G.R. No. 172428.November 28, 2008.

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, vs.
BANK OF THE PHILIPPINE ISLANDS, respondent.
Civil Law Obligations A liability is solidary only when the
obligation expressly so states, when the law so provides or when
the nature of the obligation so requires.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. A liability is
solidary only when the obligation expressly so states, when the
law so provides or when the nature of the obligation so requires.
Thus, when the obligor undertakes to be jointly and severally
liable, 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.
Same Same Suretyship If solidary liability was instituted to
guarantee a principal obligation, the law deems the contract to
be one of suretyship The surety is directly and equally bound with
the principal.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. 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

_______________
*SECOND DIVISION.

698

698

SUPREME COURT REPORTS ANNOTATED

or duty of another even if he possesses no direct or personal

interest over the obligations nor does he receive any benefit
therefrom.
Same Moral Damages Corporation Law Statements in
Manero and Mambulao are mere obiter dicta 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.In the more recent cases of ABSCBN Corp. v.
Court of Appeals, et al., 301 SCRA 572 (1999) and Filipinas
Broadcasting Network, Inc. v. Ago Medical and Educational
CenterBicol Christian College of Medicine (AMECBCCM), 448
SCRA 413 (2005), the Court held that the statements in Manero
and Mambulao were mere obiter dicta, implying that the award of
moral damages to corporations is 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.

PETITION for review on certiorari of the decision and

resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Zosa & Quijano Law Offices for petitioners.
Alicia E. Bathan for respondent.
TINGA,J.:
Before us is a Petition for Review1 of the Decision2 and

_______________
1Rollo, pp. 421.
2 Id., at pp. 2331. Penned by Associate Justice Vicente L. Yap with
Associate Justices Arsenio J. Magpale and Apolinario D. Bruselas, Jr.
concurring.
699

699

Resolution3 of the Court of Appeals dated 24 October 2005

and 31 March 2006, respectively, in CA G.R. CV No. 72886,
which affirmed the 8 June 2001 decision of the Regional
Trial Court, Branch 5, of Cebu City.4
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 IslandsButuan branch
(BPIButuan). 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 BPIButuan a
Continuing Suretyship5 where they bound themselves as
surety of CCCC in the aggregate principal sum of not
exceeding P300,000.00. Thereafter, or on 29 March 1979,
Raymundo Crystal executed a promissory note6 for the
amount of P300,000.00, also in favor of BPIButuan.
Sometime in August 1979, CCCC renewed a previous
loan, this time from BPI, Cebu City branch (BPICebu
City). The renewal was evidenced by a promissory note7
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, BPICebu 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 mortgage8 over their own real
property on 22 September 1977.9 On 3 October 1977, they
executed another real estate mortgage over the same lot
_______________
3Id., at pp. 4849.

4CA Rollo, pp. 4148. Penned by Judge Ireneo Lee Gako, Jr.
5Records, pp. 2629.
6Defendants Folder of Exhibits, Exhibit 50.
7Records, p. 25.
8Records, p. 10.
9 A parcel of land identified as Lot 6098B2 covered by TCT No. T
16118.
700

700

SUPREME COURT REPORTS ANNOTATED

in favor of BPICebu City, to secure an additional loan of

P20,000.00 of CCCC.10
CCCC failed to pay its loans to both BPIButuan and
BPICebu 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
BPI.11 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 BPIButuan which
had then reached P707,393.90.12 Meanwhile, on 7 July
1981, Insular Bank of Asia and America (IBAA), through
its VicePresident 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.13
_______________
10Records, p. 11.
11 In Civil Case No. 31972, the CFI of Rizal Branch CLIII issued a
restraining order.
12Supra 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. T16118 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 indebted
701

701

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 BPIButuan. The trial
court ruled in favor of BPI. Pursuant to the decision, BPI
instituted extrajudicial foreclosure of the spouses
mortgaged property.14
On 10 April 1985, the spouses filed an action for
Injunction With Damages, With A Prayer For A Restraining
Order and/or Writ of Preliminary Injunction.15 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 suit. Subsequently, the
spouses filed an amended complaint,16 additionally alleging
that CCCC had opened and maintained a foreign currency
savings account (FCSA197) with bpi, Makati branch (BPI
Makati), and that said FCSA was used as security for a
P450,000.00 loan also extended by BPIMakati. 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 exemplary damages and
attorneys fees to BPI.17 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

_______________
ness of Cebu Contractors Consortium, in exchange for your release of the
mortgage.
14Exhibits 27, 28 and 29, Defendants Folder of Exhibits.
15Records, pp. 19.
16Id., at pp. 4353.
17RTC Records, pp. 353362.
702

702

SUPREME COURT REPORTS ANNOTATED

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 BPIMakati 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 BPIMakati
was the one used as security for CCCCs P450,000.00 loan
from BPIMakati. 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 was dismissed.18 The
spouses moved for the reconsideration of the decision, but
the Court of Appeals also denied their motion for
reconsideration.19 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
BPICebu 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 BPIButuan would also be paid.
Consequently, in view of BPIs unjust refusal to accept
payment of the BPICebu 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 from them and to
directly pay BPI out of the proceeds thereof to settle the
loan.20 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 and
_______________
18Rollo, pp. 2331.
19Id., at pp. 4849.
20Exhibit P, Plaintiffs Folder of Exhibits.
703

703

assigns.21 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 as follows: P30,000.00 quarterly
amortization starting September 28, 1979. xxx22

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
obligation so requires.24 Thus, when the obligor
undertakes to be jointly and severally liable, it means
that the obligation is solidary,25 such as in this case. By
stating I/we promise to pay, jointly and sever

_______________
21Civil Code, Art. 1311.
22RTC Records, p. 25.
23PH Credit Corp. v. Court of Appeals, 421 Phil. 821, 832 370 SCRA
155, 165 (2001).
24Inciong, Jr. v. Court of Appeals, 327 Phil. 364, 373 257 SCRA 578,
588 (1996).
25International Finance Corporation v. Imperial Textile Mills, Inc., 15
November 2005, 475 SCRA 149.
704

704

SUPREME COURT REPORTS ANNOTATED

ally, 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 interest
over the obligations nor does he receive any benefit
therefrom.27
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 fees and expenses of litigation.29

_______________
26Id., at p. 159.
27Garcia, Jr. v. Court of Appeals, G.R. No. 80201, 20 November 1990,
191 SCRA 493, 496.
28Rollo, p. 16.
29Id.
705

705

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 is satisfactorily
established by the aggrieved party.31 There being no
wrongful or unjust act on 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. Manero,34 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
_______________
30 Samson, Jr. v. Bank of the Philippine Islands, 453 Phil. 577, 583
405 SCRA 607, 611 (2003).
31Expertravel and Tours, Inc. v. Court of Appeals, 368 Phil. 444, 448

309 SCRA 141, 144145 (1999).

32 People v. Manero, Jr., G.R. Nos. 8688385, 29 January 1993, 218
SCRA 85, 9697.
33Rollo, p. 30.
34G.R. Nos. 8688385, 29 January 1993, 218 SCRA 85.
35Id., at p. 97.
706

706

SUPREME COURT REPORTS ANNOTATED

We do not agree with the Court of Appeals. A statement

similar to that made by the Court in Manero can be found
in the case of Mambulao Lumber Co. v. PNB, et al.,36 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. xxx (Emphasis supplied)

Nevertheless, in the more recent cases of ABSCBN

Corp. v. Court of Appeals, et al.,37 and Filipinas
Broadcasting Network, Inc. v. Ago Medical and
Educational CenterBicol Christian College of Medicine
(AMECBCCM),38 the Court held that the statements in
Manero and Mambulao were mere obiter dicta, implying
that the award of moral damages to corporations is 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 attor

_______________
36130 Phil. 366 22 SCRA 359 (1968).
37ABSCBN Broadcasting Corp. v. Court of Appeals, 361 Phil. 499 301
SCRA 572 (1999).
38G.R. No. 141994, 17 January 2005, 448 SCRA 413.
39Development Bank of The Philippines v. Court of Appeals, 451 Phil.
563, 587 403 SCRA 460, 480 (2003).
707

707

neys 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 time be awarded in
favor of the prevailing defendant against an unsuccessful
plaintiff.40 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 compelled to incur
expenses to protect his interest.41 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 the MODIFICATION that the award of
moral damages to Bank of the Philippine Islands is
DELETED.
Costs against the petitioners.
SO ORDERED.

_______________
40Expertravel and Tours, Inc. v. Court of Appeals, 368 Phil. 444, 449
450 309 SCRA 141, 147 (1999).
41Spouses Paguyo v. Astorga, G.R. No. 13098, 16 September 2005, 470
SCRA 33, 35.

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