1. G.R. No. L-30511 February 14, 1980 respondent Overseas Bank of Manila.
respondent Overseas Bank of Manila. Respondent Central Bank claims that as of March 12, 1965, the
MANUEL M. SERRANO, petitioner,
vs.
CENTRAL BANK OF THE PHILIPPINES; OVERSEAS BANK OF MANILA; EMERITO M. RAMOS,
SUSANA B. RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS DELA RAMA, HORACIO DELA RAMA,
ANTONIO B. RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO LEDESMA, VICTORIA RAMOS
TANJUATCO, and TEOFILO TANJUATCO, respondents.
Rene Diokno for petitioner.
F.E. Evangelista & Glecerio T. Orsolino for respondent Central Bank of the Philippines.
Feliciano C. Tumale, Pacifico T. Torres and Antonio B. Periquet for respondent Overseas Bank of Manila.
Josefina G. Salonga for all other respondents.
CONCEPCION, JR., J.:
Petition for mandamus and prohibition, with preliminary injunction, that seeks the establishment of joint
and solidary liability to the amount of Three Hundred Fifty Thousand Pesos, with interest, against
respondent Central Bank of the Philippines and Overseas Bank of Manila and its stockholders, on the alleged
failure of the Overseas Bank of Manila to return the time deposits made by petitioner and assigned to him,
on the ground that respondent Central Bank failed in its duty to exercise strict supervision over respondent
Overseas Bank of Manila to protect depositors and the general public.1 Petitioner also prays that both
respondent banks be ordered to execute the proper and necessary documents to constitute all properties
fisted in Annex "7" of the Answer of respondent Central Bank of the Philippines in G.R. No. L-29352, entitled
"Emerita M. Ramos, et al vs. Central Bank of the Philippines," into a trust fund in favor of petitioner and all
other depositors of respondent Overseas Bank of Manila. It is also prayed that the respondents be
prohibited permanently from honoring, implementing, or doing any act predicated upon the validity or
efficacy of the deeds of mortgage, assignment. and/or conveyance or transfer of whatever nature of the
properties listed in Annex "7" of the Answer of respondent Central Bank in G.R. No. 29352.2
A sought for ex-parte preliminary injunction against both respondent banks was not given by this Court.
Undisputed pertinent facts are:
On October 13, 1966 and December 12, 1966, petitioner made a time deposit, for one year with 6%
interest, of One Hundred Fifty Thousand Pesos (P150,000.00) with the respondent Overseas Bank of Manila.
3 Concepcion Maneja also made a time deposit, for one year with 6-½% interest, on March 6, 1967, of Two
Hundred Thousand Pesos (P200,000.00) with the same respondent Overseas Bank of Manila.4
On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano, assigned and conveyed to
petitioner Manuel M. Serrano, her time deposit of P200,000.00 with respondent Overseas Bank of Manila.
5
Notwithstanding series of demands for encashment of the aforementioned time deposits from the
respondent Overseas Bank of Manila, dating from December 6, 1967 up to March 4, 1968, not a single one
of the time deposit certificates was honored by respondent Overseas Bank of Manila. 6
Respondent Central Bank admits that it is charged with the duty of administering the banking system of
the Republic and it exercises supervision over all doing business in the Philippines, but denies the
petitioner's allegation that the Central Bank has the duty to exercise a most rigid and stringent supervision
of banks, implying that respondent Central Bank has to watch every move or activity of all banks, including
Overseas Bank of Manila, while operating, was only on a limited degree of banking operations since the
Monetary Board decided in its Resolution No. 322, dated March 12, 1965, to prohibit the Overseas Bank of
Manila from making new loans and investments in view of its chronic reserve deficiencies against its deposit
liabilities. This limited operation of respondent Overseas Bank of Manila continued up to 1968.7
Respondent Central Bank also denied that it is guarantor of the permanent solvency of any banking
institution as claimed by petitioner. It claims that neither the law nor sound banking supervision requires
respondent Central Bank to advertise or represent to the public any remedial measures it may impose upon
chronic delinquent banks as such action may inevitably result to panic or bank "runs". In the years 1966-
1967, there were no findings to declare the respondent Overseas Bank of Manila as insolvent. 8
Respondent Central Bank likewise denied that a constructive trust was created in favor of petitioner and
his predecessor in interest Concepcion Maneja when their time deposits were made in 1966 and 1967 with
the respondent Overseas Bank of Manila as during that time the latter was not an insolvent bank and its
operation as a banking institution was being salvaged by the respondent Central Bank. 9
Respondent Central Bank avers no knowledge of petitioner's claim that the properties given by respondent
Overseas Bank of Manila as additional collaterals to respondent Central Bank of the Philippines for the
former's overdrafts and emergency loans were acquired through the use of depositors' money, including
that of the petitioner and Concepcion Maneja. 10
In G.R. No. L-29362, entitled "Emerita M. Ramos, et al. vs. Central Bank of the Philippines," a case was
filed by the petitioner Ramos, wherein respondent Overseas Bank of Manila sought to prevent respondent
Central Bank from closing, declaring the former insolvent, and liquidating its assets. Petitioner Manuel
Serrano in this case, filed on September 6, 1968, a motion to intervene in G.R. No. L-29352, on the ground
that Serrano had a real and legal interest as depositor of the Overseas Bank of Manila in the matter in
litigation in that case. Respondent Central Bank in G.R. No. L-29352 opposed petitioner Manuel Serrano's
motion to intervene in that case, on the ground that his claim as depositor of the Overseas Bank of Manila
should properly be ventilated in the Court of First Instance, and if this Court were to allow Serrano to
intervene as depositor in G.R. No. L-29352, thousands of other depositors would follow and thus cause an
avalanche of cases in this Court. In the resolution dated October 4, 1968, this Court denied Serrano's,
motion to intervene. The contents of said motion to intervene are substantially the same as those of the
present petition. 11
This Court rendered decision in G.R. No. L-29352 on October 4, 1971, which became final and executory
on March 3, 1972, favorable to the respondent Overseas Bank of Manila, with the dispositive portion to wit:
WHEREFORE, the writs prayed for in the petition are hereby granted and respondent
Central Bank's resolution Nos. 1263, 1290 and 1333 (that prohibit the Overseas Bank of
Manila to participate in clearing, direct the suspension of its operation, and ordering the
liquidation of said bank) are hereby annulled and set aside; and said respondent Central
Bank of the Philippines is directed to comply with its obligations under the Voting Trust
Agreement, and to desist from taking action in violation therefor. Costs against
respondent Central Bank of the Philippines. 12
Because of the above decision, petitioner in this case filed a motion for judgment in this case, praying for
a decision on the merits, adjudging respondent Central Bank jointly and severally liable with respondent
Overseas Bank of Manila to the petitioner for the P350,000 time deposit made with the latter bank, with all
interests due therein; and declaring all assets assigned or mortgaged by the respondents Overseas Bank
of Manila and the Ramos groups in favor of the Central Bank as trust funds for the benefit of petitioner and
other depositors. 13
By the very nature of the claims and causes of action against respondents, they in reality are recovery of
time deposits plus interest from respondent Overseas Bank of Manila, and recovery of damages against
1
respondent Central Bank for its alleged failure to strictly supervise the acts of the other respondent Bank
and protect the interests of its depositors by virtue of the constructive trust created when respondent
Central Bank required the other respondent to increase its collaterals for its overdrafts said emergency
loans, said collaterals allegedly acquired through the use of depositors money. These claims shoud be
ventilated in the Court of First Instance of proper jurisdiction as We already pointed out when this Court
denied petitioner's motion to intervene in G.R. No. L-29352. Claims of these nature are not proper in actions
for mandamus and prohibition as there is no shown clear abuse of discretion by the Central Bank in its
exercise of supervision over the other respondent Overseas Bank of Manila, and if there was, petitioner
here is not the proper party to raise that question, but rather the Overseas Bank of Manila, as it did in G.R.
No. L-29352. Neither is there anything to prohibit in this case, since the questioned acts of the respondent
Central Bank (the acts of dissolving and liquidating the Overseas Bank of Manila), which petitioner here
intends to use as his basis for claims of damages against respondent Central Bank, had been accomplished
a long time ago.

Furthermore, both parties overlooked one fundamental principle in the nature of bank deposits when the
petitioner claimed that there should be created a constructive trust in his favor when the respondent
Overseas Bank of Manila increased its collaterals in favor of respondent Central Bank for the former's
overdrafts and emergency loans, since these collaterals were acquired by the use of depositors' money.

Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All
kinds of bank deposits, whether fixed, savings, or current are to be treated as loans and are to be covered
by the law on loans. 14 Current and savings deposit are loans to a bank because it can use the same. The
petitioner here in making time deposits that earn interests with respondent Overseas Bank of Manila was
in reality a creditor of the respondent Bank and not a depositor. The respondent Bank was in turn a debtor
of petitioner. Failure of he respondent Bank to honor the time deposit is failure to pay s obligation as a
debtor and not a breach of trust arising from depositary's failure to return the subject matter of the deposit

WHEREFORE, the petition is dismissed for lack of merit, with costs against petitioner.

SO ORDERED.

2
 2. G.R. No. 104612 May 10, 1994
BANK OF THE PHILIPPINE ISLANDS (successor-in- interest of COMMERCIAL AND TRUST CO.),
petitioner,
vs.
HON. COURT OF APPEALS, EASTERN PLYWOOD CORP. and BENIGNO D. LIM, respondents.
Leonen, Ramirez & Associates for petitioner.
Constante A. Ancheta for private respondents.
DAVIDE, JR., J.:
The petitioner urges us to review and set aside the amended Decision1 of 6 March 1992 of respondent
Court of Appeals in CA- G.R. CV No. 25739 which modified the Decision of 15 November 1990 of Branch
19 of the Regional Trial Court (RTC) of Manila in Civil Case No. 87-42967, entitled Bank of the Philippine
Islands (successor-in-interest of Commercial Bank and Trust Company) versus Eastern Plywood
Corporation and Benigno D. Lim. The Court of Appeals had affirmed the dismissal of the complaint but had
granted the defendants' counterclaim for P331,261.44 which represents the outstanding balance of their
account with the plaintiff.
As culled from the records and the pleadings of the parties, the following facts were duly established:
Private respondents Eastern Plywood Corporation (Eastern) and
Benigno D. Lim (Lim), an officer and stockholder of Eastern, held at least one joint bank account ("and/or"
account) with the Commercial Bank and Trust Co. (CBTC), the predecessor-in-interest of petitioner Bank
of the Philippine Islands (BPI). Sometime in March 1975, a joint checking account ("and" account) with Lim
in the amount of P120,000.00 was opened by Mariano Velasco with funds withdrawn from the account of
Eastern and/or Lim. Various amounts were later deposited or withdrawn from the joint account of Velasco
and Lim. The money therein was placed in the money market.
Velasco died on 7 April 1977. At the time of his death, the outstanding balance of the account stood at
P662,522.87. On 5 May 1977, by virtue of an Indemnity Undertaking executed by Lim for himself and as
President and General Manager of Eastern, 2 one-half of this amount was provisionally released and
transferred to one of the bank accounts of Eastern with CBTC. 3
Thereafter, on 18 August 1978, Eastern obtained a loan of P73,000.00 from CBTC as "Additional Working
Capital," evidenced by the "Disclosure Statement on Loan/Credit Transaction" (Disclosure Statement)
signed by CBTC through its branch manager, Ceferino Jimenez, and Eastern, through Lim, as its President
and General Manager. 4 The loan was payable on demand with interest at 14% per annum.
For this loan, Eastern issued on the same day a negotiable promissory note for P73,000.00 payable on
demand to the order of CBTC with interest at 14% per annum. 5 The note was signed by Lim both in his
own capacity and as President and General Manager of Eastern. No reference to any security for the loan
appears on the note. In the Disclosure Statement, the box with the printed word "UNSECURED" was marked
with "X" — meaning unsecured, while the line with the words "this loan is wholly/partly secured by" is
followed by the typewritten words "Hold-Out on a 1:1 on C/A No. 2310-001-42," which refers to the joint
account of Velasco and Lim with a balance of P331,261.44.
In addition, Eastern and Lim, and CBTC signed another document entitled "Holdout Agreement," also dated
18 August 1978, 6 wherein it was stated that "as security for the Loan [Lim and Eastern] have offered
[CBTC] and the latter accepts a holdout on said [Current Account No. 2310-011-42 in the joint names of
Lim and Velasco] to the full extent of their alleged interests therein as these may appear as a result of final
and definitive judicial action or a settlement between and among the contesting parties thereto." 7
Paragraph 02 of the Agreement provides as follows:
Eastply [Eastern] and Mr. Lim hereby confer upon Comtrust [CBTC], when and if their alleged interests in
the Account Balance shall have been established with finality, ample and sufficient power as shall be
necessary to retain said Account Balance and enable Comtrust to apply the Account Balance for the purpose
of liquidating the Loan in respect of principal and/or accrued interest.
And paragraph 05 thereof reads:
The acceptance of this holdout shall not impair the right of Comtrust to declare the loan payable on demand
at any time, nor shall the existence hereof and the non-resolution of the dispute between the contending
parties in respect of entitlement to the Account Balance, preclude Comtrust from instituting an action for
recovery against Eastply and/or Mr. Lim in the event the Loan is declared due and payable and Eastply
and/or Mr. Lim shall default in payment of all obligations and liabilities thereunder.
In the meantime, a case for the settlement of Velasco's estate was filed with Branch 152 of the RTC of
Pasig, entitled "In re Intestate Estate of Mariano Velasco," and docketed as Sp. Proc. No. 8959. In the said
case, the whole balance of P331,261.44 in the aforesaid joint account of Velasco and Lim was being claimed
as part of Velasco's estate. On 9 September 1986, the intestate court granted the urgent motion of the
heirs of Velasco to withdraw the deposit under the joint account of Lim and Velasco and authorized the
heirs to divide among themselves the amount withdrawn. 8
Sometime in 1980, CBTC was merged with BPI. 9 On 2 December 1987, BPI filed with the RTC of Manila a
complaint against Lim and Eastern demanding payment of the promissory note for P73,000.00. The
complaint was docketed as Civil Case No. 87- 42967 and was raffled to Branch 19 of the said court, then
presided over by Judge Wenceslao M. Polo. Defendants Lim and Eastern, in turn, filed a counterclaim
against BPI for the return of the balance in the disputed account subject of the Holdout Agreement and the
interests thereon after deducting the amount due on the promissory note.
After due proceedings, the trial court rendered its decision on
15 November 1990 dismissing the complaint because BPI failed to make out its case. Furthermore, it ruled
that "the promissory note in question is subject to the 'hold-out' agreement," 10 and that based on this
agreement, "it was the duty of plaintiff Bank [BPI] to debit the account of the defendants under the
promissory note to set off the loan even though the same has no fixed maturity." 11 As to the defendants'
counterclaim, the trial court, recognizing the fact that the entire amount in question had been withdrawn
by Velasco's heirs pursuant to the order of the intestate court in Sp. Proc. No. 8959, denied it because the
"said claim cannot be awarded without disturbing the resolution" of the intestate court. 12
Both parties appealed from the said decision to the Court of Appeals. Their appeal was docketed as CA-
G.R. CV No. 25739.
On 23 January 1991, the Court of Appeals rendered a decision affirming the decision of the trial court. It,
however, failed to rule on the defendants' (private respondents') partial appeal from the trial court's denial
of their counterclaim. Upon their motion for reconsideration, the Court of Appeals promulgated on 6 March
1992 an Amended Decision 13 wherein it ruled that the settlement of Velasco's estate had nothing to do
with the claim of the defendants for the return of the balance of their account with CBTC/BPI as they were
not privy to that case, and that the defendants, as depositors of CBTC/BPI, are the latter's creditors; hence,
CBTC/BPI should have protected the defendants' interest in Sp. Proc. No. 8959 when the said account was
claimed by Velasco's estate. It then ordered BPI "to pay defendants the amount of P331,261.44
representing the outstanding balance in the bank account of defendants." 14
On 22 April 1992, BPI filed the instant petition alleging therein that the Holdout Agreement in question was
subject to a suspensive condition stated therein, viz., that the "P331,261.44 shall become a security for
respondent Lim's promissory note only if respondents' Lim and Eastern Plywood Corporation's interests to
3
that amount are established as a result of a final and definitive judicial action or a settlement between and
among the contesting parties thereto." 15 Hence, BPI asserts, the Court of Appeals erred in affirming the
trial court's decision dismissing the complaint on the ground that it was the duty of CBTC to debit the
account of the defendants to set off the amount of P73,000.00 covered by the promissory note.
Private respondents Eastern and Lim dispute the "suspensive condition" argument of the petitioner. They
interpret the findings of both the trial and appellate courts that the money deposited in the joint account
of Velasco and Lim came from Eastern and Lim's own account as a finding that the money deposited in the
joint account of Lim and Velasco "rightfully belong[ed] to Eastern Plywood Corporation and/or Benigno
Lim." And because the latter are the rightful owners of the money in question, the suspensive condition
does not find any application in this case and the bank had the duty to set off this deposit with the loan.
They add that the ruling of the lower court that they own the disputed amount is the final and definitive
judicial action required by the Holdout Agreement; hence, the petitioner can only hold the amount of
P73,000.00 representing the security required for the note and must return the rest. 16
The petitioner filed a Reply to the aforesaid Comment. The private respondents filed a Rejoinder thereto.
We gave due course to the petition and required the parties to submit simultaneously their memoranda.
The key issues in this case are whether BPI can demand payment of the loan of P73,000.00 despite the
existence of the Holdout Agreement and whether BPI is still liable to the private respondents on the account
subject of the Holdout Agreement after its withdrawal by the heirs of Velasco.
The collection suit of BPI is based on the promissory note for P73,000.00. On its face, the note is an
unconditional promise to pay the said amount, and as stated by the respondent Court of Appeals, "[t]here
is no question that the promissory note is a negotiable instrument." 17 It further correctly ruled that BPI
was not a holder in due course because the note was not indorsed to BPI by the payee, CBTC. Only a
negotiation by indorsement could have operated as a valid transfer to make BPI a holder in due course. It
acquired the note from CBTC by the contract of merger or sale between the two banks. BPI, therefore, took
the note subject to the Holdout Agreement.
We disagree, however, with the Court of Appeals in its interpretation of the Holdout Agreement. It is clear
from paragraph 02 thereof that CBTC, or BPI as its successor-in-interest, had every right to demand that
Eastern and Lim settle their liability under the promissory note. It cannot be compelled to retain and apply
the deposit in Lim and Velasco's joint account to the payment of the note. What the agreement conferred
on CBTC was a power, not a duty. Generally, a bank is under no duty or obligation to make the application.
18 To apply the deposit to the payment of a loan is a privilege, a right of set-off which the bank has the
option to exercise. 19
Also, paragraph 05 of the Holdout Agreement itself states that notwithstanding the agreement, CBTC was
not in any way precluded from demanding payment from Eastern and from instituting an action to recover
payment of the loan. What it provides is an alternative, not an exclusive, method of enforcing its claim on
the note. When it demanded payment of the debt directly from Eastern and Lim, BPI had opted not to
exercise its right to apply part of the deposit subject of the Holdout Agreement to the payment of the
promissory note for P73,000.00. Its suit for the enforcement of the note was then in order and it was error
for the trial court to dismiss it on the theory that it was set off by an equivalent portion in C/A No. 2310-
001-42 which BPI should have debited. The Court of Appeals also erred in affirming such dismissal.
The "suspensive condition" theory of the petitioner is, therefore, untenable.
The Court of Appeals correctly decided on the counterclaim. The counterclaim of Eastern and Lim for the
return of the P331,261.44 20 was equivalent to a demand that they be allowed to withdraw their deposit
with the bank. Article 1980 of the Civil Code expressly provides that "[f]ixed, savings, and current deposits
of money in banks and similar institutions shall be governed by the provisions concerning simple loan." In
Serrano vs. Central Bank of the Philippines, 21 we held that bank deposits are in the nature of irregular
deposits; they are really loans because they earn interest. The relationship then between a depositor and
a bank is one of creditor and debtor. The deposit under the questioned account was an ordinary bank
deposit; hence, it was payable on demand of the depositor. 22
The account was proved and established to belong to Eastern even if it was deposited in the names of Lim
and Velasco. As the real creditor of the bank, Eastern has the right to withdraw it or to demand payment
thereof. BPI cannot be relieved of its duty to pay Eastern simply because it already allowed the heirs of
Velasco to withdraw the whole balance of the account. The petitioner should not have allowed such
withdrawal because it had admitted in the Holdout Agreement the questioned ownership of the money
deposited in the account. As early as 12 May 1979, CBTC was notified by the Corporate Secretary of Eastern
that the deposit in the joint account of Velasco and Lim was being claimed by them and that one-half was
being claimed by the heirs of Velasco.23
Moreover, the order of the court in Sp. Proc. No. 8959 merely authorized the heirs of Velasco to withdraw
the account. BPI was not specifically ordered to release the account to the said heirs; hence, it was under
no judicial compulsion to do so. The authorization given to the heirs of Velasco cannot be construed as a
final determination or adjudication that the account belonged to Velasco. We have ruled that when the
ownership of a particular property is disputed, the determination by a probate court of whether that
property is included in the estate of a deceased is merely provisional in character and cannot be the subject
of execution. 24
Because the ownership of the deposit remained undetermined, BPI, as the debtor with respect thereto, had
no right to pay to persons other than those in whose favor the obligation was constituted or whose right or
authority to receive payment is indisputable. The payment of the money deposited with BPI that will
extinguish its obligation to the creditor-depositor is payment to the person of the creditor or to one
authorized by him or by the law to receive it. 25 Payment made by the debtor to the wrong party does not
extinguish the obligation as to the creditor who is without fault or negligence, even if the debtor acted in
utmost good faith and by mistake as to the person of the creditor, or through error induced by fraud of a
third person. 26 The payment then by BPI to the heirs of Velasco, even if done in good faith, did not
extinguish its obligation to the true depositor, Eastern.
In the light of the above findings, the dismissal of the petitioner's complaint is reversed and set aside. The
award on the counterclaim is sustained subject to a modification of the interest.
WHEREFORE, the instant petition is partly GRANTED. The challenged amended decision in CA-G.R. CV No.
25735 is hereby MODIFIED. As modified:
(1) Private respondents are ordered to pay the petitioner the promissory note for P73,000.00 with interest
at:
(a) 14% per annum on the principal, computed from
18 August 1978 until payment;
(b) 12% per annum on the interest which had accrued up to the date of the filing of the complaint, computed
from that date until payment pursuant to Article 2212 of the Civil Code.
(2) The award of P331,264.44 in favor of the private respondents shall bear interest at the rate of 12% per
annum computed from the filing of the counterclaim.
No pronouncement as to costs.
4
 3. G.R. No. 127469 January 15, 2004
PHILIPPINE BANKING CORPORATION, petitioner,
vs.
COURT OF APPEALS and LEONILO MARCOS, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review of the Decision1 of the Court of Appeals in CA-G.R. CV No. 34382 dated
10 December 1996 modifying the Decision2 of the Regional Trial Court, Fourth Judicial Region, Assisting
Court, Biñan, Laguna in Civil Case No. B-3148 entitled "Leonilo Marcos v. Philippine Banking Corporation."
The Antecedent Facts
On 30 August 1989, Leonilo Marcos ("Marcos") filed with the trial court a Complaint for Sum of Money with
Damages3 against petitioner Philippine Banking Corporation ("BANK").4
Marcos alleged that sometime in 1982, the BANK through Florencio B. Pagsaligan ("Pagsaligan"), one of
the officials of the BANK and a close friend of Marcos, persuaded him to deposit money with the BANK.
Marcos yielded to Pagsaligan’s persuasion and claimed he made a time deposit with the BANK on two
occasions. The first was on 11 March 1982 for P664,897.67. The BANK issued Receipt No. 635734 for this
time deposit. On 12 March 1982, Marcos claimed he again made a time deposit with the BANK for
P764,897.67. The BANK did not issue an official receipt for this time deposit but it acknowledged a deposit
of this amount through a letter-certification Pagsaligan issued. The time deposits earned interest at 17%
per annum and had a maturity period of 90 days.
Marcos alleged that Pagsaligan kept the various time deposit certificates on the assurance that the BANK
would take care of the certificates, interests and renewals. Marcos claimed that from the time of the deposit,
he had not received the principal amount or its interest.
Sometime in March 1983, Marcos wanted to withdraw from the BANK his time deposits and the accumulated
interests to buy materials for his construction business. However, the BANK through Pagsaligan convinced
Marcos to keep his time deposits intact and instead to open several domestic letters of credit. The BANK
required Marcos to give a marginal deposit of 30% of the total amount of the letters of credit. The time
deposits of Marcos would secure 70% of the letters of credit. Since Marcos trusted the BANK and Pagsaligan,
he signed blank printed forms of the application for the domestic letters of credit, trust receipt agreements
and promissory notes.
Marcos executed three Trust Receipt Agreements totalling P851,250, broken down as follows: (1) Trust
Receipt No. CD 83.7 dated 8 March 1983 for P300,000; (2) Trust Receipt No. CD 83.9 dated 15 March 1983
for P300,000; and (3) Trust Receipt No. CD 83.10 dated 15 March 1983 for P251,250. Marcos deposited
the required 30% marginal deposit for the trust receipt agreements. Marcos claimed that his obligation to
the BANK was therefore only P595,875 representing 70% of the letters of credit.
Marcos believed that he and the BANK became creditors and debtors of each other. Marcos expected the
BANK to offset automatically a portion of his time deposits and the accumulated interest with the amount
covered by the three trust receipts totalling P851,250 less the 30% marginal deposit that he had paid.
Marcos argued that if only the BANK applied his time deposits and the accumulated interest to his remaining
obligation, which is 70% of the total amount of the letters of credit, he would have paid completely his
debt. Marcos further pointed out that since he did not apply for a renewal of the trust receipt agreements,
the BANK had no right to renew the same.
Marcos accused the BANK of unjustly demanding payment for the total amount of the trust receipt
agreements without deducting the 30% marginal deposit that he had already made. He decried the BANK’s
unlawful charging of accumulated interest because he claimed there was no agreement as to the payment
of interest. The interest arose from numerous alleged extensions and penalties. Marcos reiterated that
there was no agreement to this effect because his time deposits served as the collateral for his remaining
obligation.
Marcos also denied that he obtained another loan from the BANK for P500,000 with interest at 25% per
annum supposedly covered by Promissory Note No. 20-979-83 dated 24 October 1983. Marcos bewailed
the BANK’s belated claim that his time deposits were applied to this void promissory note on 12 March
1985.
In sum, Marcos claimed that:
(1) his time deposit with the BANK "in the total sum of P1,428,795.345 has earned accumulated interest
since March 1982 up to the present in the total amount of P1,727,305.45 at the rate of 17% per annum so
his total money with defendant (the BANK) is P3,156,100.79 less the amount of P595,875 representing the
70% balance of the marginal deposit and/or balance of the trust agreements;" and
(2) his indebtedness was only P851,250 less the 30% paid as marginal deposit or a balance of P595,875,
which the BANK should have automatically deducted from his time deposits and accumulated interest,
leaving the BANK’s indebtedness to him at P2,560,025.79.
Marcos prayed the trial court to declare Promissory Note No. 20-979-83 void and to order the BANK to pay
the amount of his time deposits with interest. He also sought the award of moral and exemplary damages
as well as attorney’s fees for P200,000 plus 25% of the amount due.
On 18 September 1989, summons and a copy of the complaint were served on the BANK.6
On 9 October 1989, the BANK filed its Answer with Counterclaim. The BANK denied the allegations in the
complaint. The BANK believed that the suit was Marcos’ desperate attempt to avoid liability under several
trust receipt agreements that were the subject of a criminal complaint.
The BANK alleged that as of 12 March 1982, the total amount of the various time deposits of Marcos was
only P764,897.67 and not P1,428,795.357 as alleged in the complaint. The P764,897.67 included the
P664,897.67 that Marcos deposited on 11 March 1982.
The BANK pointed out that Marcos delivered to the BANK the time deposit certificates by virtue of the Deed
of Assignment dated 2 June 1989. Marcos executed the Deed of Assignment to secure his various loan
obligations. The BANK claimed that these loans are covered by Promissory Note No. 20-756-82 dated 2
June 1982 for P420,000 and Promissory Note No. 20-979-83 dated 24 October 1983 for P500,000. The
BANK stressed that these obligations are separate and distinct from the trust receipt agreements.
When Marcos defaulted in the payment of Promissory Note No. 20-979-83, the BANK debited his time
deposits and applied the same to the obligation that is now considered fully paid.8 The BANK insisted that
the Deed of Assignment authorized it to apply the time deposits in payment of Promissory Note No. 20-
979-83.
In March 1982, the wife of Marcos, Consolacion Marcos, sought the advice of Pagsaligan. Consolacion
informed Pagsaligan that she and her husband needed to finance the purchase of construction materials
for their business, L.A. Marcos Construction Company. Pagsaligan suggested the opening of the letters of
credit and the execution of trust receipts, whereby the BANK would agree to purchase the goods needed
5
by the client through the letters of credit. The BANK would then entrust the goods to the client, as entrustee,
who would undertake to deliver the proceeds of the sale or the goods themselves to the entrustor within a
specified time.
The BANK claimed that Marcos freely entered into the trust receipt agreements. When Marcos failed to
account for the goods delivered or for the proceeds of the sale, the BANK filed a complaint for violation of
Presidential Decree No. 115 or the Trust Receipts Law. Instead of initiating negotiations for the settlement
of the account, Marcos filed this suit.
The BANK denied falsifying Promissory Note No. 20-979-83. The BANK claimed that the promissory note is
supported by documentary evidence such as Marcos’ application for this loan and the microfilm of the
cashier’s check issued for the loan. The BANK insisted that Marcos could not deny the agreement for the
payment of interest and penalties under the trust receipt agreements. The BANK prayed for the dismissal
of the complaint, payment of damages, attorney’s fees and cost of suit.
On 15 December 1989, the trial court on motion of Marcos’ counsel issued an order declaring the BANK in
default for filing its answer five days after the 15-day period to file the answer had lapsed.9 The trial court
also held that the answer is a mere scrap of paper because a copy was not furnished to Marcos. In the
same order, the trial court allowed Marcos to present his evidence ex parte on 18 December 1989. On that
date, Marcos testified and presented documentary evidence. The case was then submitted for decision.
On 19 December 1989, Marcos received a copy of the BANK’s Answer with Compulsory Counterclaim.
On 29 December 1989, the BANK filed an opposition to Marcos’ motion to declare the BANK in default. On
9 January 1990, the BANK filed a motion to lift the order of default claiming that it had only then learned
of the order of default. The BANK explained that its delayed filing of the Answer with Counterclaim and
failure to serve a copy of the answer on Marcos was due to excusable negligence. The BANK asked the trial
court to set aside the order of default because it had a valid and meritorious defense.
On 7 February 1990, the trial court issued an order setting aside the default order and admitting the BANK’s
Answer with Compulsory Counterclaim. The trial court ordered the BANK to present its evidence on 12
March 1990.
On 5 March 1990, the BANK filed a motion praying to cross-examine Marcos who had testified during the
ex-parte hearing of 18 December 1989. On 12 March 1990, the trial court denied the BANK’s motion and
directed the BANK to present its evidence. Trial then ensued.
The BANK presented two witnesses, Rodolfo Sales, the Branch Manager of the BANK’s Cubao Branch since
1987, and Pagsaligan, the Branch Manager of the same branch from 1982 to 1986.
On 24 April 1990, the counsel of Marcos cross-examined Pagsaligan. Due to lack of material time, the trial
court reset the continuation of the cross-examination and presentation of other evidence. The succeeding
hearings were postponed, specifically on 24, 27 and 28 of August 1990, because of the BANK’s failure to
produce its witness, Pagsaligan. The BANK on these scheduled hearings also failed to present other
evidence.
On 7 September 1990, the BANK moved to postpone the hearing on the ground that Pagsaligan could not
attend the hearing because of illness. The trial court denied the motion to postpone and on motion of
Marcos’ counsel ruled that the BANK had waived its right to present further evidence. The trial court
considered the case submitted for decision. The BANK moved for reconsideration, which the trial court
denied.
On 8 October 1990, the trial court rendered its decision in favor of Marcos. Aggrieved, the BANK appealed
to the Court of Appeals.
On 10 December 1996, the Court of Appeals modified the decision of the trial court by reducing the amount
of actual damages and deleting the attorney’s fees awarded to Marcos.
The Ruling of the Trial Court
The trial court ruled that the total amount of time deposits of Marcos was P1,429,795.34 and not only
P764,897.67 as claimed by the BANK. The trial court found that Marcos made a time deposit on two
occasions. The first time deposit was made on 11 March 1982 for P664,897.67 as shown by Receipt No.
635743. On 12 March 1982, Marcos again made a time deposit for P764,897.67 as acknowledged by
Pagsaligan in a letter of certification. The two time deposits thus amounted to P1,429,795.34.
The trial court pointed out that no receipt was issued for the 12 March 1982 time deposit because the letter
of certification was sufficient. The trial court made a finding that the certification letter did not include the
time deposit made on 11 March 1982. The 12 March 1982 deposit was in cash while the 11 March 1982
deposit was in checks which still had to clear. The checks were not included in the certification letter since
the BANK could not credit the amounts of the checks prior to clearing. The trial court declared that even
the Deed of Assignment acknowledged that Marcos made several time deposits as the Deed stated that the
assigment was charged against "various" time deposits.
The trial court recognized the existence of the Deed of Assignment and the two loans that Marcos
supposedly obtained from the BANK on 28 May 1982 for P340,000 and on 2 June 1982 for P420,000. The
two loans amounted to P760,000. On 2 June 1982, the same day that he secured the second loan, Marcos
executed a Deed of Assignment assigning to the BANK P760,000 of his time deposits. The trial court
concluded that obviously the two loans were immediately paid by virtue of the Deed of Assignment.
The trial court found it strange that Marcos borrowed money from the BANK at a higher rate of interest
instead of just withdrawing his time deposits. The trial court saw no rhyme or reason why Marcos had to
secure the loans from the BANK. The trial court was convinced that Marcos did not know that what he had
signed were loan applications and a Deed of Assignment in payment for his loans. Nonetheless, the trial
court recognized "the said loan of P760,000 and its corresponding payment by virtue of the Deed of
Assignment for the equal sum."10
If the BANK’s claim is true that the time deposits of Marcos amounted only to P764,897.67 and he had
already assigned P760,000 of this amount, the trial court pointed out that what would be left as of 3 June
1982 would only be P4,867.67.11 Yet, after the time deposits had matured, the BANK allowed Marcos to
open letters of credit three times. The three letters of credit were all secured by the time deposits of Marcos
after he had paid the 30% marginal deposit. The trial court opined that if Marcos’ time deposit was only
P764,897.67, then the letters of credit totalling P595,875 (less 30% marginal deposit) was guaranteed by
only P4,867.67,12 the remaining time deposits after Marcos had executed the Deed of Assignment for
P760,000.
According to the trial court, a security of only P4,867.6713 for a loan worth P595,875 (less 30% marginal
deposit) is not only preposterous, it is also comical. Worse, aside from allowing Marcos to have unsecured
trust receipts, the BANK still claimed to have granted Marcos another loan for P500,000 on 25 October
1983 covered by Promissory Note No. 20-979-83. The BANK is a commercial bank engaged in the business
of lending money. Allowing a loan of more than a million pesos without collateral is in the words of the trial
court, "an impossibility and a gross violation of Central Bank Rules and Regulations, which no Bank Manager
has such authority to grant."14 Thus, the trial court held that the BANK could not have granted Marcos the
loan covered by Promissory Note No. 20-979-83 because it was unsecured by any collateral.
The trial court required the BANK to produce the original copies of the loan application and Promissory Note
No. 20-979-83 so that it could determine who applied for this loan. However, the BANK presented to the
trial court only the "machine copies of the duplicate" of these documents.
6
Based on the "machine copies of the duplicate" of the two documents, the trial court noticed the following
discrepancies: (1) Marcos’ signature on the two documents are merely initials unlike in the other documents
submitted by the BANK; (2) it is highly unnatural for the BANK to only have duplicate copies of the two
documents in its custody; (3) the address of Marcos in the documents is different from the place of
residence as stated by Marcos in the other documents annexed by the BANK in its Answer; (4) Pagsaligan
made it appear that a check for the loan proceeds of P470,588 less bank charges was issued to Marcos but
the check’s payee was one ATTY. LEONILO MARCOS and, as the trial court noted, Marcos is not a lawyer;
and (5) Pagsaligan was not sure what branch of the BANK issued the check for the loan proceeds. The trial
court was convinced that Marcos did not execute the questionable documents covering the P500,000 loan
and Pagsaligan used these documents as a means to justify his inability to explain and account for the time
deposits of Marcos.
The trial court noted the BANK’s "defective" documentation of its transaction with Marcos. First, the BANK
was not in possession of the original copies of the documents like the loan applications. Second, the BANK
did not have a ledger of the accounts of Marcos or of his various transactions with the BANK. Last, the
BANK did not issue a certificate of time deposit to Marcos. Again, the trial court attributed the BANK’s
lapses to Pagsaligan’s scheme to defraud Marcos of his time deposits.
The trial court also took note of Pagsaligan’s demeanor on the witness stand. Pagsaligan evaded the
questions by giving unresponsive or inconsistent answers compelling the trial court to admonish him. When
the trial court ordered Pagsaligan to produce the documents, he "conveniently became sick"15 and thus
failed to attend the hearings without presenting proof of his physical condition.
The trial court disregarded the BANK’s assertion that the time deposits were converted into a savings
account at 14% or 10% per annum upon maturity. The BANK never informed Marcos that his time deposits
had already matured and these were converted into a savings account. As to the interest due on the trust
receipts, the trial court ruled that there is no basis for such a charge because the documents do not stipulate
any interest.
In computing the amount due to Marcos, the trial court took into account the marginal deposit that Marcos
had already paid which is equivalent to 30% of the total amount of the three trust receipts. The three trust
receipts totalling P851,250 would then have a balance of P595,875. The balance became due in March 1987
and on the same date, Marcos’ time deposits of P669,932.30 had already earned interest from 1983 to
1987 totalling P569,323.21 at 17% per annum. Thus, the trial court ruled that the time deposits in 1987
totalled P1,239,115. From this amount, the trial court deducted P595,875, the amount of the trust receipts,
leaving a balance on the time deposits of P643,240 as of March 1987. However, since the BANK failed to
return the time deposits of Marcos, which again matured in March 1990, the time deposits with interest,
less the amount of trust receipts paid in 1987, amounted to P971,292.49 as of March 1990.
In the alternative, the trial court ruled that even if Marcos had only one time deposit of P764,897.67 as
claimed by the BANK, the time deposit would have still earned interest at the rate of 17% per annum. The
time deposit of P650,163 would have increased to P1,415,060 in 1987 after earning interest. Deducting
the amount of the three trust receipts, Marcos’ time deposits still totalled P1,236,969.30 plus interest.
The dispositive portion of the decision of the trial court reads:
WHEREFORE, under the foregoing circumstances, judgment is hereby rendered in favor of Plaintiff,
directing Defendant Bank as follows:
1) to return to Plaintiff his time deposit in the sum of P971,292.49 with interest thereon
at the legal rate, until fully restituted;
2) to pay attorney’s fees of P200,000.00; [and]
3) [to pay the] cost of these proceedings.
IT IS SO ORDERED.16
The Ruling of the Court of Appeals
The Court of Appeals addressed the procedural and substantive issues that the BANK raised.
The appellate court ruled that the trial court committed a reversible error when it denied the BANK’s motion
to cross-examine Marcos. The appellate court ruled that the right to cross-examine is a fundamental right
that the BANK did not waive because the BANK vigorously asserted this right. The BANK’s failure to serve
a notice of the motion to Marcos is not a valid ground to deny the motion to cross-examine. The appellate
court held that the motion to cross-examine is one of those non-litigated motions that do not require the
movant to provide a notice of hearing to the other party.
The Court of Appeals pointed out that when the trial court lifted the order of default, it had the duty to
afford the BANK its right to cross-examine Marcos. This duty assumed greater importance because the only
evidence supporting the complaint is Marcos’ ex-parte testimony. The trial court should have tested the
veracity of Marcos’ testimony through the distilling process of cross-examination. The Court of Appeals,
however, believed that the case should not be remanded to the trial court because Marcos’ testimony on
the time deposits is supported by evidence on record from which the appellate court could make an
intelligent judgment.
On the second procedural issue, the Court of Appeals held that the trial court did not err when it declared
that the BANK had waived its right to present its evidence and had submitted the case for decision. The
appellate court agreed with the grounds relied upon by the trial court in its Order dated 7 September 1990.
The Court of Appeals, however, differed with the finding of the trial court as to the total amount of the time
deposits. The appellate court ruled that the total amount of the time deposits of Marcos is only P764,897.67
and not P1,429,795.34 as found by the trial court. The certification letter issued by Pagsaligan showed that
Marcos made a time deposit on 12 March 1982 for P764,897.67. The certification letter shows that the
amount mentioned in the letter was the aggregate or total amount of the time deposits of Marcos as of
that date. Therefore, the P764,897.67 already included the P664,897.67 time deposit made by Marcos on
11 March 1982.
The Court of Appeals further explained:
Besides, the Official Receipt (Exh. "B", p. 32, Records) dated March 11, 1982 covering the sum of
P664,987.67 time deposit did not provide for a maturity date implying clearly that the amount
covered by said receipt forms part of the total sum shown in the letter-certification which contained
a maturity date. Moreover, it taxes one’s credulity to believe that appellee would make a time
deposit on March 12, 1982 in the sum of P764,897.67 which except for the additional sum of
P100,000.00 is practically identical (see underlined figures) to the sum of P664,897.67 deposited
the day before March 11, 1982.
Additionally, We agree with the contention of the appellant that the lower court wrongly
appreciated the testimony of Mr. Pagsaligan. Our finding is strengthened when we consider the
alleged application for loan by the appellee with the appellant in the sum of P500,000.00 dated
October 24, 1983. (Exh. "J", p. 40, Records), wherein it was stated that the loan is for additional
working capital versus the various time deposit amounting to P760,000.00.17 (Emphasis supplied)
The Court of Appeals sustained the factual findings of the trial court in ruling that Promissory Note No. 20-
979-83 is void. There is no evidence of a bank ledger or computation of interest of the loan. The appellate
court blamed the BANK for failing to comply with the orders of the trial court to produce the documents on
the loan. The BANK also made inconsistent statements. In its Answer to the Complaint, the BANK alleged
that the loan was fully paid when it debited the time deposits of Marcos with the loan. However, in its
discussion of the assigned errors, the BANK claimed that Marcos had yet to pay the loan.
7
The appellate court deleted the award of attorney’s fees. It noted that the trial court failed to justify the
award of attorney’s fees in the text of its decision. The dispositive portion of the decision of the Court of
Appeals reads:
WHEREFORE, premises considered, the appealed decision is SET ASIDE. A new judgment is
hereby rendered ordering the appellant bank to return to the appellee his time deposit in the
sum of P764,897.67 with 17% interest within 90 days from March 11, 1982 in
accordance with the letter-certification and with legal interest thereafter until fully paid.
Costs against the appellant.
SO ORDERED.18 (Emphasis supplied)
The Issues
The BANK anchors this petition on the following issues:
1) WHETHER OR NOT THE PETITIONER [sic] ABLE TO PROVE THE PRIVATE RESPONDENT’S
OUTSTANDING OBLIGATIONS SECURED BY THE ASSIGNMENT OF TIME DEPOSITS?
1.1) COROLLARILY, WHETHER OR NOT THE PROVISIONS OF SECTION 8 RULE 10 OF [sic]
THEN REVISED RULES OF COURT BE APPLIED [sic] SO AS TO CREATE A JUDICIAL
ADMISSION ON THE GENUINENESS AND DUE EXECUTION OF THE ACTIONABLE
DOCUMENTS APPENDED TO THE PETITIONER’S ANSWER?
2) WHETHER OR NOT PETITIONER [sic] DEPRIVED OF DUE PROCESS WHEN THE LOWER COURT
HAS [sic] DECLARED PETITIONER TO HAVE WAIVED PRESENTATION OF FURTHER EVIDENCE AND
CONSIDERED THE CASE SUBMITTED FOR RESOLUTION?19
The Ruling of the Court
The petition is without merit.
Procedural Issues
There was no violation of the BANK’s right to procedural due process when the trial court denied the BANK’s
motion to cross-examine Marcos. Prior to the denial of the motion, the trial court had properly declared the
BANK in default. Since the BANK was in default, Marcos was able to present his evidence ex-parte including
his own testimony. When the trial court lifted the order of default, the BANK was restored to its standing
and rights in the action. However, as a rule, the proceedings already taken should not be disturbed.20
Nevertheless, it is within the trial court’s discretion to reopen the evidence submitted by the plaintiff and
allow the defendant to challenge the same, by cross-examining the plaintiff’s witnesses or introducing
countervailing evidence.21 The 1964 Rules of Court, the rules then in effect at the time of the hearing of
this case, recognized the trial court’s exercise of this discretion. The 1997 Rules of Court retained this
discretion.22 Section 3, Rule 18 of the 1964 Rules of Court reads:
Sec. 3. Relief from order of default. — A party declared in default may any time after discovery
thereof and before judgment file a motion under oath to set aside the order of default upon proper
showing that his failure to answer was due to fraud, accident, mistake or excusable neglect and
that he has a meritorious defense. In such case the order of default may be set aside on such
terms and conditions as the judge may impose in the interest of justice. (Emphasis supplied)
The records show that the BANK did not ask the trial court to restore its right to cross-examine Marcos
when it sought the lifting of the default order on 9 January 1990. Thus, the order dated 7 February 1990
setting aside the order of default did not confer on the BANK the right to cross-examine Marcos. It was
only on 2 March 1990 that the BANK filed the motion to cross-examine Marcos. During the 12 March 1990
hearing, the trial court denied the BANK’s oral manifestation to grant its motion to cross-examine Marcos
because there was no proof of service on Marcos. The BANK’s counsel pleaded for reconsideration but the
trial court denied the plea and ordered the BANK to present its evidence. Instead of presenting its evidence,
the BANK moved for the resetting of the hearing and when the trial court denied the same, the BANK
informed the trial court that it was elevating the denial to the "upper court."23
To repeat, the trial court had previously declared the BANK in default. The trial court therefore had the
right to decide whether or not to disturb the testimony of Marcos that had already been terminated even
before the trial court lifted the order of default.
We do not agree with the appellate court’s ruling that a motion to cross-examine is a non-litigated motion
and that the trial court gravely abused its discretion when it denied the motion to cross-examine. A motion
to cross-examine is adversarial. The adverse party in this case had the right to resist the motion to cross-
examine because the movant had previously forfeited its right to cross-examine the witness. The purpose
of a notice of a motion is to avoid surprises on the opposite party and to give him time to study and meet
the arguments.24 In a motion to cross-examine, the adverse party has the right not only to prepare a
meaningful opposition to the motion but also to be informed that his witness is being recalled for cross-
examination. The proof of service was therefore indispensable and the trial court was correct in denying
the oral manifestation to grant the motion for cross-examination.
We find no justifiable reason to relax the application of the rule on notice of motions25 to this case. The
BANK could have easily re-filed the motion to cross-examine with the requisite notice to Marcos. It did not
do so. The BANK did not make good its threat to elevate the denial to a higher court. The BANK waited
until the trial court rendered a judgment on the merits before questioning the interlocutory order of denial.
While the right to cross-examine is a vital element of procedural due process, the right does not necessarily
require an actual cross-examination, but merely an opportunity to exercise this right if desired by the party
entitled to it.26 Clearly, the BANK’s failure to cross-examine is imputable to the BANK when it lost this
right27 as it was in default and failed thereafter to exhaust the remedies to secure the exercise of this right
at the earliest opportunity.
The two other procedural lapses that the BANK attributes to the appellate and trial courts deserve scant
consideration.
The BANK raises for the very first time the issue of judicial admission on the part of Marcos. The BANK
even has the audacity to fault the Court of Appeals for not ruling on this issue when it never raised this
matter before the appellate court or before the trial court. Obviously, this issue is only an afterthought. An
issue raised for the first time on appeal and not raised timely in the proceedings in the lower court is barred
by estoppel.28
The BANK cannot claim that Marcos had admitted the due execution of the documents attached to its
answer because the BANK filed its answer late and even failed to serve it on Marcos. The BANK’s answer,
including the actionable documents it pleaded and attached to its answer, was a mere scrap of paper. There
was nothing that Marcos could specifically deny under oath. Marcos had already completed the presentation
of his evidence when the trial court lifted the order of default and admitted the BANK’s answer. The
provision of the Rules of Court governing admission of actionable documents was not enacted to reward a
party in default. We will not allow a party to gain an advantage from its disregard of the rules.
As to the issue of its right to present additional evidence, we agree with the Court of Appeals that the trial
court correctly ruled that the BANK had waived this right. The BANK cannot now claim that it was deprived
of its right to conduct a re-direct examination of Pagsaligan. The BANK postponed the hearings three
times29 because of its inability to secure Pagsaligan’s presence during the hearings. The BANK could have
presented another witness or its other evidence but it obstinately insisted on the resetting of the hearing
because of Pagsaligan’s absence allegedly due to illness.
8
The BANK’s propensity for postponements had long delayed the case. Its motion for postponement based
on Pagsaligan’s illness was not even supported by documentary evidence such as a medical certificate.
Documentary evidence of the illness is necessary before the trial court could rule that there is a sufficient
basis to grant the postponement.30
The BANK’s Fiduciary Duty to its Depositor
The BANK is liable to Marcos for offsetting his time deposits with a fictitious promissory note. The existence
of Promissory Note No. 20-979-83 could have been easily proven had the BANK presented the original
copies of the promissory note and its supporting evidence. In lieu of the original copies, the BANK presented
the "machine copies of the duplicate" of the documents. These substitute documents have no evidentiary
value. The BANK’s failure to explain the absence of the original documents and to maintain a record of the
offsetting of this loan with the time deposits bring to fore the BANK’s dismal failure to fulfill its fiduciary
duty to Marcos.
Section 2 of Republic Act No. 8791 (General Banking Law of 2000) expressly imposes this fiduciary duty
on banks when it declares that the State recognizes the "fiduciary nature of banking that requires high
standards of integrity and performance." This statutory declaration merely echoes the earlier
pronouncement of the Supreme Court in Simex International (Manila) Inc. v. Court of Appeals31 requiring
banks to "treat the accounts of its depositors with meticulous care, always having in mind the fiduciary
nature of their relationship."32 The Court reiterated this fiduciary duty of banks in subsequent cases.33
Although RA No. 8791 took effect only in the year 2000,34 at the time that the BANK transacted with
Marcos, jurisprudence had already imposed on banks the same high standard of diligence required under
RA No. 8791.35 This fiduciary relationship means that the bank’s obligation to observe "high standards of
integrity and performance" is deemed written into every deposit agreement between a bank and its
depositor.
The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good
father of a family. Thus, the BANK’s fiduciary duty imposes upon it a higher level of accountability than
that expected of Marcos, a businessman, who negligently signed blank forms and entrusted his certificates
of time deposits to Pagsaligan without retaining copies of the certificates.
The business of banking is imbued with public interest. The stability of banks largely depends on the
confidence of the people in the honesty and efficiency of banks. In Simex International (Manila) Inc. v.
Court of Appeals36 we pointed out the depositor’s reasonable expectations from a bank and the bank’s
corresponding duty to its depositor, as follows:
In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether
such account consists only of a few hundred pesos or of millions. The bank must record every
single transaction accurately, down to the last centavo, and as promptly as possible. This has to
be done if the account is to reflect at any given time the amount of money the depositor can
dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs.
As the BANK’s depositor, Marcos had the right to expect that the BANK was accurately recording his
transactions with it. Upon the maturity of his time deposits, Marcos also had the right to withdraw the
amount due him after the BANK had correctly debited his outstanding obligations from his time deposits.
By the very nature of its business, the BANK should have had in its possession the original copies of the
disputed promissory note and the records and ledgers evidencing the offsetting of the loan with the time
deposits of Marcos. The BANK inexplicably failed to produce the original copies of these documents. Clearly,
the BANK failed to treat the account of Marcos with meticulous care.
The BANK claims that it is a reputable banking institution and that it has no reason to forge Promissory
Note No. 20-979-83. The trial court and appellate court did not rule that it was the bank that forged the
promissory note. It was Pagsaligan, the BANK’s branch manager and a close friend of Marcos, whom the
trial court categorically blamed for the fictitious loan agreements. The trial court held that Pagsaligan made
up the loan agreement to cover up his inability to account for the time deposits of Marcos.
Whether it was the BANK’s negligence and inefficiency or Pagsaligan’s misdeed that deprived Marcos of the
amount due him will not excuse the BANK from its obligation to return to Marcos the correct amount of his
time deposits with interest. The duty to observe "high standards of integrity and performance" imposes on
the BANK that obligation. The BANK cannot also unjustly enrich itself by keeping Marcos’ money.
Assuming Pagsaligan was behind the spurious promissory note, the BANK would still be accountable to
Marcos. We have held that a bank is liable for the wrongful acts of its officers done in the interest of the
bank or in their dealings as bank representatives but not for acts outside the scope of their authority.37
Thus, we held:
A bank holding out its officers and agents as worthy of confidence will not be permitted to profit
by the frauds they may thus be enabled to perpetrate in the apparent scope of their employment;
nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may
accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is liable
to innocent third persons where the representation is made in the course of its business by an
agent acting within the general scope of his authority even though, in the particular case, the
agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or
some other person, for his own ultimate benefit.38
The Existence of Promissory Note No. 20-979-83 was not Proven
The BANK failed to produce the best evidence — the original copies of the loan application and promissory
note. The Best Evidence Rule provides that the court shall not receive any evidence that is merely
substitutionary in its nature, such as photocopies, as long as the original evidence can be had.39 Absent a
clear showing that the original writing has been lost, destroyed or cannot be produced in court, the
photocopy must be disregarded, being unworthy of any probative value and being an inadmissible piece of
evidence.40
What the BANK presented were merely the "machine copies of the duplicate" of the loan application and
promissory note. No explanation was ever offered by the BANK for its inability to produce the original copies
of the documentary evidence. The BANK also did not comply with the orders of the trial court to submit the
originals.
The purpose of the rule requiring the production of the best evidence is the prevention of fraud.41 If a
party is in possession of evidence and withholds it, and seeks to substitute inferior evidence in its place,
the presumption naturally arises that the better evidence is withheld for fraudulent purposes, which its
production would expose and defeat.42
The absence of the original of the documentary evidence casts suspicion on the existence of Promissory
Note No. 20-979-83 considering the BANK’s fiduciary duty to keep efficiently a record of its transactions
with its depositors. Moreover, the circumstances enumerated by the trial court bolster the conclusion that
Promissory Note No. 20-979-83 is bogus. The BANK has only itself to blame for the dearth of competent
proof to establish the existence of Promissory Note No. 20-979-83.
Total Amount Due to Marcos
The BANK and Marcos do not now dispute the ruling of the Court of Appeals that the total amount of time
deposits that Marcos placed with the BANK is only P764,897.67 and not P1,429,795.34 as found by the
trial court. The BANK has always argued that Marcos’ time deposits only totalled P764,897.67.43 What the
BANK insists on in this petition is the trial court’s violation of its right to procedural due process and the
absence of any obligation to pay or return anything to Marcos. Marcos, on the other hand, merely prays
for the affirmation of either the trial court or appellate court decision.44 We uphold the finding of the Court
of Appeals as to the amount of the time deposits as such finding is in accord with the evidence on record.
9
Marcos claimed that the certificates of time deposit were with Pagsaligan for safekeeping. Marcos was only
able to present the receipt dated 11 March 1982 and the letter-certification dated 12 March 1982 to prove
the total amount of his time deposits with the BANK. The letter-certification issued by Pagsaligan reads:
March 12, 1982
Dear Mr. Marcos:
This is to certify that we are taking care in your behalf various Time Deposit Certificates with an
aggregate value of PESOS: SEVEN HUNDRED SIXTY FOUR THOUSAND EIGHT HUNDRED NINETY
SEVEN AND 67/100 (P764,897.67) ONLY, issued today for 90 days at 17% p.a. with the interest
payable at maturity on June 10, 1982.
Thank you.
Sgd. FLORENCIO B. PAGSALIGAN
Branch Manager45
The foregoing certification is clear. The total amount of time deposits of Marcos as of 12 March 1982 is
P764,897.67, inclusive of the sum of P664,987.67 that Marcos placed on time deposit on 11 March 1982.
This is plainly seen from the use of the word "aggregate."
We are not swayed by Marcos’ testimony that the certification is actually for the first time deposit that he
placed on 11 March 1982. The letter-certification speaks of "various Time Deposits Certificates with an
‘aggregate value’ of P764,897.67." If the amount stated in the letter-certification is for a single time deposit
only, and did not include the 11 March 1982 time deposit, then Marcos should have demanded a new letter
of certification from Pagsaligan. Marcos is a businessman. While he already made an error in judgment in
entrusting to Pagsaligan the certificates of time deposits, Marcos should have known the importance of
making the letter-certification reflect the true nature of the transaction. Marcos is bound by the letter-
certification since he was the one who prodded Pagsaligan to issue it.
We modify the amount that the Court of Appeals ordered the BANK to return to Marcos. The appellate court
did not offset Marcos’ outstanding debt with the BANK covered by the three trust receipt agreements even
though Marcos admits his obligation under the three trust receipt agreements. The total amount of the
trust receipts is P851,250 less the 30% marginal deposit of P255,375 that Marcos had already paid the
BANK. This reduced Marcos’ total debt with the BANK to P595,875 under the trust receipts.
The trial and appellate courts found that the parties did not agree on the imposition of interest on the loan
covered by the trust receipts and thus no interest is due on this loan. However, the records show that the
three trust receipt agreements contained stipulations for the payment of interest but the parties failed to
fill up the blank spaces on the rate of interest. Put differently, the BANK and Marcos expressly agreed in
writing on the payment of interest46 without, however, specifying the rate of interest. We, therefore,
impose the legal interest of 12% per annum, the legal interest for the forbearance of money,47 on each of
the three trust receipts.
Based on Marcos’ testimony48 and the BANK’s letter of demand,49 the trust receipt agreements became
due in March 1987. The records do not show exactly when in March 1987 the obligation became due. In
accordance with Article 2212 of the Civil Code, in such a case the court shall fix the period of the duration
of the obligation.50 The BANK’s letter of demand is dated 6 March 1989. We hold that the trust receipts
became due on 6 March 1987.
Marcos’ payment of the marginal deposit of P255,375 for the trust receipts resulted in the proportionate
reduction of the three trust receipts. The reduced value of the trust receipts and their respective interest
as of 6 March 1987 are as follows:
1. Trust Receipt No. CD 83.7 issued on 8 March 1983 originally for P300,000 was reduced to
P210,618.75 with interest of P101,027.76.51
2. Trust Receipt No. CD 83.9 issued on 15 March 1983 originally for P300,000 was reduced to
P210,618.75 with interest of P100,543.04.52
3. Trust Receipt No. CD 83.10 issued on 15 March 1983 originally for P251,250 was reduced to
P174,637.5 with interest of P83,366.68. 53
When the trust receipts became due on 6 March 1987, Marcos owed the BANK P880,812.48. This amount
included P595,875, the principal value of the three trust receipts after payment of the marginal deposit,
and P284,937.48, the interest then due on the three trust receipts.
Upon maturity of the three trust receipts, the BANK should have automatically deducted, by way of
offsetting, Marcos’ outstanding debt to the BANK from his time deposits and its accumulated interest.
Marcos’ time deposits of P764,897.67 had already earned interest54 of P616,318.92 as of 6 March 1987.55
Thus, Marcos’ total funds with the BANK amounted to P1,381,216.59 as of the maturity of the trust receipts.
After deducting P880,812.48, the amount Marcos owed the BANK, from Marcos’ funds with the BANK of
P1,381,216.59, Marcos’ remaining time deposits as of 6 March 1987 is only P500,404.11. The accumulated
interest on this P500,404.11 as of 30 August 1989, the date of filing of Marcos’ complaint with the trial
court, is P211,622.96.56 From 30 August 1989, the interest due on the accumulated interest of
P211,622.96 should earn legal interest at 12% per annum pursuant to Article 221257 of the Civil Code.
The BANK’s dismal failure to account for Marcos’ money justifies the award of moral58 and exemplary
damages.59 Certainly, the BANK, as employer, is liable for the negligence or the misdeed of its branch
manager which caused Marcos mental anguish and serious anxiety.60 Moral damages of P100,000 is
reasonable and is in accord with our rulings in similar cases involving banks’ negligence with regard to the
accounts of their depositors.61
We also award P20,000 to Marcos as exemplary damages. The law allows the grant of exemplary damages
by way of example for the public good.62 The public relies on the banks’ fiduciary duty to observe the
highest degree of diligence. The banking sector is expected to maintain at all times this high level of
meticulousness.63
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION. Petitioner Philippine
Banking Corporation is ordered to return to private respondent Leonilo Marcos P500,404.11, the remaining
principal amount of his time deposits, with interest at 17% per annum from 30 August 1989 until full
payment. Petitioner Philippine Banking Corporation is also ordered to pay to private respondent Leonilo
Marcos P211,622.96, the accumulated interest as of 30 August 1989, plus 12% legal interest per annum
from 30 August 1989 until full payment. Petitioner Philippine Banking Corporation is further ordered to pay
P100,000 by way of moral damages and P20,000 as exemplary damages to private respondent Leonilo
Marcos.
Costs against petitioner.
SO ORDERED.
10
 4. G.R. No. 171628 June 13, 2011
ARMANDO V. ALANO [Deceased], Substituted by Elena Alano-Torres,* Petitioner,
vs.
PLANTER'S DEVELOPMENT BANK, as Successor-in-Interest of MAUNLAD SAVINGS and LOAN
ASSOCIATION, INC.,*** Respondent.
DECISION
DEL CASTILLO, J.:
"No one can give what he does not have" (Nemo dat quod non habet).
This Amended Petition for Review on Certiorari1 under Rule 45 of the Rules of Court assails the June 9,
2005 Decision2 and the February 21, 2006 Resolution3 of the Court of Appeals (CA) in CA G.R. CV No.
58554.
Factual Antecedents
Petitioner Armando V. Alano and his brother, the late Agapito V. Alano, Jr., inherited from their father a
parcel of land located at Gov. Forbes St., Sampaloc, Manila.4
On June 30, 1988, petitioner executed a Special Power of Attorney authorizing his brother to sell their
5
property in Manila. From the proceeds of the sale, the brothers purchased on September 22, 1988 a
residential house located at No. 60 Encarnacion St., BF Homes, Quezon City.6 The title of the Quezon City
property, however, was not immediately transferred to them because the duplicate and original copies of
the title were destroyed by a fire that gutted the Quezon City Hall Building.7
On June 27, 1990, Agapito V. Alano, Jr. died leaving behind his wife, Lydia J. Alano (Lydia), and four
legitimate children, who adjudicated to themselves the property in Quezon City.8 Consequently, title to the
said property was reconstituted as Transfer Certificate of Title (TCT) No. 18990 and registered solely in the
names of Lydia and her four children.9 This prompted petitioner to execute an Affidavit of Adverse Claim10
which was annotated on TCT No. 18990.11 But because of the assurance of his nieces that they would put
things right, petitioner agreed to delay the filing of a case in court.12
Meanwhile, Lydia filed with the Register of Deeds of Quezon City an Affidavit of Cancellation of Adverse
Claim,13 which caused the cancellation of the adverse claim annotated on TCT No. 18990.14 Thereafter, by
virtue of a Deed of Absolute Sale15 allegedly executed by her children in her favor, TCT No. 18990 was
cancelled and a new one, TCT No. 90388, was issued solely in her name.16
On February 8, 1994, Slumberworld, Inc., represented by its President, Melecio A. Javier, and Treasurer,
Lydia, obtained from Maunlad Savings and Loan Association, Inc. a loan of ₱2.3 million, secured by a Real
Estate Mortgage17 over the property covered by TCT No. 90388.18
On April 20, 1994, petitioner filed a Complaint19 against Lydia, Melecio A. Javier, Maunlad Savings and Loan
Association, Inc. and the Register of Deeds of Quezon City before the Regional Trial Court (RTC) of Quezon
City, which was raffled to Branch 92. Petitioner sought the cancellation of TCT No. 90388, the issuance of
a new title in his name for his one-half share of the Quezon City property, and the nullification of real estate
mortgage insofar as his one-half share is concerned.20
Defendants Maunlad Savings and Loan Association, Inc. and the Register of Deeds of Quezon City filed their
respective Answers.21 Defendants Lydia and Melecio A. Javier, however, failed to file their respective
Answers. Thus, the RTC in an Order22 dated August 29, 1994 declared them in default.
Ruling of the Regional Trial Court
On September 12, 1996, the RTC rendered its Decision23 declaring petitioner the owner of one-half of the
subject property since an implied trust exists between him and the heirs of his brother.24 The RTC, however,
sustained the validity of the real estate mortgage.25 According to the RTC, Maunlad Savings and Loan
Association, Inc. had the right to rely on the Torrens title as there was no reason for it to doubt the
mortgagor’s ownership over the subject property.26 Accordingly, the fallo of the decision reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Declaring plaintiff Armando Alano the owner of one-half of the property in question;
2. Ordering the Register of Deeds of Quezon City to cancel TCT No. 90388 issued in the name of
Lydia J. Alano and the corresponding owner’s duplicate certificate and to issue a new one in the
names of Armando V. Alano, single[,] ½ share pro indiviso and Lydia Alano, widow, ½ share pro
indiviso with the corresponding mortgage lien annotation in favor of the Maunlad Savings and
Loan [Association,] Inc. upon finality of this decision;
3. Ordering the defendant Maunlad Savings and Loan [Association,] Inc. to surrender [the] owner’s
duplicate copy of TCT No. 90388 to the Register of Deeds of Quezon City for cancellation upon
finality of this decision;
4. Ordering defendants Lydia J. Alano and Melecio Javier to jointly and severally pay the plaintiff
the sum of ₱20,000.00 as attorney’s fees and to pay the costs of suit.
SO ORDERED.27
Dissatisfied, petitioner moved for partial reconsideration28 but the RTC denied the same in its Order29 dated
February 24, 1997.
Ruling of the Court of Appeals
Petitioner appealed30 to the CA but to no avail. The CA found Maunlad Savings and Loan Association, Inc.
to be a mortgagee in good faith since it took the necessary precautions to ascertain the status of the
property sought to be mortgaged as well as the identity of the mortgagor by conducting an ocular inspection
of the property and requiring the submission of documents, such as the latest tax receipts and tax
clearance.31 The CA thus disposed of the appeal as follows:
WHEREFORE, premises considered, the appeal is hereby DISMISSED for lack of merit. The September 12,
1996 Decision of the Regional Trial Court of Quezon City, Branch 92, is hereby AFFIRMED.
SO ORDERED.32
Petitioner sought reconsideration33 but the CA denied the same in its Resolution34 dated February 21, 2006.
Issues
Hence, the present recourse, petitioner raising the following issues:
I. WHETHER THE REAL ESTATE MORTGAGE EXECUTED BY DEFENDANT LYDIA J. ALANO WAS
VALID AND BINDING WITH RESPECT TO PETITIONER’S CO-OWNER’S SHARE IN THE SUBJECT
PROPERTY.
II. WHETHER DEFENDANT MAUNLAD SAVINGS AND LOAN ASSOCIATION, INC. WAS AN INNOCENT
MORTGAGEE IN GOOD FAITH.
III. WHETHER PETITIONER MAY RIGHTFULLY BE MADE TO SUFFER THE CONSEQUENCES OF
DEFENDANT LYDIA J. ALANO’S WRONGFUL ACT OF MORTGAGING THE SUBJECT PROPERTY.35
11
Petitioner’s Arguments
Petitioner insists that Maunlad Savings and Loan Association, Inc. is not a mortgagee in good faith as it
failed to exercise due diligence in inspecting and ascertaining the status of the mortgaged property.
Petitioner calls attention to the testimony of Credit Investigator Carlos S. Mañosca, who admitted that when
he inspected the mortgaged property, he only checked the finishing of the house and the number of
rooms.36 Hence, he failed to see petitioner’s apartment at the back portion of the property.37 Moreover, the
fact that there was an adverse claim annotated on the previous title of the property should have alerted
Maunlad Savings and Loan Association, Inc. to conduct further investigation to verify the ownership of the
mortgaged property.38 All these prove that Maunlad Savings and Loan Association, Inc. was not a
mortgagee in good faith. Corollarily, pursuant to Articles 208539 and 49340 of the Civil Code, the real estate
mortgage executed by Lydia is void insofar as petitioner’s share in the mortgaged property is concerned.41
Respondent’s Arguments
Respondent contends that the issue of whether Maunlad Savings and Loan Association, Inc. is a mortgagee
in good faith is a question of fact, which is beyond the jurisdiction of this Court.42 As to petitioner’s allegation
that there was a separate apartment at the back portion of the property, respondent claims that this was
never raised during the trial or on appeal.43 Hence, it is barred by estoppel.44
Respondent further claims that Maunlad Savings and Loan Association, Inc. has no obligation to look beyond
the title considering that there was no adverse claim annotated on TCT No. 90388 covering the mortgaged
property.45 And since the mortgaged property was occupied by the mortgagor Lydia, there was also no
need for Maunlad Savings and Loan Association, Inc. to verify the extent of her possessory rights. 46
Our Ruling
The petition has merit.
The instant case is an exception to the rule that factual issues may not be raised in a petition under Rule
45 of the Rules of Court.
The rule that only questions of law may be raised in a petition for review on certiorari under Rule 45 of the
Rules of Court is not without exception. A review of factual issues is allowed when there is a
misapprehension of facts or when the inference drawn from the facts is manifestly mistaken.47 This case
falls under exception.
Maunlad Savings and Loan Association, Inc. is not a mortgagee in good faith.
The general rule that a mortgagee need not look beyond the title does not apply to banks and other financial
institutions as greater care and due diligence is required of them.48 Imbued with public interest, they "are
expected to be more cautious than ordinary individuals."49 Thus, before approving a loan, the standard
practice for banks and other financial institutions is to conduct an ocular inspection of the property offered
to be mortgaged and verify the genuineness of the title to determine the real owner or owners thereof.50
Failure to do so makes them mortgagees in bad faith.
In this case, petitioner contends that Maunlad Savings and Loan Association, Inc. failed to exercise due
diligence in inspecting and ascertaining the status of the mortgaged property because during the ocular
inspection, the credit investigator failed to ascertain the actual occupants of the subject property and to
discover petitioner’s apartment at the back portion of the subject property.51
Indeed, the existence of petitioner’s apartment at the back portion of the subject property was never
brought up before the trial court and the appellate court. Nevertheless, we find petitioner’s allegation of
negligence substantiated by the testimony of the credit investigator, to wit:
ATTY. JAVELLANA
xxxx
Q - You said also that you inspected the property that was offered as collateral which is a house and lot
located at Encarnacion Street, BF Homes. Did you enter the property?
A - Yes, ma’am.
Q - And then you found out that the property was the home of Mrs. Lydia Alano and her children?
A - Yes, ma’am.
ATTY. JAVELLANA
Q - And you also saw that her brother-in-law Armando Alano was also residing there?
A - I do not recall if he was there, ma’am.
Q - You did not see him there?
A - When we went there ma’am, we only checked on the finishing of the house and also checked as to the
number of bedrooms and number of CR, ma’am.
Q - You did not verify who were actually residing there?
A - No, ma’am.
Q - You said that you also conducted a neighborhood checking, did you ask the neighbor who were residing
in that property?
A - Yes, and we were told that Lydia Alano was the one residing there, ma’am.
Q - You did not verify from them as to whether anybody else was residing there?
A - No, ma’am.52 (Emphasis supplied).
Clearly, while the credit investigator conducted an ocular inspection of the property as well as a
"neighborhood checking" and found the subject property occupied by the mortgagor Lydia and her
children,53 he, however, failed to ascertain whether the property was occupied by persons other than the
mortgagor. Had he done so, he would have discovered that the subject property is co-owned by petitioner
and the heirs of his brother. Since Maunlad Savings and Loan Association, Inc. was remiss in its duty in
ascertaining the status of the property to be mortgaged and verifying the ownership thereof, it is deemed
a mortgagee in bad faith. Consequently, the real estate mortgage executed in its favor is valid only insofar
as the share of the mortgagor Lydia in the subject property. We need not belabor that under Article 49354
of the Civil Code, a co-owner can alienate only his pro indiviso share in the co-owned property, and not the
share of his co-owners.1âwphi1
WHEREFORE, the petition is hereby GRANTED. The assailed June 9, 2005 Decision and the February 21,
2006 Resolution of the Court of Appeals in CA G.R. CV No. 58554 are SET ASIDE. The September 12, 1996
Decision of the Regional Trial Court of Quezon City, Branch 92, is hereby MODIFIED by declaring the
mortgage in favor of respondent Maunlad Savings and Loan Association, Inc. NULL and VOID insofar as the
½ share of petitioner in the subject property is concerned, and ordering the annotation of the mortgage
lien in favor of respondent only on the ½ share of Lydia J. Alano in the subject property.
SO ORDERED.
12
 5. G.R. No. 147800 November 11, 2003
UNITED COCONUT PLANTERS BANK, Petitioner,
vs.
TEOFILO C. RAMOS, Respondent.
DECISION
CALLEJO, SR., J.:
Before us is a petition for review on certiorari of the March 30, 2001 Decision1 of the Court of Appeals in
CA-G.R. CV No. 56737 which affirmed the Decision2 of the Regional Trial Court (RTC) of Makati City, Branch
148, in Civil Case No. 94-1822.
The Antecedents
On December 22, 1983, the petitioner United Coconut Planters Bank (UCPB) granted a loan of ₱2,800,000
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 corporation’s account. The case was docketed as
Civil Case No. 16453. On February 15, 1989, the RTC of Makati, Branch 134, rendered judgment in favor
of the petitioner and against the defendants. The decretal portion of the decision reads:
1. To pay plaintiff the sum of THREE MILLION ONE HUNDRED FIFTY THOUSAND PESOS
(₱3,150,000.00) plus interest, penalties and other charges;
2. To pay plaintiff the sum of ₱20,000.00 for attorney’s fees; and
3. To pay the cost of suit.4
The decision became final and executory. On motion of the petitioner, the court issued on December 18,
1990 a writ of execution for the enforcement of its decision ordering Deputy Sheriff Pioquinto P. Villapaña
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 petitioner’s 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 ₱900,000 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 denial12
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 Villapaña, 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 Villapaña 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 respondent’s affidavit of denial.
For his part, Sheriff Villapaña 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
petitioner’s LED, suggested that the respondent file the appropriate pleading in Civil Case No. 16453 to
prove his claim that Atty. Montano’s 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 Corporation’s credit line
application for ₱2,000,000 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
petitioner’s 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
13
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 Villapaña 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 Villapaña caused the annotation of a notice to levy on the TCT of his aforesaid property which caused
the disapproval of his loan from UCPB and, thus made him lose an opportunity to participate in the bidding
of a considerable project; that by reason of such wrongful annotation of notice of levy, he suffered sleepless
nights, moral shock, mental anguish and almost a heart attack due to high blood pressure. He thus prayed:
WHEREFORE, premises considered, it is most respectfully prayed of the Honorable Regional Trial Court that
after due hearing, judgment be rendered in his favor by ordering defendants jointly and severally, to pay
as follows:
1. ₱3,000,000.00 as moral damages;
2. 300,000.00 as exemplary damages;
3. 200,000.00 as actual damages;
4. 200,000.00 as attorney’s fees;
5. Cost of suit.19
In its answer, the petitioner, while admitting that it made a mistake in causing the annotation of notice of
levy on the TCT of the respondent, denied that it was motivated by malice and bad faith. The petitioner
alleged that after ascertaining that it indeed made a mistake, it proposed that the respondent file a motion
to cancel levy with a promise that it would not oppose the said motion. However, the respondent dilly-
dallied and failed to file the said motion; forthwith, if any damages were sustained by the respondent, it
was because it took him quite a long time to file the motion. The petitioner should not thus be made to
suffer for the consequences of the respondent’s 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 Villapaña 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 respondent’s 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 ₱3,000,000.00 and exemplary damages
in the amount of PESOS: FIVE HUNDRED THOUSAND ₱500,000.00;
2. pay attorney’s fees and litigation expenses in an amount of not less than PESOS: TWO HUNDRED
THOUSAND ₱200,000.00;
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
Villapaña was dismissed on the ground that he was merely performing his duties. The decretal part of the
decision is herein quoted:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the
defendant UCPB, and the latter is hereby ordered to pay the following:
(1) ₱800,000.00 as moral damages;
(2) ₱100,000.00 as exemplary damages;
(3) ₱100,000.00 as attorney’s fees;
(4) Cost of suit.21
The trial court found that contrary to the contention of the petitioner, it acted with caution in looking for
leviable properties of the judgment debtors/defendants in Civil Case No. 16453, it proceeded with haste as
it did not take into consideration that the defendant Teofilo Ramos was married to Amelita Ramos and had
a "Sr." in his name, while the respondent was married to Rebecca Ramos and had "C" for his middle initial.
The investigation conducted by CAID appraiser Eduardo C. Reniva did not conclusively ascertain if the
respondent and Teofilo Ramos, Sr. were one and the same person.
The trial court further stated that while it was Ramdustrial Corporation which applied for a loan with UCPB
and PDB, the respondent, as Chairman of Ramdustrial Corporation, with his wife Rebecca Ramos, signed
in the promissory note and acted as sureties on the said obligations. Moreover, the property which was
levied was the respondent’s 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
respondent’s 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 respondent’s
claim therefor.
Dissatisfied, the petitioner interposed an appeal to the Court of Appeals (CA). On March 30, 2001, the CA
rendered a decision affirming, in toto, the decision of the trial court, the decretal portion of which is herein
quoted:
WHEREFORE, based on the foregoing premises, the assailed decision is hereby AFFIRMED.22
The CA ruled that the petitioner was negligent in causing the annotation of notice of levy on the title of the
petitioner for its failure to determine with certainty whether the defendant Teofilo Ramos, Sr. in Civil Case
No. 16453 was the registered owner of the property covered by TCT No. 275167, and to inform the sheriff
that the registered owners of the property were the respondent and his wife Rebecca Ramos, and thereafter
request for the cancellation of the motion of levy on the property.
Disappointed, the petitioner filed this instant petition assigning the following errors:
I
14
IN AFFIRMING THE TRIAL COURT’S ORDER, THE COURT OF APPEALS COMMITTED MANIFESTLY MISTAKEN
INFERENCES AND EGREGIOUS MISAPPREHENSION OF FACTS AND GRAVE ERRORS OF LAW, CONSIDERING
THAT:
A. ON THE EVIDENCE, THE BORROWER OF THE LOAN, WHICH RESPONDENT RAMOS CLAIMED HE
TRIED TO OBTAIN, WAS RAMDUSTRIAL CORPORATION. HENCE, ANY DAMAGE RESULTING FROM
THE ANNOTATION WAS SUFFERED BY THE CORPORATION AND NOT BY RESPONDENT RAMOS.
B. THE DELAY IN THE CANCELLATION OF THE ANNOTATION WAS OF RESPONDENT RAMOS’S (SIC)
OWN DOING.
C. THE LOAN APPLICATIONS WITH UNITED COCONUT SAVINGS BANK AND PLANTERS
DEVELOPMENT BANK WERE GRANTED PRIOR TO THE CANCELLATION OF THE ANNOTATION ON
THE TITLE OF THE SUBJECT PROPERTY.
II
THE COURT OF APPEALS’ DECISION AFFIRMING THE TRIAL COURT’S AWARD OF MORAL DAMAGES TO
RESPONDENT RAMOS IN THE AMOUNT OF ₱800,000 ON A FINDING OF NEGLIGENCE IS CONTRARY TO
LAW AND EVIDENCE.
A. UCPB WAS NOT NEGLIGENT WHEN IT CAUSED THE LEVY ON THE SUBJECT PROPERTY.
B. AS A MATTER OF LAW, MORAL DAMAGES CANNOT BE AWARDED ON A FINDING OF MERE
NEGLIGENCE.
C. IN ANY EVENT, THE AWARD OF MORAL DAMAGES TO RESPONDENT RAMOS WAS
UNREASONABLE AND OPPRESSIVE.
III
THE AWARD OF EXEMPLARY DAMAGES AND ATTORNEY’S FEES IS CONTRARY TO LAW SINCE THE AWARD
OF MORAL DAMAGES WAS IMPROPER IN THE FIRST PLACE.23
UCPB prayed that:
WHEREFORE, petitioner UNITED COCONUT PLANTERS BANK respectfully prays that this Honorable Court
render judgment reversing and setting aside the Court of Appeals’ Decision dated 30 March 2001, and
ordering the dismissal of respondent Ramos’ Complaint dated 05 May 1994.24
In his comment, the respondent alleged that the CA did not err in affirming, in toto, the decision of the trial
court. He prayed that the petition be denied due course.
The issues posed for our resolution are the following: (a) whether or not the petitioner acted negligently in
causing the annotation of levy on the title of the respondent; (b) if so, whether or not the respondent was
the real party-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 attorney’s 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 respondent’s 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 debtor’s 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.
15
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 suit34 for an action for damages against one who
disturbed his right of ownership.
Attorney’s 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 petitioner’s 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-à-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 ₱800,000.
No exemplary damages can be awarded because the petitioner’s 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 attorney’s 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.

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 respondent’s 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.1âwphi1

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 respondent’s 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 petitioner’s negligent act of allowing the levy without verifying the identity of its
judgment debtor. Third, such wrongful levy was the proximate cause of the respondent’s 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 petitioner’s negligence, we cannot, however, allow the
award for exemplary damages, absent the private respondent’s 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

16
 6. G.R. No. 131622 November 27, 1998
LETICIA Y. MEDEL, DR. RAFAEL MEDEL and SERVANDO FRANCO, petitioners,
vs.
COURT OF APPEALS, SPOUSES VERONICA R. GONZALES and DANILO G. GONZALES, JR. doing
lending business under the trade name and style "GONZALES CREDIT ENTERPRISES",
respondents.
PARDO, J.:
The case before the Court is a petition for review on certiorari, under Rule 45 of the Revised Rules of Court,
seeking to set aside the decision of the Court of Appeals,1 and its resolution denying reconsideration, 2 the
dispositive portion of which decision reads as follows:
WHEREFORE, the appealed judgment is hereby MODIFIED such that defendants are hereby-ordered to pay
the plaintiff: the sum of P500,000.00, plus 5.5% per month interest and 2% service charge per annum
effective July 23, 1986, plus 1% per month of the total amount due and demandable as penalty charges
effective August 23, 1986, until the entire amount is fully paid.
The award to the plaintiff of P50,000.00 as attorney's fees is affirmed. And so is the imposition of costs
against the defendants.
SO ORDERED. 3
The Court required the respondents to comment on the petition,4 which was filed on April 3, 1998,5 and
the petitioners to reply thereto, which was filed on May 29, 1998.6 We now resolve to give due course to
the petition and decide the case.
The facts of the case, as found by the Court of Appeals in its decision, which are considered binding and
conclusive on the parties herein, as the appeal is limited to questions of law, are as follows:
On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and Leticia) obtained a loan
from Veronica R. Gonzales (hereafter Veronica), who was engaged in the money lending business under
the name "Gonzales Credit Enterprises", in the amount of P50,000.00, payable in two months. Veronica
gave only the amount of P47,000.00, to the borrowers, as she retained P3,000.00, as advance interest for
one month at 6% per month. Servando and Leticia executed a promissory note for P50,000.00, to evidence
the loan, payable on January 7, 1986.
On November 19, 1985, Servando and Liticia obtained from Veronica another loan in the amount of
P90,000.00, payable in two months, at 6% interest per month. They executed a promissory note to
evidence the loan, maturing on Janaury 19, 1986. They received only P84,000.00, out of the proceeds of
the loan.
On maturity of the two promissory notes, the borrowers failed to pay the indebtedness.
On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the amout of
P300,000.00, maturing in one month, secured by a real estate mortgage over a property belonging to
Leticia Makalintal Yaptinchay, who issued a special power of attorney in favor of Leticia Medel, authorizing
her to execute the mortgage. Servando and Leticia executed a promissory note in favor of Veronica to pay
the sum of P300,000.00, after a month, or on July 11, 1986. However, only the sum of P275.000.00, was
given to them out of the proceeds of the loan.
Like the previous loans, Servando and Medel failed to pay the third loan on maturity.
On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel, consolidated all their
previous unpaid loans totaling P440,000.00, and sought from Veronica another loan in the amount of
P60,000.00, bringing their indebtedness to a total of P500,000.00, payable on August 23, 1986. They
executed a promissory note, reading as follows:
Baliwag, Bulacan July 23, 1986
Maturity Date Augsut 23, 1986
P500,000.00
FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the order of VERONICA R. GONZALES
doing business in the business style of GONZALES CREDIT ENTERPRISES, Filipino, of legal age, married to
Danilo G. Gonzales, Jr., of Baliwag, Bulacan, the sum of PESOS . . . FIVE HUNDRED THOUSAND . . .
(P500,000.00) Philippine Currency with interest thereon at the rate of 5.5 PER CENT per month plus 2%
service charge per annum from date hereof until fully paid according to the amortization schedule contained
herein. (Emphasis supplied)
Payment will be made in full at the maturity date.
Should I/WE fail to pay any amortization or portion hereof when due, all the other installments together
with all interest accrued shall immediately be due and payable and I/WE hereby agree to pay an additional
amount equivalent to one per cent (1%) per month of the amount due and demandable as penalty charges
in the form of liquidated damages until fully paid; and the further sum of TWENTY FIVE PER CENT (25%)
thereof in full, without deductions as Attorney's Fee whether actually incurred or not, of the total amount
due and demandable, exclusive of costs and judicial or extra judicial expenses. (Emphasis supplied).
I, WE further agree that in the event the present rate of interest on loan is increased by law or the Central
Bank of the Philippines, the holder shall have the option to apply and collect the increased interest charges
without notice although the original interest have already been collected wholly or partially unless the
contrary is required by law.
It is also a special condition of this contract that the parties herein agree that the amount of peso-obligation
under this agreement is based on the present value of the peso, and if there be any change in the value
thereof, due to extraordinary inflation or deflation, or any other cause or reason, then the peso-obligation
herein contracted shall be adjusted in accordance with the value of the peso then prevailing at the time of
the complete fulfillment of the obligation.
Demand and notice of dishonor waived. Holder may accept partial payments and grant renewals of this
note or extension of payments, reserving rights against each and all indorsers and all parties to this note.
IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the debtors waive all his/their rights
under the provisions of Section 12, Rule 39, of the Revised Rules of Court.
On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00, plus interests and
penalties, evidenced by the above-quoted promissory note.
On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales, filed with the
Regional Trial Court of Bulacan, Branch 16, at Malolos, Bulacan, a complaint for collection of the full amount
of the loan including interests and other charges.
In his answer to the complaint filed with the trial court on April 5, 1990, defendant Servando alleged that
he did not obtain any loan from the plaintiffs; that it was defendants Leticia and Dr. Rafael Medel who
borrowed from the plaintiffs the sum of P500,000.00, and actually received the amount and benefited
therefrom; that the loan was secured by a real estate mortgage executed in favor of the plaintiffs, and that
he (Servando Franco) signed the promissory note only as a witness.
17
In their separate answer filed on April 10, 1990, defendants Leticia and Rafael Medel alleged that the loan
was the transaction of Leticia Yaptinchay, who executed a mortgage in favor of the plaintiffs over a parcel
of real estate situated in San Juan, Batangas; that the interest rate is excessive at 5.5% per month with
additional service charge of 2% per annum, and penalty charge of 1% per month; that the stipulation for
attorney's fees of 25% of the amount due is unconscionable, illegal and excessive, and that substantial
payments made were applied to interest, penalties and other charges.
After due trial, the lower court declared that the due execution and genuineness of the four promissory
notes had been duly proved, and ruled that although the Usury Law had been repealed, the interest charged
by the plaintiffs on the loans was unconscionable and "revolting to the conscience". Hence, the trial court
applied "the provision of the New [Civil] Code" that the "legal rate of interest for loan or forbearance of
money, goods or credit is 12% per annum."7
Accordingly, on December 9, 1991, the trial court rendered judgment, the dispositive portion of which reads
as follows:
WHEREFORE, premises considered, judgment is hereby rendered, as follows:
1. Ordering the defendants Servando Franco and Leticia Medel, jointly and severally, to pay plaintiffs the
amount of P47,000.00 plus 12% interest per annum from November 7, 1985 and 1% per month as penalty,
until the entire amount is paid in full.
2. Ordering the defendants Servando Franco and Leticia Y. Medel to plaintiffs, jointly and severally the
amount of P84,000.00 with 12% interest per annum and 1% per cent per month as penalty from November
19, 1985 until the whole amount is fully paid;
3. Ordering the defendants to pay the plaintiffs, jointly and severally, the amount of P285,000.00 plus 12%
interest per annum and 1% per month as penalty from July 11, 1986, until the whole amount is fully paid;
4. Ordering the defendants to pay plaintiffs, jointly and severally, the amount of P50,000.00 as attorney's
fees;
5. All counterclaims are hereby dismissed.
With costs against the defendants.8
In due time, both plaintiffs and defendants appealed to the Court of Appeals.
In their appeal, plaintiffs-appellants argued that the promissory note, which consolidated all the unpaid
loans of the defendants, is the law that governs the parties. They further argued that Circular No. 416 of
the Central Bank prescribing the rate of interest for loans or forbearance of money, goods or credit at 12%
per annum, applies only in the absence of a stipulation on interest rate, but not when the parties agreed
thereon.
The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled that "the Usury Law having
become 'legally inexistent' with the promulgation by the Central Bank in 1982 of Circular No. 905, the
lender and borrower could agree on any interest that may be charged on the loan".9 The Court of Appeals
further held that "the imposition of 'an additional amount equivalent to 1% per month of the amount due
and demandable as penalty charges in the form of liquidated damages until fully paid' was allowed by
law". 10
Accordingly, on March 21, 1997, the Court of Appeals promulgated its decision reversing that of the
Regional Trial Court, disposing as follows:
WHEREFORE, the appealed judgment is hereby MODIFIED such that defendants are hereby ordered to pay
the plaintiffs the sum of P500,000.00, plus 5.5% per month interest and 2% service charge per annum
effective July 23, 1986, plus 1% per month of the total amount due and demandable as penalty charges
effective August 24, 1986, until the entire amount is fully paid.
The award to the plaintiffs of P50,000.00 as attorney's fees is affirmed. And so is the imposition of costs
against the defendants.
SO ORDERED. 11
On April 15, 1997, defendants-appellants filed a motion for reconsideration of the said decision. By
resolution dated November 25, 1997, the Court of Appeals denied the motion. 12
Hence, defendants interposed the present recourse via petition for review on certiorari. 13
We find the petition meritorious.
Basically, the issue revolves on the validity of the interest rate stipulated upon. Thus, the question
presented is whether or not the stipulated rate of interest at 5.5% per month on the loan in the sum of
P500,000.00, that plaintiffs extended to the defendants is usurious. In other words, is the Usury Law still
effective, or has it been repealed by Central Bank Circular No. 905, adopted on December 22, 1982,
pursuant to its powers under P.D. No. 116, as amended by P.D. No. 1684?
We agree with petitioners that the stipulated rate of interest at 5.5% per month on the P500,000.00 loan
is excessive, iniquitous, unconscionable and exorbitant. 13 However, we can not consider the rate
"usurious" because this Court has consistently held that Circular No. 905 of the Central Bank, adopted on
December 22, 1982, has expressly removed the interest ceilings prescribed by the Usury Law 14 and that
the Usury Law is now "legally inexistent". 15
In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61 16 the Court held that
CB Circular No. 905 "did not repeal nor in anyway amend the Usury Law but simply suspended the latter's
effectivity." Indeed, we have held that "a Central Bank Circular can not repeal a law. Only a law can repeal
another law." 17 In the recent case of Florendo vs. Court of Appeals 18, the Court reiterated the ruling that
"by virtue of CB Circular 905, the Usury Law has been rendered ineffective". "Usury has been legally non-
existent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon." 19
Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties
in the promissory note iniquitous or unconscionable, and, hence, contrary to morals ("contra bonos
mores"), if not against the law. 20 The stipulation is void. 21 The courts shall reduce equitably liquidated
damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable. 22
Consequently, the Court of Appeals erred in upholding the stipulation of the parties. Rather, we agree with
the trial court that, under the circumstances, interest at 12% per annum, and an additional 1% a month
penalty charge as liquidated damages may be more reasonable.
WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court of Appeals
promulgated on March 21, 1997, and its resolution dated November 25, 1997. Instead, we render judgment
REVIVING and AFFIRMING the decision dated December 9, 1991, of the Regional Trial Court of Bulacan,
Branch 16, Malolos, Bulacan, in Civil Case No. 134-M-90, involving the same parties.
No pronouncement as to costs in this instance.
SO ORDERED.
18
 7. G.R. No. 148491 February 8, 2007
SPOUSES ZACARIAS BACOLOR and CATHERINE BACOLOR, Petitioners,
vs.
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, DAGUPAN CITY BRANCH and MARCELINO C.
BONUAN, Respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing
the Decision 1 of the Court of Appeals in CA-G.R. CV No. 47732 promulgated on February 23, 2001 and its
Resolution dated May 30, 2001.
On February 11, 1982, spouses Zacarias and Catherine Bacolor, herein petitioners, obtained a loan of
₱244,000.00 from Banco Filipino Savings and Mortgage Bank, Dagupan City Branch, respondent. They
executed a promissory note providing that the amount shall be payable within a period of ten (10) years
with a monthly amortization of P5,380.00 beginning March 11, 1982 and every 11th day of the month
thereafter; that the interest rate shall be twenty-four percent (24%) per annum, with a penalty of three
percent (3%) on any unpaid monthly amortization; that there shall be a service charge of three percent
(3%) per annum on the loan; and that in case respondent bank seeks the assistance of counsel to enforce
the collection of the loan, petitioners shall be liable for ten percent (10%) of the amount due as attorney’s
fees and fifteen percent (15%) of the amount due as liquidated damages.
As security for the loan, petitioners mortgaged with respondent bank their parcel of land located in Dagupan
City, Pangasinan, registered under Transfer Certificate of Title No. 40827.
From March 11, 1982 to July 10, 1991, petitioners paid respondent bank ₱412, 199.36. Thereafter, they
failed to pay the remaining balance of the loan.
On August 7, 1992, petitioners received from respondent bank a statement of account stating that their
indebtedness as of July 31, 1992 amounts to ₱840,845.61.
In its letter dated January 13, 1993, respondent bank informed petitioners that should they fail to pay their
loan within fifteen (15) days from notice, appropriate action shall be taken against them.
Due to petitioners’ failure to settle their obligation, respondent instituted, on March 5, 1993, an action for
extra-judicial foreclosure of mortgage.
Prior thereto, or on February 1, 1993, petitioners filed with Branch 40 of the same RTC, a complaint for
violation of the Usury Law against respondent, docketed as Civil Case No. D-10480. They alleged that the
provisions of the promissory note constitute a usurious transaction considering the (1) rate of interest, (2)
the rate of penalties, service charge, attorney’s fees and liquidated damages, and (3) deductions for
surcharges and insurance premium. In their amended complaint, petitioners further alleged that, during
the closure of respondent bank, it ceased to be a banking institution and, therefore, could not charge
interests and institute foreclosure proceeding.
On August 25, 1994, the RTC rendered its decision dismissing petitioners’ complaint, holding that:
(1) The terms and conditions of the Deed of Mortgage and the Promissory Note are legal and not usurious.
The plaintiff freely signed the Deed of Mortgage and the Promissory Note with full knowledge of its terms
and conditions.
The interest rate of 24% per annum is not usurious and does not violate the Usury Law (Act 2655) as
amended by P.D. No. 166.
The rate of interest, including commissions, premiums, fees and other charges, on a loan or forbearance
of any money etc., regardless of maturity x x x, shall not be subject to any ceiling under or pursuant to
the Usury Law, as amended (CB Circular no. 905). Hence, the 24% interest per annum is allowed under
P.D. No. 166.
For sometime now, usury has been legally non-existent. Interest can now be as lender and borrower may
agree upon (Verdejo v. CA, Jan. 29, 1988. 157 SCRA 743).
The imposition of penalties in case the obligation is not fulfilled is not prohibited by the Usury Law. Parties
to a contract of loan may validly agree upon the imposition of penalty charges in case of delay or non-
payment of the loan. The purpose is to compel the debtor to pay his debt on time (Go Chioco v. Martinez,
45 Phil. 256, 265).
(2) The closure of Banco Filipino did not suspend or stop its usual and normal banking operations like the
collection of loan receivables and foreclosures of mortgages.
In view of the foregoing, plaintiffs failed to substantiate their cause of action against the defendant. 2
On appeal, the Court of Appeals rendered its Decision affirming the Decision of the trial court. Petitioner’s
subsequent motion for reconsideration was denied.
Hence, this present petition for review on certiorari raising this lone issue: whether the interest rate is
"excessive and unconscionable."
It is the petitioners’ contention that while the Usury Law ceiling on interest rates was lifted by Central Bank
Circular No. 905, there is nothing in the said circular which grants respondent bank carte blanche authority
to raise interest rates to levels which "either enslave the borrower or lead to a hemorrhaging of their
assets." 3
In its comment 4 , respondent bank maintained that petitioner, by signing the Deed of Mortgage and
Promissory Note, knowingly and freely consented to its terms and conditions. A contract between the
parties must not be impaired. The interest rate of 24% per annum is not usurious and does not violate the
Usury Law. 5
The petition lacks merit.
Article 1956 of the Civil Code provides that no interest shall be due unless it has been expressly stipulated
in writing. Here, the parties agreed in writing on February 11, 1982 that the rate of interest on the
petitioners’ loan shall be 24% per annum.
At the time the parties entered into the loan transaction, the applicable law was the Usury Law (Act 2655),
as amended by P.D. No. 166, which provides that the rate of interest for the forbearance of money when
secured by a mortgage upon real estate, should not be more than 6% per annum or the maximum rate
prescribed by the Monetary Board of the Central Bank of the Philippines in force at the time the loan was
granted. Central Bank Circular No. 783, which took effect on July 1, 1981, removed the ceiling on interest
rates on a certain class of loans, thus:
SECTION 2. The interest rate on a loan forbearance of any money, goods, or credits with a maturity of
more than seven hundred thirty (730) days shall not be subject to any ceiling. 6
In the present case, the term of the subject loan is for a period of 10 years. Considering that its maturity
is more than 730 days, the interest rate is not subject to any ceiling following the above provision.
19
Therefore, the 24% interest rate agreed upon by parties does not violate the Usury Law, as amended by the prosecution of suits for collection and the foreclosure of mortgages against debtors of the bank by the
P.D. 116. liquidator are among the usual and ordinary transactions pertaining to the administration of a bank. x x x.

This Court has consistently held that for sometime now, usury has been legally non-inexistent and that Likewise, in Banco Filipino Savings and Mortgage Bank vs. Ybañez, 14 where one of the issues was whether
interest can now be charged as lender and borrower may agree upon. 7 As a matter of fact, Section 1 of respondent bank can collect interest on its loans during its period of liquidation and closure, this Court
Central Bank Circular No. 905 states that: held:

SECTION 1. The rate of interest, including commissions, premiums, fees and other charges , on a loan or
forbearance of any money, goods, or credits, regardless of maturity and whether secured or unsecured,
that may be charged or collected by any person, whether natural or judicial, shall not be subject to any
ceiling prescribed under or pursuant to the Usury Law, as amended. 8
Moreover, in Trade & Investment Development Corporation of the Philippines v. Roblett Industrial
Construction Corporation, 9 this Court has ruled that:
In Banco Filipino Savings and Mortgage Bank v. Monetary Board, the validity of the closure and receivership
of Banco Filipino was put in issue. But the pendency of the case did not diminish the authority of the
designated liquidator to administer and continue the bank’s transactions. The Court allowed the bank
liquidator to continue receiving collectibles and receivables or paying off creditor’s claims and other
transactions pertaining to normal operations of a bank. Among these transactions were the prosecution of
suits against debtors for collection and for foreclosure of mortgages. The bank was allowed to collect
interests on its loans while under liquidation, provided that the interests were legal.

With the suspension of the Usury Law and the removal of interest ceiling, the parties are free to stipulate
the interest to be imposed on monetary obligations. Absent any evidence of fraud, undue influence, or any
vice of consent exercised by one party against the other, the interest rate agreed upon is binding upon
them.
There is no indication in the records that any of the incidents which vitiate consent on the part of petitioners
is present. Indeed, the interest rate agreed upon is binding on them. With respect to the penalty and
service charges, the same are unconscionable or excessive.
In fine, we hold that the interest rate on the loan agreed upon between the parties is not excessive or
unconscionable; and that during the closure of respondent bank, it could still function as a bonding
institution, hence, could continue collecting interests from petitioners.
WHEREFORE, we DENY the petition and AFFIRM the challenged Decision and Resolution of the Court of
Appeals in CA-G.R. CV No. 47732. Costs against petitioners.
SO ORDERED.

Petitioners invoke this Court’s rulings in Almeda vs. Court of Appeals 10 and Medel vs. Court of Appeals 11
to show that the interest rate in the subject promissory note is unconscionable. Their reliance on these
cases is misplaced. In Almeda, what this Court struck down as being unconscionable and excessive was
the unilateral increase in the interest rates from 18% to 68%. This Court ruled thus:

It is plainly obvious, therefore, from the undisputed facts of the case that respondent bank unilaterally
altered the terms of its contract by increasing the interest rates of the loan without the prior
assent of the latter. In fact, the manner of agreement is itself explicitly stipulated by the Civil Code when
it provides, in Article 1956, that "No interest shall be due unless it has been expressly stipulated in writing."
What has been "stipulated in writing" from a perusal of the interest rate provision of the credit agreement
signed between the parties is that petitioners were bound merely to pay 21% interest x x x.

Petitioners also cannot find refuge in Medel. In this case, what this Court declared as unconscionable was
the imposition of a 66% interest rate per annum. In the instant case, the interest rate is only 24% per
annum, agreed upon by both parties. By no means can it be considered unconscionable or
excessive.1awphi1.net

Verily, petitioners cannot now renege on their obligation to comply with what is incumbent upon them
under the loan agreement. A contract is the law between the parties and they are bound by its stipulations.
12

Petitioners further contend that during the closure of respondent bank (from January 1, 1985 to July 1,
1994), it lost its function as a banking institution and, therefore, could no longer charge interests and
institute foreclosure proceedings.

In the case of Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of the Philippines,
13
this Court ruled that the bank’s closure did not diminish the authority and powers of the designated
liquidator to effectuate and carry on the administration of the bank, thus:

x x x. We did not prohibit however acts such as receiving collectibles and receivables or paying off creditors’
claims and other transactions pertaining to the normal operations of a bank. There is no doubt that that

20
 8. G.R. No. 171354 March 7, 2007
MARYLOU B. TOLENTINO, M.D., Petitioner,
vs.
COURT OF APPEALS and CITYTRUST BANKING CORPORATION, Respondents.
DECISION
YNARES-SANTIAGO, J.:
This Petition for Review on Certiorari1 assails the October 28, 2005 Decision2 of the Court of Appeals in CA-
G.R. CV. No. 83794, which reversed the April 22, 2004 Decision3 of the Regional Trial Court of Mandaluyong
City, Branch 213 in Civil Case No. MC-00-1063, as well as the January 31, 2006 Resolution4 denying
petitioner's Motion for Reconsideration.
The antecedent facts are as follows:
In May 1996, petitioner Marylou B. Tolentino (Tolentino) applied for and was granted by private respondent
Citytrust Banking Corporation ("Citytrust," now Bank of the Philippine Islands) a Business Credit Line
Facility for P2,450,0005 secured by a First Real Estate Mortgage6 over her property covered by Transfer
Certificate of Title (TCT) No. 1933.7
On July 16, 1998, Citytrust informed Tolentino that her credit line has expired thereby making her
P2,611,440.23 outstanding balance immediately due and demandable.8 Tolentino failed to settle her
obligations thus her property was extrajudicially foreclosed and sold in a public auction, with Citytrust as
the highest bidder. On April 13, 1999, the Certificate of Sale was registered and duly annotated on TCT No.
1933.
As of March 17, 2000, the "Statement of Account To Redeem" 9 sent by Citytrust showed petitioner's
outstanding obligation at P5,386,993.91. Petitioner asked for a re-computation and the deletion of certain
charges, such as the late payment charges, foreclosure expenses, attorney's fees, liquidated damages, and
interests, but was denied by Citytrust. As of April 10, 2000, petitioner's outstanding balance amounted to
P5,431,337.41.
On April 7, 2000, petitioner filed a Complaint for Judicial Redemption, Accounting and Damages, with
application for the issuance of a Temporary Restraining Order/Writ of Preliminary Injunction, against
Citytrust and the Register of Deeds of Mandaluyong City.10 Petitioner alleged that the bank unilaterally
increased the interest charges in her credit line from 17.75% to 23.04%; that she was forced to convert
her existing Home Owners Credit Line into an Amortized Term Loan with interest of 19.50%;11 that the
bank cancelled her credit line when she refused the said conversion; that her mortgaged property was
foreclosed and sold at public auction but the bank did not remit the balance of the proceeds of the
foreclosure sale; and that the bank unjustifiably refused her request for accounting and re-computation of
the redemption amount.
In its Answer with Counterclaim,12 Citytrust asserted that petitioner's credit line has a term of one year and
that upon the expiration of the said period, it may be cancelled and closed; that the inclusion of late
payment charges, foreclosure expense, attorney's fees, liquidated damages, foreclosure fee, and interests
in the redemption price was in accordance with the terms and conditions of their loan and mortgage
contracts; that the bid price was applied to the outstanding obligations of petitioner; and that the Complaint
of petitioner was merely dilatory and frivolous considering that she has admitted having defaulted in the
payment of her obligations.
Meanwhile, TCT No. 1933 was cancelled and a new title13 was issued in favor of Citytrust. However,
petitioner was able to secure a writ of preliminary injunction,14 which enjoined Citytrust from taking
possession, selling, and/or otherwise disposing of the foreclosed property.
After trial on the merits, the Regional Trial Court of Mandaluyong City, Branch 213, rendered judgment
upholding petitioner's right of redemption, but at the price computed by private respondent. The dispositive
portion of the Decision reads:
WHEREFORE, judgment is hereby rendered upholding the right of the herein plaintiff MARILOU TOLENTINO
to redeem the foreclosed property covered by Transfer Certificate of Title No. 1933 in accordance however
with the computation stated in the account to redeem as of April 10, 2000 issued by the defendant
CITYTRUST BANKING CORPORATION (now FAMILY BANK) particularly marked as Exhibit 10 for the
Defendant.
SO ORDERED.15
The trial court held that the filing of an action for judicial redemption by petitioner is equivalent to a formal
offer to redeem. Having exercised her right of legal redemption, petitioner should not be barred from
redeeming the property, but at the redemption price as computed by Citytrust pursuant to the provisions
of their loan agreement. The trial court held that petitioner cannot belatedly claim that the loan agreement
and mortgage contract are contracts of adhesion considering that she freely and voluntarily executed the
same, nor was she ignorant of the nature and provisions of the agreements.
Both the petitioner and the bank appealed to the Court of Appeals, which rendered the assailed Decision,
the dispositive portion of which reads:
WHEREFORE, premises considered, the appeal of plaintiff is DISMISSED for lack of merit, while the appeal
of defendant Bank of the Philippine Islands is hereby GRANTED. The appealed Decision dated April 22, 2004
of the Regional Trial Court of Mandaluyong City, Branch 213 is hereby REVERSED and SET ASIDE. A new
judgment is hereby entered DISMISSING the complaint in Civil Case No. MC-00-1063.
With costs against the plaintiff-appellant.
SO ORDERED.16
The Court of Appeals held that petitioner's act of filing an action for judicial redemption without
simultaneous consignation of redemption money was not valid. Having failed to exercise her right of
redemption within the one-year period provided by law, petitioner thus lost all her rights over the foreclosed
property. The appellate court noted that as early as March 17, 2000, Citytrust computed the redemption
price at P5,386,993.91; however, petitioner only offered to pay P3 million pesos, without attempting to
tender a single centavo to private respondent. Further, records show that when asked during trial if she
was prepared to tender the amount, petitioner replied in the negative.
Petitioner's motion for reconsideration was denied; hence, this petition.
Petitioner insists that the mortgage agreement is a contract of adhesion since it was solely prepared by the
bank and her only participation thereto was to affix her signature; that the 25% attorney's fees, penalty,
late payment charges, and liquidated damages are excessive and unconscionable; that the capital gains
tax should not have been added to the computation of the redemption price; that the filing of the complaint
for judicial redemption effectively tolled the running one-year prescriptive period; that the consignation of
the redemption price is only necessary if the redemption suit was filed after the expiration of the redemption
period; and that without admitting the loss of right to redeem, the surplus of the proceeds of the foreclosure
sale should have been returned to her.
The petition lacks merit.
A contract of adhesion is an agreement where one of the parties imposes a ready-made form of contract
which the other party may accept or reject, but which the latter cannot modify. One party prepares the
stipulation in the contract, while the other party merely affixes his signature or his "adhesion" thereto
giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing.17
21
It bears stressing that a contract of adhesion is just as binding as ordinary contracts. However, there are
instances when this Court has struck down such contract as void when the weaker party is imposed upon
in dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it,
completely deprived of the opportunity to bargain on equal footing. Nevertheless, a contract of adhesion is
not invalid per se; it is not entirely prohibited. The one who adheres to the contract is in reality free to
reject it entirely; if he adheres, he gives his consent.18
Should there be any ambiguity in a contract of adhesion, such ambiguity is to be construed against the
party who prepared it. If, however, the stipulations are not obscure, but are clear and leave no doubt on
the intention of the parties, the literal meaning of its stipulations must be held controlling.19
In the instant case, it has not been shown that petitioner signed the contracts through mistake, violence,
intimidation, undue influence, or fraud. Petitioner even admitted during trial that she was not compelled to
sign the contracts, nor was she totally ignorant of their nature, having been engaged in business since
1984.20 Petitioner only raised in issue the following stipulations before the redemption period expired, to
wit:
2. Loan Line - CityTrust shall make the Loan Line available to Client for a period of one (1) year from the
date of this Agreement subject to Section 19; xxx
19. Cancellation - (a) The Loan Line may be cancelled by either party upon thirty-day written notice to
the other party.
(b) CityTrust may shorten the period of availability of the Loan Line upon thirty-day written notice
to Client.
(c) Upon cancellation of the Loan Line or expiration of the period of availability of the Loan Line,
the Loan Account and CityTrust Business Credit Line Current Account shall be automatically
cancelled/closed and Client shall immediately pay the entire Outstanding Balance. Client shall
immediately surrender to CityTrust any and all unused CityTrust Business Credit Line Check(s) as
well as the ATM card issued to access the CityTrust Business Credit Line Current Account.
7. Interest on Outstanding Balance - The Outstanding Balance shall earn simple interest, computed
daily, at such per annum rate for such interest period (of not less than 30 days) as shall be determined in
advance by CityTrust and advised initially through the Letter of Approval and thereafter through the
Statement of Loan Account. Interest shall be calculated on the basis of actual number of days elapsed and
a year of 360 days. Interest accrued shall be automatically debited by the CityTrust against the Loan
Account.
9. Penalty Charges - Failure to make the full remittance required to cover the Excess Availment within
fifteen (15) days from the date that the same is incurred shall subject the Excess Availment to penalty
charge. Failure to make the full remittance required to cover an Excess Availment within fifty-nine (59)
days from the date that the same is incurred shall subject the entire Outstanding Balance to the aforesaid
penalty charge. Penalty charges shall be imposed by CityTrust without prejudice to Sections 7 (Interest on
Outstanding Balance) and 15 [Events of Default].
The penalty charge shall be such per annum rate as shall be determined by CityTrust and advised through
the Statement of Loan Account and Demand Statement. Sail penalty charge shall be fixed for thirty (30)
days or such other period as may be determined by CityTrust and shall be automatically debited against
the Loan Account.
20. Collection/Attorney's Fees - in the event CityTrust is compelled to litigate or engage the services of
a lawyer or collection agent for collection or implementation of the terms of the Agreements, Client shall
pay attorney's fees in the sum equivalent to twenty-five (25%) percent of the amount due but which
attorney's fees shall in any case be not less than FIVE THOUSAND PESOS (P5,000.00) plus costs of suit
and other litigation expenses and, in addition, liquidated damages in the sum equivalent to ten (10%)
percent of the amount due but which liquidated damages shall in any case be not less than ONE THOUSAND
PESOS (P1,000.00).21
We find the above-quoted provisions explicit and leave no room for construction. It is easily understood,
especially by a businesswoman like the petitioner. Thus, we agree with the conclusion of the trial and
appellate courts that no compelling reasons were presented to declare the subject contractual documents
as void contracts of adhesion.22
Anent the legality of petitioner's judicial redemption and the bank's computation of the redemption price,
Section 6 of Act No. 3135,23 as amended,24 provides for the requisites for a valid redemption, to wit:
SEC. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore referred
to, the debtor, his successors in interest or any judicial creditor or judgment creditor of said debtor, or any
person having a lien on the property subsequent to the mortgage or deed of trust under which the property
is sold, may redeem the same at any time within the term of one year from and after the date of sale; and
such redemption shall be governed by the provisions of sections four hundred and sixty-four to four hundred
and sixty-six, inclusive, of the Code of Civil Procedure, insofar as these are not inconsistent with the
provisions of this Act.
However, considering that private respondent is a banking institution, the determination of the redemption
price is governed by Section 78 of the General Banking Act,25 as amended by Presidential Decree No. 1828,
which provides:
In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which is
security for any loan granted before the passage of this Act or under the provisions of this Act, the
mortgagor or debtor whose real property has been sold at public auction, judicially or extrajudicially, for
the full or partial payment of an obligation to any bank, banking or credit institution, within the purview of
this Act shall have the right, within one year after the sale of the real estate as a result of the foreclosure
of the respective mortgage, to redeem the property by paying the amount fixed by the court in the order
of execution, or the amount due under the mortgage deed, as the case may be, with interest thereon at
the rate specified in the mortgage, and all the costs, and judicial and other expenses incurred by the bank
or institution concerned by reason of the execution and sale and as a result of the custody of said property
less the income received from the property.
Section 78 of the General Banking Act amended Section 6 of Act No. 3135 insofar as the redemption price
is concerned when the mortgagee is a bank or a banking or credit institution.26 Thus, the amount at which
the foreclosed property is redeemable is the amount due under the mortgage deed, or the outstanding
obligation of the mortgagor plus interest and expenses in accordance with Section 78 of the General
Banking Act.27
In Banco Filipino Savings and Mortgage Bank v. Court of Appeals,28 we ruled that the redemptioner should
make an actual tender in good faith of the full amount of the purchase price, i.e., the amount fixed by the
court in the order of execution or the amount due under the mortgage deed, as the case may be, with
interest thereon at the rate specified in the mortgage, and all the costs, and judicial and other expenses
incurred by the bank or institution concerned by reason of the execution and sale and as a result of the
custody of said property less the income received from the property.29
As correctly pointed out by the appellate court, the general rule in redemption is that it is not sufficient
that a person offering to redeem simply manifests his/her desire to do so. The statement of intention must
be accompanied by an actual and simultaneous tender of payment. This constitutes the exercise of the
right to repurchase. Bona fide redemption necessarily implies a reasonable and valid tender of the entire
purchase price, otherwise the rule on the redemption period fixed by law can easily be circumvented.30
Petitioner however claims, citing Banco Filipino Savings and Mortgage Bank v. Court of Appeals 31 and Lee
Chuy Realty Corporation v. Court of Appeals32 that in case of disagreement over the redemption price, the
22
redemptioner may preserve his right of redemption through judicial action which must be filed within the A. Yes, sir.
one-year period of redemption. The filing of a court action to enforce redemption, being equivalent to a
formal offer to redeem, would have the effect of preserving his redemptive rights and "freezing" the Q. So, the twenty five percent computation here has a basis, which is the mortgage loan agreement,
expiration of the one-year period.33 Bona fide tender of the redemption price, within the prescribed period correct?
is only essential to preserve the right of redemption for future enforcement beyond such period of
redemption and within the period prescribed for the action by the statute of limitations. Where the right to A. Yes, in your agreement.
redeem is exercised through judicial action within the reglementary period, the offer to redeem,
Q. And in that agreement you have your signature therein?
accompanied by a bona fide tender of the redemption price, while proper, may be unessential.34
A. Yes.
It should, however, be noted that in Hi-Yield Realty, Inc. v. Court of Appeals,35 we held that the action for
judicial redemption should be filed on time and in good faith, the redemption price is finally determined Q. And you have read that before signing it?
and paid within a reasonable time, and the rights of the parties are respected. Stated otherwise, the
foregoing interpretation has three critical dimensions: (1) timely redemption or redemption by expiration A. Yes, sir.
date; (2) good faith as always, meaning, the filing of the action must have been for the sole purpose of
determining the redemption price and not to stretch the redemptive period indefinitely; and (3) once the Q. So, also with this liquidated damages of ten percent (10%), there is a basis under the mortgage loan
redemption price is determined within a reasonable time, the redemptioner must make prompt payment in agreement?
full.36
A. I'm not sure.
The records show that the correct redemption price had been determined prior to the filing of the complaint
for judicial redemption. Petitioner had been furnished updated Statements of Account specifying the Q. I will show you again the mortgage loan agreement xxx.
redemption price even prior to the consolidation of the title of the foreclosed property in the bank's name.
xxxx
The inclusion of late payment charges, foreclosure expense, attorney's fees, liquidated damages,
foreclosure fee, and interests therein was pursuant to the Loan Agreement. Considering that the Loan Q. Now, Ms. Witness, can you now say that this statement of account is with basis, accurate and with basis
Agreement was read and freely adhered to by petitioner, the stipulations therein are binding on her.37 [sic]?
Moreover, petitioner admitted during trial that she was not questioning the computation of the redemption A. It has a basis, based on your conditions as prepared by the bank.
price, but she was requesting for a condonation of certain fees and charges.
Q. Which you have conform[ed] to?
Q. Now Madam Witness, during the last hearing, you were questioning the statement of account, the
computation, is that correct? A. Yes, I have to because I executed a loan.
A. Yes, sir. Q. But the bank did not compel you to apply for a loan?
Q. In particular, you were questioning the attorney's fees of twenty five percent (25%), is that correct? A. No, they did not compel me.
A. Yes, sir. Q. And you are only asking this court to reduce?
Q. Did you not read the mortgage loan agreement, Madam Witness? A. Yes, if possible.38(Emphasis supplied)
A. I know its [sic] there in the mortgage loan what I said is that I was requesting for a condonation. The records also reveal that petitioner offered to redeem the foreclosed property for P3 million but failed
to tender or consign the same, to wit:
Q. So, you are [sic] not questioning it?
Q. Ms. Witness, you stated that based on your computation[,] the redemption price should be three million
A. Yes, sir. pesos (P3,000,000.00) more or less?
Q. In your complaint there is an allegation that the computation has no basis, do you confirm that, do you A. More or less.
still maintain that?
Q. Do you have this amount right now? Do you have this three million (P3M) more or less, do you have
A. Yes. this amount right now?
Q. Why do you say so? A. Not right now, but if we will be given a few days to produce it, we will give us [sic] that kind.
A. I was just hoping that some of the items could be condone[d] because they were rather high, although, xxxx
normally, in the mortgage contract it is really stated that they charge twenty five percent for attorney's
fees, so I agreed with it. Q. Did you tender this amount of three million pesos (P3M) more or less, to the bank?
Q. So, it is not your statement in your complaint that the computation has no basis, is not correct?
23
A. No, because that is not the amount that they were asking for.

Q. Did you at least offer to pay this amount of three million pesos (P3M) more or less?

A. During the discussion with the manager, Ms. Lolita Carrido, I ask [sic] her if the deletion of the said [sic]
is possible but she said it's not possible.

xxxx

Q. Did you also consign with this amount of three million pesos (P3M) more or less?

A. No, sir.39

Based on the foregoing, it is clear that petitioner did not file the instant case for judicial redemption in
good faith. It was not filed for the purpose of determining the correct redemption price but to stretch the
redemption period indefinitely, which is not allowed by law.

WHEREFORE, the instant Petition for Review on Certiorari is DENIED. The Decision of the Court of Appeals
in CA-G.R. CV. No. 83794 dismissing the complaint for judicial redemption for lack of merit and the
Resolution denying petitioner's motion for reconsideration are AFFIRMED.

SO ORDERED.

24
 9. G.R. No. 138569. September 11, 2003
THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner,
vs.
COURT OF APPEALS and L.C. DIAZ and COMPANY, CPAs, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review of the Decision1[1] of the Court of Appeals dated 27 October 1998 and
its Resolution dated 11 May 1999. The assailed decision reversed the Decision2[2] of the Regional Trial
Court of Manila, Branch 8, absolving petitioner Consolidated Bank and Trust Corporation, now known as
Solidbank Corporation (Solidbank), of any liability. The questioned resolution of the appellate court denied
the motion for reconsideration of Solidbank but modified the decision by deleting the award of exemplary
damages, attorneys fees, expenses of litigation and cost of suit.
The Facts
Solidbank is a domestic banking corporation organized and existing under Philippine laws. Private
respondent L.C. Diaz and Company, CPAs (L.C. Diaz), is a professional partnership engaged in the practice
of accounting.
Sometime in March 1976, L.C. Diaz opened a savings account with Solidbank, designated as Savings
Account No. S/A 200-16872-6.
On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya (Macaraya), filled up a savings (cash)
deposit slip for P990 and a savings (checks) deposit slip for P50. Macaraya instructed the messenger of
L.C. Diaz, Ismael Calapre (Calapre), to deposit the money with Solidbank. Macaraya also gave Calapre the
Solidbank passbook.
Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the passbook. The teller
acknowledged receipt of the deposit by returning to Calapre the duplicate copies of the two deposit slips.
Teller No. 6 stamped the deposit slips with the words DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD
OFFICE. Since the transaction took time and Calapre had to make another deposit for L.C. Diaz with Allied
Bank, he left the passbook with Solidbank. Calapre then went to Allied Bank. When Calapre returned to
Solidbank to retrieve the passbook, Teller No. 6 informed him that somebody got the passbook.3[3] Calapre
went back to L.C. Diaz and reported the incident to Macaraya.
Macaraya immediately prepared a deposit slip in duplicate copies with a check of P200,000. Macaraya,
together with Calapre, went to Solidbank and presented to Teller No. 6 the deposit slip and check. The
teller stamped the words DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD OFFICE on the duplicate
copy of the deposit slip. When Macaraya asked for the passbook, Teller No. 6 told Macaraya that someone
got the passbook but she could not remember to whom she gave the passbook. When Macaraya asked
Teller No. 6 if Calapre got the passbook, Teller No. 6 answered that someone shorter than Calapre got the
passbook. Calapre was then standing beside Macaraya.
Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the deposit of a check for P90,000
drawn on Philippine Banking Corporation (PBC). This PBC check of L.C. Diaz was a check that it had long
closed.4[4] PBC subsequently dishonored the check because of insufficient funds and because the signature
in the check differed from PBCs specimen signature. Failing to get back the passbook, Macaraya went back
to her office and reported the matter to the Personnel Manager of L.C. Diaz, Emmanuel Alvarez.
The following day, 15 August 1991, L.C. Diaz through its Chief Executive Officer, Luis C. Diaz (Diaz), called
up Solidbank to stop any transaction using the same passbook until L.C. Diaz could open a new account.5[5]
On the same day, Diaz formally wrote Solidbank to make the same request. It was also on the same day
that L.C. Diaz learned of the unauthorized withdrawal the day before, 14 August 1991, of P300,000 from
its savings account. The withdrawal slip for the P300,000 bore the signatures of the authorized signatories
of L.C. Diaz, namely Diaz and Rustico L. Murillo. The signatories, however, denied signing the withdrawal
slip. A certain Noel Tamayo received the P300,000.
In an Information6[6] dated 5 September 1991, L.C. Diaz charged its messenger, Emerano Ilagan (Ilagan)
and one Roscon Verdazola with Estafa through Falsification of Commercial Document. The Regional Trial
Court of Manila dismissed the criminal case after the City Prosecutor filed a Motion to Dismiss on 4 August
1992.
On 24 August 1992, L.C. Diaz through its counsel demanded from Solidbank the return of its money.
Solidbank refused.
25
On 25 August 1992, L.C. Diaz filed a Complaint7[7] for Recovery of a Sum of Money against Solidbank with
the Regional Trial Court of Manila, Branch 8. After trial, the trial court rendered on 28 December 1994 a
decision absolving Solidbank and dismissing the complaint.
L.C. Diaz then appealed8[8] to the Court of Appeals. On 27 October 1998, the Court of Appeals issued its
Decision reversing the decision of the trial court.
On 11 May 1999, the Court of Appeals issued its Resolution denying the motion for reconsideration of
Solidbank. The appellate court, however, modified its decision by deleting the award of exemplary damages
and attorneys fees.
The Ruling of the Trial Court
In absolving Solidbank, the trial court applied the rules on savings account written on the passbook. The
rules state that possession of this book shall raise the presumption of ownership and any payment or
payments made by the bank upon the production of the said book and entry therein of the withdrawal shall
have the same effect as if made to the depositor personally.9[9]
At the time of the withdrawal, a certain Noel Tamayo was not only in possession of the passbook, he also
presented a withdrawal slip with the signatures of the authorized signatories of L.C. Diaz. The specimen
signatures of these persons were in the signature cards. The teller stamped the withdrawal slip with the
words Saving Teller No. 5. The teller then passed on the withdrawal slip to Genere Manuel (Manuel) for
authentication. Manuel verified the signatures on the withdrawal slip. The withdrawal slip was then given
to another officer who compared the signatures on the withdrawal slip with the specimen on the signature
cards. The trial court concluded that Solidbank acted with care and observed the rules on savings account
when it allowed the withdrawal of P300,000 from the savings account of L.C. Diaz.
The trial court pointed out that the burden of proof now shifted to L.C. Diaz to prove that the signatures
on the withdrawal slip were forged. The trial court admonished L.C. Diaz for not offering in evidence the
National Bureau of Investigation (NBI) report on the authenticity of the signatures on the withdrawal slip
for P300,000. The trial court believed that L.C. Diaz did not offer this evidence because it is derogatory to
its action.
Another provision of the rules on savings account states that the depositor must keep the passbook under
lock and key.10[10] When another person presents the passbook for withdrawal prior to Solidbanks receipt
of the notice of loss of the passbook, that person is considered as the owner of the passbook. The trial
court ruled that the passbook presented during the questioned transaction was now out of the lock and key
and presumptively ready for a business transaction.11[11]
Solidbank did not have any participation in the custody and care of the passbook. The trial court believed
that Solidbanks act of allowing the withdrawal of P300,000 was not the direct and proximate cause of the
loss. The trial court held that L.C. Diazs negligence caused the unauthorized withdrawal. Three facts
establish L.C. Diazs negligence: (1) the possession of the passbook by a person other than the depositor
L.C. Diaz; (2) the presentation of a signed withdrawal receipt by an unauthorized person; and (3) the
possession by an unauthorized person of a PBC check long closed by L.C. Diaz, which check was deposited
on the day of the fraudulent withdrawal.
The trial court debunked L.C. Diazs contention that Solidbank did not follow the precautionary procedures
observed by the two parties whenever L.C. Diaz withdrew significant amounts from its account. L.C. Diaz
claimed that a letter must accompany withdrawals of more than P20,000. The letter must request Solidbank
to allow the withdrawal and convert the amount to a managers check. The bearer must also have a letter
authorizing him to withdraw the same amount. Another person driving a car must accompany the bearer
so that he would not walk from Solidbank to the office in making the withdrawal. The trial court pointed
out that L.C. Diaz disregarded these precautions in its past withdrawal. On 16 July 1991, L.C. Diaz withdrew
P82,554 without any separate letter of authorization or any communication with Solidbank that the money
be converted into a managers check.
The trial court further justified the dismissal of the complaint by holding that the case was a last ditch effort
of L.C. Diaz to recover P300,000 after the dismissal of the criminal case against Ilagan.
The dispositive portion of the decision of the trial court reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING the complaint.
The Court further renders judgment in favor of defendant bank pursuant to its counterclaim the amount of
Thirty Thousand Pesos (P30,000.00) as attorneys fees.
With costs against plaintiff.
SO ORDERED.12[12]
The Ruling of the Court of Appeals
The Court of Appeals ruled that Solidbanks negligence was the proximate cause of the unauthorized
withdrawal of P300,000 from the savings account of L.C. Diaz. The appellate court reached this conclusion
after applying the provision of the Civil Code on quasi-delict, to wit:
26
Article 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation
between the parties, is called a quasi-delict and is governed by the provisions of this chapter.
The appellate court held that the three elements of a quasi-delict are present in this case, namely: (a)
damages suffered by the plaintiff; (b) fault or negligence of the defendant, or some other person for whose
acts he must respond; and (c) the connection of cause and effect between the fault or negligence of the
defendant and the damage incurred by the plaintiff.
The Court of Appeals pointed out that the teller of Solidbank who received the withdrawal slip for P300,000
allowed the withdrawal without making the necessary inquiry. The appellate court stated that the teller,
who was not presented by Solidbank during trial, should have called up the depositor because the money
to be withdrawn was a significant amount. Had the teller called up L.C. Diaz, Solidbank would have known
that the withdrawal was unauthorized. The teller did not even verify the identity of the impostor who made
the withdrawal. Thus, the appellate court found Solidbank liable for its negligence in the selection and
supervision of its employees.
The appellate court ruled that while L.C. Diaz was also negligent in entrusting its deposits to its messenger
and its messenger in leaving the passbook with the teller, Solidbank could not escape liability because of
the doctrine of last clear chance. Solidbank could have averted the injury suffered by L.C. Diaz had it called
up L.C. Diaz to verify the withdrawal.
The appellate court ruled that the degree of diligence required from Solidbank is more than that of a good
father of a family. The business and functions of banks are affected with public interest. Banks are obligated
to treat the accounts of their depositors with meticulous care, always having in mind the fiduciary nature
of their relationship with their clients. The Court of Appeals found Solidbank remiss in its duty, violating its
fiduciary relationship with L.C. Diaz.
The dispositive portion of the decision of the Court of Appeals reads:
WHEREFORE, premises considered, the decision appealed from is hereby REVERSED and a new one
entered.
1. Ordering defendant-appellee Consolidated Bank and Trust Corporation to pay plaintiff-
appellant the sum of Three Hundred Thousand Pesos (P300,000.00), with interest
thereon at the rate of 12% per annum from the date of filing of the complaint until paid,
the sum of P20,000.00 as exemplary damages, and P20,000.00 as attorneys fees and
expenses of litigation as well as the cost of suit; and
2. Ordering the dismissal of defendant-appellees counterclaim in the amount of P30,000.00
as attorneys fees.
SO ORDERED.13[13]
Acting on the motion for reconsideration of Solidbank, the appellate court affirmed its decision but modified
the award of damages. The appellate court deleted the award of exemplary damages and attorneys fees.
Invoking Article 223114[14] of the Civil Code, the appellate court ruled that exemplary damages could be
granted if the defendant acted with gross negligence. Since Solidbank was guilty of simple negligence only,
the award of exemplary damages was not justified. Consequently, the award of attorneys fees was also
disallowed pursuant to Article 2208 of the Civil Code. The expenses of litigation and cost of suit were also
not imposed on Solidbank.
The dispositive portion of the Resolution reads as follows:
WHEREFORE, foregoing considered, our decision dated October 27, 1998 is affirmed with modification by
deleting the award of exemplary damages and attorneys fees, expenses of litigation and cost of suit.
SO ORDERED.15[15]
Hence, this petition.
The Issues
Solidbank seeks the review of the decision and resolution of the Court of Appeals on these grounds:
I. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER BANK SHOULD SUFFER
THE LOSS BECAUSE ITS TELLER SHOULD HAVE FIRST CALLED PRIVATE RESPONDENT
BY TELEPHONE BEFORE IT ALLOWED THE WITHDRAWAL OF P300,000.00 TO
RESPONDENTS MESSENGER EMERANO ILAGAN, SINCE THERE IS NO AGREEMENT
BETWEEN THE PARTIES IN THE OPERATION OF THE SAVINGS ACCOUNT, NOR IS THERE
ANY BANKING LAW, WHICH MANDATES THAT A BANK TELLER SHOULD FIRST CALL UP
THE DEPOSITOR BEFORE ALLOWING A WITHDRAWAL OF A BIG AMOUNT IN A SAVINGS
ACCOUNT.
II. THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF LAST CLEAR CHANCE
AND IN HOLDING THAT PETITIONER BANKS TELLER HAD THE LAST OPPORTUNITY TO
WITHHOLD THE WITHDRAWAL WHEN IT IS UNDISPUTED THAT THE TWO SIGNATURES
OF RESPONDENT ON THE WITHDRAWAL SLIP ARE GENUINE AND PRIVATE
RESPONDENTS PASSBOOK WAS DULY PRESENTED, AND CONTRARIWISE RESPONDENT
WAS NEGLIGENT IN THE SELECTION AND SUPERVISION OF ITS MESSENGER EMERANO
ILAGAN, AND IN THE SAFEKEEPING OF ITS CHECKS AND OTHER FINANCIAL
DOCUMENTS.
III. THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE INSTANT CASE IS A LAST
DITCH EFFORT OF PRIVATE RESPONDENT TO RECOVER ITS P300,000.00 AFTER FAILING
IN ITS EFFORTS TO RECOVER THE SAME FROM ITS EMPLOYEE EMERANO ILAGAN.
27
 IV. THE COURT OF APPEALS ERRED IN NOT MITIGATING THE DAMAGES AWARDED AGAINST
PETITIONER UNDER ARTICLE 2197 OF THE CIVIL CODE, NOTWITHSTANDING ITS
FINDING THAT PETITIONER BANKS NEGLIGENCE WAS ONLY CONTRIBUTORY.16[16]
The Ruling of the Court
The petition is partly meritorious.
Solidbanks Fiduciary Duty under the Law
The rulings of the trial court and the Court of Appeals conflict on the application of the law. The trial court
pinned the liability on L.C. Diaz based on the provisions of the rules on savings account, a recognition of
the contractual relationship between Solidbank and L.C. Diaz, the latter being a depositor of the former.
On the other hand, the Court of Appeals applied the law on quasi-delict to determine who between the two
parties was ultimately negligent. The law on quasi-delict or culpa aquiliana is generally applicable when
there is no pre-existing contractual relationship between the parties.
We hold that Solidbank is liable for breach of contract due to negligence, or culpa contractual.
The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple
loan.17[17] Article 1980 of the Civil Code expressly provides that x x x savings x x x deposits of money in
banks and similar institutions shall be governed by the provisions concerning simple loan. There is a debtor-
creditor relationship between the bank and its depositor. The bank is the debtor and the depositor is the
creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand. The
savings deposit agreement between the bank and the depositor is the contract that determines the rights
and obligations of the parties.
The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of Republic
Act No. 8791 (RA 8791),18[18] which took effect on 13 June 2000, declares that the State recognizes the
fiduciary nature of banking that requires high standards of integrity and performance.19[19] This new
provision in the general banking law, introduced in 2000, is a statutory affirmation of Supreme Court
decisions, starting with the 1990 case of Simex International v. Court of Appeals,20[20] holding that
the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in
mind the fiduciary nature of their relationship.21[21]
This fiduciary relationship means that the banks obligation to observe high standards of integrity and
performance is deemed written into every deposit agreement between a bank and its depositor. The
fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father
of a family. Article 1172 of the Civil Code states that the degree of diligence required of an obligor is that
prescribed by law or contract, and absent such stipulation then the diligence of a good father of a
family.22[22] Section 2 of RA 8791 prescribes the statutory diligence required from banks that banks must
observe high standards of integrity and performance in servicing their depositors. Although RA 8791 took
effect almost nine years after the unauthorized withdrawal of the P300,000 from L.C. Diazs savings account,
jurisprudence23[23] at the time of the withdrawal already imposed on banks the same high standard of
diligence required under RA No. 8791.
However, the fiduciary nature of a bank-depositor relationship does not convert the contract between the
bank and its depositors from a simple loan to a trust agreement, whether express or implied. Failure by
the bank to pay the depositor is failure to pay a simple loan, and not a breach of trust.24[24] The law
simply imposes on the bank a higher standard of integrity and performance in complying with its
obligations under the contract of simple loan, beyond those required of non-bank debtors under a similar
contract of simple loan.
The fiduciary nature of banking does not convert a simple loan into a trust agreement because banks do
not accept deposits to enrich depositors but to earn money for themselves. The law allows banks to offer
the lowest possible interest rate to depositors while charging the highest possible interest rate on their own
borrowers. The interest spread or differential belongs to the bank and not to the depositors who are not
cestui que trust of banks. If depositors are cestui que trust of banks, then the interest spread or income
belongs to the depositors, a situation that Congress certainly did not intend in enacting Section 2 of RA
8791.
Solidbanks Breach of its Contractual Obligation
28
Article 1172 of the Civil Code provides that responsibility arising from negligence in the performance of
every kind of obligation is demandable. For breach of the savings deposit agreement due to negligence, or
culpa contractual, the bank is liable to its depositor.
Calapre left the passbook with Solidbank because the transaction took time and he had to go to Allied Bank
for another transaction. The passbook was still in the hands of the employees of Solidbank for the
processing of the deposit when Calapre left Solidbank. Solidbanks rules on savings account require that
the deposit book should be carefully guarded by the depositor and kept under lock and key, if possible.
When the passbook is in the possession of Solidbanks tellers during withdrawals, the law imposes on
Solidbank and its tellers an even higher degree of diligence in safeguarding the passbook.
Likewise, Solidbanks tellers must exercise a high degree of diligence in insuring that they return the
passbook only to the depositor or his authorized representative. The tellers know, or should know, that the
rules on savings account provide that any person in possession of the passbook is presumptively its owner.
If the tellers give the passbook to the wrong person, they would be clothing that person presumptive
ownership of the passbook, facilitating unauthorized withdrawals by that person. For failing to return the
passbook to Calapre, the authorized representative of L.C. Diaz, Solidbank and Teller No. 6 presumptively
failed to observe such high degree of diligence in safeguarding the passbook, and in insuring its return to
the party authorized to receive the same.
In culpa contractual, once the plaintiff proves a breach of contract, there is a presumption that the
defendant was at fault or negligent. The burden is on the defendant to prove that he was not at fault or
negligent. In contrast, in culpa aquiliana the plaintiff has the burden of proving that the defendant was
negligent. In the present case, L.C. Diaz has established that Solidbank breached its contractual obligation
to return the passbook only to the authorized representative of L.C. Diaz. There is thus a presumption that
Solidbank was at fault and its teller was negligent in not returning the passbook to Calapre. The burden
was on Solidbank to prove that there was no negligence on its part or its employees.
Solidbank failed to discharge its burden. Solidbank did not present to the trial court Teller No. 6, the teller
with whom Calapre left the passbook and who was supposed to return the passbook to him. The record
does not indicate that Teller No. 6 verified the identity of the person who retrieved the passbook. Solidbank
also failed to adduce in evidence its standard procedure in verifying the identity of the person retrieving
the passbook, if there is such a procedure, and that Teller No. 6 implemented this procedure in the present
case.
Solidbank is bound by the negligence of its employees under the principle of respondeat superior or
command responsibility. The defense of exercising the required diligence in the selection and supervision
of employees is not a complete defense in culpa contractual, unlike in culpa aquiliana.25[25]
The bank must not only exercise high standards of integrity and performance, it must also insure that its
employees do likewise because this is the only way to insure that the bank will comply with its fiduciary
duty. Solidbank failed to present the teller who had the duty to return to Calapre the passbook, and thus
failed to prove that this teller exercised the high standards of integrity and performance required of
Solidbanks employees.
Proximate Cause of the Unauthorized Withdrawal
Another point of disagreement between the trial and appellate courts is the proximate cause of the
unauthorized withdrawal. The trial court believed that L.C. Diazs negligence in not securing its passbook
under lock and key was the proximate cause that allowed the impostor to withdraw the P300,000. For the
appellate court, the proximate cause was the tellers negligence in processing the withdrawal without first
verifying with L.C. Diaz. We do not agree with either court.
Proximate cause is that cause which, in natural and continuous sequence, unbroken by any efficient
intervening cause, produces the injury and without which the result would not have occurred.26[26]
Proximate cause is determined by the facts of each case upon mixed considerations of logic, common
sense, policy and precedent.27[27]
L.C. Diaz was not at fault that the passbook landed in the hands of the impostor. Solidbank was in
possession of the passbook while it was processing the deposit. After completion of the transaction,
Solidbank had the contractual obligation to return the passbook only to Calapre, the authorized
representative of L.C. Diaz. Solidbank failed to fulfill its contractual obligation because it gave the passbook
to another person.
Solidbanks failure to return the passbook to Calapre made possible the withdrawal of the P300,000 by the
impostor who took possession of the passbook. Under Solidbanks rules on savings account, mere
possession of the passbook raises the presumption of ownership. It was the negligent act of Solidbanks
Teller No. 6 that gave the impostor presumptive ownership of the passbook. Had the passbook not fallen
into the hands of the impostor, the loss of P300,000 would not have happened. Thus, the proximate cause
of the unauthorized withdrawal was Solidbanks negligence in not returning the passbook to Calapre.
We do not subscribe to the appellate courts theory that the proximate cause of the unauthorized withdrawal
was the tellers failure to call up L.C. Diaz to verify the withdrawal. Solidbank did not have the duty to call
up L.C. Diaz to confirm the withdrawal. There is no arrangement between Solidbank and L.C. Diaz to this
effect. Even the agreement between Solidbank and L.C. Diaz pertaining to measures that the parties must
observe whenever withdrawals of large amounts are made does not direct Solidbank to call up L.C. Diaz.
There is no law mandating banks to call up their clients whenever their representatives withdraw significant
amounts from their accounts. L.C. Diaz therefore had the burden to prove that it is the usual practice of
Solidbank to call up its clients to verify a withdrawal of a large amount of money. L.C. Diaz failed to do so.
Teller No. 5 who processed the withdrawal could not have been put on guard to verify the withdrawal. Prior
to the withdrawal of P300,000, the impostor deposited with Teller No. 6 the P90,000 PBC check, which
later bounced. The impostor apparently deposited a large amount of money to deflect suspicion from the
withdrawal of a much bigger amount of money. The appellate court thus erred when it imposed on
Solidbank the duty to call up L.C. Diaz to confirm the withdrawal when no law requires this from banks and
when the teller had no reason to be suspicious of the transaction.
Solidbank continues to foist the defense that Ilagan made the withdrawal. Solidbank claims that since
Ilagan was also a messenger of L.C. Diaz, he was familiar with its teller so that there was no more need
for the teller to verify the withdrawal. Solidbank relies on the following statements in the Booking and
Information Sheet of Emerano Ilagan:
29
xxx Ilagan also had with him (before the withdrawal) a forged check of PBC and indicated the amount of withdrawal slip signed by its authorized signatories to fall into the hands of an impostor. Thus, the liability
P90,000 which he deposited in favor of L.C. Diaz and Company. After successfully withdrawing this large of Solidbank should be reduced.
sum of money, accused Ilagan gave alias Rey (Noel Tamayo) his share of the loot. Ilagan then hired a
taxicab in the amount of P1,000 to transport him (Ilagan) to his home province at Bauan, Batangas. Ilagan In Philippine Bank of Commerce v. Court of Appeals,33[33] where the Court held the depositor guilty
extravagantly and lavishly spent his money but a big part of his loot was wasted in cockfight and horse of contributory negligence, we allocated the damages between the depositor and the bank on a 40-60 ratio.
racing. Ilagan was apprehended and meekly admitted his guilt.28[28] (Emphasis supplied.) Applying the same ruling to this case, we hold that L.C. Diaz must shoulder 40% of the actual damages
awarded by the appellate court. Solidbank must pay the other 60% of the actual damages.
L.C. Diaz refutes Solidbanks contention by pointing out that the person who withdrew the P300,000 was a
certain Noel Tamayo. Both the trial and appellate courts stated that this Noel Tamayo presented the WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION. Petitioner Solidbank
passbook with the withdrawal slip. Corporation shall pay private respondent L.C. Diaz and Company, CPAs only 60% of the actual damages
awarded by the Court of Appeals. The remaining 40% of the actual damages shall be borne by private
We uphold the finding of the trial and appellate courts that a certain Noel Tamayo withdrew the P300,000. respondent L.C. Diaz and Company, CPAs. Proportionate costs. SO ORDERED.
The Court is not a trier of facts. We find no justifiable reason to reverse the factual finding of the trial court
and the Court of Appeals. The tellers who processed the deposit of the P90,000 check and the withdrawal
of the P300,000 were not presented during trial to substantiate Solidbanks claim that Ilagan deposited the
check and made the questioned withdrawal. Moreover, the entry quoted by Solidbank does not categorically
state that Ilagan presented the withdrawal slip and the passbook.

Doctrine of Last Clear Chance

The doctrine of last clear chance states that where both parties are negligent but the negligent act of one
is appreciably later than that of the other, or where it is impossible to determine whose fault or negligence
caused the loss, the one who had the last clear opportunity to avoid the loss but failed to do so, is
chargeable with the loss.29[29] Stated differently, the antecedent negligence of the plaintiff does not
preclude him from recovering damages caused by the supervening negligence of the defendant, who had
the last fair chance to prevent the impending harm by the exercise of due diligence.30[30]

We do not apply the doctrine of last clear chance to the present case. Solidbank is liable for breach of
contract due to negligence in the performance of its contractual obligation to L.C. Diaz. This is a case of
culpa contractual, where neither the contributory negligence of the plaintiff nor his last clear chance to
avoid the loss, would exonerate the defendant from liability.31[31] Such contributory negligence or last
clear chance by the plaintiff merely serves to reduce the recovery of damages by the plaintiff but does not
exculpate the defendant from his breach of contract.32[32]

Mitigated Damages

Under Article 1172, liability (for culpa contractual) may be regulated by the courts, according to the
circumstances. This means that if the defendant exercised the proper diligence in the selection and
supervision of its employee, or if the plaintiff was guilty of contributory negligence, then the courts may
reduce the award of damages. In this case, L.C. Diaz was guilty of contributory negligence in allowing a

30
 10. G.R. No. 167848 April 27, 2007
BANK OF COMMERCE, Petitioner,
vs.
SPS. PRUDENCIO SAN PABLO, JR., and NATIVIDAD O. SAN PABLO, Respondents.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, filed by
petitioner Bank of Commerce seeking to reverse and set aside the Decision1 of the Court of Appeals dated
10 September 2004, and its Resolution2 dated 10 March 2005. The Court of Appeals, in its assailed Decision
and Resolution reversed the Decision3 of the Regional Trial Court (RTC) of Mandaue City, Branch 56 dated
25 June 2002, which affirmed the Decision,4 of the Municipal Trial Court (MTC) of Mandaue City, Branch 2,
dismissing for lack of merit the complaint against Melencio Santos (Santos) and the Bank of Commerce
filed by the respondent Spouses Prudencio (Prudencio) and Natividad (Natividad) San Pablo for the
declaration of nullity of the Special Power of Attorney (SPA) and cancellation of Real Estate Mortgage. The
dispositive portion of the Court of Appeals Decision reads:
WHEREFORE, the Petition for review is GRANTED and the assailed Decision and Order of the Regional Trial
Court, Branch 56, Mandaue City, Cebu, in Civil Case 4135-A must be as they are hereby, SET ASIDE. We
therefore declare the so-called Special Power of Attorney, the Deed of Real Estate Mortgage and the
Foreclosure proceedings to be NULL and VOID ab initio. And, in the meantime, if the subject Lot No. 1882-
C-1-A covered by Transfer Certificate of Title No. (26469)-7561 has been sold and a new transfer certificate
of title had been issued, let the Registry of deeds of Mandaue City cancel the new title and issue a new one
in favor of Natividad O. San Pablo, unless the new title holder is a purchaser in good faith and for value. In
the latter case, respondent Bank of Commerce and respondent Melencio G. Santos are hereby held jointly
and severally liable to petitioners for the fair market value of the property as of the date of finality of this
decision. Moreover, private respondents are likewise held jointly and severally liable to petitioners
₱50,000.00 as moral damages, ₱25,000.00 as exemplary damages, ₱25,000.00 plus ₱1,000.00 per count
appearance as attorney’s fees and ₱10,000.00 as litigation expenses. No costs.
The antecedent factual and procedural facts of this case are as follows:
On 20 December 1994, Santos obtained a loan from Direct Funders Management and Consultancy Inc.,
(Direct Funders) in the amount of ₱1,064,000.40.5
As a security for the loan obligation, Natividad executed a SPA6 in favor of Santos, authorizing the latter to
mortgage to Direct Funders a paraphernal real property registered under her name and covered by Transfer
Certificate of Title (TCT) No. (26469)-75617 (subject property).
In the Deed of Real Estate Mortgage8 executed in favor of Direct Funders, Natividad and her husband,
Prudencio, signed as the co-mortgagors of Santos. It was, however, clear between the parties that the loan
obligation was for the sole benefit of Santos and the spouses San Pablo merely signed the deed in order to
accommodate the former.
The aforesaid accommodation transaction was made possible because Prudencio and Santos were close
friends and business associates. Indeed, Prudencio was an incorporator and a member of the Board of
Directors of Intergems Fashion Jewelries Corporation (Intergems), a domestic corporation in which Santos
acted as the President.
Sometime in June 1995, the spouses San Pablo received a letter from Direct Funders informing them that
Santos failed to pay his loan obligation with the latter. When confronted with the matter, Santos promised
to promptly settle his obligation with Direct Funders, which he actually did the following month.
Upon learning that Santos’ debt with Direct Funders had been fully settled, the spouses San Pablo then
demanded from Santos to turn over to them the TCT of the subject property but the latter failed to do so
despite repeated demands. Such refusal prompted the spouses San Pablo to inquire as to the status of the
TCT of the subject property with the Register of Deeds of Mandaue City and to their surprise, they
discovered that the property was again used by Santos as collateral for another loan obligation he secured
from the Bank of Commerce.
As shown in the annotation stamped at the back of the title, the spouses San Pablo purportedly authorized
Santos to mortgage the subject property to the Bank of Commerce, as evidenced by the SPA allegedly
signed by Natividad on 29 March 1995. It was further shown from the annotation at the back of the title
that the spouses San Pablo signed a Deed of Real Estate Mortgage over the subject property in favor of
Bank of Commerce, which they never did.9
In order to free the subject property from unauthorized encumbrances, the spouses San Pablo, on 22
December 1995, filed a Complaint seeking for the Quieting of Title and Nullification of the SPA and the deed
of real estate mortgage with the prayer for damages against Santos and the Bank of Commerce before the
MTC of Mandaue City, Branch 2.
In their complaint, the spouses San Pablo claimed that their signatures on the SPA and the Deed of Real
Estate Mortgage allegedly executed to secure a loan with the Bank of Commerce were forged. They claimed
that while the loan with the Direct Funders was obtained with their consent and direct participation, they
never authorized the subsequent loan obligation with the Bank of Commerce.
During the pendency of the case, the Bank of Commerce, for non-payment of the loan, initiated the
foreclosure proceedings on the strength of the contested Deed of Real Estate Mortgage. During the auction
sale, the Bank of Commerce emerged as the highest bidder and thus a Certificate of Sale was issued under
its name. Accordingly, the spouses San Pablo amended their complaint to include the prayer for annulment
of the foreclosure sale.10
In his Answer,11 Santos countered that the loan with the Bank of Commerce was deliberately resorted to
with the consent, knowledge and direct participation of the spouses San Pablo in order to pay off the
obligation with Direct Funders. In fact, it was Prudencio who caused the preparation of the SPA and together
with Santos, they went to the Bank of Commerce, Cebu City Branch to apply for the loan. In addition,
Santos averred that the spouses San Pablo were receiving consideration from Intergems for extending
accommodation transactions in favor of the latter.
For its part, Bank of Commerce filed an Answer with Compulsory Counterclaim,12 alleging that the spouses
San Pablo, represented by their attorney-in-fact, Santos, together with Intergems, obtained a loan in the
amount of ₱1,218,000.00. It denied the allegation advanced by the spouses San Pablo that the SPA and
the Deed of Real Estate Mortgage were spurious. Since the loan already became due and demandable, the
Bank of Commerce sought the foreclosure of the subject property.
After the Pre-Trial Conference, trial on the merits ensued.
During the trial, Anastacio Barbarona, Jr., the Manager of the Bank of Commerce, Cebu City Branch,
testified that the spouses San Pablo personally signed the Deed of Real Estate Mortgage in his presence. 13
The testimony of a document examiner and a handwriting expert, however, belied this claim. The expert
witness, after carefully examining the loan documents with the Bank of Commerce, attested that the
signatures of the spouses San Pablo on the SPA and the Deed of Real Estate Mortgage were forged. 14
On 10 July 2001, the MTC rendered a Decision,15 dismissing the complaint for lack of merit. The MTC
declared that while it was proven that the signatures of the spouses San Pablo on the loan documents were
forged, the Bank of Commerce was nevertheless in good faith. The dispositive portion of the decision reads:
WHEREFORE, foregoing considered, the instant complaint is hereby ordered DISMISSED for lack of merit.
The dismissal of this case is without prejudice to the filing of the appropriate criminal action against those
31
responsible for the falsification of the questioned special power of attorney and deed of real estate
mortgage.
Aggrieved, the spouses San Pablo appealed the adverse decision to the RTC of Mandaue City, Branch 56,
which, in turn, affirmed the unfavorable ruling of the MTC in its Decision16 promulgated on 25 June 2002.
The decretal part of the said decision reads:
WHEREFORE, in view of the foregoing, the Court hereby resolves to affirm the assailed Decision.
Similarly ill-fated was the Motion for Reconsideration filed by the spouses San Pablo which was denied by
the RTC for lack of merit.17
Unyielding, the spouses San Pablo elevated the matter before the Court of Appeals through a Petition for
Review under Rule 42 of the Revised Rules of Court,18 assailing the adverse decisions of the MTC and RTC.
In a Decision19 dated 10 September 2004, the appellate court granted the petition filed by the spouses San
Pablo and reversed the decisions of the MTC and RTC. In setting aside the rulings of the lower courts, the
Court of Appeals ruled that since it was duly proven that the signatures of the spouses San Pablo on the
loan documents were forged, then such spurious documents could never become a valid source of title.
The mortgage contract executed by Santos over the subject property in favor of Bank of Commerce, without
the authority of the spouses San Pablo, was therefore unenforceable, unless ratified.
The Bank of Commerce is now before this Court assailing the adverse decision rendered by the Court of
Appeals.20 For the resolution of this Court are the following issues:
I.
WHETHER OR NOT THE MTC HAS JURISDICTION TO HEAR THE CASE FILED BY THE SPOUSES SAN PABLO.
II.
WHETHER OR NOT THE FORGED SPA AND SPECIAL POWER OF ATTORNEY COULD BECOME A VALID
SOURCE OF A RIGHT TO FORECLOSE A PROPERTY.
III.
WHETHER OR NOT THE AWARDS OF DAMAGES, ATTRONEY’S FEES AND LITIGATION EXPENSES ARE
PROPER IN THE INSTANT CASE.
In questioning the adverse ruling of the appellate court, the Bank of Commerce, for the first time in more
than 10 years of pendency of the instant case, raises the issue of jurisdiction. It asseverates that since the
subject matter of the case is incapable of pecuniary estimation, the complaint for quieting of title and
annulment of the SPA, the Deed of Real Estate Mortgage, and foreclosure proceedings should have been
originally filed with the RTC and not with the MTC. The decision rendered by the MTC, which did not acquire
jurisdiction over the subject matter of the case, is therefore void from the very beginning. Necessarily, the
Court of Appeals erred in giving due course to the petition when the tribunal originally trying the case had
no authority to try the issue.
We do not agree.
Upon cursory reading of the records, we gathered that the case filed by the spouses San Pablo before the
MTC was an action for quieting of title, and nullification of the SPA, Deed of Real Estate Mortgage, and
foreclosure proceedings. While the body of the complaint consists mainly of allegations of forgery, however,
the primary object of the spouses San Pablo in filing the same was to effectively free the title from any
unauthorized lien imposed upon it.
Clearly, the crux of the controversy before the MTC chiefly hinges on the question of who has the better
title over the subject property. Is it the spouses San Pablo who claim that their signatures on the loan
document were forged? Or is it the Bank of Commerce which maintains that the SPA and the Deed of Real
Estate Mortgage were duly executed and, therefore, a valid source of its right to foreclose the subject
property for non-payment of loan?
An action for quieting of title is a common law remedy for the removal of any cloud upon or doubt or
uncertainty with respect to title to real property. As clarified by this Court in Baricuatro, Jr. v. Court of
Appeals21 :
x x x Originating in equity jurisprudence, its purpose is to secure "… an adjudication that a claim of title to
or an interest in property, adverse to that of the complainant, is invalid, so that the complainant and those
claiming under him may be forever afterward free from any danger or hostile claim. In an action for quieting
of title, the competent court is tasked to determine the respective rights of the complainant and other
claimants, "… not only to place things in their proper place, to make the one who has no rights to said
immovable respect and not disturb the other, but also for the benefit of both, so that he who has the right
would see every cloud of doubt over the property dissipated, and he could afterwards without fear introduce
the improvements he may desire, to use, and even to abuse the property as he deems best (citation
omitted). Such remedy may be availed of under the circumstances enumerated in the Civil Code:
"ART. 476. Whenever there is a cloud on title to real property or any interest therein, by reason of any
instrument, record, claim, encumbrance or proceeding which is apparently valid or effective but is in truth
and in fact invalid, ineffective, voidable, or unenforceable, and may be prejudicial to said title, an action
may be brought to remove such cloud or to quiet the title,
An action may also be brought to prevent a cloud from being cast upon title to real property or any interest
therein."
The mortgage of the subject property to the Bank of Commerce, annotated on the Spouses San Pablo’s
TCT, constitutes a cloud on their title to the subject property, which may, at first, appear valid and effective,
but is allegedly invalid or voidable for having been made without their knowledge and authority as
registered owners. We thus have established that the case filed by the spouses San Pablo before the MTC
is actually an action for quieting of title, a real action, the jurisdiction over which is determined by the
assessed value of the property.22 The assessed value of the subject property located in Mandaue City, as
alleged in the complaint, is ₱4,900.00, which aptly falls within the jurisdiction of the MTC.
According to Section 33 of Batas Pambansa Blg. 129, as amended, otherwise known as The Judiciary
Reorganization Act of 1980:
Sec. 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts
in Civil Cases. – Metropolitan Trial Courts, Municipal Trial Courts, and Municipal Circuit Trial Courts shall
exercise:
xxxx
(3) Exclusive original jurisdiction in all civil actions which involve title to, or possession of, real property,
or any interest therein where the assessed value of the property or interest therein does not exceed twenty
thousand pesos (P20,000.00) or, in civil actions in Metro Manila, where such assessed value does not
exceed Fifty thousand pesos (P50,000.0) exclusive of interest, damages of whatever kind, attorney’s fees’
litigation expenses and costs: Provided, That in cases of land not declared for taxation purposes, the value
of such property shall be determined by the assessed value of the adjacent lots. (As amended, R.A. No.
7691.)
Even granting for the sake of argument that the MTC did not have jurisdiction over the case, the Bank of
Commerce is nevertheless estopped from repudiating the authority of the court to try and decide the case
32
after having actively participated in the proceedings before it and invoking its jurisdiction by seeking an
affirmative relief therefrom.
As we have explained quite frequently, a party may be barred from raising questions of jurisdiction when
estoppel by laches has set in. Estoppel by laches is failure or neglect for unreasonable and unexplained
length of time to do what, by exercising due diligence, ought to have been done earlier, warranting the
presumption that the party entitled to assert it has either abandoned it or has acquiesced to the correctness
or fairness of its resolution. This doctrine is based on grounds of public policy which, for the peace of the
society, requires the discouragement of stale claims, and, unlike the statute of limitations, is not a mere
question of time but is principally an issue of inequity or unfairness in permitting a right or claim to be
enforced or espoused.23
In Soliven v. Fastforms Philippines, Inc., we thus ruled:
While it is true that jurisdiction may be raised at any time, "this rule presupposes that estoppel has not
supervened." In the instant case, respondent actively participated in all stages of the proceedings before
the trial court and invoked its authority by asking for an affirmative relief. Clearly, respondent is estopped
from challenging the trial court’s jurisdiction, especially when the adverse judgment is rendered.24
Participation in all stages before the trial court, that included invoking its authority in asking for affirmative
relief, effectively bars the party by estoppel from challenging the court’s jurisdiction.25 The Court frowns
upon the undesirable practice of a party participating in the proceedings and submitting his case for decision
and then accepting the judgment, only if favorable, and attacking it for lack of jurisdiction when adverse.26
We now proceed to resolve the issue of whether a forged SPA or Deed of Real Estate Mortgage could be a
source of a valid title. Settled is the fact, as found by the MTC and as affirmed by both the RTC and the
Court of Appeals, that the SPA and the Deed of Real Estate Mortgage had been forged. Such fact is no
longer disputed by the parties. Thus, the only issue remaining to be threshed out in the instant petition is
whether the Bank of Commerce is a mortgagee in good faith. The MTC and the RTC held that the Bank of
Commerce acted in good faith in entering into the loan transaction with Santos, while the Court of Appeals,
on the other hand, ruled otherwise.
The Bank of Commerce posits that it is a mortgagee in good faith and therefore entitled to protection under
the law. It strenuously asserts that it is an innocent party who had no knowledge that the right of Santos
to mortgage the subject property was merely simulated.
In Cavite Development Bank v. Spouses Lim, 27
the Court explained the doctrine of mortgagee in good
faith, thus:
There is, however, a situation where, despite the fact that the mortgagor is not the owner of the mortgaged
property, his title being fraudulent, the mortgage contract and any foreclosure sale arising there from are
given effect by reason of public policy. This is the doctrine of "the mortgagee in good faith" based on the
rule that all persons dealing with property covered by the Torrens Certificates of Title, as buyers or
mortgagees, are not required to go beyond what appears on the face of the title. The public interest in
upholding the indefeasibility of a certificate of title, as evidence of lawful ownership of the land or of any
encumbrance thereon, protects a buyer or mortgagee who, in good faith, relied upon what appears on the
face of the certificate of title.
Indeed, a mortgagee has a right to rely in good faith on the certificate of title of the mortgagor of the
property given as security, and in the absence of any sign that might arouse suspicion, the mortgagee has
no obligation to undertake further investigation. This doctrine pre-supposes, however, that the mortgagor,
who is not the rightful owner of the property, has already succeeded in obtaining Torrens title over the
property in his name and that, after obtaining the said title, he succeeds in mortgaging the property to
another who relies on what appears on the title. This is not the situation in the case at bar since Santos
was not the registered owner for he merely represented himself to be the attorney-in-fact of the spouses
San Pablo.
In cases where the mortgagee does not directly deal with the registered owner of real property, the law
requires that a higher degree of prudence be exercised by the mortgagee. As we have enunciated in the
case of Abad v. Guimba:28
x x x While one who buys from the registered owner does not need to look behind the certificate of title,
one who buys from one who is not a registered owner is expected to examine not only the certificate of
title but all the factual circumstances necessary for [one] to determine if there are any flaws in the title of
the transferor, or in [the] capacity to transfer the land. Although the instant case does not involve a sale
but only a mortgage, the same rule applies inasmuch as the law itself includes a mortgagee in the term
"purchaser."
This principle is applied more strenuously when the mortgagee is a bank or a banking institution. In the
case of Cruz v. Bancom Finance Corporation, We ruled:
Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike private
individuals, it is expected to exercise greater care and prudence in its dealings, including those involving
registered lands. A banking institution is expected to exercise due diligence before entering into a mortgage
contract. The ascertainment of the status or condition of a property offered to it as security for a loan must
be a standard and indispensable part of its operations.29
We never fail to stress the remarkable significance of a banking institution to commercial transactions, in
particular, and to the country’s economy in general. The banking system is an indispensable institution in
the modern world and plays a vital role in the economic life of every civilized nation. Whether as mere
passive entities for the safekeeping and saving of money or as active instruments of business and
commerce, banks have become an ubiquitous presence among the people, who have come to regard them
with respect and even gratitude and, most of all, confidence.30 Consequently, the highest degree of
diligence is expected, and high standards of integrity and performance are even required, of it. 31
The Bank of Commerce clearly failed to observe the required degree of caution in ascertaining the
genuineness and extent of the authority of Santos to mortgage the subject property. It should not have
simply relied on the face of the documents submitted by Santos, as its undertaking to lend a considerable
amount of money required of it a greater degree of diligence. That the person applying for the loan is other
than the registered owner of the real property being mortgaged should have already raised a red flag and
which should have induced the Bank of Commerce to make inquiries into and confirm Santos’ authority to
mortgage the Spouses San Pablo’s property. A person who deliberately ignores a significant fact that could
create suspicion in an otherwise reasonable person is not an innocent purchaser for value.32
Having laid that the bank of Commerce is not in good faith necessitates us to award moral damages,
exemplary damages, attorney’s fees and costs of litigation in favor of the spouses San Pablo. Moral
damages are not awarded to penalize the defendant but to compensate the plaintiff for the injuries he may
have suffered.33 Willful injury to property may be a legal ground for awarding moral damages if the court
should find that, under the circumstances, such damages are justly due.34 In the instant case, we find that
the award of moral damages is proper. The Bank of Commerce, in allowing Santos to secure a loan out of
the property belonging to the spouses San Pablo, without taking the necessary precaution demanded by
the circumstances owing to the public policy imbued in the banking business, caused injury to the latter
which calls for the imposition of moral damages. As for the award of exemplary damages, we deem that
the same is proper for the Bank of Commerce was remiss in its obligation to inquire into the veracity of
Santos’ authority to mortgage the subject property, causing damage to the spouses San Pablo. 35 Finally,
we rule that the award of attorney’s fees and litigation expenses is valid since the spouses San Pablo were
compelled to litigate and thus incur expenses in order to protect its rights over the subject property.36
33
Prescinding from the above, we thus rule that the forged SPA and Deed of Real Estate Mortgage is void ab
initio. Consequently, the foreclosure proceedings conducted on the strength of the said SPA and Deed of
Real Estate Mortgage, is likewise void ab initio. Since the Bank of Commerce is not a mortgagee in good
faith or an innocent purchaser for value on the auction sale, it is not entitled to the protection of its rights
to the subject property. Considering further that it was not shown that the Bank of Commerce has already
transferred the subject property to a third person who is an innocent purchaser for value (since no
intervention or third-party claim was interposed during the pendency of this case), it is but proper that the
subject property should be retained by the Spouses San Pablo.

WHEREFORE, in view of the foregoing, the instant petition is DENIED. The Decision dated 10 September
2004 rendered by the Court of Appeals in CA-G.R. SP No. 76562, is hereby AFFIRMED. The SPA, the Deed
of Real Estate Mortgage, and the Foreclosure Proceedings conducted in pursuant to said deed, are hereby
declared VOID AB INITIO. The Register of Deeds of Mandaue City is hereby DIRECTED to cancel Entry
Nos. 9089-V.9-D.B and 9084-V.9-D.B annotated on TCT No.-(26469)-7561 in the name of Natividad
Opolontesima San Pablo. The Bank of Commerce is hereby ORDERED to pay the spouses San Pablo
₱50,000.00 as moral damages, ₱25,000.00 as exemplary damages, ₱20,000.00 as attorney’s fees and
₱20,000.00 as litigation expenses. Cost against the petitioner.

SO ORDERED.

34