
necessarily fail.[28]
The trial court granted the prayer for the annulment of the TCTs as a
necessary consequence of its declaration that reconveyance was in order. As
to Flores, his work being ministerial as Deputy Register of the Bulacan
Registry of Deeds, the trial court absolved him of any liability with a stern
warning that he should deal with his future transactions more carefully and in
the strictest sense as a responsible government official.[29]
Aggrieved by the decision of the trial court, RBSP, Salazar and the Cruzes
appealed to the Court of Appeals. The appellate court, however, reversed the
decision of the RTC. The decretal text of the decision reads:
THE FOREGOING CONSIDERED, the appealed decision is hereby reversed and
set aside, with costs against the appellees.
SO ORDERED.[30]
The appellate court ruled that petitioners were not bona fide mortgagors
since as early as 1954 or before the 1981 mortgage, Eduardo already sold to
Ricardo a portion of the subject lot with an area of 553 square meters. This
fact, the Court of Appeals noted, is even supported by a document of sale
signed by Eduardo Jr. and Engracia Aniceto, the surviving spouse of Eduardo,
and registered with the Register of Deeds of Bulacan. The appellate court also
found that on 18 March 1981, for the second time, Eduardo sold to Ricardo a
separate area containing 50 square meters, as a road right-of-way.[31]
Clearly, the OCT was issued only after the first sale. It also noted that the title
was given to the Cruzes by RBSP voluntarily, with knowledge even of the
banks counsel.[32] Hence, the imposition of damages cannot be justified, the
Cruzes themselves being the owners of the property. Certainly, Eduardo
misled the bank into accepting the entire area as a collateral since the 603square meter portion did not anymore belong to him. The appellate court,
however, concluded that there was no conspiracy between the bank and
Salazar.[33]
Hence, this petition for review on certiorari.

Petitioners ascribe errors to the appellate court by asking the following

questions, to wit: (a) can a mortgagor be compelled to receive from the
mortgagee a smaller portion of the originally encumbered title partitioned
during the subsistence of the mortgage, without the knowledge of, or
authority derived from, the registered owner; (b) can the mortgagee question
the veracity of the registered title of the mortgagor, as noted in the owners
duplicate certificate, and thus, deliver the certificate to such third persons,
invoking an adverse, prior, and unregistered claim against the registered title
of the mortgagor; (c) can an adverse prior claim against a registered title be
noted, registered and entered without a competent court order; and (d) can
belief of ownership justify the taking of property without due process of law?
[34]
The kernel of the controversy boils down to the issue of whether the
cancellation of the OCT in the name of the petitioners predecessor-in-interest
and its splitting into two separate titles, one for the petitioners and the other
for the Cruzes, may be accorded legal recognition given the peculiar factual
backdrop of the case. We rule in the affirmative.

Private respondents (Cruzes) own

the portion titled in their names
Consonant with law and justice, the ultimate denouement of the property
dispute lies in the determination of the respective bases of the warring
claims. Here, as in other legal disputes, what is written generally deserves
credence.
A careful perusal of the evidence on record reveals that the Cruzes have
sufficiently proven their claim of ownership over the portion of Lot No. 2204
with an area of 553 square meters. The duly notarized instrument of
conveyance was executed in 1954 to which no less than Eduardo was a
signatory. The execution of the deed of sale was rendered beyond doubt by
Eduardos admission in his Sinumpaang Salaysay dated 24 April 1963.[35]
These documents make the affirmance of the right of the Cruzes ineluctable.
The apparent irregularity, however, in the obtention of the owners duplicate
certificate from the bank, later to be presented to the Register of Deeds to
secure the issuance of two new TCTs in place of the OCT, is another matter.
Petitioners argue that the 1954 deed of sale was not annotated on the OCT
which was issued in 1976 in favor of Eduardo; thus, the Cruzes claim of
ownership based on the sale would not hold water. The Court is not
persuaded.
Registration is not a requirement for validity of the contract as between the
parties, for the effect of registration serves chiefly to bind third persons.[36]
The principal purpose of registration is merely to notify other persons not
parties to a contract that a transaction involving the property had been
entered into. Where the party has knowledge of a prior existing interest which

is unregistered at the time he acquired a right to the same land, his

knowledge of that prior unregistered interest has the effect of registration as
to him.[37]
Further, the heirs of Eduardo cannot be considered third persons for purposes
of applying the rule. The conveyance shall not be valid against any person
unless registered, except (1) the grantor, (2) his heirs and devisees, and (3)
third persons having actual notice or knowledge thereof.[38] Not only are
petitioners the heirs of Eduardo, some of them were actually parties to the
Kasulatan executed in favor of Ricardo. Thus, the annotation of the adverse
claim of the Cruzes on the OCT is no longer required to bind the heirs of
Eduardo, petitioners herein.
Petitioners had no right to constitute
mortgage over disputed portion
The requirements of a valid mortgage are clearly laid down in Article 2085 of
the New Civil Code, viz:
ART. 2085. The following requisites are essential to the contracts of pledge
and mortgage:
(1)
That they be constituted to secure the fulfillment of a principal
obligation;
(2)
That the pledgor or mortgagor be the absolute owner of the thing
pledged or mortgaged;
(3)
That the persons constituting the pledge or mortgage have the free
disposal of their property, and in the absence thereof, that they be legally
authorized for the purpose.
Third persons who are not parties to the principal obligation may secure the
latter by pledging or mortgaging their own property. (emphasis supplied)
For a person to validly constitute a valid mortgage on real estate, he must be
the absolute owner thereof as required by Article 2085 of the New Civil Code.
[39] The mortgagor must be the owner, otherwise the mortgage is void.[40]
In a contract of mortgage, the mortgagor remains to be the owner of the
property although the property is subjected to a lien.[41] A mortgage is
regarded as nothing more than a mere lien, encumbrance, or security for a
debt, and passes no title or estate to the mortgagee and gives him no right or
claim to the possession of the property.[42] In this kind of contract, the
property mortgaged is merely delivered to the mortgagee to secure the
fulfillment of the principal obligation.[43] Such delivery does not empower
the mortgagee to convey any portion thereof in favor of another person as
the right to dispose is an attribute of ownership.[44] The right to dispose
includes the right to donate, to sell, to pledge or mortgage. Thus, the
mortgagee, not being the owner of the property, cannot dispose of the whole
or part thereof nor cause the impairment of the security in any manner
without violating the foregoing rule.[45] The mortgagee only owns the

mortgage credit, not the property itself.[46]

Petitioners submit as an issue whether a mortgagor may be compelled to
receive from the mortgagee a smaller portion of the lot covered by the
originally encumbered title, which lot was partitioned during the subsistence
of the mortgage without the knowledge or authority of the mortgagor as
registered owner. This formulation is disingenuous, baselessly assuming, as it
does, as an admitted fact that the mortgagor is the owner of the mortgaged
property in its entirety. Indeed, it has not become a salient issue in this case
since the mortgagor was not the owner of the entire mortgaged property in
the first place.
Issuance of OCT No. P-153(M), improper
It is a glaring fact that OCT No. P-153(M) covering the property mortgaged
was in the name of Eduardo, without any annotation of any prior disposition
or encumbrance. However, the property was sufficiently shown to be not
entirely owned by Eduardo as evidenced by the Kasulatan. Readily apparent
upon perusal of the records is that the OCT was issued in 1976, long after the
Kasulatan was executed way back in 1954. Thus, a portion of the property
registered in Eduardos name arising from the grant of free patent did not
actually belong to him. The utilization of the Torrens system to perpetrate
fraud cannot be accorded judicial sanction.
Time and again, this Court has ruled that the principle of indefeasibility of a
Torrens title does not apply where fraud attended the issuance of the title, as
was conclusively established in this case. The Torrens title does not furnish a
shied for fraud.[47] Registration does not vest title. It is not a mode of
acquiring ownership but is merely evidence of such title over a particular
property. It does not give the holder any better right than what he actually
has, especially if the registration was done in bad faith. The effect is that it is
as if no registration was made at all.[48] In fact, this Court has ruled that a
decree of registration cut off or extinguished a right acquired by a person
when such right refers to a lien or encumbrance on the landnot to the right of
ownership thereofwhich was not annotated on the certificate of title issued
thereon.[49]
Issuance of TCT Nos. T-9326-P(M)
and T-9327-P(M), Valid
The validity of the issuance of two TCTs, one for the portion sold to the
predecessor-in-interest of the Cruzes and the other for the portion retained by
petitioners, is readily apparent from Section 53 of the Presidential Decree
(P.D.) No. 1529 or the Property Registration Decree. It provides:
SEC 53. Presentation of owners duplicate upon entry of new certificate. No
voluntary instrument shall be registered by the Register of Deeds, unless the
owners duplicate certificate is presented with such instrument, except in
cases expressly provided for in this Decree or upon order of the court, for

cause shown.
The production of the owners duplicate certificate, whenever any voluntary
instrument is presented for registration, shall be conclusive authority from
the registered owner to the Register of Deeds to enter a new certificate or to
make a memorandum of registration in accordance with such instrument, and
the new certificate or memorandum shall be binding upon the registered
owner and upon all persons claiming under him, in favor of every purchaser
for value and in good faith.
In all cases of registration procured by fraud, the owner may pursue all his
legal and equitable remedies against the parties to such fraud without
prejudice, however, to the rights of any innocent holder of the decree of
registration on the original petition or application, any subsequent
registration procured by the presentation of a forged duplicate certificate of
title, or a forged deed or instrument, shall be null and void. (emphasis
supplied)
Petitioners argue that the issuance of the TCTs violated the third paragraph of
Section 53 of P.D. No. 1529. The argument is baseless. It must be noted that
the provision speaks of forged duplicate certificate of title and forged deed or
instrument. Neither instance obtains in this case. What the Cruzes presented
before the Register of Deeds was the very genuine owners duplicate
certificate earlier deposited by Banaag, Eduardos attorney-in-fact, with RBSP.
Likewise, the instruments of conveyance are authentic, not forged. Section 53
has never been clearer on the point that as long as the owners duplicate
certificate is presented to the Register of Deeds together with the instrument
of conveyance, such presentation serves as conclusive authority to the
Register of Deeds to issue a transfer certificate or make a memorandum of
registration in accordance with the instrument.
The records of the case show that despite the efforts made by the Cruzes in
persuading the heirs of Eduardo to allow them to secure a separate TCT on
the claimed portion, their ownership being amply evidenced by the Kasulatan
and Sinumpaang Salaysay where Eduardo himself acknowledged the sales in
favor of Ricardo, the heirs adamantly rejected the notion of separate titling.
This prompted the Cruzes to approach the bank manager of RBSP for the
purpose of protecting their property right. They succeeded in persuading the
latter to lend the owners duplicate certificate. Despite the apparent
irregularity in allowing the Cruzes to get hold of the owners duplicate
certificate, the bank officers consented to the Cruzes plan to register the
deeds of sale and secure two new separate titles, without notifying the heirs
of Eduardo about it.
Further, the law on the matter, specifically P.D. No. 1529, has no explicit
requirement as to the manner of acquiring the owners duplicate for purposes
of issuing a TCT. This led the Register of Deeds of Meycauayan as well as the
Central Bank officer, in rendering an opinion on the legal feasibility of the
process resorted to by the Cruzes. Section 53 of P.D. No. 1529 simply requires

the production of the owners duplicate certificate, whenever any voluntary

instrument is presented for registration, and the same shall be conclusive
authority from the registered owner to the Register of Deeds to enter a new
certificate or to make a memorandum of registration in accordance with such
instrument, and the new certificate or memorandum shall be binding upon
the registered owner and upon all persons claiming under him, in favor of
every purchaser for value and in good faith.
Quite interesting, however, is the contention of the heirs of Eduardo that the
surreptitious lending of the owners duplicate certificate constitutes fraud
within the ambit of the third paragraph of Section 53 which could nullify the
eventual issuance of the TCTs. Yet we cannot subscribe to their position.
Impelled by the inaction of the heirs of Eduardo as to their claim, the Cruzes
went to the bank where the property was mortgaged. Through its manager
and legal officer, they were assured of recovery of the claimed parcel of land
since they are the successors-in-interest of the real owner thereof. Relying on
the bank officers opinion as to the legality of the means sought to be
employed by them and the suggestion of the Central Bank officer that the
matter could be best settled between them and the bank, the Cruzes pursued
the titling of the claimed portion in the name of Ricardo. The Register of
Deeds eventually issued the disputed TCTs.
The Cruzes resorted to such means to protect their interest in the property
that rightfully belongs to them only because of the bank officers
acquiescence thereto. The Cruzes could not have secured a separate TCT in
the name of Ricardo without the banks approval. Banks, their business being
impressed with public interest, are expected to exercise more care and
prudence than private individuals in their dealings, even those involving
registered lands.[50] The highest degree of diligence is expected, and high
standards of integrity and performance are even required of it.[51]
Indeed, petitioners contend that the mortgagee cannot question the veracity
of the registered title of the mortgagor as noted in the owners duplicate
certificate, and, thus, he cannot deliver the certificate to such third persons
invoking an adverse, prior, and unregistered claim against the registered title
of the mortgagor. The strength of this argument is diluted by the peculiar
factual milieu of the case.
A mortgagee can rely on what appears on the certificate of title presented by
the mortgagor and an innocent mortgagee is not expected to conduct an
exhaustive investigation on the history of the mortgagors title. This rule is
strictly applied to banking institutions. A mortgagee-bank must exercise due
diligence before entering into said contract. Judicial notice is taken of the
standard practice for banks, before approving a loan, to send representatives
to the premises of the land offered as collateral and to investigate who the
real owners thereof are.[52]
Banks, indeed, should exercise more care and prudence in dealing even with
registered lands, than private individuals, as their business is one affected
with public interest. Banks keep in trust money belonging to their depositors,
which they should guard against loss by not committing any act of negligence

that amounts to lack of good faith. Absent good faith, banks would be denied
the protective mantle of the land registration statute, Act 496, which extends
only to purchasers for value and good faith, as well as to mortgagees of the
same character and description.[53] Thus, this Court clarified that the rule
that persons dealing with registered lands can rely solely on the certificate of
title does not apply to banks.[54]
Bank Liable for Nominal Damages
Of deep concern to this Court, however, is the fact that the bank lent the
owners duplicate of the OCT to the Cruzes when the latter presented the
instruments of conveyance as basis of their claim of ownership over a portion
of land covered by the title. Simple rationalization would dictate that a
mortgagee-bank has no right to deliver to any stranger any property
entrusted to it other than to those contractually and legally entitled to its
possession. Although we cannot dismiss the banks acknowledgment of the
Cruzes claim as legitimized by instruments of conveyance in their possession,
we nonetheless cannot sanction how the bank was inveigled to do the
bidding of virtual strangers. Undoubtedly, the banks cooperative stance
facilitated the issuance of the TCTs. To make matters worse, the bank did not
even notify the heirs of Eduardo. The conduct of the bank is as dangerous as
it is unthinkably negligent. However, the aspect does not impair the right of
the Cruzes to be recognized as legitimate owners of their portion of the
property.
Undoubtedly, in the absence of the banks participation, the Register of Deeds
could not have issued the disputed TCTs. We cannot find fault on the part of
the Register of Deeds in issuing the TCTs as his authority to issue the same is
clearly sanctioned by law. It is thus ministerial on the part of the Register of
Deeds to issue TCT if the deed of conveyance and the original owners
duplicate are presented to him as there appears on theface of the
instruments no badge of irregularity or
nullity.[55] If there is someone to blame for the shortcut resorted to by the
Cruzes, it would be the bank itself whose manager and legal officer helped
the Cruzes to facilitate the issuance of the TCTs.
The bank should not have allowed complete strangers to take possession of
the owners duplicate certificate even if the purpose is merely for
photocopying for a danger of losing the same is more than imminent. They
should be aware of the conclusive presumption in
Section 53. Such act constitutes manifest negligence on the part of the bank
which would necessarily hold it liable for damages under Article 1170 and
other relevant provisions of the Civil Code.[56]
In the absence of evidence, the damages that may be awarded may be in the
form of nominal damages. Nominal damages are adjudicated in order that a
right of the plaintiff, which has been violated or invaded by the defendant,
may be vindicated or recognized, and not for the purpose of indemnifying the
plaintiff for any loss suffered by him.[57] This award rests on the mortgagors

right to rely on the banks observance of the highest diligence in the conduct
of its business. The act of RBSP of entrusting to respondents the owners
duplicate certificate entrusted to it by the mortgagor without even notifying
the mortgagor and absent any prior investigation on the veracity of
respondents claim and
character is a patent failure to foresee the risk created by the act in view of
the provisions of Section 53 of P.D. No. 1529. This act runs afoul of every
banks mandate to observe the highest degree of diligence in dealing with its
clients. Moreover, a mortgagor has also the right to be afforded due process
before deprivation or diminution of his property is effected as the OCT was
still in the name of Eduardo. Notice and hearing are indispensable elements
of this right which the bank miserably ignored.
Under the circumstances, the Court believes the award of P50,000.00 as
nominal damages is appropriate.
Five-Year Prohibition against alienation
or encumbrance under the Public Land Act
One vital point. Apparently glossed over by the courts below and the parties
is an aspect which is essential, spread as it is all over the record and
intertwined with the crux of the controversy, relating as it does to the validity
of the dispositions of the subject property and the mortgage thereon.
Eduardo was issued a title in 1976 on the basis of his free patent application.
Such application implies the recognition of the public dominion character of
the land and, hence, the five (5)-year prohibition imposed by the Public Land
Act against alienation or encumbrance of the land covered by a free patent or
homestead[58] should have been considered.
The deed of sale covering the fifty (50)-square meter right of way executed
by Eduardo on 18 March 1981 is obviously covered by the proscription, the
free patent having been issued on 8 October 1976. However, petitioners may
recover the portion sold since the prohibition was imposed in favor of the free
patent holder. In Philippine National Bank v. De los Reyes,[59] this Court ruled
squarely on the point, thus:
While the law bars recovery in a case where the object of the contract is
contrary to law and one or both parties acted in bad faith, we cannot here
apply the doctrine of in pari delicto which admits of an exception, namely,
that when the contract is merely prohibited by law, not illegal per se, and the
prohibition is designed for the protection of the party seeking to recover, he
is entitled to the relief prayed for whenever public policy is enhanced thereby.
Under the Public Land Act, the prohibition to alienate is predicated on the
fundamental policy of the State to preserve and keep in the family of the
homesteader that portion of public land which the State has gratuitously
given to him, and recovery is allowed even where the land acquired under the
Public Land Act was sold and not merely encumbered, within the prohibited

period.[60]
The sale of the 553 square meter portion is a different story. It was executed
in 1954, twenty-two (22) years before the issuance of the patent in 1976.
Apparently, Eduardo disposed of the portion even before he thought of
applying for a free patent. Where the sale or transfer took place before the
filing of the free patent application, whether by the vendor or the vendee, the
prohibition should not be applied. In such situation, neither the prohibition
nor the rationale therefor which is
to keep in the family of the patentee that portion of the public land which the
government has gratuitously given him, by shielding him from the temptation
to dispose of his landholding, could be relevant. Precisely, he had disposed of
his rights to the lot even before the government could give the title to him.
The mortgage executed in favor of RBSP is also beyond the pale of the
prohibition, as it was forged in December 1981 a few months past the period
of prohibition.
WHEREFORE, the Decision of the Court of Appeals is AFFIRMED, subject to the
modifications herein. Respondent Rural Bank of San Pascual is hereby
ORDERED to PAY petitioners Fifty Thousand Pesos (P50,000.00) by way of
nominal damages. Respondents Consuelo Cruz and Rosalina Cruz-Bautista are
hereby DIVESTED of title to, and respondent Register of Deeds of
Meycauayan, Bulacan is accordingly ORDERED to segregate, the portion of
fifty (50) square meters of the subject Lot No. 2204, as depicted in the
approved plan covering the lot, marked as Exhibit A, and to issue a new title
covering the said portion in the name of the petitioners at the expense of the
petitioners. No costs.
SO ORDERED.
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 Decision1 of the Court
of Appeals dated March 30, 2000, affirming, with modifications, the Decision2
of the Regional Trial Court (RTC), Makati City, Branch 146, which found the
petitioner bank liable for payment of damages and attorney's 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 00-09-05354-93. 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 VicePresident of the Security Department, informing him that the respondent's
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 Ongsiapco's 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 thecourse 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. Basco's work as an insurance agent directly benefits UCPB, Cocolife's
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 client's rights. Denying him access
to the bank, which is of a quasi-public nature, is an undue restriction on his
freedom of movement and 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 of destierro 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 client's 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
teller's booth19 where other people were also seated.20 Meanwhile, two
security guards approached the respondent. The guards showed him the
Ongsiapco's 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 7th
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 teller's 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) Section22 in the ground floor when he saw the respondent
standing near the sofa23 near the two security guards.24 He 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 respondent's
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 bank's 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 plaintiff's claim to be
allowed even in only the "limited areas where [the bank's] 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 bank's 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 Ongsiapco's disingenuous letter of
December 12, 1995, are suggestive of malice and bad faith in derogation of
plaintiff's 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,
defendants:

it

is

respectfully

prayed

that

judgment

issue

ordering

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 attorney's 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 bank's 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 bank's interest by preventing plaintiff's
access to the bank's offices, and at the same time informing him of that
decision.
Plaintiff purported to insist on seeing and talking to the bank's 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 bank's 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 non-participants 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 teller's booth.33 Caspe notified his superior
of the respondent's 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 teller's 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 Casil's 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 Ongsiapco's
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 attorney's 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 attorney's 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 attorney's 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 UCPB's 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 bank's 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 nonemployees to its premises and records, such as the exclusion of nonemployees 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 enjoyment and 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. TORIAGA47
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 supervision of 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
Q
So the permission you are referring to is merely a permission to be
granted by the security guard?
A
No, 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.
Q
So 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?
A

Yes, Sir, that is the usual procedure.

If an employee resigned from the bank, same treatment?

Yes, Sir.

If an employee was terminated by the bank for cause, same treatment?

Yes, Sir.

Q
Outsiders who are not employees or who were never employees of the
bank also must ask permission?
A

Yes, Sir. Because there is a security control at the lobby.

You mentioned that this is a general rule?

Yes, Sir.

Is this rule written down in black and white anywhere?

I think this is more of a security procedure.

Q
But 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?
A

There must be a guideline of the security.

But you are not very familiar about the security procedures?

Yes, Sir.

ATTY. R. ALIKPALA
Q

Mr. Ongsiapco, the agency that you hired follows certain procedures?

Yes, Sir.

Q
bank?

Which of course are under the direct control and supervision of the

Yes, Sir.

And did the security agency have any of this procedure written down?

A
It will be given to them by the Security Department, because they are
under the Security Department.
Q
But if an employee is only entering the ground floor bank area, where
customers of the bank are normally allowed, whether depositors or not, they
don't need to ask for express permission, is that correct?
A

Yes, if they are client.

Q
Even if they are not client, but let us say they have to encash a check
paid to them by someone?
A

He is a client then.

Q
But 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?
A

Yes, 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
Q
So 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?
A

That is the Deposit Servicing Department.

Where the .

Where the people transact business.

ATTY. R. ALIKAPALA
Q

They are freely allowed in this area?

Yes, Sir.

Q
This is the area where there are counters, Teller, where a person would
normally go to let us say open a bank account or to request for manager's
check, is that correct?
A

Yes, Sir.

Q
So, 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?
A

Yes, Sir.

Q
And you say that the security guards are instructed to verify the
purpose of every person who goes into this area?
A

As 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, UCPB's 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 and not 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 Article 429 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 bank's 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 teller's
booth, instead of proceeding to and entering the working area himself, which
the respondent knew to be an area off-limits 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 attorney's 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 party's 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.
G.R. No. 132390

May 21, 2004

BPI FAMILY SAVINGS BANK, INC., petitioner,

vs.
FIRST METRO INVESTMENT CORPORATION, respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:

For our resolution is the instant petition for review on certiorari under Rule 45
of the 1997 Rules of Civil Procedure, as amended, assailing the Decision1
dated July 4, 1997 and Resolution2 dated January 28, 1998 of the Court of
Appeals in CA-G.R. CV No. 44986, "First Metro Investment Corporation vs. BPI
Family Bank."
The facts as found by the trial court and affirmed by the Court of Appeals are
as follows:
First Metro Investment Corporation (FMIC), respondent, is an investment
house organized under Philippine laws. Petitioner, Bank of Philippine Islands
Family Savings Bank, Inc. is a banking corporation also organized under
Philippine laws.
On August 25, 1989, FMIC, through its Executive Vice President Antonio Ong,
opened current account no. 8401-07473-0 and deposited METROBANK check
no. 898679 of P100 million with BPI Family Bank* (BPI FB) San Francisco del
Monte Branch (Quezon City). Ong made the deposit upon request of his
friend, Ador de Asis, a close acquaintance of Jaime Sebastian, then Branch
Manager of BPI FB San Francisco del Monte Branch. Sebastians aim was to
increase the deposit level in his Branch.
BPI FB, through Sebastian, guaranteed the payment of P14,667,687.01
representing 17% per annum interest of P100 million deposited by FMIC. The
latter, in turn, assured BPI FB that it will maintain its deposit of P100 million
for a period of one year on condition that the interest of 17% per annum is
paid in advance.
This agreement between
communications in writing.

the

parties

was

reached

through

their

Subsequently, BPI FB paid FMIC 17% interest or P14,667,687.01 upon

clearance of the latters check deposit.
However, on August 29, 1989, on the basis of an Authority to Debit signed by
Ong and Ma. Theresa David, Senior Manager of FMIC, BPI FB transferred P80
million from FMICs current account to the savings account of Tevesteco
Arrastre Stevedoring, Inc. (Tevesteco).
FMIC denied having authorized the transfer of its funds to Tevesteco, claiming
that the signatures of Ong and David were falsified. Thereupon, to recover
immediately its deposit, FMIC, on September 12, 1989, issued BPI FB check
no. 129077 for P86,057,646.72 payable to itself and drawn on its deposit with
BPI FB SFDM branch. But upon presentation for payment on September 13,
1989, BPI FB dishonored the check as it was "drawn against insufficient
funds" (DAIF).
Consequently, FMIC filed with the Regional Trial Court, Branch 146, Makati
City Civil Case No. 89-5280 against BPI FB. FMIC likewise caused the filing by

the Office of the State Prosecutors of an Information for estafa against Ong,
de Asis, Sebastian and four others. However, the Information was dismissed
on the basis of a demurrer to evidence filed by the accused.
On October 1, 1993, the trial court rendered its Decision in Civil Case No. 895280, the dispositive portion of which reads:
"Premises considered, judgment is rendered in favor of plaintiff, ordering
defendant to pay:
a. the amount of P80 million with interest at the legal rate from the time this
complaint was filed less P14,667,678.01;
b. the amount of P100,000.00 as reasonable attorneys fees; and
c. the cost.
SO ORDERED."
On appeal by both parties, the Court of Appeals rendered a Decision affirming
the assailed Decision with modification, thus:
"WHEREFORE, considering all the foregoing, this Court hereby modifies the
decision of the trial court and adjudges BPI Family Bank liable to First Metro
Investment Corporation for the amount of P65,332,321.99 plus interest at
17% per annum from August 29, 1989 until fully restored. Further, this 17%
interest shall itself earn interest at 12% from October 4, 1989 until fully paid.
SO ORDERED."
BPI FB then filed a motion for reconsideration but was denied by the Court of
Appeals.
In the instant petition, BPI FB ascribes to the Appellate Court the following
assignments of error:
"A. IN VALIDATING A CLEARLY ILLEGAL AND VOID AGREEMENT BETWEEN FMIC
AND AN OVERSTEPPING BRANCH MANAGER OF BPI FB, THE COURT OF
APPEALS DECIDED THE APPEALED CASE IN A MANNER NOT IN ACCORDANCE
WITH LAW OR THE APPLICAPLE DECISIONS OF THE HONORABLE COURT.
B. THE COURT OF APPEALS TOTALLY IGNORED THE JUDICIAL ADMISSIONS
MADE BY FMIC WHEN IT CHARACTERIZED THE TRANSACTION BETWEEN FMIC
AND BPI FB AS A TIME DEPOSIT WHEN IN FACT IT WAS AN INTEREST-BEARING
CURRENT ACCOUNT WHICH, UNDER THE EXISTING BANK REGULATIONS, WAS
AN ILLEGAL TRANSACTION.
C. THE COURT OF APPEALS COMMITTED AN EGREGIOUS ERROR IN RULING
THAT BPI FB CLOTHED ITS BRANCH MANAGER WITH APPARENT AUTHORITY TO
ENTER INTO SUCH A PATENTLY ILLEGAL ARRANGEMENT.

D. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN IT

REFUSED TO CONSIDER THE NEGLIGENT ACTS COMMITTED BY FMIC ITSELF
WHICH LED TO THE TRANSFER OF THE P80 MILLION FROM THE FMIC
ACCOUNT TO THE TEVESTECO ACCOUNT.
E. THE COURT OF APPEALS DID NOT ADHERE TO SETTLED JURISPRUDENCE
WHEN IT ADJUDGED BPI FB LIABLE TO FMIC FOR AN AMOUNT WHICH WAS
MORE THAN WHAT WAS CONTEMPLATED OR PRAYED FOR IN FMICS
COMPLAINT, MOTION FOR RECONSIDERATION OF THE TRIAL COURTS
DECISION AND APPEAL BRIEF.
F. IN SUPPORT OF ITS ALTERNATIVE PRAYER, PETITIONER SUBMITS THAT THE
COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT ORDERING THE
CONSOLIDATION OF THE INSTANT CASE WITH THE TEVESTECO CASE WHICH
IS STILL PENDING BEFORE THE MAKATI REGIONAL TRIAL COURT."
Petitioner BPI FB contends that the Court of Appeals erred in awarding the
17% per annum interest corresponding to the amount deposited by
respondent FMIC. Petitioner insists that respondents deposit is not a special
savings account similar to a time deposit, but actually a demand deposit,
withdrawable upon demand, proscribed from earning interest under Central
Bank Circular 777. Petitioner further contends that the transaction is not valid
as its Branch Manager, Jaime Sebastian, clearly overstepped his authority in
entering into such an agreement with respondents Executive Vice President.
We hold that the parties did not intend the deposit to be treated as a demand
deposit but rather as an interest-earning time deposit not withdrawable any
time. This is quite obvious from the communications between Jaime
Sebastian, petitioners Branch Manager, and Antonio Ong, respondents
Executive Vice President. Both agreed that the deposit of P100 million was
non-withdrawable for one year upon payment in advance of the 17% per
annum interest. Respondents time deposit of P100 million was accepted by
petitioner as shown by a deposit slip prepared and signed by Ong himself
who indicated therein the account number to which the deposit is to be
credited, the name of FMIC as depositor or account holder, the date of
deposit, and the amount of P100 million as deposit in check. Clearly, when
respondent FMIC invested its money with petitioner BPI FB, they intended the
P100 million as a time deposit, to earn 17% per annum interest and to remain
intact until its maturity date one year thereafter.
Ordinarily, a time deposit is defined as "one the payment of which cannot
legally be required within such a specified number of days."3
In contrast, demand deposits are "all those liabilities of the Bangko Sentral
and of other banks which are denominated in Philippine currency and are
subject to payment in legal tender upon demand by the presentation of
(depositors) checks."4
While it may be true that barely one month and seven days from the date of

deposit, respondent FMIC demanded the withdrawal of P86,057,646.72

through the issuance of a check payable to itself, the same was made as a
result of the fraudulent and unauthorized transfer by petitioner BPI FB of its
P80 million deposit to Tevestecos savings account. Certainly, such was a
normal reaction of respondent as a depositor to petitioners failure in its
fiduciary duty to treat its account with the highest degree of care.
Under this circumstance, the withdrawal of deposit by respondent FMIC
before the one-year maturity date did not change the nature of its time
deposit to one of demand deposit.
On another tack, petitioners argument that Central Bank regulations prohibit
demand deposit from earning interest is bereft of merit.
Under Central Bank Circular No. 22, Series of 1994, "demand deposits shall
not be subject to any interest rate ceiling." This, in effect, is an open
authority to pay interest on demand deposits, such interest not being subject
to any rate ceiling.
Likewise, time deposits are not subject to interest rate ceiling. In fact, the
rate ceiling was abolished and even allowed to float depending on the market
conditions. Sections 1244 and 1244.1 of the Manual of Regulations of the
Central Bank of the Philippines provide:
"Sec. 1244. Interest on time deposit. Time deposits shall not be subject to
any interest rate ceiling.
Sec. 1244.1. Time of payment. Interest on time deposit may be paid at
maturity or upon withdrawal or in advance. Provided, however, That interest
paid in advance shall not exceed the interest for one year."
Thus, even assuming that respondents account with petitioner is a demand
deposit, still it would earn interest.
Going back to the unauthorized transfer of respondents funds to Tevesteco,
in its attempt to evade any liability therefor, petitioner now impugns the
validity of the subject agreement on the ground that its Branch Manager,
Jaime Sebastian, overstepped the limits of his authority in accepting
respondents deposit with 17% interest per annum. We have held that if a
corporation knowingly permits its officer, or any other agent, to perform acts
within the scope of an apparent authority, holding him out to the public as
possessing power to do those acts, the corporation will, as against any
person who has dealt in good faith with the corporation through such agent,
be estopped from denying such authority.5 We reiterated this doctrine in
Prudential Bank vs. Court of Appeals,6 thus:
"A bank holding out its officers and agent as worthy of confidence will not be
permitted to profit by the frauds they may thus be enabled to perpetrate in
the apparent scope of their employment; nor will it be permitted to shirk its
responsibility for such frauds, even though no benefit may accrue to the bank

therefrom. Accordingly, a banking corporation is liable to innocent third

persons where the representation is made in the course of its business by an
agent acting within the general scope of his authority even though the agent
is secretly abusing his authority and attempting to perpetrate a fraud upon
his principal or some other person for his own ultimate benefit."
In Francisco vs. Government Service Insurance System,7 we ruled:
"Corporate transactions would speedily come to a standstill were every
person dealing with a corporation held duty-bound to disbelieve every act of
its responsible officers, no matter how regular they should appear on their
face. This Court has observed in Ramirez vs. Orientalist Co., 38 Phil. 634, 654655, that
In passing upon the liability of a corporation in cases of this kind it is always
well to keep in mind the situation as it presents itself to the third party with
whom the contract is made. Naturally he can have little or no information as
to what occurs in corporate meetings; and he must necessarily rely upon the
external manifestations of corporate consent. The integrity of commercial
transactions can only be maintained by holding the corporation strictly to the
liability fixed upon it by its agents in accordance with law; and we would be
sorry to announce a doctrine which would permit the property of a man in the
city of Paris to be whisked out of his hands and carried into a remote quarter
of the earth without recourse against the corporation whose name and
authority had been used in the manner disclosed in this case. As already
observed, it is familiar doctrine that if a corporation knowingly permits one of
its officers, or any other agent, to do acts within the scope of an apparent
authority, and thus holds him out to the public as possessing power to do
those acts, the corporation will, as against any one who has in good faith
dealt with the corporation through such agent, be estopped from denying his
authority; and where it is said if the corporation permits, this means the
same as if the thing is permitted by the directing power of the corporation."
Petitioner maintains that respondent should have first inquired whether the
deposit of P100 Million and the fixing of the interest rate were pursuant to its
(petitioners) internal procedures. Petitioners stance is a futile attempt to
evade an obligation clearly established by the intent of the parties. What
transpires in the corporate board room is entirely an internal matter. Hence,
petitioner may not impute negligence on the part of respondents
representative in failing to find out the scope of authority of petitioners
Branch Manager. Indeed, the public has the right to rely on the
trustworthiness of bank managers and their acts. Obviously, confidence in
the banking system, which necessarily includes reliance on bank managers, is
vital in the economic life of our society.
Significantly, the transaction was actually acknowledged and ratified by
petitioner when it paid respondent in advance the interest for one year. Thus,
petitioner is estopped from denying that it authorized its Branch Manager to
enter into an agreement with respondents Executive Vice President
concerning the deposit with the corresponding 17% interest per annum.

Anent the award of interest, petitioner contends that such award is not in
order as it had not been prayed for by respondent in its complaint nor was it
an issue agreed upon by the parties during the pre-trial of the case.
Nonetheless, the rule is well settled that when the obligation is breached, and
it consists in the payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been stipulated in
writing, as in this case. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded.8 Besides, the matter of how
much interest respondent is entitled to falls squarely within the issues framed
by the parties in their respective pleadings filed with the court a quo. At any
rate, courts may indeed grant the relief warranted by the allegations and
proof even if no such specific relief is prayed for if only to conclude a
complete and thorough resolution of the issues involved.9
Finally, petitioner faults the Court of Appeals in not ordering the consolidation
of Civil Case No. 89-4996 (filed by petitioner against Tevesteco) with Civil
Case No. 89-5280 (the instant case). According to petitioner, had there been
consolidation of these two cases, it would have been shown that the P80
Million transferred to Tevestecos account were proceeds of a loan extended
by respondent FMIC to Tevesteco. Suffice it to state that as found by both the
trial court and the Appellate Court, petitioners transfer of respondents P80M
to Tevesteco was unauthorized and tainted with fraud.
At this point, we must emphasize that this Court is not a trier of facts. Thus,
we uphold the finding of both lower courts that petitioner failed to exercise
that degree of diligence required by the nature of its obligations to its
depositors. A bank is under obligation to treat the accounts of its depositors
with meticulous care, whether such account consists only of a few hundred
pesos or of million of pesos.10 Here, petitioner cannot claim it exercised such
a degree of care required of it and must, therefore, bear the consequence.
WHEREFORE, the petition is DENIED. The assailed Decision dated July 4, 1997
and the Resolution dated January 28, 1998 of the Court of Appeals in CA-G.R.
CV No. 44986 are hereby AFFIRMED. Costs against petitioner.
SO ORDERED.
WESTMONT BANK (formerly ASSOCIATED BANKING CORP.), petitioner, vs.
EUGENE ONG, respondent.
DECISION
QUISUMBING, J.:
This is a petition for review of the decision[1] dated January 13, 1998, of the
Court of Appeals in CA-G.R. CV No. 28304 ordering the petitioner to pay
respondent P1,754,787.50 plus twelve percent (12%) interest per annum
computed from October 7, 1977, the date of the first extrajudicial demand,
plus damages.

The facts of this case are undisputed.

Respondent Eugene Ong maintained a current account with petitioner,
formerly the Associated Banking Corporation, but now known as Westmont
Bank. Sometime in May 1976, he sold certain shares of stocks through Island
Securities Corporation. To pay Ong, Island Securities purchased two (2) Pacific
Banking Corporation managers checks,[2] both dated May 4, 1976, issued in
the name of Eugene Ong as payee. Before Ong could get hold of the checks,
his friend Paciano Tanlimco got hold of them, forged Ongs signature and
deposited these with petitioner, where Tanlimco was also a depositor. Even
though Ongs specimen signature was on file, petitioner accepted and
credited both checks to the account of Tanlimco, without verifying the
signature indorsements appearing at the back thereof. Tanlimco then
immediately withdrew the money and absconded.
Instead of going straight to the bank to stop or question the payment, Ong
first sought the help of Tanlimcos family to recover the amount. Later, he
reported the incident to the Central Bank, which like the first effort,
unfortunately proved futile.
It was only on October 7, 1977, about five (5) months from discovery of the
fraud, did Ong cry foul and demanded in his complaint that petitioner pay the
value of the two checks from the bank on whose gross negligence he imputed
his loss. In his suit, he insisted that he did not deliver, negotiate, endorse or
transfer to any person or entity the subject checks issued to him and
asserted that the signatures on the back were spurious.[3]
The bank did not present evidence to the contrary, but simply contended that
since plaintiff Ong claimed to have never received the originals of the two (2)
checks in question from Island Securities, much less to have authorized
Tanlimco to receive the same, he never acquired ownership of these checks.
Thus, he had no legal personality to sue as he is not a real party in interest.
The bank then filed a demurrer to evidence which was denied.
On February 8, 1989, after trial on the merits, the Regional Trial Court of
Manila, Branch 38, rendered a decision, thus:
IN VIEW OF THE FOREGOING, the court hereby renders judgment for the
plaintiff and against the defendant, and orders the defendant to pay the
plaintiff:
1. The sum of P1,754,787.50 representing the total face value of the two
checks in question, exhibits A and B, respectively, with interest thereon at the
legal rate of twelve percent (12%) per annum computed from October 7,
1977 (the date of the first extrajudicial demand) up to and until the same
shall have been paid in full;
2. Moral damages in the amount of P250,000.00;
3. Exemplary or corrective damages in the sum of P100,000.00 by way of

example or correction for the public good;

4. Attorneys fees of P50,000.00 and costs of suit.
Defendants counterclaims are dismissed for lack of merit.
SO ORDERED.[4]
Petitioner elevated the case to the Court of Appeals without success. In its
decision, the appellate court held:
WHEREFORE, in view of the foregoing, the appealed decision is AFFIRMED in
toto.[5]
Petitioner now comes before this Court on a petition for review, alleging that
the Court of Appeals erred:
I
... IN AFFIRMING THE TRIAL COURTS CONCLUSION THAT RESPONDENT HAS A
CAUSE OF ACTION AGAINST THE PETITIONER.
II
... IN AFFIRMING THE TRIAL COURTS DECISION FINDING PETITIONER LIABLE
TO RESPONDENT AND DECLARING THAT THE LATTER MAY RECOVER DIRECTLY
FROM THE FORMER; AND
III
... IN NOT ADJUDGING RESPONDENT GUILTY OF LACHES AND IN NOT
ABSOLVING PETITIONER FROM LIABILITY.
Essentially the issues in this case are: (1) whether or not respondent Ong has
a cause of action against petitioner Westmont Bank; and (2) whether or not
Ong is barred to recover the money from Westmont Bank due to laches.
Respondent admitted that he was never in actual or physical possession of
the two (2) checks of the Island Securities nor did he authorize Tanlimco or
any of the latters representative to demand, accept and receive the same.
For this reason, petitioner argues, respondent cannot sue petitioner because
under Section 51 of the Negotiable Instruments Law[6] it is only when a
person becomes a holder of a negotiable instrument can he sue in his own
name. Conversely, prior to his becoming a holder, he had no right or cause of
action under such negotiable instrument. Petitioner further argues that since
Section 191[7] of the Negotiable Instruments Law defines a holder as the
payee or indorsee of a bill or note, who is in possession of it, or the bearer
thereof, in order to be a holder, it is a requirement that he be in possession of
the instrument or the bearer thereof. Simply stated, since Ong never had
possession of the checks nor did he authorize anybody, he did not become a

holder thereof hence he cannot sue in his own name.[8]

Petitioner also cites Article 1249[9] of the Civil Code explaining that a check,
even if it is a managers check, is not legal tender. Hence, the creditor cannot
be compelled to accept payment thru this means.[10] It is petitioners position
that for all intents and purposes, Island Securities has not yet tendered
payment to respondent Ong, thus, any action by Ong should be directed
towards collecting the amount from Island Securities. Petitioner claims that
Ongs cause of action against it has not ripened as of yet. It may be that
petitioner would be liable to the drawee bank - - but that is a matter between
petitioner and drawee-bank, Pacific Banking Corporation.[11]
For its part, respondent Ong leans on the ruling of the trial court and the
Court of Appeals which held that the suit of Ong against the petitioner bank is
a desirable shortcut to reach the party who ought in any event to be
ultimately liable.[12] It likewise cites the ruling of the courts a quo which held
that according to the general rule, a bank who has obtained possession of a
check upon an unauthorized or forged indorsement of the payees signature
and who collects the amount of the check from the drawee is liable for the
proceeds thereof to the payee. The theory of said rule is that the collecting
banks possession of such check is wrongful.[13]
Respondent also cites Associated Bank vs. Court of Appeals[14] which held
that the collecting bank or last endorser generally suffers the loss because it
has the duty to ascertain the genuineness of all prior endorsements. The
collecting bank is also made liable because it is privy to the depositor who
negotiated the check. The bank knows him, his address and history because
he is a client. Hence, it is in a better position to detect forgery, fraud or
irregularity in the indorsement.[15]
Anent Article 1249 of the Civil Code, Ong points out that bank checks are
specifically governed by the Negotiable Instruments Law which is a special
law and only in the absence of specific provisions or deficiency in the special
law may the Civil Code be invoked.[16]
Considering the contentions of the parties and the evidence on record, we
find no reversible error in the assailed decisions of the appellate and trial
courts, hence there is no justifiable reason to grant the petition.
Petitioners claim that respondent has no cause of action against the bank is
clearly misplaced. As defined, a cause of action is the act or omission by
which a party violates a right of another.[17] The essential elements of a
cause of action are: (a) a legal right or rights of the plaintiff, (b) a correlative
obligation of the defendant, and (c) an act or omission of the defendant in
violation of said legal right.[18]
The complaint filed before the trial court expressly alleged respondents right
as payee of the managers checks to receive the amount involved, petitioners
correlative duty as collecting bank to ensure that the amount gets to the
rightful payee or his order, and a breach of that duty because of a blatant act

of negligence on the part of petitioner which violated respondents rights.[19]

Under Section 23 of the Negotiable Instruments Law:
When a signature is forged or made without the authority of the person
whose signature it purports to be, it is wholly inoperative, and no right to
retain the instrument, or to give a discharge therefor, or to enforce payment
thereof against any party thereto, can be acquired through or under such
signature, unless the party against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority.
Since the signature of the payee, in the case at bar, was forged to make it
appear that he had made an indorsement in favor of the forger, such
signature should be deemed as inoperative and ineffectual. Petitioner, as the
collecting bank, grossly erred in making payment by virtue of said forged
signature. The payee, herein respondent, should therefore be allowed to
recover from the collecting bank.
The collecting bank is liable to the payee and must bear the loss because it is
its legal duty to ascertain that the payees endorsement was genuine before
cashing the check.[20] As a general rule, a bank or corporation who has
obtained possession of a check upon an unauthorized or forged indorsement
of the payees signature and who collects the amount of the check from the
drawee, is liable for the proceeds thereof to the payee or other owner,
notwithstanding that the amount has been paid to the person from whom the
check was obtained.[21]
The theory of the rule is that the possession of the check on the forged or
unauthorized indorsement is wrongful, and when the money had been
collected on the check, the bank or other person or corporation can be held
as for moneys had and received, and the proceeds are held for the rightful
owners who may recover them. The position of the bank taking the check on
the forged or unauthorized indorsement is the same as if it had taken the
check and collected the money without indorsement at all and the act of the
bank amounts to conversion of the check.[22]
Petitioners claim that since there was no delivery yet and respondent has
never acquired possession of the checks, respondents remedy is with the
drawer and not with petitioner bank. Petitioner relies on the view to the effect
that where there is no delivery to the payee and no title vests in him, he
ought not to be allowed to recover on the ground that he lost nothing
because he never became the owner of the check and still retained his claim
of debt against the drawer.[23] However, another view in certain cases holds
that even if the absence of delivery is considered, such consideration is not
material. The rationale for this view is that in said cases the plaintiff uses one
action to reach, by a desirable short cut, the person who ought in any event
to be ultimately liable as among the innocent persons involved in the
transaction. In other words, the payee ought to be allowed to recover directly
from the collecting bank, regardless of whether the check was delivered to
the payee or not.[24]

Considering the circumstances in this case, in our view, petitioner could not
escape liability for its negligent acts. Admittedly, respondent Eugene Ong at
the time the fraudulent transaction took place was a depositor of petitioner
bank. Banks are engaged in a business impressed with public interest, and it
is their duty to protect in return their many clients and depositors who
transact business with them.[25] They have the obligation to treat their
clients account meticulously and with the highest degree of care, considering
the fiduciary nature of their relationship. The diligence required of banks,
therefore, is more than that of a good father of a family.[26] In the present
case, petitioner was held to be grossly negligent in performing its duties. As
found by the trial court:
xxx (A)t the time the questioned checks were accepted for deposit to Paciano
Tanlimcos account by defendant bank, defendant bank, admittedly had in its
files specimen signatures of plaintiff who maintained a current account with
them (Exhibits L-1 and M-1; testimony of Emmanuel Torio). Given the
substantial face value of the two checks, totalling P1,754,787.50, and the fact
that they were being deposited by a person not the payee, the very least
defendant bank should have done, as any reasonable prudent man would
have done, was to verify the genuineness of the indorsements thereon. The
Court cannot help but note that had defendant conducted even the most
cursory comparison with plaintiffs specimen signatures in its files (Exhibit L-1
and M-1) it would have at once seen that the alleged indorsements were
falsified and were not those of the plaintiff-payee. However, defendant
apparently failed to make such a verification or, what is worse did so but,
chose to disregard the obvious dissimilarity of the signatures. The first
omission makes it guilty of gross negligence; the second of bad faith. In
either case, defendant is liable to plaintiff for the proceeds of the checks in
question.[27]
These findings are binding and conclusive on the appellate and the reviewing
courts.
On the second issue, petitioner avers that respondent Ong is barred by laches
for failing to assert his right for recovery from the bank as soon as he
discovered the scam. The lapse of five months before he went to seek relief
from the bank, according to petitioner, constitutes laches.
In turn, respondent contends that petitioner presented no evidence to
support its claim of laches. On the contrary, the established facts of the case
as found by the trial court and affirmed by the Court of Appeals are that
respondent left no stone unturned to obtain relief from his predicament.
On the matter of delay in reporting the loss, respondent calls attention to the
fact that the checks were issued on May 4, 1976, and on the very next day,
May 5, 1976, these were already credited to the account of Paciano Tanlimco
and presented for payment to Pacific Banking Corporation. So even if the
theft of the checks were discovered and reported earlier, respondent argues,
it would not have altered the situation as the encashment of the checks was

consummated within twenty four hours and facilitated by the gross

negligence of the petitioner bank.[28]
Laches may be defined as the failure or neglect for an unreasonable and
unexplained length of time, to do that which, by exercising due diligence,
could or should have been done earlier. It is negligence or omission to assert
a right within a reasonable time, warranting a presumption that the party
entitled thereto has either abandoned or declined to assert it.[29] It concerns
itself with whether or not by reason of long inaction or inexcusable neglect, a
person claiming a right should be barred from asserting the same, because to
allow him to do so would be unjust to the person against whom such right is
sought to be enforced.[30]
In the case at bar, it cannot be said that respondent sat on his rights. He
immediately acted after knowing of the forgery by proceeding to seek help
from the Tanlimco family and later the Central Bank, to remedy the situation
and recover his money from the forger, Paciano Tanlimco. Only after he had
exhausted possibilities of settling the matter amicably with the family of
Tanlimco and through the CB, about five months after the unlawful
transaction took place, did he resort to making the demand upon the
petitioner and eventually before the court for recovery of the money value of
the two checks. These acts cannot be construed as undue delay in or
abandonment of the assertion of his rights.
Moreover, the claim of petitioner that respondent should be barred by laches
is clearly a vain attempt to deflect responsibility for its negligent act. As
explained by the appellate court, it is petitioner which had the last clear
chance to stop the fraudulent encashment of the subject checks had it
exercised due diligence and followed the proper and regular banking
procedures in clearing checks.[31] As we had earlier ruled, the one who had
the last clear opportunity to avoid the impending harm but failed to do so is
chargeable with the consequences thereof.[32]
WHEREFORE, the instant petition is DENIED for lack of merit. The assailed
decision of the Court of Appeals, sustaining the judgment of the Regional Trial
Court of Manila, is AFFIRMED.
Costs against petitioner.
SO ORDERED.
WESTMONT BANK V. ONG
373 SCRA 212
FACTS:
Ong was supposed to be the payee of the checks issued by Island
Securities. Ong has a current account with petitioner bank. He opted to sell
his shares of stock through Island Securities.
The company in turn
issued checks in favor of Ong but unfortunately, the latter wasn't able to

receive any. His signatures were forged by Tamlinco and the checks were
deposited in his own account with petitioner.
Ong then sought to
collect the money from the family of Tamlinco first before filing a complaint
with the Central Bank. As his efforts were futile to recover his money, he filed
an action against the petitioner. The trial and appellate court decided
in favor of Ong.
HELD:
Since the signature of the payee was forged, such signature should be
deemed inoperative and ineffectual. Petitioner, as the collecting bank,
grossly erred in making payment by virtue of said forged signature. The
payee, herein respondent, should therefore be allowed to collect from the
collecting bank.
It should be liable for the loss because it is its legal duty to ascertain that the
payees endorsement was genuine before cashing the check.
As a
general rule, a bank or corporation who has obtained possession of a check
with an unauthorized or forged indorsement of the payees signature and who
collects the amount of the check other from the drawee, is liable for the
proceeds thereof to the payee or the other owner, notwithstanding that the
amount has been paid to the person from whom the check was
obtained.
DOCTRINE OF DESIRABLE SHORT CUTplaintiff uses one action to reach, by
desirable short cut, the person who ought to be ultimately liable as
among the innocent persons involved in the transaction. In other words, the
payee ought to be allowed to recover directly from the collecting bank,
regardless of whether the check was delivered to the payee or not.
On the issue of laches, Ong didn't sit on his rights. He immediately sought
the intervention of Tamlincos family to collect the sum of money, and later
the Central Bank. Only after exhausting all the measures to settle the
issue amicably did he file the action.
Globe Mackay vs.CA 176 SCRA 778
GLOBE MACKAY CABLE AND RADIO CORP., and HERBERT C. HENDRY,
petitioners vs. THE HONORABLE COURT OF APPEALS and RESTITUTO M.
TOBIAS, respondents.
FACTS: Private respondent Restituto M. Tobias was employed by petitioner
Globe Mackay in dual capacity as purchasing agent and administrative
assistant to the engineering operations manager. In 1972, the respondent
discovered fraudulent anomalies and transactions in the said corporation for
which it lost several hundred thousands of pesos. The private respondent
reported to his superiors including Henry, the petitioner. However, he was
confronted by Hendry stating that Tobias was the number one suspect. He
was ordered to take a one week forced leave. When he returned to work,
Hendry called him crook and swindler, and left a scornful remark to the
Filipinos. The petitioners also charged six criminal cases against the

respondentfive cases of estafa and one for violating Article 290 of the RPC
(Discovering Secrets through Seizure of Correspondence). The petitioner also
sent a poison letter to RETELCO causing the respondent to be unemployed.
ISSUE: Whether or not the petitioners are liable for damages to the
respondent.
HELD: Petitioners invoked the right of damnun absque injuria or the damage
or loss which does not constitute a violation of legal right or amount to a legal
wrong is not actionable. However, this is not applicable in this case. It bears
repeating that even granting that petitioners might have had the right to
dismiss Tobias from work, the abusive manner in which that right was
exercised amounted to a legal wrong for which petitioners must be held
liable.
The court awarded Tobias the following: Php 80, 000 as actual damages, Php
200, 000 as moral damages, Php 20, 0000 as exemplary damages; Php 30,
000 as attorneys fees; and, costs. Petition was denied and the decision of CA
is AFFIRMED.
G.R. No. 81262

August 25, 1989

GLOBE MACKAY CABLE AND RADIO CORP., and HERBERT C. HENDRY,

petitioners,
vs.
THE HONORABLE COURT OF APPEALS and RESTITUTO M. TOBIAS,
respondents.
Atencia & Arias Law Offices for petitioners.
Romulo C. Felizmena for private respondent.

CORTES, J.:
Private respondent Restituto M. Tobias was employed by petitioner Globe
Mackay Cable and Radio Corporation (GLOBE MACKAY) in a dual capacity as a
purchasing agent and administrative assistant to the engineering operations
manager. In 1972, GLOBE MACKAY discovered fictitious purchases and other
fraudulent transactions for which it lost several thousands of pesos.
According to private respondent it was he who actually discovered the
anomalies and reported them on November 10, 1972 to his immediate
superior Eduardo T. Ferraren and to petitioner Herbert C. Hendry who was
then the Executive Vice-President and General Manager of GLOBE MACKAY.
On November 11, 1972, one day after private respondent Tobias made the
report, petitioner Hendry confronted him by stating that he was the number
one suspect, and ordered him to take a one week forced leave, not to

communicate with the office, to leave his table drawers open, and to leave
the office keys.
On November 20, 1972, when private respondent Tobias returned to work
after the forced leave, petitioner Hendry went up to him and called him a
"crook" and a "swindler." Tobias was then ordered to take a lie detector test.
He was also instructed to submit specimen of his handwriting, signature, and
initials for examination by the police investigators to determine his complicity
in the anomalies.
On December 6,1972, the Manila police investigators submitted a laboratory
crime report (Exh. "A") clearing private respondent of participation in the
anomalies.
Not satisfied with the police report, petitioners hired a private investigator,
retired Col. Jose G. Fernandez, who on December 10, 1972, submitted a
report (Exh. "2") finding Tobias guilty. This report however expressly stated
that further investigation was still to be conducted.
Nevertheless, on December 12, 1972, petitioner Hendry issued a
memorandum suspending Tobias from work preparatory to the filing of
criminal charges against him.
On December 19,1972, Lt. Dioscoro V. Tagle, Metro Manila Police Chief
Document Examiner, after investigating other documents pertaining to the
alleged anomalous transactions, submitted a second laboratory crime report
(Exh. "B") reiterating his previous finding that the handwritings, signatures,
and initials appearing in the checks and other documents involved in the
fraudulent transactions were not those of Tobias. The lie detector tests
conducted on Tobias also yielded negative results.
Notwithstanding the two police reports exculpating Tobias from the anomalies
and the fact that the report of the private investigator, was, by its own terms,
not yet complete, petitioners filed with the City Fiscal of Manila a complaint
for estafa through falsification of commercial documents, later amended to
just estafa. Subsequently five other criminal complaints were filed against
Tobias, four of which were for estafa through Falsification of commercial
document while the fifth was for of Article 290 of' the Revised Penal Code
(Discovering Secrets Through Seizure of Correspondence).lwph1.t Two of
these complaints were refiled with the Judge Advocate General's Office, which
however, remanded them to the fiscal's office. All of the six criminal
complaints were dismissed by the fiscal. Petitioners appealed four of the
fiscal's resolutions dismissing the criminal complaints with the Secretary of
Justice, who, however, affirmed their dismissal.
In the meantime, on January 17, 1973, Tobias received a notice (Exh. "F")
from petitioners that his employment has been terminated effective
December 13, 1972. Whereupon, Tobias filed a complaint for illegal dismissal.
The labor arbiter dismissed the complaint. On appeal, the National Labor
Relations Commission (NLRC) reversed the labor arbiter's decision. However,

the Secretary of Labor, acting on petitioners' appeal from the NLRC ruling,
reinstated the labor arbiter's decision. Tobias appealed the Secretary of
Labor's order with the Office of the President. During the pendency of the
appeal with said office, petitioners and private respondent Tobias entered into
a compromise agreement regarding the latter's complaint for illegal
dismissal.
Unemployed, Tobias sought employment with the Republic Telephone
Company (RETELCO). However, petitioner Hendry, without being asked by
RETELCO, wrote a letter to the latter stating that Tobias was dismissed by
GLOBE MACKAY due to dishonesty.
Private respondent Tobias filed a civil case for damages anchored on alleged
unlawful, malicious, oppressive, and abusive acts of petitioners. Petitioner
Hendry, claiming illness, did not testify during the hearings. The Regional Trial
Court (RTC) of Manila, Branch IX, through Judge Manuel T. Reyes rendered
judgment in favor of private respondent by ordering petitioners to pay him
eighty thousand pesos (P80,000.00) as actual damages, two hundred
thousand pesos (P200,000.00) as moral damages, twenty thousand pesos
(P20,000.00) as exemplary damages, thirty thousand pesos (P30,000.00) as
attorney's fees, and costs. Petitioners appealed the RTC decision to the Court
of Appeals. On the other hand, Tobias appealed as to the amount of damages.
However, the Court of Appeals, an a decision dated August 31, 1987 affirmed
the RTC decision in toto. Petitioners' motion for reconsideration having been
denied, the instant petition for review on certiorari was filed.
The main issue in this case is whether or not petitioners are liable for
damages to private respondent.
Petitioners contend that they could not be made liable for damages in the
lawful exercise of their right to dismiss private respondent.
On the other hand, private respondent contends that because of petitioners'
abusive manner in dismissing him as well as for the inhuman treatment he
got from them, the Petitioners must indemnify him for the damage that he
had suffered.
One of the more notable innovations of the New Civil Code is the codification
of "some basic principles that are to be observed for the rightful relationship
between human beings and for the stability of the social order." [REPORT ON
THE CODE COMMISSION ON THE PROPOSED CIVIL CODE OF THE PHILIPPINES,
p. 39]. The framers of the Code, seeking to remedy the defect of the old Code
which merely stated the effects of the law, but failed to draw out its spirit,
incorporated certain fundamental precepts which were "designed to indicate
certain norms that spring from the fountain of good conscience" and which
were also meant to serve as "guides for human conduct [that] should run as
golden threads through society, to the end that law may approach its
supreme ideal, which is the sway and dominance of justice" (Id.) Foremost
among these principles is that pronounced in Article 19 which provides:

Art. 19. Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith.
This article, known to contain what is commonly referred to as the principle of
abuse of rights, sets certain standards which must be observed not only in
the exercise of one's rights but also in the performance of one's duties. These
standards are the following: to act with justice; to give everyone his due; and
to observe honesty and good faith. The law, therefore, recognizes a
primordial limitation on all rights; that in their exercise, the norms of human
conduct set forth in Article 19 must be observed. A right, though by itself
legal because recognized or granted by law as such, may nevertheless
become the source of some illegality. When a right is exercised in a manner
which does not conform with the norms enshrined in Article 19 and results in
damage to another, a legal wrong is thereby committed for which the
wrongdoer must be held responsible. But while Article 19 lays down a rule of
conduct for the government of human relations and for the maintenance of
social order, it does not provide a remedy for its violation. Generally, an
action for damages under either Article 20 or Article 21 would be proper.
Article 20, which pertains to damage arising from a violation of law, provides
that:
Art. 20. Every person who contrary to law, wilfully or negligently causes
damage to another, shall indemnify the latter for the same.
However, in the case at bar, petitioners claim that they did not violate any
provision of law since they were merely exercising their legal right to dismiss
private respondent. This does not, however, leave private respondent with no
relief because Article 21 of the Civil Code provides that:
Art. 21. Any person who wilfully causes loss or injury to another in a manner
that is contrary to morals, good customs or public policy shall compensate
the latter for the damage.
This article, adopted to remedy the "countless gaps in the statutes, which
leave so many victims of moral wrongs helpless, even though they have
actually suffered material and moral injury" [Id.] should "vouchsafe adequate
legal remedy for that untold number of moral wrongs which it is impossible
for human foresight to provide for specifically in the statutes" [Id. it p. 40; See
also PNB v. CA, G.R. No. L-27155, May 18,1978, 83 SCRA 237, 247].
In determining whether or not the principle of abuse of rights may be
invoked, there is no rigid test which can be applied. While the Court has not
hesitated to apply Article 19 whether the legal and factual circumstances
called for its application [See for e.g., Velayo v. Shell Co. of the Phil., Ltd., 100
Phil. 186 (1956); PNB v. CA, supra; Grand Union Supermarket, Inc. v. Espino,
Jr., G.R. No. L-48250, December 28, 1979, 94 SCRA 953; PAL v. CA, G.R. No. L46558, July 31,1981,106 SCRA 391; United General Industries, Inc, v. Paler
G.R. No. L-30205, March 15,1982,112 SCRA 404; Rubio v. CA, G.R. No. 50911,

August 21, 1987, 153 SCRA 183] the question of whether or not the principle
of abuse of rights has been violated resulting in damages under Article 20 or
Article 21 or other applicable provision of law, depends on the circumstances
of each case. And in the instant case, the Court, after examining the record
and considering certain significant circumstances, finds that all petitioners
have indeed abused the right that they invoke, causing damage to private
respondent and for which the latter must now be indemnified.
The trial court made a finding that notwithstanding the fact that it was
private respondent Tobias who reported the possible existence of anomalous
transactions, petitioner Hendry "showed belligerence and told plaintiff
(private respondent herein) that he was the number one suspect and to take
a one week vacation leave, not to communicate with the office, to leave his
table drawers open, and to leave his keys to said defendant (petitioner
Hendry)" [RTC Decision, p. 2; Rollo, p. 232]. This, petitioners do not dispute.
But regardless of whether or not it was private respondent Tobias who
reported the anomalies to petitioners, the latter's reaction towards the former
upon uncovering the anomalies was less than civil. An employer who harbors
suspicions that an employee has committed dishonesty might be justified in
taking the appropriate action such as ordering an investigation and directing
the employee to go on a leave. Firmness and the resolve to uncover the truth
would also be expected from such employer. But the high-handed treatment
accorded Tobias by petitioners was certainly uncalled for. And this
reprehensible attitude of petitioners was to continue when private respondent
returned to work on November 20, 1972 after his one week forced leave.
Upon reporting for work, Tobias was confronted by Hendry who said. "Tobby,
you are the crook and swindler in this company." Considering that the first
report made by the police investigators was submitted only on December 10,
1972 [See Exh. A] the statement made by petitioner Hendry was baseless.
The imputation of guilt without basis and the pattern of harassment during
the investigations of Tobias transgress the standards of human conduct set
forth in Article 19 of the Civil Code. The Court has already ruled that the right
of the employer to dismiss an employee should not be confused with the
manner in which the right is exercised and the effects flowing therefrom. If
the dismissal is done abusively, then the employer is liable for damages to
the employee [Quisaba v. Sta. Ines-Melale Veneer and Plywood Inc., G.R. No.
L-38088, August 30, 1974, 58 SCRA 771; See also Philippine Refining Co., Inc.
v. Garcia, G.R. No. L-21871, September 27,1966, 18 SCRA 107] Under the
circumstances of the instant case, the petitioners clearly failed to exercise in
a legitimate manner their right to dismiss Tobias, giving the latter the right to
recover damages under Article 19 in relation to Article 21 of the Civil Code.
But petitioners were not content with just dismissing Tobias. Several other
tortious acts were committed by petitioners against Tobias after the latter's
termination from work. Towards the latter part of January, 1973, after the
filing of the first of six criminal complaints against Tobias, the latter talked to
Hendry to protest the actions taken against him. In response, Hendry cut
short Tobias' protestations by telling him to just confess or else the company
would file a hundred more cases against him until he landed in jail. Hendry
added that, "You Filipinos cannot be trusted." The threat unmasked

petitioner's bad faith in the various actions taken against Tobias. On the other
hand, the scornful remark about Filipinos as well as Hendry's earlier
statements about Tobias being a "crook" and "swindler" are clear violations of
'Tobias' personal dignity [See Article 26, Civil Code].
The next tortious act committed by petitioners was the writing of a letter to
RETELCO sometime in October 1974, stating that Tobias had been dismissed
by GLOBE MACKAY due to dishonesty. Because of the letter, Tobias failed to
gain employment with RETELCO and as a result of which, Tobias remained
unemployed for a longer period of time. For this further damage suffered by
Tobias, petitioners must likewise be held liable for damages consistent with
Article 2176 of the Civil Code. Petitioners, however, contend that they have a
"moral, if not legal, duty to forewarn other employers of the kind of employee
the plaintiff (private respondent herein) was." [Petition, p. 14; Rollo, p. 15].
Petitioners further claim that "it is the accepted moral and societal obligation
of every man to advise or warn his fellowmen of any threat or danger to the
latter's life, honor or property. And this includes warning one's brethren of the
possible dangers involved in dealing with, or accepting into confidence, a
man whose honesty and integrity is suspect" [Id.]. These arguments, rather
than justify petitioners' act, reveal a seeming obsession to prevent Tobias
from getting a job, even after almost two years from the time Tobias was
dismissed.
Finally, there is the matter of the filing by petitioners of six criminal
complaints against Tobias. Petitioners contend that there is no case against
them for malicious prosecution and that they cannot be "penalized for
exercising their right and prerogative of seeking justice by filing criminal
complaints against an employee who was their principal suspect in the
commission of forgeries and in the perpetration of anomalous transactions
which defrauded them of substantial sums of money" [Petition, p. 10, Rollo, p.
11].
While sound principles of justice and public policy dictate that persons shall
have free resort to the courts for redress of wrongs and vindication of their
rights [Buenaventura v. Sto. Domingo, 103 Phil. 239 (1958)], the right to
institute criminal prosecutions can not be exercised maliciously and in bad
faith [Ventura v. Bernabe, G.R. No. L-26760, April 30, 1971, 38 SCRA 5871.]
Hence, in Yutuk V. Manila Electric Co., G.R. No. L-13016, May 31, 1961, 2
SCRA 337, the Court held that the right to file criminal complaints should not
be used as a weapon to force an alleged debtor to pay an indebtedness. To
do so would be a clear perversion of the function of the criminal processes
and of the courts of justice. And in Hawpia CA, G.R. No. L-20047, June 30,
1967. 20 SCRA 536 the Court upheld the judgment against the petitioner for
actual and moral damages and attorney's fees after making a finding that
petitioner, with persistence, filed at least six criminal complaints against
respondent, all of which were dismissed.
To constitute malicious prosecution, there must be proof that the prosecution
was prompted by a design to vex and humiliate a person and that it was
initiated deliberately by the defendant knowing that the charges were false

and groundless [Manila Gas Corporation v. CA, G.R. No. L-44190, October
30,1980, 100 SCRA 602]. Concededly, the filing of a suit by itself, does not
render a person liable for malicious prosecution [Inhelder Corporation v. CA,
G.R. No. 52358, May 301983122 SCRA 576]. The mere dismissal by the fiscal
of the criminal complaint is not a ground for an award of damages for
malicious prosecution if there is no competent evidence to show that the
complainant had acted in bad faith [Sison v. David, G.R. No. L-11268, January
28,1961, 1 SCRA 60].
In the instant case, however, the trial court made a finding that petitioners
acted in bad faith in filing the criminal complaints against Tobias, observing
that:
x

Defendants (petitioners herein) filed with the Fiscal's Office of Manila a total
of six (6) criminal cases, five (5) of which were for estafa thru falsification of
commercial document and one for violation of Art. 290 of the Revised Penal
Code "discovering secrets thru seizure of correspondence," and all were
dismissed for insufficiency or lack of evidence." The dismissal of four (4) of
the cases was appealed to the Ministry of Justice, but said Ministry invariably
sustained the dismissal of the cases. As above adverted to, two of these
cases were refiled with the Judge Advocate General's Office of the Armed
Forces of the Philippines to railroad plaintiffs arrest and detention in the
military stockade, but this was frustrated by a presidential decree transferring
criminal cases involving civilians to the civil courts.
x

To be sure, when despite the two (2) police reports embodying the findings of
Lt. Dioscoro Tagle, Chief Document Examiner of the Manila Police
Department, clearing plaintiff of participation or involvement in the
fraudulent transactions complained of, despite the negative results of the lie
detector tests which defendants compelled plaintiff to undergo, and although
the police investigation was "still under follow-up and a supplementary report
will be submitted after all the evidence has been gathered," defendants
hastily filed six (6) criminal cases with the city Fiscal's Office of Manila, five
(5) for estafa thru falsification of commercial document and one (1) for
violation of Art. 290 of the Revised Penal Code, so much so that as was to be
expected, all six (6) cases were dismissed, with one of the investigating
fiscals, Asst. Fiscal de Guia, commenting in one case that, "Indeed, the
haphazard way this case was investigated is evident. Evident likewise is the
flurry and haste in the filing of this case against respondent Tobias," there can
be no mistaking that defendants would not but be motivated by malicious
and unlawful intent to harass, oppress, and cause damage to plaintiff.
x

[RTC Decision, pp. 5-6; Rollo, pp. 235-236].

In addition to the observations made by the trial court, the Court finds it
significant that the criminal complaints were filed during the pendency of the
illegal dismissal case filed by Tobias against petitioners. This explains the
haste in which the complaints were filed, which the trial court earlier noted.
But petitioners, to prove their good faith, point to the fact that only six
complaints were filed against Tobias when they could have allegedly filed one
hundred cases, considering the number of anomalous transactions committed
against GLOBE MACKAY. However, petitioners' good faith is belied by the
threat made by Hendry after the filing of the first complaint that one hundred
more cases would be filed against Tobias. In effect, the possible filing of one
hundred more cases was made to hang like the sword of Damocles over the
head of Tobias. In fine, considering the haste in which the criminal complaints
were filed, the fact that they were filed during the pendency of the illegal
dismissal case against petitioners, the threat made by Hendry, the fact that
the cases were filed notwithstanding the two police reports exculpating Tobias
from involvement in the anomalies committed against GLOBE MACKAY,
coupled by the eventual dismissal of all the cases, the Court is led into no
other conclusion than that petitioners were motivated by malicious intent in
filing the six criminal complaints against Tobias.
Petitioners next contend that the award of damages was excessive. In the
complaint filed against petitioners, Tobias prayed for the following: one
hundred thousand pesos (P100,000.00) as actual damages; fifty thousand
pesos (P50,000.00) as exemplary damages; eight hundred thousand pesos
(P800,000.00) as moral damages; fifty thousand pesos (P50,000.00) as
attorney's fees; and costs. The trial court, after making a computation of the
damages incurred by Tobias [See RTC Decision, pp. 7-8; Rollo, pp. 154-1551,
awarded him the following: eighty thousand pesos (P80,000.00) as actual
damages; two hundred thousand pesos (P200,000.00) as moral damages;
twenty thousand pesos (P20,000.00) as exemplary damages; thirty thousand
pesos (P30,000.00) as attorney's fees; and, costs. It must be underscored
that petitioners have been guilty of committing several actionable tortious
acts, i.e., the abusive manner in which they dismissed Tobias from work
including the baseless imputation of guilt and the harassment during the
investigations; the defamatory language heaped on Tobias as well as the
scornful remark on Filipinos; the poison letter sent to RETELCO which resulted
in Tobias' loss of possible employment; and, the malicious filing of the
criminal complaints. Considering the extent of the damage wrought on
Tobias, the Court finds that, contrary to petitioners' contention, the amount of
damages awarded to Tobias was reasonable under the circumstances.
Yet, petitioners still insist that the award of damages was improper, invoking
the principle of damnum absque injuria. It is argued that "[t]he only probable
actual damage that plaintiff (private respondent herein) could have suffered
was a direct result of his having been dismissed from his employment, which
was a valid and legal act of the defendants-appellants (petitioners
herein).lwph1.t " [Petition, p. 17; Rollo, p. 18].
According to the principle of damnum absque injuria, damage or loss which
does not constitute a violation of a legal right or amount to a legal wrong is

not actionable [Escano v. CA, G.R. No. L-47207, September 25, 1980, 100
SCRA 197; See also Gilchrist v. Cuddy 29 Phil, 542 (1915); The Board of
Liquidators v. Kalaw, G.R. No. L-18805, August 14, 1967, 20 SCRA 987]. This
principle finds no application in this case. It bears repeating that even
granting that petitioners might have had the right to dismiss Tobias from
work, the abusive manner in which that right was exercised amounted to a
legal wrong for which petitioners must now be held liable. Moreover, the
damage incurred by Tobias was not only in connection with the abusive
manner in which he was dismissed but was also the result of several other
quasi-delictual acts committed by petitioners.
Petitioners next question the award of moral damages. However, the Court
has already ruled in Wassmer v. Velez, G.R. No. L-20089, December 26, 1964,
12 SCRA 648, 653, that [p]er express provision of Article 2219 (10) of the
New Civil Code, moral damages are recoverable in the cases mentioned in
Article 21 of said Code." Hence, the Court of Appeals committed no error in
awarding moral damages to Tobias.
Lastly, the award of exemplary damages is impugned by petitioners.
Although Article 2231 of the Civil Code provides that "[i]n quasi-delicts,
exemplary damages may be granted if the defendant acted with gross
negligence," the Court, in Zulueta v. Pan American World Airways, Inc., G.R.
No. L- 28589, January 8, 1973, 49 SCRA 1, ruled that if gross negligence
warrants the award of exemplary damages, with more reason is its imposition
justified when the act performed is deliberate, malicious and tainted with bad
faith. As in the Zulueta case, the nature of the wrongful acts shown to have
been committed by petitioners against Tobias is sufficient basis for the award
of exemplary damages to the latter.
WHEREFORE, the petition is hereby DENIED and the decision of the Court of
Appeals in CA-G.R. CV No. 09055 is AFFIRMED.
SO ORDERED.
CAVITE DEVELOPMENT BANK and FAR EAST BANK AND TRUST COMPANY,
petitioners, vs. SPOUSES CYRUS LIM and LOLITA CHAN LIM and COURT OF
APPEALS, respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari of the decision[1] of the Court of
Appeals in C.A. GR CV No. 42315 and the order dated December 9, 1997
denying petitioners motion for reconsideration.
The following facts are not in dispute.
Petitioners Cavite Development Bank (CDB) and Far East Bank and Trust
Company (FEBTC) are banking institutions duly organized and existing under

Philippine laws. On or about June 15, 1983, a certain Rodolfo Guansing

obtained a loan in the amount of P90,000.00 from CDB, to secure which he
mortgaged a parcel of land situated at No. 63 Calavite Street, La Loma,
Quezon City and covered by TCT No. 300809 registered in his name. As
Guansing defaulted in the payment of his loan, CDB foreclosed the mortgage.
At the foreclosure sale held on March 15, 1984, the mortgaged property was
sold to CDB as the highest bidder. Guansing failed to redeem, and on March
2, 1987, CDB consolidated title to the property in its name. TCT No. 300809 in
the name of Guansing was cancelled and, in lieu thereof, TCT No. 355588 was
issued in the name of CDB.
On June 16, 1988, private respondent Lolita Chan Lim, assisted by a broker
named Remedios Gatpandan, offered to purchase the property from CDB. The
written Offer to Purchase, signed by Lim and Gatpandan, states in part:
We hereby offer to purchase your property at #63 Calavite and Retiro Sts., La
Loma, Quezon City for P300,000.00 under the following terms and conditions:
(1) 10% Option Money;
(2) Balance payable in cash;
(3) Provided that the property shall be cleared of illegal occupants or tenants.
Scjuris
Pursuant to the foregoing terms and conditions of the offer, Lim paid CDB
P30,000.00 as Option Money, for which she was issued Official Receipt No.
3160, dated June 17, 1988, by CDB. However, after some time following up
the sale, Lim discovered that the subject property was originally registered in
the name of Perfecto Guansing, father of mortgagor Rodolfo Guansing, under
TCT No. 91148. Rodolfo succeeded in having the property registered in his
name under TCT No. 300809, the same title he mortgaged to CDB and from
which the latters title (TCT No. 355588) was derived. It appears, however,
that the father, Perfecto, instituted Civil Case No. Q-39732 in the Regional
Trial Court, Branch 83, Quezon City, for the cancellation of his sons title. On
March 23, 1984, the trial court rendered a decision[2] restoring Perfectos
previous title (TCT No. 91148) and cancelling TCT No. 300809 on the ground
that the latter was fraudulently secured by Rodolfo. This decision has since
become final and executory.
Aggrieved by what she considered a serious misrepresentation by CDB and
its mother-company, FEBTC, on their ability to sell the subject property, Lim,
joined by her husband, filed on August 29, 1989 an action for specific
performance and damages against petitioners in the Regional Trial Court,
Branch 96, Quezon City, where it was docketed as Civil Case No. Q-89-2863.
On April 20, 1990, the complaint was amended by impleading the Register of
Deeds of Quezon City as an additional defendant.
On March 10, 1993, the trial court rendered a decision in favor of the Lim
spouses. It ruled that: (1) there was a perfected contract of sale between Lim

and CDB, contrary to the latters contention that the written offer to purchase
and the payment of P30,000.00 were merely pre-conditions to the sale and
still subject to the approval of FEBTC; (2) performance by CDB of its
obligation under the perfected contract of sale had become impossible on
account of the 1984 decision in Civil Case No. Q-39732 cancelling the title in
the name of mortgagor Rodolfo Guansing; (3) CDB and FEBTC were not
exempt from liability despite the impossibility of performance, because they
could not credibly disclaim knowledge of the cancellation of Rodolfo
Guansings title without admitting their failure to discharge their duties to the
public as reputable banking institutions; and (4) CDB and FEBTC are liable for
damages for the prejudice caused against the Lims.[3] Based on the
foregoing findings, the trial court ordered CDB and FEBTC to pay private
respondents, jointly and severally, the amount of P30,000.00 plus interest at
the legal rate computed from June 17, 1988 until full payment. It also ordered
petitioners to pay private respondents, jointly and severally, the amounts of
P250,000.00 as moral damages, P50,000.00 as exemplary damages,
P30,000.00 as attorneys fees, and the costs of the suit.[4]
Petitioners brought the matter to the Court of Appeals, which, on October 14,
1997, affirmed in toto the decision of the Regional Trial Court. Petitioners
moved for reconsideration, but their motion was denied by the appellate
court on December 9, 1997. Hence, this petition. Petitioners contend that Jjlex
1. The Honorable Court of Appeals erred when it held that petitioners CDB
and FEBTC were aware of the decision dated March 23, 1984 of the Regional
Trial Court of Quezon City in Civil Case No. Q-39732.
2. The Honorable Court of Appeals erred in ordering petitioners to pay
interest on the deposit of THIRTY THOUSAND PESOS (P30,000.00) by applying
Article 2209 of the New Civil Code.
3. The Honorable Court of Appeals erred in ordering petitioners to pay moral
damages, exemplary damages, attorneys fees and costs of suit.
I.
At the outset, it is necessary to determine the legal relation, if any, of the
parties.
Petitioners deny that a contract of sale was ever perfected between them and
private respondent Lolita Chan Lim. They contend that Lims letter-offer
clearly states that the sum of P30,000.00 was given as option money, not as
earnest money.[5] They thus conclude that the contract between CDB and
Lim was merely an option contract, not a contract of sale.
The contention has no merit. Contracts are not defined by the parties thereto
but by principles of law.[6] In determining the nature of a contract, the courts
are not bound by the name or title given to it by the contracting parties.[7] In
the case at bar, the sum of P30,000.00, although denominated in the offer to

purchase as "option money," is actually in the nature of earnest money or

down payment when considered with the other terms of the offer. In Carceler
v. Court of Appeals,[8] we explained the nature of an option contract, viz. An option contract is a preparatory contract in which one party grants to the
other, for a fixed period and under specified conditions, the power to decide,
whether or not to enter into a principal contract, it binds the party who has
given the option not to enter into the principal contract with any other person
during the period designated, and within that period, to enter into such
contract with the one to whom the option was granted, if the latter should
decide to use the option. It is a separate agreement distinct from the contract
to which the parties may enter upon the consummation of the option.
Newmiso
An option contract is therefore a contract separate from and preparatory to a
contract of sale which, if perfected, does not result in the perfection or
consummation of the sale. Only when the option is exercised may a sale be
perfected.
In this case, however, after the payment of the 10% option money, the Offer
to Purchase provides for the payment only of the balance of the purchase
price, implying that the "option money" forms part of the purchase price. This
is precisely the result of paying earnest money under Art. 1482 of the Civil
Code. It is clear then that the parties in this case actually entered into a
contract of sale, partially consummated as to the payment of the price.
Moreover, the following findings of the trial court based on the testimony of
the witnesses establish that CDB accepted Lims offer to purchase:
It is further to be noted that CDB and FEBTC already considered plaintiffs
offer as good and no longer subject to a final approval. In his testimony for
the defendants on February 13, 1992, FEBTCs Leomar Guzman stated that he
was then in the Acquired Assets Department of FEBTC wherein plaintiffs offer
to purchase was endorsed thereto by Myoresco Abadilla, CDBs senior vicepresident, with a recommendation that the necessary petition for writ of
possession be filed in the proper court; that the recommendation was in
accord with one of the conditions of the offer, i.e., the clearing of the property
of illegal occupants or tenants (tsn, p. 12); that, in compliance with the
request, a petition for writ of possession was thereafter filed on July 22, 1988
(Exhs. 1 and 1-A); that the offer met the requirements of the banks; and that
no rejection of the offer was thereafter relayed to the plaintiffs (p. 17); which
was not a normal procedure, and neither did the banks return the amount of
P30,000.00 to the plaintiffs.[9]
Given CDBs acceptance of Lims offer to purchase, it appears that a contract
of sale was perfected and, indeed, partially executed because of the partial
payment of the purchase price. There is, however, a serious legal obstacle to
such sale, rendering it impossible for CDB to perform its obligation as seller to
deliver and transfer ownership of the property. Acctmis
Nemo dat quod non habet, as an ancient Latin maxim says. One cannot give

what one does not have. In applying this precept to a contract of sale, a
distinction must be kept in mind between the "perfection" and
"consummation" stages of the contract.
A contract of sale is perfected at the moment there is a meeting of minds
upon the thing which is the object of the contract and upon the price.[10] It
is, therefore, not required that, at the perfection stage, the seller be the
owner of the thing sold or even that such subject matter of the sale exists at
that point in time.[11] Thus, under Art. 1434 of the Civil Code, when a person
sells or alienates a thing which, at that time, was not his, but later acquires
title thereto, such title passes by operation of law to the buyer or grantee.
This is the same principle behind the sale of "future goods" under Art. 1462 of
the Civil Code. However, under Art. 1459, at the time of delivery or
consummation stage of the sale, it is required that the seller be the owner of
the thing sold. Otherwise, he will not be able to comply with his obligation to
transfer ownership to the buyer. It is at the consummation stage where the
principle of nemo dat quod non habet applies.
In Dignos v. Court of Appeals,[12] the subject contract of sale was held void
as the sellers of the subject land were no longer the owners of the same
because of a prior sale.[13] Again, in Nool v. Court of Appeals,[14] we ruled
that a contract of repurchase, in which the seller does not have any title to
the property sold, is invalid:
We cannot sustain petitioners view. Article 1370 of the Civil Code is
applicable only to valid and enforceable contracts. The Regional Trial Court
and the Court of Appeals ruled that the principal contract of sale contained in
Exhibit C and the auxiliary contract of repurchase in Exhibit D are both void.
This conclusion of the two lower courts appears to find support in Dignos v.
Court of Appeals, where the Court held:
"Be that as it may, it is evident that when petitioners sold said land to the
Cabigas spouses, they were no longer owners of the same and the sale is null
and void."
In the present case, it is clear that the sellers no longer had any title to the
parcels of land at the time of sale. Since Exhibit D, the alleged contract of
repurchase, was dependent on the validity of Exhibit C, it is itself void. A void
contract cannot give rise to a valid one. Verily, Article 1422 of the Civil Code
provides that (a) contract which is the direct result of a previous illegal
contract, is also void and inexistent."
We should however add that Dignos did not cite its basis for ruling that a
"sale is null and void" where the sellers "were no longer the owners" of the
property. Such a situation (where the sellers were no longer owners) does not
appear to be one of the void contracts enumerated in Article 1409 of the Civil
Code. Moreover, the Civil Code itself recognizes a sale where the goods are to
be acquired x x x by the seller after the perfection of the contract of sale,
clearly implying that a sale is possible even if the seller was not the owner at
the time of sale, provided he acquires title to the property later on. Misact

In the present case, however, it is likewise clear that the sellers can no longer
deliver the object of the sale to the buyers, as the buyers themselves have
already acquired title and delivery thereof from the rightful owner, the DBP.
Thus, such contract may be deemed to be inoperative and may thus fall, by
analogy, under item No. 5 of Article 1409 of the Civil Code: Those which
contemplate an impossible service. Article 1459 of the Civil Code provides
that "the vendor must have a right to transfer the ownership thereof [subject
of the sale] at the time it is delivered." Here, delivery of ownership is no
longer possible. It has become impossible.[15]
In this case, the sale by CDB to Lim of the property mortgaged in 1983 by
Rodolfo Guansing must, therefore, be deemed a nullity for CDB did not have a
valid title to the said property. To be sure, CDB never acquired a valid title to
the property because the foreclosure sale, by virtue of which the property
had been awarded to CDB as highest bidder, is likewise void since the
mortgagor was not the owner of the property foreclosed.
A foreclosure sale, though essentially a "forced sale," is still a sale in
accordance with Art. 1458 of the Civil Code, under which the mortgagor in
default, the forced seller, becomes obliged to transfer the ownership of the
thing sold to the highest bidder who, in turn, is obliged to pay therefor the bid
price in money or its equivalent. Being a sale, the rule that the seller must be
the owner of the thing sold also applies in a foreclosure sale. This is the
reason Art. 2085[16] of the Civil Code, in providing for the essential requisites
of the contract of mortgage and pledge, requires, among other things, that
the mortgagor or pledgor be the absolute owner of the thing pledged or
mortgaged, in anticipation of a possible foreclosure sale should the
mortgagor default in the payment of the loan.
There is, however, a situation where, despite the fact that the mortgagor is
not the owner of the mortgaged property, his title being fraudulent, the
mortgage contract and any foreclosure sale arising therefrom are given effect
by reason of public policy. This is the doctrine of "the mortgagee in good
faith" based on the rule that all persons dealing with property covered by a
Torrens Certificate of Title, as buyers or mortgagees, are not required to go
beyond what appears on the face of the title.[17] The public interest in
upholding the indefeasibility of a certificate of title, as evidence of the lawful
ownership of the land or of any encumbrance thereon, protects a buyer or
mortgagee who, in good faith, relied upon what appears on the face of the
certificate of title. Sdjad
This principle is cited by petitioners in claiming that, as a mortgagee bank, it
is not required to make a detailed investigation of the history of the title of
the property given as security before accepting a mortgage.
We are not convinced, however, that under the circumstances of this case,
CDB can be considered a mortgagee in good faith. While petitioners are not
expected to conduct an exhaustive investigation on the history of the
mortgagors title, they cannot be excused from the duty of exercising the due

diligence required of banking institutions. In Tomas v. Tomas,[18] we noted

that it is standard practice for banks, before approving a loan, to send
representatives to the premises of the land offered as collateral and to
investigate who are the real owners thereof, noting that banks are expected
to exercise more care and prudence than private individuals in their dealings,
even those involving registered lands, for their business is affected with
public interest. We held thus:
We, indeed, find more weight and vigor in a doctrine which recognizes a
better right for the innocent original registered owner who obtained his
certificate of title through perfectly legal and regular proceedings, than one
who obtains his certificate from a totally void one, as to prevail over judicial
pronouncements to the effect that one dealing with a registered land, such as
a purchaser, is under no obligation to look beyond the certificate of title of
the vendor, for in the latter case, good faith has yet to be established by the
vendee or transferee, being the most essential condition, coupled with
valuable consideration, to entitle him to respect for his newly acquired title
even as against the holder of an earlier and perfectly valid title. There might
be circumstances apparent on the face of the certificate of title which could
excite suspicion as to prompt inquiry, such as when the transfer is not by
virtue of a voluntary act of the original registered owner, as in the instant
case, where it was by means of a self-executed deed of extra-judicial
settlement, a fact which should be noted on the face of Eusebia Tomas
certificate of title. Failing to make such inquiry would hardly be consistent
with any pretense of good faith, which the appellant bank invokes to claim
the right to be protected as a mortgagee, and for the reversal of the
judgment rendered against it by the lower court.[19]
In this case, there is no evidence that CDB observed its duty of diligence in
ascertaining the validity of Rodolfo Guansings title. It appears that Rodolfo
Guansing obtained his fraudulent title by executing an Extra-Judicial
Settlement of the Estate With Waiver where he made it appear that he and
Perfecto Guansing were the only surviving heirs entitled to the property, and
that Perfecto had waived all his rights thereto. This self-executed deed should
have placed CDB on guard against any possible defect in or question as to
the mortgagors title. Moreover, the alleged ocular inspection report[20] by
CDBs representative was never formally offered in evidence. Indeed,
petitioners admit that they are aware that the subject land was being
occupied by persons other than Rodolfo Guansing and that said persons, who
are the heirs of Perfecto Guansing, contest the title of Rodolfo.[21] Sppedsc
II.
The sale by CDB to Lim being void, the question now arises as to who, if any,
among the parties was at fault for the nullity of the contract. Both the trial
court and the appellate court found petitioners guilty of fraud, because on
June 16, 1988, when Lim was asked by CDB to pay the 10% option money,
CDB already knew that it was no longer the owner of the said property, its
title having been cancelled.[22] Petitioners contend that: (1) such finding of
the appellate court is founded entirely on speculation and conjecture; (2)

neither CDB nor FEBTC was a party in the case where the mortgagors title
was cancelled; (3) CDB is not privy to any problem among the Guansings; and
(4) the final decision cancelling the mortgagors title was not annotated in the
latters title.
As a rule, only questions of law may be raised in a petition for review, except
in circumstances where questions of fact may be properly raised.[23] Here,
while petitioners raise these factual issues, they have not sufficiently shown
that the instant case falls under any of the exceptions to the above rule. We
are thus bound by the findings of fact of the appellate court. In any case, we
are convinced of petitioners negligence in approving the mortgage
application of Rodolfo Guansing.
III.
We now come to the civil effects of the void contract of sale between the
parties. Article 1412(2) of the Civil Code provides:
If the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rules shall be observed:
....
(2).......When only one of the contracting parties is at fault, he cannot recover
what he has given by reason of the contract, or ask for the fulfillment of what
has been promised him. The other, who is not at fault, may demand the
return of what he has given without any obligation to comply with his
promise.
Private respondents are thus entitled to recover the P30,000.00 option money
paid by them. Moreover, since the filing of the action for damages against
petitioners amounted to a demand by respondents for the return of their
money, interest thereon at the legal rate should be computed from August
29, 1989, the date of filing of Civil Case No. Q-89-2863, not June 17, 1988,
when petitioners accepted the payment. This is in accord with our ruling in
Castillo v. Abalayan[24] that in case of a void sale, the seller has no right
whatsoever to keep the money paid by virtue thereof and should refund it,
with interest at the legal rate, computed from the date of filing of the
complaint until fully paid. Indeed, Art. 1412(2) which provides that the nonguilty party "may demand the return of what he has given" clearly implies
that without such prior demand, the obligation to return what was given does
not become legally demandable. Sccalr
Considering CDBs negligence, we sustain the award of moral damages on the
basis of Arts. 21 and 2219 of the Civil Code and our ruling in Tan v. Court of
Appeals[25] that moral damages may be recovered even if a banks
negligence is not attended with malice and bad faith. We find, however, that
the sum of P250,000.00 awarded by the trial court is excessive. Moral
damages are only intended to alleviate the moral suffering undergone by
private respondents, not to enrich them at the expense of the petitioners.[26]

Accordingly, the award of moral damages must be reduced to P50,000.00.

Likewise, the award of P50,000.00 as exemplary damages, although justified
under Art. 2232 of the Civil Code, is excessive and should be reduced to
P30,000.00. The award of P30,000.00 attorneys fees based on Art. 2208,
pars. 1, 2, 5 and 11 of the Civil Code should similarly be reduced to
P20,000.00.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the
MODIFICATION as to the award of damages as above stated.
SO ORDERED.2/29/00 2:19 PM