G.R. No.

121413 January 29, 2001

PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF
ASIA AND AMERICA),petitioner,
vs.
COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK,
N.A., respondents.

G.R. No. 121479 January 29, 2001

FORD PHILIPPINES, INC., petitioner-plaintiff,
vs.
COURT OF APPEALS and CITIBANK, N.A. and PHILIPPINE COMMERCIAL
INTERNATIONAL BANK, respondents.

G.R. No. 128604 January 29, 2001

FORD PHILIPPINES, INC., petitioner,
vs.
CITIBANK, N.A., PHILIPPINE COMMERCIAL INTERNATIONAL BANK and COURT
OF APPEALS, respondents.

These consolidated petitions involve several fraudulently negotiated checks.

The original actions a quo were instituted by Ford Philippines to recover from the drawee
bank, CITIBANK, N.A. (Citibank) and collecting bank, Philippine Commercial
International Bank (PCIBank) [formerly Insular Bank of Asia and America], the value of
several checks payable to the Commissioner of Internal Revenue, which were
embezzled allegedly by an organized syndicate.1âwphi1.nêt

G.R. Nos. 121413 and 121479 are twin petitions for review of the March 27, 1995
Decision1 of the Court of Appeals in CA-G.R. CV No. 25017, entitled "Ford Philippines,
Inc. vs. Citibank, N.A. and Insular Bank of Asia and America (now Philipppine
Commercial International Bank), and the August 8, 1995 Resolution,2 ordering the
collecting bank, Philippine Commercial International Bank, to pay the amount of Citibank
Check No. SN-04867.

In G.R. No. 128604, petitioner Ford Philippines assails the October 15, 1996 Decision3 of
the Court of Appeals and its March 5, 1997 Resolution4 in CA-G.R. No. 28430 entitled
"Ford Philippines, Inc. vs. Citibank, N.A. and Philippine Commercial International Bank,"
affirming in toto the judgment of the trial court holding the defendant drawee bank,
Citibank, N.A., solely liable to pay the amount of P12,163,298.10 as damages for the
misapplied proceeds of the plaintiff's Citibanl Check Numbers SN-10597 and 16508.

I. G.R. Nos. 121413 and 121479

The stipulated facts submitted by the parties as accepted by the Court of Appeals are as
follows:
"On October 19, 1977, the plaintiff Ford drew and issued its Citibank Check No.
SN-04867 in the amount of P4,746,114.41, in favor of the Commissioner of Internal
Revenue as payment of plaintiff;s percentage or manufacturer's sales taxes for the
third quarter of 1977.

The aforesaid check was deposited with the degendant IBAA (now PCIBank) and
was subsequently cleared at the Central Bank. Upon presentment with the
defendant Citibank, the proceeds of the check was paid to IBAA as collecting or
depository bank.

The proceeds of the same Citibank check of the plaintiff was never paid to or
received by the payee thereof, the Commissioner of Internal Revenue.

As a consequence, upon demand of the Bureau and/or Commissioner of Internal

Revenue, the plaintiff was compelled to make a second payment to the Bureau of
Internal Revenue of its percentage/manufacturers' sales taxes for the third quarter
of 1977 and that said second payment of plaintiff in the amount of P4,746,114.41
was duly received by the Bureau of Internal Revenue.

It is further admitted by defendant Citibank that during the time of the transactions
in question, plaintiff had been maintaining a checking account with defendant
Citibank; that Citibank Check No. SN-04867 which was drawn and issued by the
plaintiff in favor of the Commissioner of Internal Revenue was a crossed check in
that, on its face were two parallel lines and written in between said lines was the
phrase "Payee's Account Only"; and that defendant Citibank paid the full face value
of the check in the amount of P4,746,114.41 to the defendant IBAA.

It has been duly established that for the payment of plaintiff's percentage tax for
the last quarter of 1977, the Bureau of Internal Revenue issued Revenue Tax
Receipt No. 18747002, dated October 20, 1977, designating therein in Muntinlupa,
Metro Manila, as the authorized agent bank of Metrobanl, Alabang branch to
receive the tax payment of the plaintiff.

On December 19, 1977, plaintiff's Citibank Check No. SN-04867, together with the
Revenue Tax Receipt No. 18747002, was deposited with defendant IBAA, through
its Ermita Branch. The latter accepted the check and sent it to the Central Clearing
House for clearing on the samd day, with the indorsement at the back "all prior
indorsements and/or lack of indorsements guaranteed." Thereafter, defendant
IBAA presented the check for payment to defendant Citibank on same date,
December 19, 1977, and the latter paid the face value of the check in the amount
of P4,746,114.41. Consequently, the amount of P4,746,114.41 was debited in
plaintiff's account with the defendant Citibank and the check was returned to the
plaintiff.
 Upon verification, plaintiff discovered that its Citibank Check No. SN-04867 in the
amount of P4,746,114.41 was not paid to the Commissioner of Internal Revenue.
Hence, in separate letters dated October 26, 1979, addressed to the defendants,
the plaintiff notified the latter that in case it will be re-assessed by the BIR for the
payment of the taxes covered by the said checks, then plaintiff shall hold the
defendants liable for reimbursement of the face value of the same. Both
defendants denied liability and refused to pay.

In a letter dated February 28, 1980 by the Acting Commissioner of Internal

Revenue addressed to the plaintiff - supposed to be Exhibit "D", the latter was
officially informed, among others, that its check in the amount of P4, 746,114.41
was not paid to the government or its authorized agent and instead encashed by
unauthorized persons, hence, plaintiff has to pay the said amount within fifteen
days from receipt of the letter. Upon advice of the plaintiff's lawyers, plaintiff on
March 11, 1982, paid to the Bureau of Internal Revenue, the amount of
P4,746,114.41, representing payment of plaintiff's percentage tax for the third
quarter of 1977.

As a consequence of defendant's refusal to reimburse plaintiff of the payment it

had made for the second time to the BIR of its percentage taxes, plaintiff filed on
January 20, 1983 its original complaint before this Court.

On December 24, 1985, defendant IBAA was merged with the Philippine
Commercial International Bank (PCI Bank) with the latter as the surviving entity.

Defendant Citibank maintains that; the payment it made of plaintiff's Citibank

Check No. SN-04867 in the amount of P4,746,114.41 "was in due course"; it
merely relied on the clearing stamp of the depository/collecting bank, the
defendant IBAA that "all prior indorsements and/or lack of indorsements
guaranteed"; and the proximate cause of plaintiff's injury is the gross negligence
of defendant IBAA in indorsing the plaintiff's Citibank check in question.

It is admitted that on December 19, 1977 when the proceeds of plaintiff's Citibank
Check No. SN-048867 was paid to defendant IBAA as collecting bank, plaintiff was
maintaining a checking account with defendant Citibank."5

Although it was not among the stipulated facts, an investigation by the National Bureau
of Investigation (NBI) revealed that Citibank Check No. SN-04867 was recalled by
Godofredo Rivera, the General Ledger Accountant of Ford. He purportedly needed to
hold back the check because there was an error in the computation of the tax due to the
Bureau of Internal Revenue (BIR). With Rivera's instruction, PCIBank replaced the check
with two of its own Manager's Checks (MCs). Alleged members of a syndicate later
deposited the two MCs with the Pacific Banking Corporation.
Ford, with leave of court, filed a third-party complaint before the trial court impleading
Pacific Banking Corporation (PBC) and Godofredo Rivera, as third party defendants. But
the court dismissed the complaint against PBC for lack of cause of action. The course
likewise dismissed the third-party complaint against Godofredo Rivera because he could
not be served with summons as the NBI declared him as a "fugitive from justice".

On June 15, 1989, the trial court rendered its decision, as follows:

"Premises considered, judgment is hereby rendered as follows:

"1. Ordering the defendants Citibank and IBAA (now PCI Bank), jointly and
severally, to pay the plaintiff the amount of P4,746,114.41 representing the
face value of plaintiff's Citibank Check No. SN-04867, with interest thereon
at the legal rate starting January 20, 1983, the date when the original
complaint was filed until the amount is fully paid, plus costs;

"2. On defendant Citibank's cross-claim: ordering the cross-defendant IBAA

(now PCI Bank) to reimburse defendant Citibank for whatever amount the
latter has paid or may pay to the plaintiff in accordance with next preceding
paragraph;

"3. The counterclaims asserted by the defendants against the plaintiff, as

well as that asserted by the cross-defendant against the cross-claimant are
dismissed, for lack of merits; and

"4. With costs against the defendants.

SO ORDERED."6

Not satisfied with the said decision, both defendants, Citibank and PCIBank, elevated
their respective petitions for review on certiorari to the Courts of Appeals. On March 27,
1995, the appellate court issued its judgment as follows:

"WHEREFORE, in view of the foregoing, the court AFFIRMS the appealed

decision with modifications.

The court hereby renderes judgment:

1. Dismissing the complaint in Civil Case No. 49287 insofar as defendant

Citibank N.A. is concerned;

2. Ordering the defendant IBAA now PCI Bank to pay the plaintiff the
amount of P4,746,114.41 representing the face value of plaintiff's Citibank
Check No. SN-04867, with interest thereon at the legal rate starting January
20, 1983, the date when the original complaint was filed until the amount is
fully paid;
 3. Dismissing the counterclaims asserted by the defendants against the
plaintiff as well as that asserted by the cross-defendant against the cross-
claimant, for lack of merits.

Costs against the defendant IBAA (now PCI Bank).

IT IS SO ORDERED."7

PCI Bank moved to reconsider the above-quoted decision of the Court of Appeals, while
Ford filed a "Motion for Partial Reconsideration." Both motions were denied for lack of
merit.

Separately, PCIBank and Ford filed before this Court, petitions for review by certiorari
under Rule 45.

In G.R. No. 121413, PCIBank seeks the reversal of the decision and resolution of the
Twelfth Division of the Court of Appeals contending that it merely acted on the instruction
of Ford and such casue of action had already prescribed.

PCIBank sets forth the following issues for consideration:

I. Did the respondent court err when, after finding that the petitioner acted on the
check drawn by respondent Ford on the said respondent's instructions, it
nevertheless found the petitioner liable to the said respondent for the full amount
of the said check.

II. Did the respondent court err when it did not find prescription in favor of the
petitioner.8

In a counter move, Ford filed its petition docketed as G.R. No. 121479, questioning the
same decision and resolution of the Court of Appeals, and praying for the
reinstatement in toto of the decision of the trial court which found both PCIBank and
Citibank jointly and severally liable for the loss.

In G.R. No. 121479, appellant Ford presents the following propositions for consideration:

I. Respondent Citibank is liable to petitioner Ford considering that:

1. As drawee bank, respondent Citibank owes to petitioner Ford, as the

drawer of the subject check and a depositor of respondent Citibank, an
absolute and contractual duty to pay the proceeds of the subject check only
to the payee thereof, the Commissioner of Internal Revenue.

2. Respondent Citibank failed to observe its duty as banker with respect to

the subject check, which was crossed and payable to "Payee's Account
Only."
 3. Respondent Citibank raises an issue for the first time on appeal; thus the
same should not be considered by the Honorable Court.

4. As correctly held by the trial court, there is no evidence of gross negligence

on the part of petitioner Ford.9

II. PCI Bank is liable to petitioner Ford considering that:

1. There were no instructions from petitioner Ford to deliver the proceeds of

the subject check to a person other than the payee named therein, the
Commissioner of the Bureau of Internal Revenue; thus, PCIBank's only
obligation is to deliver the proceeds to the Commissioner of the Bureau of
Internal Revenue.10

2. PCIBank which affixed its indorsement on the subject check ("All prior
indorsement and/or lack of indorsement guaranteed"), is liable as collecting
bank.11

3. PCIBank is barred from raising issues of fact in the instant proceedings.12

4. Petitioner Ford's cause of action had not prescribed.13

II. G.R. No. 128604

The same sysndicate apparently embezzled the proceeds of checks intended, this time,
to settle Ford's percentage taxes appertaining to the second quarter of 1978 and the first
quarter of 1979.

The facts as narrated by the Court of Appeals are as follows:

Ford drew Citibank Check No. SN-10597 on July 19, 1978 in the amount of
P5,851,706.37 representing the percentage tax due for the second quarter of 1978
payable to the Commissioner of Internal Revenue. A BIR Revenue Tax Receipt No.
28645385 was issued for the said purpose.

On April 20, 1979, Ford drew another Citibank Check No. SN-16508 in the amount of
P6,311,591.73, representing the payment of percentage tax for the first quarter of 1979
and payable to the Commissioner of Internal Revenue. Again a BIR Revenue Tax
Receipt No. A-1697160 was issued for the said purpose.

Both checks were "crossed checks" and contain two diagonal lines on its upper corner
between, which were written the words "payable to the payee's account only."

The checks never reached the payee, CIR. Thus, in a letter dated February 28, 1980,
the BIR, Region 4-B, demanded for the said tax payments the corresponding periods
above-mentioned.
As far as the BIR is concernced, the said two BIR Revenue Tax Receipts were
considered "fake and spurious". This anomaly was confirmed by the NBI upon the
initiative of the BIR. The findings forced Ford to pay the BIR a new, while an action was
filed against Citibank and PCIBank for the recovery of the amount of Citibank Check
Numbers SN-10597 and 16508.

The Regional Trial Court of Makati, Branch 57, which tried the case, made its findings
on the modus operandi of the syndicate, as follows:

"A certain Mr. Godofredo Rivera was employed by the plaintiff FORD as its General
Ledger Accountant. As such, he prepared the plaintiff's check marked Ex. 'A'
[Citibank Check No. Sn-10597] for payment to the BIR. Instead, however, fo
delivering the same of the payee, he passed on the check to a co-conspirator
named Remberto Castro who was a pro-manager of the San Andres Branch of
PCIB.* In connivance with one Winston Dulay, Castro himself subsequently
opened a Checking Account in the name of a fictitious person denominated as
'Reynaldo reyes' in the Meralco Branch of PCIBank where Dulay works as
Assistant Manager.

After an initial deposit of P100.00 to validate the account, Castro deposited a

worthless Bank of America Check in exactly the same amount as the first FORD
check (Exh. "A", P5,851,706.37) while this worthless check was coursed through
PCIB's main office enroute to the Central Bank for clearing, replaced this worthless
check with FORD's Exhibit 'A' and accordingly tampered the accompanying
documents to cover the replacement. As a result, Exhibit 'A' was cleared by
defendant CITIBANK, and the fictitious deposit account of 'Reynaldo Reyes' was
credited at the PCIB Meralco Branch with the total amount of the FORD check
Exhibit 'A'. The same method was again utilized by the syndicate in profiting from
Exh. 'B' [Citibank Check No. SN-16508] which was subsequently pilfered by Alexis
Marindo, Rivera's Assistant at FORD.

From this 'Reynaldo Reyes' account, Castro drew various checks distributing the
sahres of the other participating conspirators namely (1) CRISANTO BERNABE,
the mastermind who formulated the method for the embezzlement; (2) RODOLFO
R. DE LEON a customs broker who negotiated the initial contact between Bernabe,
FORD's Godofredo Rivera and PCIB's Remberto Castro; (3) JUAN VASTILLO who
assisted de Leon in the initial arrangements; (4) GODOFREDO RIVERA, FORD's
accountant who passed on the first check (Exhibit "A") to Castro; (5) REMERTO
CASTRO, PCIB's pro-manager at San Andres who performed the switching of
checks in the clearing process and opened the fictitious Reynaldo Reyes account
at the PCIB Meralco Branch; (6) WINSTON DULAY, PCIB's Assistant Manager at
its Meralco Branch, who assisted Castro in switching the checks in the clearing
process and facilitated the opening of the fictitious Reynaldo Reyes' bank account;
(7) ALEXIS MARINDO, Rivera's Assistant at FORD, who gave the second check
(Exh. "B") to Castro; (8) ELEUTERIO JIMENEZ, BIR Collection Agent who
 provided the fake and spurious revenue tax receipts to make it appear that the BIR
had received FORD's tax payments.

Several other persons and entities were utilized by the syndicate as conduits in the
disbursements of the proceeds of the two checks, but like the aforementioned
participants in the conspiracy, have not been impleaded in the present case. The
manner by which the said funds were distributed among them are traceable from
the record of checks drawn against the original "Reynaldo Reyes" account and
indubitably identify the parties who illegally benefited therefrom and readily indicate
in what amounts they did so."14

On December 9, 1988, Regional Trial Court of Makati, Branch 57, held drawee-bank,
Citibank, liable for the value of the two checks while adsolving PCIBank from any liability,
disposing as follows:

"WHEREFORE, judgment is hereby rendered sentencing defendant CITIBANK to

reimburse plaintiff FORD the total amount of P12,163,298.10 prayed for in its
complaint, with 6% interest thereon from date of first written demand until full
payment, plus P300,000.00 attorney's fees and expenses litigation, and to pay the
defendant, PCIB (on its counterclaim to crossclaim) the sum of P300,000.00 as
attorney's fees and costs of litigation, and pay the costs.

SO ORDERED."15

Both Ford and Citibank appealed to the Court of Appeals which affirmed, in toto, the
decision of the trial court. Hence, this petition.

Petitioner Ford prays that judgment be rendered setting aside the portion of the Court of
Appeals decision and its resolution dated March 5, 1997, with respect to the dismissal
of the complaint against PCIBank and holding Citibank solely responsible for the
proceeds of Citibank Check Numbers SN-10597 and 16508 for P5,851,706.73 and
P6,311,591.73 respectively.

Ford avers that the Court of Appeals erred in dismissing the complaint against defendant
PCIBank considering that:

I. Defendant PCIBank was clearly negligent when it failed to exercise the diligence
required to be exercised by it as a banking insitution.

II. Defendant PCIBank clearly failed to observe the diligence required in the
selection and supervision of its officers and employees.

III. Defendant PCIBank was, due to its negligence, clearly liable for the loss or
damage resulting to the plaintiff Ford as a consequence of the substitution of the
check consistent with Section 5 of Central Bank Circular No. 580 series of 1977.
 IV. Assuming arguedo that defedant PCIBank did not accept, endorse or negotiate
in due course the subject checks, it is liable, under Article 2154 of the Civil Code,
to return the money which it admits having received, and which was credited to it
its Central bank account.16

The main issue presented for our consideration by these petitions could be simplified as
follows: Has petitioner Ford the right to recover from the collecting bank (PCIBank) and
the drawee bank (Citibank) the value of the checks intended as payment to the
Commissioner of Internal Revenue? Or has Ford's cause of action already prescribed?

Note that in these cases, the checks were drawn against the drawee bank, but the title
of the person negotiating the same was allegedly defective because the instrument was
obtained by fraud and unlawful means, and the proceeds of the checks were not remitted
to the payee. It was established that instead of paying the checks to the CIR, for the
settlement of the approprite quarterly percentage taxes of Ford, the checks were diverted
and encashed for the eventual distribution among the mmbers of the syndicate. As to
the unlawful negotiation of the check the applicable law is Section 55 of the Negotiable
Instruments Law (NIL), which provides:

"When title defective -- The title of a person who negotiates an instrument is

defective within the meaning of this Act when he obtained the instrument, or any
signature thereto, by fraud, duress, or fore and fear, or other unlawful means, or
for an illegal consideration, or when he negotiates it in breach of faith or under
such circumstances as amount to a fraud."

Pursuant to this provision, it is vital to show that the negotiation is made by the perpetator
in breach of faith amounting to fraud. The person negotiating the checks must have gone
beyond the authority given by his principal. If the principal could prove that there was no
negligence in the performance of his duties, he may set up the personal defense to
escape liability and recover from other parties who. Though their own negligence,
alowed the commission of the crime.

In this case, we note that the direct perpetrators of the offense, namely the embezzlers
belonging to a syndicate, are now fugitives from justice. They have, even if temporarily,
escaped liability for the embezzlement of millions of pesos. We are thus left only with the
task of determining who of the present parties before us must bear the burden of loss of
these millions. It all boils down to thequestion of liability based on the degree of
negligence among the parties concerned.

Foremost, we must resolve whether the injured party, Ford, is guilty of the "imputed
contributory negligence" that would defeat its claim for reimbursement, bearing ing mind
that its employees, Godofredo Rivera and Alexis Marindo, were among the members of
the syndicate.
Citibank points out that Ford allowed its very own employee, Godofredo Rivera, to
negotiate the checks to his co-conspirators, instead of delivering them to the designated
authorized collecting bank (Metrobank-Alabang) of the payee, CIR. Citibank bewails the
fact that Ford was remiss in the supervision and control of its own employees, inasmuch
as it only discovered the syndicate's activities through the information given by the payee
of the checks after an unreasonable period of time.

PCIBank also blames Ford of negligence when it allegedly authorized Godofredo Rivera
to divert the proceeds of Citibank Check No. SN-04867, instead of using it to pay the
BIR. As to the subsequent run-around of unds of Citibank Check Nos. SN-10597 and
16508, PCIBank claims that the proximate cause of the damge to Ford lies in its own
officers and employees who carried out the fradulent schemes and the transactions.
These circumstances were not checked by other officers of the company including its
comptroller or internal auditor. PCIBank contends that the inaction of Ford despite the
enormity of the amount involved was a sheer negligence and stated that, as between
two innocent persons, one of whom must suffer the consequences of a breach of trust,
the one who made it possible, by his act of negligence, must bear the loss.

For its part, Ford denies any negligence in the performance of its duties. It avers that
there was no evidence presented before the trial court showing lack of diligence on the
part of Ford. And, citing the case of Gempesaw vs. Court of Appeals,17 Ford argues that
even if there was a finding therein that the drawer was negligent, the drawee bank was
still ordered to pay damages.

Furthermore, Ford contends the Godofredo rivera was not authorized to make any
representation in its behalf, specifically, to divert the proceeds of the checks. It adds that
Citibank raised the issue of imputed negligence against Ford for the first time on appeal.
Thus, it should not be considered by this Court.

On this point, jurisprudence regarding the imputed negligence of employer in a master-

servant relationship is instructive. Since a master may be held for his servant's wrongful
act, the law imputes to the master the act of the servant, and if that act is negligent or
wrongful and proximately results in injury to a third person, the negligence or wrongful
conduct is the negligence or wrongful conduct of the master, for which he is liable. 18 The
general rule is that if the master is injured by the negligence of a third person and by the
concuring contributory negligence of his own servant or agent, the latter's negligence is
imputed to his superior and will defeat the superior's action against the third person,
asuming, of course that the contributory negligence was the proximate cause of the
injury of which complaint is made.19

Accordingly, we need to determine whether or not the action of Godofredo Rivera, Ford's
General Ledger Accountant, and/or Alexis Marindo, his assistant, was the proximate
cause of the loss or damage. AS defined, proximate cause is that which, in the natural
and continuous sequence, unbroken by any efficient, intervening cause produces the
injury and without the result would not have occurred.20
It appears that although the employees of Ford initiated the transactions attributable to
an organized syndicate, in our view, their actions were not the proximate cause of
encashing the checks payable to the CIR. The degree of Ford's negligence, if any, could
not be characterized as the proximate cause of the injury to the parties.

The Board of Directors of Ford, we note, did not confirm the request of Godofredo Rivera
to recall Citibank Check No. SN-04867. Rivera's instruction to replace the said check
with PCIBank's Manager's Check was not in theordinary course of business which could
have prompted PCIBank to validate the same.

As to the preparation of Citibank Checks Nos. SN-10597 and 16508, it was established
that these checks were made payable to the CIR. Both were crossed checks. These
checks were apparently turned around by Ford's emploees, who were acting on their
own personal capacity.

Given these circumstances, the mere fact that the forgery was committed by a drawer-
payor's confidential employee or agent, who by virtue of his position had unusual
facilities for perpertrating the fraud and imposing the forged paper upon the bank, does
notentitle the bank toshift the loss to the drawer-payor, in the absence of some
circumstance raising estoppel against the drawer.21 This rule likewise applies to the
checks fraudulently negotiated or diverted by the confidential employees who hold them
in their possession.

With respect to the negligence of PCIBank in the payment of the three checks involved,
separately, the trial courts found variations between the negotiation of Citibank Check
No. SN-04867 and the misapplication of total proceeds of Checks SN-10597 and 16508.
Therefore, we have to scrutinize, separately, PCIBank's share of negligence when the
syndicate achieved its ultimate agenda of stealing the proceeds of these checks.

G.R. Nos. 121413 and 121479

Citibank Check No. SN-04867 was deposited at PCIBank through its Ermita Branch. It
was coursed through the ordinary banking transaction, sent to Central Clearing with the
indorsement at the back "all prior indorsements and/or lack of indorsements
guaranteed," and was presented to Citibank for payment. Thereafter PCIBank, instead
of remitting the proceeds to the CIR, prepared two of its Manager's checks and enabled
the syndicate to encash the same.

On record, PCIBank failed to verify the authority of Mr. Rivera to negotiate the checks.
The neglect of PCIBank employees to verify whether his letter requesting for the
replacement of the Citibank Check No. SN-04867 was duly authorized, showed lack of
care and prudence required in the circumstances.

Furthermore, it was admitted that PCIBank is authorized to collect the payment of

taxpayers in behalf of the BIR. As an agent of BIR, PCIBank is duty bound to consult its
principal regarding the unwarranted instructions given by the payor or its agent. As aptly
stated by the trial court, to wit:

"xxx. Since the questioned crossed check was deposited with IBAA [now
PCIBank], which claimed to be a depository/collecting bank of BIR, it has the
responsibility to make sure that the check in question is deposited in Payee's
account only.

xxx xxx xxx

As agent of the BIR (the payee of the check), defendant IBAA should receive
instructions only from its principal BIR and not from any other person especially so
when that person is not known to the defendant. It is very imprudent on the part of
the defendant IBAA to just rely on the alleged telephone call of the one Godofredo
Rivera and in his signature considering that the plaintiff is not a client of the
defendant IBAA."

It is a well-settled rule that the relationship between the payee or holder of commercial
paper and the bank to which it is sent for collection is, in the absence of an argreement
to the contrary, that of principal and agent.22 A bank which receives such paper for
collection is the agent of the payee or holder.23

Even considering arguendo, that the diversion of the amount of a check payable to the
collecting bank in behalf of the designated payee may be allowed, still such diversion
must be properly authorized by the payor. Otherwise stated, the diversion can be justified
only by proof of authority from the drawer, or that the drawer has clothed his agent with
apparent authority to receive the proceeds of such check.

Citibank further argues that PCI Bank's clearing stamp appearing at the back of the
questioned checks stating that ALL PRIOR INDORSEMENTS AND/OR LACK OF
INDORSEMENTS GURANTEED should render PCIBank liable because it made it pass
through the clearing house and therefore Citibank had no other option but to pay it. Thus,
Citibank had no other option but to pay it. Thus, Citibank assets that the proximate cause
of Ford's injury is the gross negligence of PCIBank. Since the questione dcrossed check
was deposited with PCIBank, which claimed to be a depository/collecting bank of the
BIR, it had the responsibility to make sure that the check in questions is deposited in
Payee's account only.

Indeed, the crossing of the check with the phrase "Payee's Account Only," is a warning
that the check should be deposited only in the account of the CIR. Thus, it is the duty of
the collecting bank PCIBank to ascertain that the check be deposited in payee's account
only. Therefore, it is the collecting bank (PCIBank) which is bound to scruninize the
check and to know its depositors before it could make the clearing indorsement "all prior
indorsements and/or lack of indorsement guaranteed".
In Banco de Oro Savings and Mortgage Bank vs. Equitable Banking Corporation, 24 we
ruled:

"Anent petitioner's liability on said instruments, this court is in full accord with the
ruling of the PCHC's Board of Directors that:

'In presenting the checks for clearing and for payment, the defendant made an
express guarantee on the validity of "all prior endorsements." Thus, stamped at
the back of the checks are the defedant's clear warranty: ALL PRIOR
ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED.
Without such warranty, plaintiff would not have paid on the checks.'

No amount of legal jargon can reverse the clear meaning of defendant's warranty.
As the warranty has proven to be false and inaccurate, the defendant is liable for
any damage arising out of the falsity of its representation."25

Lastly, banking business requires that the one who first cashes and negotiates the check
must take some percautions to learn whether or not it is genuine. And if the one cashing
the check through indifference or othe circumstance assists the forger in committing the
fraud, he should not be permitted to retain the proceeds of the check from the drawee
whose sole fault was that it did not discover the forgery or the defect in the title of the
person negotiating the instrument before paying the check. For this reason, a bank which
cashes a check drawn upon another bank, without requiring proof as to the identity of
persons presenting it, or making inquiries with regard to them, cannot hold the proceeds
against the drawee when the proceeds of the checks were afterwards diverted to the
hands of a third party. In such cases the drawee bank has a right to believe that the
cashing bank (or the collecting bank) had, by the usual proper investigation, satisfied
itself of the authenticity of the negotiation of the checks. Thus, one who encashed a
check which had been forged or diverted and in turn received payment thereon from the
drawee, is guilty of negligence which proximately contributed to the success of the fraud
practiced on the drawee bank. The latter may recover from the holder the money paid
on the check.26

Having established that the collecting bank's negligence is the proximate cause of the
loss, we conclude that PCIBank is liable in the amount corresponding to the proceeds of
Citibank Check No. SN-04867.

G.R. No. 128604

The trial court and the Court of Appeals found that PCIBank had no official act in the
ordinary course of business that would attribute to it the case of the embezzlement of
Citibank Check Numbers SN-10597 and 16508, because PCIBank did not actually
receive nor hold the two Ford checks at all. The trial court held, thus:
 "Neither is there any proof that defendant PCIBank contributed any official or
conscious participation in the process of the embezzlement. This Court is
convinced that the switching operation (involving the checks while in transit for
"clearing") were the clandestine or hidden actuations performed by the members
of the syndicate in their own personl, covert and private capacity and done without
the knowledge of the defendant PCIBank…"27

In this case, there was no evidence presented confirming the conscious particiapation
of PCIBank in the embezzlement. As a general rule, however, a banking corporation is
liable for the wrongful or tortuous acts and declarations of its officers or agents within the
course and scope of their employment.28 A bank will be held liable for the negligence of
its officers or agents when acting within the course and scope of their employment. It
may be liable for the tortuous acts of its officers even as regards that species of tort of
which malice is an essential element. In this case, we find a situation where the PCIBank
appears also to be the victim of the scheme hatched by a syndicate in which its own
management employees had particiapted.

The pro-manager of San Andres Branch of PCIBank, Remberto Castro, received

Citibank Check Numbers SN-10597 and 16508. He passed the checks to a co-
conspirator, an Assistant Manager of PCIBank's Meralco Branch, who helped Castro
open a Checking account of a fictitious person named "Reynaldo Reyes." Castro
deposited a worthless Bank of America Check in exactly the same amount of Ford
checks. The syndicate tampered with the checks and succeeded in replacing the
worthless checks and the eventual encashment of Citibank Check Nos. SN 10597 and
16508. The PCIBank Ptro-manager, Castro, and his co-conspirator Assistant Manager
apparently performed their activities using facilities in their official capacity or authority
but for their personal and private gain or benefit.

A bank holding out its officers and agents as worthy of confidence will not be permitted
to profit by the frauds these officers or agents were enabled to perpetrate in the apparent
course of their employment; nor will t be permitted to shirk its responsibility for such
frauds, even though no benefit may accrue to the bank therefrom. For the general rule
is that a bank is liable for the fraudulent acts or representations of an officer or agent
acting within the course and apparent scope of his employment or authority. 29 And if an
officer or employee of a bank, in his official capacity, receives money to satisfy an
evidence of indebetedness lodged with his bank for collection, the bank is liable for his
misappropriation of such sum.30

Moreover, as correctly pointed out by Ford, Section 531 of Central Bank Circular No. 580,
Series of 1977 provides that any theft affecting items in transit for clearing, shall be for
the account of sending bank, which in this case is PCIBank.

But in this case, responsibility for negligence does not lie on PCIBank's shoulders alone.
The evidence on record shows that Citibank as drawee bank was likewise negligent in
the performance of its duties. Citibank failed to establish that its payment of Ford's checjs
were made in due course and legally in order. In its defense, Citibank claims the
genuineness and due execution of said checks, considering that Citibank (1) has no
knowledge of any informity in the issuance of the checks in question (2) coupled by the
fact that said checks were sufficiently funded and (3) the endorsement of the Payee or
lack thereof was guaranteed by PCI Bank (formerly IBAA), thus, it has the obligation to
honor and pay the same.

For its part, Ford contends that Citibank as the drawee bank owes to Ford an absolute
and contractual duty to pay the proceeds of the subject check only to the payee thereof,
the CIR. Citing Section 6232 of the Negotiable Instruments Law, Ford argues that by
accepting the instrument, the acceptro which is Citibank engages that it will pay
according to the tenor of its acceptance, and that it will pay only to the payee, (the CIR),
considering the fact that here the check was crossed with annotation "Payees Account
Only."

As ruled by the Court of Appeals, Citibank must likewise answer for the damages
incurred by Ford on Citibank Checks Numbers SN 10597 and 16508, because of the
contractual relationship existing between the two. Citibank, as the drawee bank
breached its contractual obligation with Ford and such degree of culpability contributed
to the damage caused to the latter. On this score, we agree with the respondent court's
ruling.

Citibank should have scrutinized Citibank Check Numbers SN 10597 and 16508 before
paying the amount of the proceeds thereof to the collecting bank of the BIR. One thing
is clear from the record: the clearing stamps at the back of Citibank Check Nos. SN
10597 and 16508 do not bear any initials. Citibank failed to notice and verify the absence
of the clearing stamps. Had this been duly examined, the switching of the worthless
checks to Citibank Check Nos. 10597 and 16508 would have been discovered in time.
For this reason, Citibank had indeed failed to perform what was incumbent upon it, which
is to ensure that the amount of the checks should be paid only to its designated payee.
The fact that the drawee bank did not discover the irregularity seasonably, in our view,
consitutes negligence in carrying out the bank's duty to its depositors. 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.33

Thus, invoking the doctrine of comparative negligence, we are of the view that both
PCIBank and Citibank failed in their respective obligations and both were negligent in
the selection and supervision of their employees resulting in the encashment of Citibank
Check Nos. SN 10597 AND 16508. Thus, we are constrained to hold them equally liable
for the loss of the proceeds of said checks issued by Ford in favor of the CIR.
Time and again, we have stressed that banking business is so impressed with public
interest where the trust and confidence of the public in general is of paramount
umportance such that the appropriate standard of diligence must be very high, if not the
highest, degree of diligence.34 A bank's liability as obligor is not merely vicarious but
primary, wherein the defense of exercise of due diligence in the selection and
supervision of its employees is of no moment.35

Banks handle daily transactions involving millions of pesos.36 By the very nature of their
work the degree of responsibility, care and trustworthiness expected of their employees
and officials is far greater than those of ordinary clerks and employees. 37 Banks are
expected to exercise the highest degree of diligence in the selection and supervision of
their employees.38

On the issue of prescription, PCIBank claims that the action of Ford had prescribed
because of its inability to seek judicial relief seasonably, considering that the alleged
negligent act took place prior to December 19, 1977 but the relief was sought only in
1983, or seven years thereafter.

The statute of limitations begins to run when the bank gives the depositor notice of the
payment, which is ordinarily when the check is returned to the alleged drawer as a
voucher with a statement of his account,39 and an action upon a check is ordinarily
governed by the statutory period applicable to instruments in writing.40

Our laws on the matter provide that the action upon a written contract must be brought
within ten year from the time the right of action accrues.41 hence, the reckoning time for
the prescriptive period begins when the instrument was issued and the corresponding
check was returned by the bank to its depositor (normally a month thereafter). Applying
the same rule, the cause of action for the recovery of the proceeds of Citibank Check
No. SN 04867 would normally be a month after December 19, 1977, when Citibank paid
the face value of the check in the amount of P4,746,114.41. Since the original complaint
for the cause of action was filed on January 20, 1984, barely six years had lapsed. Thus,
we conclude that Ford's cause of action to recover the amount of Citibank Check No.
SN 04867 was seasonably filed within the period provided by law.

Finally, we also find thet Ford is not completely blameless in its failure to detect the fraud.
Failure on the part of the depositor to examine its passbook, statements of account, and
cancelled checks and to give notice within a reasonable time (or as required by statute)
of any discrepancy which it may in the exercise of due care and diligence find therein,
serves to mitigate the banks' liability by reducing the award of interest from twelve
percent (12%) to six percent (6%) per annum. As provided in Article 1172 of the Civil
Code of the Philippines, respondibility arising from negligence in the performance of
every kind of obligation is also demandable, but such liability may be regulated by the
courts, according to the circumstances. In quasi-delicts, the contributory negligence of
the plaintiff shall reduce the damages that he may recover.42
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals in CA-G.R.
CV No. 25017 are AFFIRMED. PCIBank, know formerly as Insular Bank of Asia and
America, id declared solely responsible for the loss of the proceeds of Citibank Check
No SN 04867 in the amount P4,746,114.41, which shall be paid together with six percent
(6%) interest thereon to Ford Philippines Inc. from the date when the original complaint
was filed until said amount is fully paid.

However, the Decision and Resolution of the Court of Appeals in CA-G.R. No. 28430
are MODIFIED as follows: PCIBank and Citibank are adjudged liable for and must share
the loss, (concerning the proceeds of Citibank Check Numbers SN 10597 and 16508
totalling P12,163,298.10) on a fifty-fifty ratio, and each bank is ORDERED to pay Ford
Philippines Inc. P6,081,649.05, with six percent (6%) interest thereon, from the date the
complaint was filed until full payment of said amount.1âwphi1.nêt

Costs against Philippine Commercial International Bank and Citibank N.A.

SO ORDERED.
GREGORIO H. REYES and CONSUELO PUYAT-REYES, petitioners, vs. THE HON. COURT OF
APPEALS and FAR EAST BANK AND TRUST COMPANY, respondents.
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 Puyat-Reyes
against respondent Far East Bank and Trust Company.

FACTS: 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
Westpac-Sydney 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 Westpac-Sydney.
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 Pro-Ecclesia 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 Westpac-Sydney. 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 20 th 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 Westpac-Sydney 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.
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS and CARLOS
CAJES, respondents.

This is a petition for certiorari seeking to reverse the decision [1] and resolution[2] of the Court of Appeals dated
August 30, 1996 and April 23, 1997, respectively, declaring private respondent Carlos Cajes the owner of 19.4
hectares of land embraced in TCT No. 10101 and ordering the segregation and reconveyance of said portion to
him.

FACTS: The land in dispute, consisting of 19.4 hectares located in San Miguel, Province
of Bohol, was originally owned by Ulpiano Mumar, whose ownership since 1917 was
evidenced by Tax Declaration No. 3840.[3] In 1950,[4] Mumar sold the land to private
respondent who was issued Tax Declaration No. R-1475 that same year.[5] The tax
declaration was later superseded by Tax Declaration Nos. R-799 issued in 1961[6] and
D-2247 issued in 1974.[7] Private respondent occupied and cultivated the said
land,[8] planting cassava and camote in certain portions of the land.[9]

In 1969, unknown to private respondent, Jose Alvarez succeeded in obtaining the

registration of a parcel of land with an area of 1,512,468.00 square meters,[10] in his name
for which he was issued OCT No. 546 on June 16, 1969.[11] The parcel of land included
the 19.4 hectares occupied by private respondent. Alvarez never occupied nor
introduced improvements on said land.[12]

In 1972, Alvarez sold the land to the spouses Gaudencio and Rosario Beduya to whom
TCT No. 10101 was issued.[13] That same year, the spouses Beduya obtained a loan
from petitioner Development Bank of the Philippines for P526,000.00 and, as security,
mortgaged the land covered by TCT No. 10101 to the bank.[14] In 1978, the SAAD
Investment Corp., and the SAAD Agro-Industries, Inc., represented by Gaudencio
Beduya, and the spouses Beduya personally executed another mortgage over the land
in favor of petitioner to secure a loan of P1,430,000.00.[15] Sdjad

The spouses Beduya later failed to pay their loans, as a result of which, the mortgage
on the property was foreclosed.[16] In the resulting foreclosure sale held on January 31,
1985, petitioner was the highest bidder. [17] As the spouses Beduya failed to redeem the
property, petitioner consolidated its ownership.[18]

It appears that private respondent had also applied for a loan from petitioner in 1978,
offering his 19.4 hectare property under Tax Declaration No. D-2247 as security for the
loan. As part of the processing of the application, a representative of petitioner, Patton
R. Olano, inspected the land and appraised its value.

Private respondents loan application was later approved by petitioner. [19] However after
releasing the amount of the loan to private respondent, petitioner found that the land
mortgaged by private respondent was included in the land covered by TCT No. 10101
in the name of the spouses Beduya. Petitioner, therefore, cancelled the loan and
demanded immediate payment of the amount.[20] Private respondent paid the loan to
petitioner for which the former was issued a Cancellation of Mortgage, dated March 18,
1981, releasing the property in question from encumbrance.[21]

Sometime in April of 1986, more than a year after the foreclosure sale, a re-appraisal of
the property covered by TCT No. 10101 was conducted by petitioners representatives.
It was then discovered that private respondent was occupying a portion of said land.
Private respondent was informed that petitioner had become the owner of the land he
was occupying, and he was asked to vacate the property. As private respondent refused
to do so,[22] petitioner filed a complaint for recovery of possession with damages against
him. The case was assigned to Branch 1 of the Regional Trial Court, Tagbilaran
City,[23] which after trial, rendered a decision, dated August 22, 1989, declaring petitioner
the lawful owner of the entire land covered by TCT No. 10101 on the ground that the
decree of registration was binding upon the land.[24] The dispositive portion of the
decision reads:

WHEREFORE, foregoing considered, the court renders judgment:

1.......Declaring plaintiff bank Development Bank of the Philippines the true and legal
owner of the land in question covered by TCT No. 10101 farm of Gaudencio Beduya;

2.......Dismissing defendants counterclaim; Sppedsc

3.......Ordering defendant to vacate from the land in question; the portion of which he
claims to belong to him for without basis in fact and law;

4.......Ordering defendant, his agents or any person representing him or those who may
claim substantial rights on the land to vacate therefrom, cease and desist from disturbing,
molesting and interfering plaintiffs possession of the land in question, and from
committing any such act as would tend to mitigate, deny or deprive plaintiff of its
ownership and possession over said land.

SO ORDERED.

On appeal, the Court of Appeals reversed and gave judgment for private respondent,
declaring him the owner of the 19.4 hectares of land erroneously included in TCT No.
10101. The dispositive portion of the appellate courts decision reads:

WHEREFORE, the appealed decision is hereby REVERSED AND SET ASIDE. A new
decision is hereby rendered:

1. Dismissing the complaint.

2. Declaring the disputed 19.4000 hectares of land embraced in TCT 10101 as exclusively
belonging to defendant-appellant, ordering its segregation from plaintiff-appellees title
and its reconveyance to appellant.

No pronouncement as to costs.

SO ORDERED.[25]
Petitioner moved for a reconsideration but its motion was denied in a resolution dated
April 23, 1997.[26] Hence this petition.

Petitioner contends that:

I.......THE DECISION OF THE RESPONDENT COURT IS NOT IN ACCORD WITH THE

APPLICABLE PROVISIONS OF LAW (Sections 38 and 46 of ACT 496) AND THE
APPLICABLE DECISIONS OF THE SUPREME COURT, PARTICULARLY IN THE
CASE OF BENIN VS. TUASON, 57 SCRA 531.

II.......THE RESPONDENT COURT OVERLOOKED THE ISSUES ABOUT THE DBP

BEING AN INNOCENT MORTGAGEE FOR VALUE OF THE LAND IN QUESTION
AND OF HAVING PURCHASED LATER THE SAME DURING A PUBLIC AUCTION
SALE.

III.THE RESPONDENT COURTS RULING DECLARING DBP IN ESTOPPEL IS

ILLOGICAL.[27]

First. Petitioner invokes the ruling of this Court in Benin v. Tuason[28] in support of its
claim that its predecessor-in-interest, Jose Alvarez, became the owner of the land by
virtue of the decree of registration issued in his name. In Benin, three sets of plaintiffs
filed separate complaints against Mariano Severo Tuason and J.M. Tuason & Co., Inc.,
praying for the cancellation of OCT No. 735 covering two parcels of land called the Sta.
Mesa Estate, or Parcel 1, with an area of 8,798,617.00 square meters, and the Diliman
Estate, or Parcel 2, with an area of 15,961,246.00 square meters. They asked that they
be declared the owners and lawful possessors of said lands.

Benin is distinguished from this case. In the first place, Benin involved vast tracts of
lands which had already been subdivided and bought by innocent purchasers for value
and in good faith at the time the claimants obtained registration. Secondly, when the
claimants ancestors occupied the lands in question and declared them for tax purposes
in 1944, the lands were already covered by the tax declarations in the name of J. M.
Tuason & Co., Inc. In 1914, OCT No. 735 was issued in the name of Tuason so that,
from that time on, no possession could defeat the title of the registered owners of the
land. Thirdly, the validity of OCT No. 735 had already been recognized by this Court in
several cases[29] and, as a result thereof, the transfer certificates of title acquired by the
innocent purchasers for value were also declared valid. It was held that neither could the
claimants file an action to annul these titles for not only had these actions prescribed,
but the fact was that the claimants were also barred from doing so by laches, having filed
the complaint only in 1955, or 41 years after the issuance of OCT No. 735 to J.M. Tuason
& Co., Inc. Thus, it was not solely the decree of registration which was considered in
resolving the Benin case. What was considered decisive was the valid title or right of
ownership of J. M. Tuason & Co., Inc. and that of the other innocent purchasers for value
and in good faith compared to the failure of the claimants to show their right to own or
possess the questioned properties.
Petitioner maintains that the possession by private respondent and his predecessor-in-
interest of the 19.4 hectares of land for more than 30 years cannot overcome the decree
of registration issued in favor of its predecessor-in-interest Jose Alvarez. Petitioner
quotes the following statement in the Benin case:

It follows also that the allegation of prescriptive title in favor of plaintiffs does
not suffice to establish a cause of action. If such prescription was
completed before the registration of the land in favor of the Tuasons, the
resulting prescriptive title was cut off and extinguished by the decree of
registration. If, on the contrary, the prescription was either begun or
completed after the decree of registration, it conferred no title because, by
express provision of law, prescription can not operate against the registered
owner (Act 496).[30]

Petitioner would thus insist that, by virtue of the decree of registration, Jose Alvarez and
those claiming title from him (i.e., the spouses Beduya) acquired ownership of the 19.4
hectares of land, despite the fact that they neither possessed nor occupied these lands.

This view is mistaken. A consideration of the cases shows 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 land not to the right of ownership thereof which was not annotated
on the certificate of title issued thereon. Thus, Act No. 496 provides:

Sec. 39. Every person receiving a certificate of title in pursuance of a decree

of registration, and every subsequent purchaser of registered land who takes
a certificate of title for value in good faith shall hold the same free of all
encumbrances except those noted on said certificate, and any of the
following encumbrances which may be subsisting, namely:

First. Liens, claims, or rights arising or existing under the laws of Constitution
of the United States or of the Philippine Islands which the statutes of the
Philippine Islands cannot require to appear of record in the Registry.

Second. Taxes within two years after the same became due and payable.

Third. Any public highway, way, private way established by law, or any
Government irrigation canal or lateral thereof, where the certificate of title
does not state that the boundaries of such highway, way, or irrigation canal
or lateral thereof, have been determined.

But if there are easements or other rights appurtenant to a parcel of

registered land which for any reason have failed to be registered, such
easements or rights shall remain so appurtenant notwithstanding such
failure, and shall be held to pass with the land until cut off or extinguished by
the registration of the servient estate, or in any other manner.
Hence, in Cid v. Javier,[31] it was helds:

. . . Consequently, even conceding arguendo that such an easement has

been acquired, it had been cut off and extinguished by the registration of the
servient estate under the Torrens system without the easement being
annotated on the corresponding certificate of title, pursuant to Section 39 of
the Land Registration Act.

This principle was reiterated in Purugganan v. Paredes[32] which also involved an

easement of light and view that was not annotated on the certificate of title of the servient
estate. Scedp

But to make this principle applicable to a situation wherein title acquired by a person
through acquisitive prescription would be considered cut off and extinguished by a
decree of registration would run counter to established jurisprudence before and after
the ruling in Benin. Indeed, registration has never been a mode of acquiring ownership
over immovable property. As early as 1911, in the case of City of Manila v. Lack,[33] the
Court already ruled on the purpose of registration of lands, viz.:

The Court of Land Registration was created for a single purpose. The Act is
entitled "An Act to provide for the adjudication and registration of titles to
lands in the Philippine Islands." The sole purpose of the Legislature in its
creation was to bring the land titles of the Philippine Islands under one
comprehensive and harmonious system, the cardinal features of which are
indefeasibility of title and the intervention of the State as a prerequisite to the
creation and transfer of titles and interest, with the resultant increase in the
use of land as a business asset by reason of the greater certainty and
security of title. It does not create a title nor vest one. It simply confirms a
title already created and already vested, rendering it forever indefeasible. . .

Again, in the case of Angeles v. Samia[34] where land was erroneously registered in favor
of persons who neither possessed nor occupied the same, to the prejudice of the actual
occupant, the Court held:

. . . The purpose of the Land Registration Act, as this court has had occasion
to so state more than once, is not to create or vest title, but to confirm and
register title already created and already vested, and of course, said original
certificate of title No. 8995 could not have vested in the defendant more title
than what was rightfully due her and her coowners. It appearing that said
certificate granted her much more than she expected, naturally to the
prejudice of another, it is but just that the error, which gave rise to said
anomaly, be corrected (City of Manila vs. Lack, 19 Phil., 324). The defendant
and her coowners knew or, at least, came to know that it was through error
that the original certificate of title in question was issued by the court which
heard cadastral case No. 11 of Bacolor, not only in or prior to March, 1933,
 but from the time said certificate was issued in their favor, that is, from
December 15, 1921. This is evidenced by the fact that, ever since, they
remained passive without even attempting to make the least showing of
ownership over the land in question until after the lapse of more than eleven
years. The Land Registration Act as well as the Cadastral Act protects only
the holders of a title in good faith and does not permit its provisions to be
used as a shield for the commission of fraud, or that one should enrich
himself at the expense of another (Gustilo vs. Maravilla, 48 Phil., 442; Angelo
vs. Director of Lands, 49 Phil., 838). The above-stated Acts do not give
anybody, who resorts to the provisions thereof, a better title than he really
and lawfully has. If he happened to obtain it by mistake or to secure, to the
prejudice of his neighbor, more land than he really owns, with or without bad
faith on his part, the certificate of title, which may have been issued to him
under the circumstances, may and should be cancelled or corrected
(Legarda and Prieto vs. Saleeby, 31 Phil., 590). This is permitted by section
112 of Act No. 496, which is applicable to the Cadastral Act because it is so
provided expressly by the provisions of section 11 of the latter Act. It cannot
be otherwise because, as stated in the case of Domingo vs. Santos,
Ongsiako, Lim y Cia. (55 Phil., 361), errors in the plans of lands sought to be
registered in the registry and reproduced in the certificate of title issued later,
do not annul the decree of registration on the ground that it is not the plan
but the land itself which is registered in the registry. In other words, if the plan
of an applicant for registration or claimant in a cadastral case alleges that
the land referred to in said plan is 100 or 1,000 hectares, and the land which
he really owns and desires to register in the registry is only 80 ares, he
cannot claim to be the owner of the existing difference if afterwards he is
issued a certificate of title granting him said area of 100 or 1,000
hectares.[35] Edpsc

The principle laid down in this 1938 case remains the prevailing doctrine, its latest
application being in the case of Reyes v. Court of Appeals [36] wherein we ruled that the
fact that a party was able to secure a title in his favor did not operate to vest ownership
upon her of the property.

In the present case, private respondent has been in actual, open, peaceful and
continuous possession of the property since 1950. This fact was corroborated by the
testimony of Eleuterio Cambangay who personally knew that Ulpiano Mumar transferred
the land covered by Tax Declaration No. 3840[37] in favor of private respondent in
1950.[38] Private respondents claim based on actual occupation of the land is bolstered
by Tax Declaration Nos. R-1475, R-799 and D-2247[39] which were issued in his name
in 1950, 1961 and 1974, respectively. Together with his actual possession of the land,
these tax declarations constitute strong evidence of ownership of the land occupied by
him. As we said in the case of Republic vs. Court of Appeals:[40]
 Although tax declarations or realty tax payments of property are not
conclusive evidence of ownership, nevertheless, they are good indicia of
possession in the concept of owner for no one in his right mind would be
paying taxes for a property that is not in his actual or at least constructive
possession. They constitute at least proof that the holder has a claim of title
over the property. The voluntary declaration of a piece of property for taxation
purposes manifests not only ones sincere and honest desire to obtain title to
the property and announces his adverse claim against the State and all other
interested parties, but also the intention to contribute needed revenues to
the Government. Such an act strengthens ones bona fide claim of
acquisition of ownership.

More importantly, it was established that private respondent, having been in possession
of the land since 1950, was the owner of the property when it was registered by Jose
Alvarez in 1969, his possession tacked to that of his predecessor-in-interest, Ulpiano
Mumar, which dates back to 1917.[41] Clearly, more than 30 years had elapsed before a
decree of registration was issued in favor of Jose Alvarez. This uninterrupted adverse
possession of the land for more than 30 years could only ripen into ownership of the land
through acquisitive prescription which is a mode of acquiring ownership and other real
rights over immovable property. Prescription requires public, peaceful, uninterrupted and
adverse possession of the property in the concept of an owner for ten (10) years, in case
the possession is in good faith and with a just title. Such prescription is called ordinary
prescription, as distinguished from extraordinary prescription which requires possession
for 30 years in case possession is without just title or is not in good faith.[42] Edp

In contrast to private respondent, it has been shown that neither Jose Alvarez nor the
spouses Beduya were at any time in possession of the property in question. In fact,
despite knowledge by Gaudencio Beduya that private respondent occupied this 19.4
hectares included in the area covered by TCT No. 10101,[43] he never instituted any
action to eject or recover possession from the latter. Hence, it can be concluded that
neither Jose Alvarez nor the spouses Beduya ever exercised any right of ownership over
the land. The fact of registration in their favor never vested in them the ownership of the
land in dispute. "If a person obtains a title under the Torrens system, which includes by
mistake or oversight land which can no longer be registered under the system, he does
not, by virtue of the said certificate alone, become the owner of the lands illegally
included."[44]

Considering the circumstances pertaining in this case, therefore, we hold that ownership
of the 19.4 hectares of land presently occupied by private respondent was already vested
in him and that its inclusion in OCT No. 546 and, subsequently, in TCT No. 10101, was
erroneous. Accordingly, the land in question must be reconveyed in favor of private
respondent, the true and actual owner thereof, reconveyance being clearly the proper
remedy in this case.
 "The true owner may bring an action to have the ownership or title to the land
judicially settled and the Court in the exercise of its equity jurisdiction, without
ordering the cancellation of the Torrens title issued upon the patent, may
direct the defendants, the registered owner to reconvey the parcel of land to
the plaintiff who has been found to be the true owner thereof." (Vital vs.
Amore, 90 Phil. 955) "The reconveyance is just and proper in order to
terminate the intolerable anomaly that the patentees should have a torrens
title for the land which they and their predecessors never possessed which
has been possessed by Novo in the concept of owner." (Bustarga v. Novo,
129 SCRA 125)[45]

Second. Generally, an action for reconveyance based on an implied or constructive

trust, such as the instant case, prescribes in 10 years from the date of issuance of decree
of registration.[46] However, this rule does not apply when the plaintiff is in actual
possession of the land. Thus, it has been held: Misedp

. . . [A]n action for reconveyance of a parcel of land based on implied or

constructive trust prescribes in ten years, the point of reference being the
date of registration of the deed or the date of the issuance of the certificate
of title over the property, but this rule applies only when the plaintiff or the
person enforcing the trust is not in possession of the property, since if a
person claiming to be the owner thereof is in actual possession of the
property, as the defendants are in the instant case, the right to seek
reconveyance, which in effect seeks to quiet title to the property, does not
prescribe. The reason for this is that one who is in actual possession of a
piece of land claiming to be the owner thereof may wait until his possession
is disturbed or his title is attacked before taking steps to vindicate his right,
the reason for the rule being, that his undisturbed possession gives him a
continuing right to seek the aid of a court of equity to ascertain and determine
the nature of the adverse claim of a third party and its effect on his own title,
which right can be claimed only by one who is in possession.[47]

Having been the sole occupant of the land in question, private respondent may seek
reconveyance of his property despite the lapse of more than 10 years.

Nor is there any obstacle to the determination of the validity of TCT No. 10101. It is true
that the indefeasibility of torrens titles cannot be collaterally attacked. In the instant case,
the original complaint is for recovery of possession filed by petitioner against private
respondent, not an original action filed by the latter to question the validity of TCT No.
10101 on which petitioner bases its right. To rule on the issue of validity in a case for
recovery of possession is tantamount to a collateral attack. However, it should not be
overlooked that private respondent filed a counterclaim against petitioner, claiming
ownership over the land and seeking damages. Hence, we could rule on the question of
the validity of TCT No. 10101 for the counterclaim can be considered a direct attack on
the same. "A counterclaim is considered a complaint, only this time, it is the original
defendant who becomes the plaintiff. . . . It stands on the same footing and is to be tested
by the same rules as if it were an independent action."[48] In an analogous case,[49] we
ruled on the validity of a certificate of title despite the fact that the original action instituted
before the lower court was a case for recovery of possession. The Court reasoned that
since all the facts of the case are before it, to direct the party to institute cancellation
proceedings would be needlessly circuitous and would unnecessarily delay the
termination of the controversy which has already dragged on for 20 years.

Third. Petitioner nonetheless contends that an action for reconveyance does not lie
against it, because it is an innocent purchaser for value in the foreclosure sale held in
1985.

This contention has no merit. Sec. 38 of Act No. 496, the Land Registration Act, provides:

If the court after hearing finds that the applicant or adverse claimant has title
as stated in his application or adverse claim and proper for registration, a
decree of confirmation and registration shall be entered. Every decree of
registration shall bind the land, and quiet title thereto, subject only to the
exceptions stated in the following section. It shall be conclusive upon and
against all persons, including the Insular Government and all the branches
thereof, whether mentioned by name in the application, notice, or citation, or
included in the general description "To all whom it may concern." Such
decree shall not be opened by reason of the absence, infancy, or other
disability of any person affected thereby, nor by any proceeding in any court
for reversing judgments or decrees; subject, however, to the right of any
person deprived of land or of any estate or interest therein by decree of
registration obtained by fraud to file in the competent Court of First Instance
a petition for review within one year after entry of the decree, provided no
innocent purchaser for value has acquired an interest. Upon the expiration
of said term of one year, every decree or certificate of title issued in
accordance with this section shall be incontrovertible. If there is any such
purchaser, the decree of registration shall not be opened, but shall remain in
full force and effect forever, subject only to the right of appeal hereinbefore
provided: Provided, however, That no decree or certificate of title issued to
persons not parties to the appeal shall be cancelled or annulled. But any
person aggrieved by such decree in any case may pursue his remedy by
action for damages against the applicant or any other person for fraud in
procuring the decree. Whenever the phrase "innocent purchaser for value"
or an equivalent phrase occurs in this Act, it shall be deemed to include an
innocent lessee, mortgagee, or other encumbrancer for value. (As amended
by Sec. 3, Act 3621; and Sec. 1, Act No. 3630.)

Succinctly put, 38 provides that a certificate of title is conclusive and binding upon the
whole world. Consequently, a buyer need not look behind the certificate of title in order
to determine who is the actual owner of the land. However, this is subject to the right of
a person deprived of land through fraud to bring an action for reconveyance, provided
that it does not prejudice the rights of an innocent purchaser for value and in good faith.
"It is a condition sine qua non for an action for reconveyance to prosper that the property
should not have passed to the hands of an innocent purchaser for value." [50] The same
rule applies to mortgagees, like petitioner. Thus, we held:

Where the certificate of title is in the name of the mortgagor when the land is
mortgaged, the innocent mortgagee for value has the right to rely on what
appears on the certificate of title. In the absence of anything to excite
suspicion, said mortgagee is under no obligation to look beyond the
certificate and investigate the title of the mortgagor appearing on the face of
said certificate. Although Article 2085 of the Civil Code provides that absolute
ownership of the mortgaged property by the mortgagor is essential, the
subsequent declaration of a title as null and void is not a ground for nullifying
the mortgage right of a mortgagee in good faith.[51]

The evidence before us, however, indicates that petitioner is not a mortgagee in good
faith. To be sure, an innocent mortgagee is not expected to conduct an exhaustive
investigation on the history of the mortgagors title. Nonetheless, especially in the case
of a banking institution, a mortgagee 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 are the real owners thereof. 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.[52] Jjsc

In this case, petitioners representative, Patton R. Olano, admitted that he came to know
of the property for the first time in 1979 when he inspected it to determine whether the
portion occupied by private respondent and mortgaged by the latter to petitioner was
included in TCT No. 10101. This means that when the land was mortgaged by the
spouses Beduya in 1972, no investigation had been made by petitioner. It is clear,
therefore, that petitioner failed to exercise due care and diligence in establishing the
condition of the land as regards its actual owners and possessors before it entered into
the mortgage contract in 1972 with the Beduyas. Had it done so, it would not have failed
to discover that private respondent was occupying the disputed portion of 19.4 hectares.
For this reason, petitioner cannot be considered an innocent purchaser for value when
it bought the land covered by TCT No. 10101 in 1985 at the foreclosure sale.

Indeed, two circumstances negate petitioners claim that it was an innocent purchaser for
value when it bought the land in question, including the portion occupied by private
respondent: (1) petitioner was already informed by Gaudencio Beduya that private
respondent occupied a portion of the property covered by TCT No. 10101; and (2)
petitioners representative conducted an investigation of the property in 1979 to ascertain
whether the land mortgaged by private respondent was included in TCT No. 10101. In
other words, petitioner was already aware that a person other than the registered owner
was in actual possession of the land when it bought the same at the foreclosure sale. A
person who deliberately ignores a significant fact which would create suspicion in an
otherwise reasonable man is not an innocent purchaser for value. "It is a well-settled rule
that a purchaser cannot close his eyes to facts which should put a reasonable man upon
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."[53]

Petitioner deliberately disregarded both the fact that private respondent already
occupied the property and that he was claiming ownership over the same. It cannot feign
ignorance of private respondents claim to the land since the latter mortgaged the same
land to petitioner as security for the loan he contracted in 1978 on the strength of the tax
declarations issued under his name. Instead of inquiring into private respondents
occupation over the land, petitioner simply proceeded with the foreclosure sale,
pretending that no doubts surround the ownership of the land covered by TCT No.
10101. Considering these circumstances, petitioner cannot be deemed an innocent
mortgagee/purchaser for value. As we ruled:

"The failure of appellees to take the ordinary precautions which a prudent

man would have taken under the circumstances, specially in buying a piece
of land in the actual, visible and public possession of another person, other
than the vendor, constitutes gross negligence amounting to bad faith.

In this connection, it has been held that where, as in this case, the land sold
is in the possession of a person other than the vendor, the purchaser is
required to go beyond the certificates of title and ma[k]e inquiries concerning
the rights of the actual possessor. (Citations omitted.)

....

One who purchases real property which is in the actual possession of

another should, at least, make some inquiry concerning the right of those in
possession. The actual possession by other than the vendor should, at least
put the purchaser upon inquiry. He can scarcely, in the absence of such
inquiry, be regarded as a bona fide purchaser as against such
possessors."[54]

Fourth. From the foregoing, we find that the resolution of the issue of estoppel will not
affect the outcome of this case. Petitioner claims that the fact that it approved a loan in
favor of private respondent and executed a mortgage contract covering the 19.4
hectares covered by tax declarations issued under private respondents name does not
mean that it is estopped from questioning the latters title. Petitioner accuses private
respondent of having made misrepresentations which led it to believe in his valid title
and ownership.
The claim has no basis. Private respondent made no misrepresentation with regard to
the land occupied by him as he is actually the real owner thereof. Moreover, when private
respondent entered into a mortgage contract with petitioner, his claim of ownership was
supported not only by the tax declarations but also by a certification of the Clerk of Court
of the Court of First Instance of Bohol that no civil, land registration or cadastral case
has been filed or instituted before the court affecting the validity of Tax Declaration No.
D-2247 covering the land located in Bugang, San Miguel, Bohol and declared in the
name of Carlos Cajes.[55] These documents were relied upon by private respondent in
support of his claim of ownership. We cannot consider the submission of these
documents as misrepresentations by private respondent as to the actual ownership of
the land. Rather, private respondent believed in good faith and with good reason that he
was the owner of the 19.4 hectares occupied by him.

As to the question of estoppel, we do not find petitioner to be estopped from questioning

private respondents title. "Estoppel in pais arises when one, by his acts, representations
or admission, or by his own silence when he ought to speak out, intentionally or through
culpable negligence, induces another to believe certain facts to exist and such other
rightfully relies and acts on such belief, so that he will be prejudiced if the former is
permitted to deny the existence of such facts."[56] In the case at bar, upon learning that
the land occupied by private respondent was also covered by TCT No. 10101, petitioner
immediately demanded full payment of the loan and thereafter cancelled the mortgage
contract, a fact that is admitted by private respondent himself.[57] Indeed, nothing in
record indicates that petitioner impliedly acquiesced to the validity of private respondents
title when it found out that the latter was occupying a portion of the land covered by TCT
No. 10101.

However, for reasons aforestated, we uphold private respondents ownership of 19.4

hectares occupied by him. As a necessary consequence thereof, such portion of land
included in TCT No. 10101 must be segregated and reconveyed in his favor.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED in toto.

SO ORDERED.
UNITED COCONUT PLANTERS BANK, petitioner, vs. TEOFILO C. RAMOS, respondent.
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.

FACTS: 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. XXX
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. XXX
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. XXX
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: xxx
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: xxx
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.

ISSUES (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-in-interest 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 a cause of action against
persons or parties who have disturbed his rights as an owner.[33] As an owner, he is one
who would be benefited or injured by the judgment, or who is entitled to the avails of the
suit[34] for an action for damages against one who disturbed his right of ownership.
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.