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VOL. 430, MAY 28, 2004 299

Philippine National Bank vs. RBL Enterprises, Inc.

*
G.R. No. 149569. May 28, 2004.

PHILIPPINE NATIONAL BANK, petitioner, vs. RBL

ENTERPRISES, INC.; RAMON B. LACSON, SR.; and
Spouses EDWARDO and HERMINIA LEDESMA,
respondents.

Contracts; Loans; Conditions precedent are not favored—

unless impelled by plain and unambiguous language or by
necessary implication, courts will not construe a stipulation as
laden with such burden, particularly when that stipulation would
result in a forfeiture or in inequitable consequences.—Conditions
precedent are not favored. Unless impelled by plain and
unambiguous language or by necessary implication, courts will
not construe a stipulation as laden with such burden, particularly
when that stipulation would result in a forfeiture or in
inequitable consequences. Nowhere did PNB explicitly state that
the release of the second half of the loan accommodation was
subject to the mortgagor’s procurement of the lessor’s conformity
to the Mortgage Contract. Absent such a condition, the efficacy of
the Credit Agreement stood, and petitioner was obligated to
release the balance of the loan. Its refusal to do so constituted a
breach of its reciprocal obligation under the Loan Agreement.
Same; Same; Mortgages; A registered mortgage lien is
considered inseparable from the property inasmuch as it is a right
in rem—the mortgage creates a real right or a lien which, after
being recorded, follows the chattel wherever it goes.—Article 2126
of the Civil Code describes the real nature

_______________

* FIRST DIVISION.

300

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300 SUPREME COURT REPORTS ANNOTATED

Philippine National Bank vs. RBL Enterprises, Inc.

of a mortgage: it is a real right following the property, such that

in subsequent transfers by the mortgagor, the transferee must
respect the mortgage. A registered mortgage lien is considered
inseparable from the property inasmuch as it is a right in rem.
The mortgage creates a real right or a lien which, after being
recorded, follows the chattel wherever it goes. Under Article 2129
of the same Code, the mortgage on the property may still be
foreclosed despite the transfer. Indeed, even if the mortgaged
property is in the possession of the debtor, the creditor is still
protected. To protect the latter from the former’s possible disposal
of the property, the chattel mortgage is made effective against
third persons by the process of registration.
Same; Same; Same; When there is partial failure of
consideration, the mortgage becomes unenforceable to the extent of
such failure.—Since PNB failed to release the P1,000,000 balance
of the loan, the Real Estate and Chattel Mortgage Contract
became unenforceable to that extent. Relevantly, we quote this
Court’s ruling in Central Bank of the Philippines v. Court of
Appeals: “The consideration of the accessory contract of real
estate mortgage is the same as that of the principal contract. For
the debtor, the consideration of his obligation to pay is the
existence of a debt. Thus, in the accessory contract of real estate
mortgage, the consideration of the debtor in furnishing the
mortgage is the existence of a valid, voidable, or unenforceable
debt. x x x x x x x x x “[W]hen there is partial failure of
consideration, the mortgage becomes unenforceable to the extent
of such failure. Where the indebtedness actually owing to the
holder of the mortgage is less than the sum named in the
mortgage, the mortgage cannot be enforced for more than the
actual sum due.”
Damages; To justify a grant of actual or compensatory
damages, it would be necessary to prove the amount of loss with a
reasonable degree of certainty, based upon competent proof and the
best evidence obtainable by the injured party.—True,
indemnification for damages comprises not only the loss that was
actually suffered, but also the profits—referred to as
compensatory damages—that the obligee failed to obtain. To
justify a grant of actual or compensatory damages, however, it
would be necessary to prove the amount of loss with a reasonable
degree of certainty, based upon competent proof and the best
evidence obtainable by the injured party. The quarterly income
tax report of Respondent RBL Enterprises, Inc., which was
presented by petitioner and used by the appellate court as basis
for computing the average profits earned by respondents in their
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business, provided a reasonable means for ascertaining their

claims for lost profits. Thus, we believe that the assessment by
the Court of Appeals was fair and just.
Same; Attorney’s Fees; Attorney’s fees may be awarded when
parties are compelled to litigate or to incur expenses to protect their
interest by

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Philippine National Bank vs. RBL Enterprises, Inc.

reason of an unjustified act of the opposing party.—The award of

attorney’s fees as part of the damages is just and equitable under
the circumstances. Such fees may be awarded when parties are
compelled to litigate or to incur expenses to protect their interest
by reason of an unjustified act of the opposing party. In the
present case, petitioner’s refusal to release the balance of the loan
has compelled respondents to institute an action for injunction
and damages in order to protect their clear rights and interests.

PETITION for review on certiorari of a decision of the

Court of Appeals.

The facts are stated in the opinion of the Court.

     Raphael A. Diaz for RBL Enterprises, Inc.
          The Law Office of Mirano, Mirano & Mirano for
respondents.

PANGANIBAN, J.:

Having released fifty percent of the loan proceeds on the

basis of the signed loan and mortgage contracts, petitioner
can no longer require the borrowers to secure the lessor’s
conformity to the Mortgage Contract as a condition
precedent to the release of the loan balance. The conformity
of the lessor was not necessary to protect the bank’s
interest, because respondents were unquestionably the
absolute owners of the mortgaged property. Furthermore,
the registration of the mortgage created a real right to the
properties which, in subsequent transfers by the
mortgagor, the transferees are legally bound to respect.

The Case

1
Before us is a Petition for Review under Rule
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1
Before us is a Petition for Review under Rule 45 of the
Rules of2 Court, seeking to set aside the August 22, 2001
Decision of the Court of Appeals (CA) in CA­GR CV No.
49749. The dispositive portion of the Decision reads as
follows:

“WHEREFORE, premises considered[,] the judgment appealed

from is hereby AFFIRMED, with x x x MODIFICATION as
follows:

_______________

1 Rollo, pp. 8­22.

2 Id., pp. 24­34. Eleventh Division. Penned by Justice Juan Q.
Enriquez, Jr. and concurred in by Justices Ruben T. Reyes (Division
chairman) and Presbitero J. Velasco, Jr. (member).

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302 SUPREME COURT REPORTS ANNOTATED

Philippine National Bank vs. RBL Enterprises, Inc.

“1. The amount of actual damages and losses is

reduced from P985,722.15 to merely P380,713.55
with legal interest from the date of the filing of the
complaint. The interest payable on the loan is
ordered reduced by using the agreed interest rate of
18% per annum in the computation[;]
“2. The amount of moral damages is reduced from
P100,000.00 to P50,000.00;
“3. The amount of exemplary damages is reduced from
P50,000.00 to P30,000.00; and
“4. The award of attorney’s 3 fees is reduced from
P200,000.00 to P50,000.00.”

The Facts

The facts of the case are narrated in the assailed Decision

of the CA, as follows:

“1. On April 28, 1993, [respondents] instituted an

action against [Petitioner] PNB and the Provincial
Sheriff of Negros Occidental alleging among others,
the following:

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“(a) Sometime in 1987, [respondents] opened a prawn

hatchery in San Enrique, Negros Occidental, and
for this purpose, leased from Nelly Bedrejo a parcel
of land where the operations were conducted;
“(b) In order to increase productions and improve the
hatchery facilities, [respondents] applied for and
was approved a loan of P2,000,000.00, by
[Petitioner] PNB. To secure its payment,
[respondents] executed in favor of PNB, a real
estate mortgage over two (2) parcels of land, located
at Bago City, Negros Occidental, covered by
Transfer Certificate of Title Nos. T­13005 and T­
12642 in the names of [respondents], and another
real [estate] and chattel mortgage over the
buildings, culture tanks and other hatchery
facilities located in the leased property of Nelly
Bedrejo;
“(c) PNB partially released to [respondents] on several
dates, the total sum of P1,000,000.00 less the
advance interests, which amount [respondents]
used for introducing improvements on the leased
property where the hatchery business was located.
“(d) During the mid­part of the construction of the
improvements, PNB refused to release the balance
of P1,000,000.00 allegedly because [respondents]
failed to comply with the bank’s requirement that
Nelly Bedrejo should execute an undertaking or a
‘lessors’ con

_______________

3 CA Decision, pp. 9­10; Rollo, pp. 32­33.

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Philippine National Bank vs. RBL Enterprises, Inc.

formity’ provided in Real Estate and Chattel Mortgage

contract dated August 3, 1989, which states, ‘par. 9.07. It is
a condition of this mortgage that while the obligations
remained unpaid, the acquisition by the lessor of the
permanent improvements covered by this Real Estate
Mortgage as provided for in the covering Lease Contract,
shall be subject to this mortgage. For this purpose, the
mortgagor hereby undertakes to secure the lessor’s
conformity hereto.’
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“(e) For said alleged failure of [respondents] to comply

with the additional requirement and the demand of
PNB to pay the released amount of P1,000,000.00,
PNB foreclosed the mortgaged properties, to the
detriment of [respondents].
“(f) Due to the non­release of the remaining balance of
the loan applied for and approved, the productions­
operations of the business were disrupted causing
losses to [respondents], and thereafter, to the
closure of the business.

“2. On June 29, 1990, [Petitioner] PNB filed its Answer

with Counterclaim alleging that the lessors’
conformity was not an additional requirement but
was already part of the terms and conditions
contained in the Real Estate and Chattel Mortgage
dated August 3, 1989, executed between
[respondents] and [petitioner]; and that the release
of the balance of the loan was conditioned on the
compliance and submission by the [respondents] of
the required lessors’ conformity.
“3. On November 8, 1993, a writ of preliminary
injunction was issued by the court a quo prohibiting
PNB and the Provincial Sheriff of Negros
Occidental from implementing the foreclosure
proceedings including the auction sale of the
properties of the [respondents] subject
4
matter of the
real [estate] and chattel mortgages.”

The Regional Trial Court (RTC) ruled that Philippine

National Bank (PNB) had breached its obligation under
the Contract of Loan and should therefore be held liable for
the consequential damages suffered by respondents. The
trial court held that PNB’s refusal to release the balance of
the loan was unjustified for the following reasons: 1) the
bank’s partial release of the loan of respondents had
estopped it from requiring them to secure the lessor’s
signature on the Real Estate and Chattel Mortgage
Contract; 2) Nelly Bedrejo, the lessor, had no interest in
the property and was not in any manner connected with
respondents’ business; thus, the fulfillment of the condition
was legally impossible; and 3) the interests of PNB were
amply protected, as the loan had overly been secured by
collaterals with a total appraised value of P3,088,000.

_______________

4 Id., pp. 2­3 & pp. 25­26. Italics in the original.

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Philippine National Bank vs. RBL Enterprises, Inc.

The RTC further observed that while the loan would

mature in three years, the lease contract between Bedrejo
and respondents would expire in ten years. According to a
provision in the Contract, upon its expiration, all
improvements found on the leased premises would belong
to the lessor. Thus, in the event of nonpayment of the loan
at its maturity, PNB could still foreclose on those
improvements, the subject of the chattel mortgage.

Ruling of the Court of Appeals

Affirming the lower court, the CA held that Nelly Bedrejo,

who was not a party to the Mortgage Contract, could not be
compelled to affix her signature thereto. The appellate
court further ruled that the registration of the mortgage
not only revealed PNB’s intention to give full force and
effect to the instrument but, more important, gave the
mortgagee ample security against subsequent owners of
the chattels.
The CA, however, reduced the amount of actual
damages for lack of competent proof of the lost income and
the unrealized profits of RBL, as well as for the additional
expenses and liabilities incurred by respondents as a result
of petitioner’s refusal to release the balance of the loan.
Moral and exemplary damages as well as attorney’s fees
were likewise lessened.5
Hence, this Petition.

Issues

Petitioner raises the following alleged errors for our

consideration:

“A.

Whether or not the Court of Appeals committed serious error

when it held that Petitioner PNB has no legal basis to require
respondents to secure the conformity of the lessor and owner of
the property where their hatchery business is being conducted
notwithstanding that respondents obligated themselves in no
uncertain terms to secure such conformity pursuant to par. 9.07 of
the Real Estate and Chattel Mortgage and considering

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_______________

5 This case was deemed submitted for decision on July 9, 2002, upon this
Court’s actual receipt of respondent’s Memorandum, which was signed by Attys.
Eligio P. Petilla and Jose Troy A. Almario, was received by the Court on June 28,
2002.

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Philippine National Bank vs. RBL Enterprises, Inc.

further that respondents’ authority to mortgage the lessor’s

property and leasehold rights are annotated [on] the titles of the
mortgage[d] properties.

“B.

Whether or not the Court of Appeals erred in holding

Petitioner PNB liable for actual, moral and exemplary damages
as well as attorney’s fees for the non­release of the balance of the
loan applied by respondents even though there is no evidence
6
that
such non­release was attended by malice or bad faith.”

Simply put, the issues are as follows: 1) whether the non­

release of the balance of the loan by PNB is justified; and 2)
whether it is liable for actual, moral and exemplary
damages as well as attorney’s fees.

The Court’s Ruling

The Petition is partly meritorious.

First Issue:
Was PNB’s Non­Release of the Loan Justified?

Petitioner maintains that the lessor’s signature in the

conforme portion of the Real Estate and Chattel Mortgage
Contract was a condition precedent to the release of the
balance of the loan to respondents. Petitioner invokes
paragraph 9.07 of the Contract as legal basis for insisting
upon respondents’ fulfillment of the aforesaid clause.
We are not persuaded. If the parties truly intended to
suspend the release of the P1,000,000 balance of the loan
until the lessor’s conformity to the Mortgage Contract
would have been obtained, such condition should have been
plainly stipulated either in that Contract or in the Credit
Agreement. The tenor of the language used in paragraph.
9.07, as well as its position relative to the whole Contract,
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negated the supposed intention to make the release of the

loan subject to the fulfillment of the clause. From a mere
reading thereof, respondents could not reasonably be
expected to know that it was petitioner’s unilateral
intention to suspend the release of the P1,000,000 balance
until the lessor’s conformity to the Mortgage Contract
would have been obtained.

_______________

6 Petitioners’ Memorandum, p. 7; Rollo, p. 112. Original in upper case.

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Philippine National Bank vs. RBL Enterprises, Inc.

Respondents had complied with all the requirements set

forth in the recommendation and approval sheet forwarded
by petitioner’s main office to the Bacolod branch for
implementation; and the Credit Agreement had been
executed thereafter. Naturally, respondents were led to
believe and to expect the full release of their approved loan
accommodation. This belief was bolstered by the initial
release of the first P1,000,000 portion of the loan.
We agree with the RTC in its ruling on this point:

“x x x. In the instant case, there is a clear and categorical showing

that when the parties have finally executed the contract of loan
and the Real Estate and Chattel Mortgage Contract, the applicant
complied with the terms and conditions imposed by defendant
bank on the recommendation and approval sheet, hence,
defendant bank waived its right to further require the plaintiffs
other conditions not specified in the previous agreement. Should
there [appear] any obscurity after such execution, the same
should not favor the party who caused such obscurity. Therefore,
such obscurity must be construed against the party who drew up
the contract. Art. 1377 of the Civil Code applies x x x [even] with
greater force [to] this type of contract where the contract is
already prepared7
by a big concern and [the] other party merely
adheres to it.” (Citations omitted)

Conditions Precedent
Conditions precedent are not favored. Unless impelled by
plain and unambiguous language or by necessary
implication, courts will not construe a stipulation as laden

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with such burden, particularly when that stipulation8 would

result in a forfeiture or in inequitable consequences.
Nowhere did PNB explicitly state that the release of the
second half of the loan accommodation was subject to the
mortgagor’s procurement of the lessor’s conformity to the
Mortgage Contract. Absent such a condition, the efficacy of
the Credit Agreement stood, and petitioner was obligated
to release the balance of the loan. Its refusal to do so
constituted a breach of its reciprocal obligation under the
Loan Agreement.
Flimsy was the insistence of petitioner that the lessor
should be compelled to sign the Mortgage Contract, since
she was allegedly a beneficiary thereof. The chattel
mortgage was a mere accessory to

_______________

7 RTC Decision, pp. 11­12; Records, pp. 372­373.

8 17A Am. Jur. 2d, S 471, p. 491.

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Philippine National Bank vs. RBL Enterprises, Inc.

the contract of loan executed between PNB and RBL. The

latter was undisputably the absolute owner of the
properties covered by the chattel mortgage. Clearly, the
lessor was never a party to either the loan or the Mortgage
Contract.

The Real Nature of a Mortgage

The records show that all the real estate and chattel
mortgages were registered with the Register of Deeds of
Bago City, Negros Occidental, and annotated at the back of
the mortgaged titles. Thus, petitioner had ample security
to protect its interest. As correctly held by the appellate
court, the lessor’s nonconformity to the Mortgage Contract
would not cause petitioner any undue prejudice or
disadvantage, because the registration and the annotation
were considered sufficient notice to third 9
parties that the
property was subject to an encumbrance.
Article 2126 of the Civil Code describes the real nature
of a mortgage: it is a real right following the property, such
that in subsequent transfers by the mortgagor, the
transferee must respect the mortgage. A registered
mortgage lien is considered inseparable
10
from the property
inasmuch as it is a right in rem. The mortgage creates a
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real right or a lien which, after being recorded, follows the

chattel wherever it goes. Under Article 2129 of the same
Code, the mortgage on the property may still be foreclosed
despite the transfer.
Indeed, even if the mortgaged property is in the
possession of the debtor, the creditor is still protected. To
protect the latter from the former’s possible disposal of the
property, the chattel mortgage is made effective against
third persons by the process of registration.
PNB violated the Loan Agreement when it refused to
release the P1,000,000 balance. As regards the partial
release of that amount, over which respondents executed
three Promissory Notes, the bank is deemed to have
complied with its reciprocal obligation. The Promissory
Notes compelled them to pay that initial amount when

_______________

9 Isaguirre v. De Lara, 332 SCRA 803, May 31, 2000; Asuncion v.

Evangelista, 316 SCRA 848, October 13, 1999; Northern Motors, Inc. v.
Coquia, 68 SCRA 374, December 15, 1975; Ong Liong Tiak v. Luneta
Motor Company, 66 Phil. 459, November 7, 1938.
10 Ganzon v. Inserto, 208 Phil. 630; 123 SCRA 713, July 25, 1983.

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308 SUPREME COURT REPORTS ANNOTATED

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it fell due. Their failure to pay any overdue amortizations

under those Promissory Notes rendered them liable
thereunder.

Effect of Failure of Consideration

Since PNB failed to release the P1,000,000 balance of the
loan, the Real Estate and Chattel Mortgage Contract
became unenforceable to that extent. Relevantly, we quote
this Court’s ruling
11
in Central Bank of the Philippines v.
Court of Appeals:

“The consideration of the accessory contract of real estate

mortgage is the same as that of the principal contract. For the
debtor, the consideration of his obligation to pay is the existence
of a debt. Thus, in the accessory contract of real estate mortgage,
the consideration of the debtor in furnishing the mortgage is the
existence of a valid, voidable, or unenforceable debt.
x x x      x x x      x x x

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“[W]hen there is partial failure of consideration, the mortgage

becomes unenforceable to the extent of such failure. Where the
indebtedness actually owing to the holder of the mortgage is less
than the sum named in the mortgage, the12 mortgage cannot be
enforced for more than the actual sum due.”

Second Issue:
Propriety of Award for Damages and Attorney’s Fees

In reducing the award for actual damages from

P985,722.15 to P380,713.55, the CA explained:

“The alleged projected cash flow and net income for the 5­year
period of operations were not substantiated by any other evidence
to sufficiently establish the attainability of the projection. No
evidence was also introduced to show the accounts payable of and
other expenses incurred by [respondents]. The court a quo
therefore, erred when it ruled that [respondents] incurred actual
damages and losses amounting to P985,722.15 from 1990 to 1992,
when no evidence was presented to establish the same.
“Compensatory or actual damages cannot be presumed. They
cannot be allowed if there are no specific facts, which should be a
basis for measuring the amount. The trial court cannot rely on
speculation as to the fact and amount of damages, but must
depend on actual proof that damage had been suffered. The
amount of loss must not only be capable of proof

_______________

11 139 SCRA 46, October 3, 1985.

12 Id., p. 56, per Makasiar, CJ.

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but must actually be proven with reasonable degree of certainty,

premised upon competent proof or best evidence to support his
claim for actual damages.
“At most, the court a quo may declare as lost income and
unrealized profits, the amount of P380,713.55 for the 3­year
period of business operations from 1990 when PNB refused to
release the loans until closure of business in 1992, based on the
highest quarterly taxable income earned in 1989 in the amount of
P28,754.80, with a conservative and reasonable increase of 10%

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per year on the net income. The amount of actual damages 13

is
therefore, reduced from P985,722.15 to P380,713.55 x x x.”

We see no reason to overturn these findings. True,

indemnification for damages comprises not only the loss
that was actually suffered, but also the profits—referred to
as compensatory damages—that the obligee failed to
obtain. To justify a grant of actual or compensatory
damages, however, it would be necessary to prove the
amount of loss with a reasonable degree of certainty, based
upon competent proof14
and the best evidence obtainable by
the injured party. The quarterly income tax report of
Respondent RBL Enterprises, Inc., which was presented
by petitioner and used by the appellate court as basis for
computing the average profits earned by respondents in
their business, provided a reasonable means for
ascertaining their claims for lost profits. Thus, we believe
that the assessment by the Court of Appeals was fair and
just.
On the other hand, the award for moral and exemplary
damages should be deleted, because respondents failed to
prove malice or bad faith, on the part of petitioner.
Moral damages are explicitly authorized in breaches of
contract when
15
the defendant has acted fraudulently or in
bad faith. Concededly, the bank was remiss in its
obligation to release the balance of the loan extended to
respondents. Nothing in the findings of the trial and the
appellate courts, however, sufficiently indicate a deliberate
intent on the part of PNB to cause harm to respondents.
Exemplary damages, in turn, are intended to serve as an
example or a correction for the public good. Courts may
award them if

_______________

13 CA Decision, p. 8; Rollo, p. 31. Citations omitted.

14 Integrated Packaging Corporation v. Court of Appeals, 333 SCRA
170, June 8, 2000.
15 Mirasol v. Court of Appeals, 351 SCRA 44, February 1, 2001.

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Philippine National Bank vs. RBL Enterprises, Inc.

the defendant is found to have acted in a wanton,16

fraudulent, reckless, oppressive, or malevolent manner.
Given the above premises and the circumstances here
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obtaining, the exemplary damages granted by the courts a

quo cannot be sustained.
Finally, the award of attorney’s fees as part of the 17
damages is just and equitable under the circumstances.
Such fees may be awarded when parties are compelled to
litigate or to incur expenses to protect their interest
18
by
reason of an unjustified act of the opposing party. In the
present case, petitioner’s refusal to release the balance of
the loan has compelled respondents to institute an action
for injunction and damages in order to protect their clear
rights and interests.
WHEREFORE, the Petition is PARTLY GRANTED. The
assailed Decision is hereby AFFIRMED, with the
MODIFICATION that the award of actual and exemplary
damages is deleted. No costs.
SO ORDERED.

     Ynares­Santiago and Carpio, JJ., concur.

     Davide, Jr. (C.J., Chairman), On Official Leave.
     Azcuna, J., I take no part—former PNB Chairman.

Petition partly granted, assailed decision affirmed with

modification.

Notes.—Galloping increases in interest rate unilaterally

imposed by a bank on a customer’s loan, over the latter’s
vehement protests, are arbitrary. (Almeda vs. Court of
Appeals, 256 SCRA 292 [1996])
It is basic that mortgaged properties answer primarily
for the mortgage credit, not for the judgment credit of the
mortgagor’s unsecured creditors. (MR Holdings, Ltd. vs.
Bajar, 380 SCRA 617 [2002])

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16 Article 2232 of the Civil Code; Far East Bank and Trust Company v.
Court of Appeals, supra.
17 Article 2208 of the Civil Code.
18 Producers Bank of the Philippines v. Court of Appeals, supra.

311

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