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G.R. No. 172428

SECOND DIVISION
HERMAN C. CRYSTAL, LAMBERTO
C. CRYSTAL, ANN GEORGIA C.
SOLANTE, and DORIS C.
MAGLASANG, as Heirs of
Deceased SPOUSES RAYMUNDO
I. CRYSTAL and DESAMPARADOS
C. CRYSTAL,
Petitioners,

G.R. No. 172428

Present:
QUISUMBING, J.,
Chairperson,
CARPIO MORALES,
TINGA,
VELASCO, JR., and
BRION, JJ.

- versus Promulgated:
November 28, 2008
BANK OF THE PHILIPPINE ISLANDS,
Respondent.
x----------------------------------------------------------------------------x

DECISION
TINGA, J.:

Before us is a Petition for Review

[1]

[2]

of the Decision

and Resolution

[3]

of the Court of

Appeals dated 24 October 2005 and 31 March 2006, respectively, in CA G.R. CV No. 72886,
[4]
which affirmed the 8 June 2001 decision of the Regional Trial Court, Branch 5, of Cebu City.
The facts, as culled from the records, follow.
On 28 March 1978, spouses Raymundo and Desamparados Crystal obtained a P300,000.00
loan in behalf of the Cebu Contractors Consortium Co. (CCCC) from the Bank of the Philippine
Islands-Butuan branch (BPI-Butuan). The loan was secured by a chattel mortgage on heavy
equipment and machinery of CCCC. On the same date, the spouses executed in favor of BPIhttp://sc.judiciary.gov.ph/jurisprudence/2008/november2008/172428.htm

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[5]
Butuan a Continuing Suretyship
where they bound themselves as surety of CCCC in the
aggregate principal sum of not exceeding P300,000.00.
Raymundo Crystal executed a promissory note

[6]

Thereafter, or on 29 March 1979,

for the amount of P300,000.00, also in favor of

BPI-Butuan.
Sometime in August 1979, CCCC renewed a previous loan, this time from BPI, Cebu City
branch (BPI-Cebu City). The renewal was evidenced by a promissory note

[7]

dated 13 August

1979, signed by the spouses in their personal capacities and as managing partners of CCCC. The
promissory note states that the spouses are jointly and severally liable with CCCC. It appears that
before the original loan could be granted, BPI-Cebu City required CCCC to put up a security.

However, CCCC had no real property to offer as security for the loan; hence, the spouses executed
a real estate mortgage

[8]

[9]

over their own real property on 22 September 1977.

On 3 October

1977, they executed another real estate mortgage over the same lot in favor of BPI-Cebu City, to
secure an additional loan of P20,000.00 of CCCC.

[10]

CCCC failed to pay its loans to both BPI-Butuan and BPI-Cebu City when they became
due. CCCC, as well as the spouses, failed to pay their obligations despite demands. Thus, BPI
resorted to the foreclosure of the chattel mortgage and the real estate mortgage. The foreclosure
sale on the chattel mortgage was initially stalled with the issuance of a restraining order against
[11]

BPI.

However, following BPIs compliance with the necessary requisites of extrajudicial

foreclosure, the foreclosure sale on the chattel mortgage was consummated on 28 February 1988,
with the proceeds amounting to P240,000.00 applied to the loan from BPI-Butuan which had then
[12]

reached P707,393.90.

Meanwhile, on 7 July 1981, Insular Bank of Asia and America

(IBAA), through its Vice-President for Legal and Corporate Affairs, offered to buy the lot
subject of the two (2) real

estate mortgages and to pay directly the spouses indebtedness in exchange for the release of the
mortgages. BPI rejected IBAAs offer to pay.
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[13]

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BPI filed a complaint for sum of money against CCCC and the spouses before the Regional
Trial Court of Butuan City (RTC Butuan), seeking to recover the deficiency of the loan of CCCC
and the spouses with BPI-Butuan. The trial court ruled in favor of BPI. Pursuant to the decision,
[14]

BPI instituted extrajudicial foreclosure of the spouses mortgaged property.

On 10 April 1985, the spouses filed an action for Injunction With Damages, With A Prayer
[15]
For A Restraining Order and/ or Writ of Preliminary Injunction.
The spouses claimed that
the foreclosure of the real estate mortgages is illegal because BPI should have exhausted CCCCs
properties first, stressing that they are mere guarantors of the renewed loans. They also prayed that
they be awarded moral and exemplary damages, attorneys fees, litigation expenses and cost of
[16]
suit. Subsequently, the spouses filed an amended complaint,
additionally alleging that CCCC
had opened and maintained a foreign currency savings account (FCSA-197) with bpi, Makati
branch (BPI-Makati), and that said FCSA was used as security for a P450,000.00 loan also
extended by BPI-Makati. The P450,000.00 loan was allegedly paid, and thereafter the spouses
demanded the return of the FCSA passbook. BPI rejected the demand; thus, the spouses were
unable to withdraw from the said account to pay for their other obligations to BPI.
The trial court dismissed the spouses complaint and ordered them to pay moral and
[17]
exemplary damages and attorneys fees to BPI.
It ruled that since the spouses agreed to bind
themselves jointly and severally, they are solidarily liable for the loans; hence, BPI can validly
foreclose the two real estate mortgages. Moreover, being guarantors-mortgagors, the spouses are
not entitled to the benefit of exhaustion. Anent the FCSA, the trial court found that CCCC
originally had FCDU SA No. 197 with BPI, Dewey Boulevard branch, which was transferred to
BPI-Makati as FCDU SA 76/0035, at the request of Desamparados Crystal. FCDU SA 76/0035
was thus closed, but Desamparados Crystal failed to surrender the passbook because it was lost.
The transferred FCSA in BPI-Makati was the one used as security for CCCCs P450,000.00 loan
from BPI-Makati. CCCC was no longer allowed to withdraw from FCDU SA No. 197 because it
was already closed.

The spouses appealed the decision of the trial court to the Court of Appeals, but their appeal
[18]

was dismissed.

The spouses moved for the reconsideration of the decision, but the Court of

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[19]

Appeals also denied their motion for reconsideration.

Hence, the present petition.

Before the Court, petitioners who are the heirs of the spouses argue that the failure of the
spouses to pay the BPI-Cebu City loan of P120,000.00 was due to BPIs illegal refusal to accept
payment

for the loan unless the P300,000.00 loan from BPI-Butuan would also be paid.

Consequently, in view of BPIs unjust refusal to accept payment of the BPI-Cebu City loan, the
loan obligation of the spouses was extinguished, petitioners contend.
The contention has no merit. Petitioners rely on IBAAs offer to purchase the mortgaged lot
[20]
from them and to directly pay BPI out of the proceeds thereof to settle the loan.
BPIs refusal
to agree to such payment scheme cannot extinguish the spouses loan obligation. In the first place,
IBAA is not privy to the loan agreement or the promissory note between the spouses and BPI.
Contracts, after all, take effect only between the parties, their successors in interest, heirs

[21]

and assigns.

Besides, under Art. 1236 of the Civil Code, the creditor is not bound to accept

payment or performance by a third person who has no interest in the fulfillment of the obligation,
unless there is a stipulation to the contrary. We see no stipulation in the promissory note which
states that a third person may fulfill the spouses obligation. Thus, it is clear that the spouses alone
bear responsibility for the same.
In any event, the promissory note is the controlling repository of the obligation of the
spouses. Under the promissory note, the spouses defined the parameters of their obligation as
follows:
On or before June 29, 1980 on demand, for value received, I/we promise to pay, jointly and severally, to the
BANK OF THE PHILIPPINE ISLANDS, at its office in the city of Cebu Philippines, the sum of ONE HUNDRED
TWENTY THOUSAND PESOS (P120,0000.00), Philippine Currency, subject to periodic installments on the principal
[22]
as follows: P30,000.00 quarterly amortization starting September 28, 1979. x x x

A solidary obligation is one in which each of the debtors is liable for the entire obligation,
and each of the creditors is entitled to demand the satisfaction of the whole obligation from any or
all of the debtors.

[23]

A liability is solidary only when the obligation expressly so states,

when the law so provides or when the nature of the

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obligation so requires.

[24]

Thus, when the obligor undertakes to be jointly and severally liable,

[25]

it means that the obligation is solidary,

such as in this case. By stating I/we promise to pay,

jointly and severally, to the BANK OF THE PHILIPPINE ISLANDS, the spouses agreed to be
sought out and be demanded payment from, by BPI.

BPI did demand payment from them, but

they failed to comply with their obligation, prompting BPIs valid resort to the foreclosure of the
chattel mortgage and the real estate mortgages.
More importantly, the promissory note, wherein the spouses undertook to be solidarily
liable for the principal loan, partakes the nature of a suretyship and therefore is an additional
security for the loan. Thus we held in one case that

if solidary liability was instituted to

guarantee a principal obligation, the law deems the contract to be one of suretyship.

[26]

And

while a contract of a surety is in essence secondary only to a valid principal obligation, the
suretys liability to the creditor or promisee of the principal is said to be direct, primary, and
absolute; in other words, the surety is directly and equally bound with the principal. The surety
therefore becomes liable for the debt or duty of another even if he possesses no direct or personal
[27]

interest over the obligations nor does he receive any benefit therefrom.

Petitioners contend that the Court of Appeals erred in not granting their counterclaims,
considering that they suffered moral damages in view of the unjust refusal of BPI to accept the
payment scheme proposed by IBAA and the allegedly unjust and illegal foreclosure of the real
estate mortgages on their property.

[28]

Conversely, they argue that the Court of Appeals erred in

awarding moral damages to BPI, which is a corporation, as well as exemplary damages, attorneys
[29]
fees and expenses of litigation.
We do not agree. Moral damages are meant to compensate the claimant for any physical
suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral
shock, social humiliation and similar injuries unjustly caused.

[30]

Such damages, to be

recoverable, must be the proximate result of a wrongful act or omission the factual basis for which
[31]

is satisfactorily established by the aggrieved party.

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There being no wrongful or unjust act on

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the part of BPI in demanding payment from them and in seeking the foreclosure of the chattel and
real estate mortgages, there is no lawful basis for award of damages in favor of the spouses.

Neither is BPI entitled to moral damages. A juridical person is generally not entitled to
moral damages because, unlike a natural person, it cannot experience physical suffering or such
sentiments as wounded feelings, serious anxiety, mental anguish or moral shock.

[32]

The Court

of Appeals found BPI as being famous and having gained its familiarity and respect not only in
the Philippines but also in the whole world because of its good will and good reputation must
protect and defend the same against any unwarranted suit such as the case at bench.

[33]

In

holding that BPI is entitled to moral damages, the Court of Appeals relied on the case of People v.
[34]

Manero,

wherein the Court ruled that [i]t is only when a juridical person has a good

reputation that is debased, resulting in social humiliation, that moral damages may be
awarded.

[35]

We do not agree with the Court of Appeals. A statement similar to that made by the Court
[36]
in Manero can be found in the case of Mambulao Lumber Co. v. PNB, et al.,
thus:

x x x Obviously, an artificial person like herein appellant corporation cannot experience

physical sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or social
humiliation which are basis of moral damages. A corporation may have good reputation which, if
besmirched may also be a ground for the award of moral damages. x x x (Emphasis supplied)

[37]

Nevertheless, in the more recent cases of ABS-CBN Corp. v. Court of Appeals, et al.,

and Filipinas Broadcasting Network, Inc. v. Ago Medical and Educational Center-Bicol Christian
[38]
College of Medicine (AMEC-BCCM),
the Court held that the statements in Manero and
Mambulao were mere obiter dicta, implying that the award of moral damages to corporations is
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not a hard and fast rule.

Indeed, while the Court may allow the grant of moral damages to

corporations, it is not automatically granted; there must still be proof of the existence of the factual
basis of the damage and its causal relation to the defendants acts. This is so because moral
damages, though incapable of pecuniary estimation, are in the category of an award designed to
compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer.
[39]

The spouses complaint against BPI proved to be unfounded, but it does not automatically
entitle BPI to moral damages. Although the institution of a clearly unfounded civil suit can at
times be a legal

justification for an award of attorney's fees, such filing, however, has almost invariably been held
not to be a ground for an award of moral damages. The rationale for the rule is that the law could
not have meant to impose a penalty on the right to litigate. Otherwise, moral damages must every
[40]
time be awarded in favor of the prevailing defendant against an unsuccessful plaintiff.

BPI

may have been inconvenienced by the suit, but we do not see how it could have possibly suffered
besmirched reputation on account of the single suit alone. Hence, the award of moral damages
should be deleted.
The awards of exemplary damages and attorneys fees, however, are proper. Exemplary
damages, on the other hand, are imposed by way of example or correction for the public good,
when the party to a contract acts in a wanton, fraudulent, oppressive or malevolent manner, while
attorneys fees are allowed when exemplary damages are awarded and when the party to a suit is
[41]
compelled to incur expenses to protect his interest.

The spouses instituted their complaint

against BPI notwithstanding the fact that they were the ones who failed to pay their obligations.
Consequently, BPI was forced to litigate and defend its interest. For these reasons, BPI is entitled
to the awards of exemplary damages and attorneys fees.

WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of
Appeals dated 24 October 2005 and 31 March 2006, respectively, are hereby AFFIRMED, with
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the MODIFICATION that the award of moral damages to Bank of the Philippine Islands is
DELETED.
Costs against the petitioners.
SO ORDERED.

DANTE O. TINGA
Associate Justice

WE CONCUR:

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CONCHITA CARPIO MORALES

Associate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

ARTURO D. BRION
Associate Justice
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ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, it is hereby certified that the conclusions in the above Decision
had been reached in consultation before the case was assigned to the writer of the opinion of
the Courts Division.

REYNATO S. PUNO
Chief Justice

[1]

Rollo, pp. 4-21.

[2]

Id. at 23-31. Penned by Associate Justice Vicente L. Yap. with Associate Justices Arsenio J. Magpale and Apolinario D.
Bruselas, Jr. concurring.
[3]
[4]
[5]
[6]
[7]

Id. at 48-49.
CA rollo, pp. 41-48. Penned by Judge Ireneo Lee Gako, Jr.
Records, pp. 26-29.
Defendants Folder of Exhibits, Exhibit 50.
Records, p. 25.

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[8]
[9]

Records, p. 10.
A parcel of land identified as Lot 6098-B-2 covered by TCT NO. T-16118.

[10]
Records, p. 11.
[11]

In Civil Case No. 31972, the CFI of Rizal Branch CLIII issued a restraining order.

[12]
Supra note 2.
[13]
Plaintiffs Folder of Exhibits. The offer was contained in a letter dated 7 July 1981. It reads:
Gentlemen:
We are buying that parcel of land covered by Transfer Certificate of Title No. T-16118 at present securing a
loan of Cebu Contractors Consortium with you.
Please lend us the Certificate of Title so that the same can be transferred to us. Your lien will, of course,
continue to be annotated upon said title even when it has already been transferred to us.
As soon as we procure the Certificate of Title in our name, we will pay directly to you the amount needed to
wipe off the indebtedness of Cebu Contractors Consortium, in exchange for your release of the mortgage.
[14]
Exhibits 27, 28 and 29, Defendants Folder of Exhibits.
[15]
Records, pp. 1-9.
[16]
Id. at 43-53.
[17]
RTC records, pp. 353-362.
[18]
Rollo, pp. 23-31.
[19]
Id. at 48-49.
[20]
Exhibit P, Plaintiffs Folder of Exhibits.
[21]
CIVIL CODE, Art. 1311.
[22]
RTC records, p. 25.
[23]
PH Credit Corp. v. Court of Appeals, 421 Phil. 821, 832 (2001).
[24]
Inciong, Jr. v. CA, 327 Phil. 364, 373 (1996).
[25]
International Finance Corporation v. Imperial Textile Mills, Inc., 15 November 2005, 475 SCRA 149.
[26]
Id. at 159.
[27]
Garcia, Jr. v. Court of Appeals, G.R. No. 80201, 20 November 1990, 191 SCRA 493, 496.
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[28]
Rollo, p. 16.
[29]
Id.
[30]
Samson, Jr. v. Bank of the Philippine Islands, 453 Phi. 577, 583 (2003).
[31]
Expertravel and Tours, Inc. v. Court of Appeals, 368 Phil. 444, 448 (1999).
[32]
People v. Manero, Jr., G.R. Nos. 86883-85, 29 January 1993, 218 SCRA 85, 96-97.
[33]
Rollo, p. 30.
[34]
G.R. Nos. 86883-8529, 29 January 1993, 218 SCRA 85.
[35]
Id. at 97.
[36]
130 Phil. 366 (1968).
[37]
ABS-CBN Broadcasting Corp. v. Court of Appeals, 361 Phil. 499 (1999).
[38]
G.R. No. 141994, 17 January 2005, 448 SCRA 413.
[39]
Development Bank of The Philippines v. Court of Appeals, 451 Phil. 563, 587 (2003).
[40]
Expertravel and Tours, Inc. v. Court of Appeals, 368 Phil. 444, 449-450 (1999).
[41]
Spouses Paguyo v. Astorga, G.R. No. 13098, 16 September 2005, 470 SCRA 33, 35.

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