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September 3, 1987: Bejanmin Napiza deposited in Foreign Currency Deposit Unit (FCDU) Savings
Account which he maintained in BPI a Continental Bank Manager's Check dated August 17, 1984,
payable to "cash" $2,500.00 check belonged to Henry who went to the office of Napiza and requested
him to deposit the check in his dollar account by way of accommodation and for the purpose of
clearing the same.
Napiza acceded, and agreed to deliver to Chan a signed blank withdrawal slip, with the understanding
that as soon as the check is cleared, both of them would go to the bank to withdraw October 23,
1984: Using the blank withdrawal slip given by Napiza to Chan, Ruben Gayon, Jr. was able to withdraw
the withdrawal slip shows that the amount was payable to Ramon A. de Guzman and Agnes C. de
Guzman and was duly initialed by the branch assistant manager, Teresita Lindo
November 20, 1984: BPI received communication from the Wells Fargo Bank International of New York
that check deposited by Napiza was a counterfeit check because it was "not of the type or style of
checks issued by Continental Bank International."
Mr. Ariel Reyes, manager of BPI, instructed one of its employees, Benjamin D. Napiza IV, who is
Napiza's son, to inform his father that the check bounced.
Reyes himself sent a telegram to Napiza regarding the dishonor of the check

Napiza's son told Reyes that:

check been assigned "for encashment" to Ramon A. de Guzman and/or Agnes C. de Guzman
after it shall have been cleared upon instruction of Chan his father immediately tried to contact Chan but
Chan was out of town
Napiza's son undertook to return the amount of $2,500.00 to BPI
August 12, 1986: BPI filed a complaint against Napiza for the return of $2,500.00 or the prevailing peso
equivalent plus legal interest, attorney's fees, and litigation and/or costs of suit
admitting that he indeed signed a "blank" withdrawal slip with the understanding that the
amount deposited would be withdrawn only after the check in question has been cleared.
However, without his knowledge, it was withdrawn through collusion with one of BPI's employees.

BPI aslo filed a motion for admission of a third party complaint against Chan. He alleged that "thru
strategem and/or manipulation," Chan was able to withdraw the amount of $2,500.00 even without
Napiza's passbook.
November 4, 1991: Lower Court dismissed the complaint.
Having admitted that it committed a "mistake" in not waiting for the clearance of the check before
authorizing the withdrawal of its value or proceeds, BPI should suffer the resultant loss.
CA: Affirmed the lower courts decision
BPI committed "clears gross negligence" in allowing Ruben Gayon, Jr. to withdraw the money
without presenting BPI's passbook and, before the check was cleared and in crediting the
amount indicated therein in Napiza's account.
BPI claims that Napiza, having affixed his signature at the dorsal side of the check, should be
liable in accordance to Sec. 66 of the Negotiable Instrument Law

Sec. 66. Liability of general indorser. Every indorser who indorses without qualification,
warrants to all subsequent holders in due course

(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and
(b) That the instrument is at the time of his indorsement, valid and subsisting.
And, in addition, he engages that on due presentment, it shall be accepted or paid, or both, as the case may

be, according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly
taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to
pay it.
Sec. 65, on the other hand, provides for the following warranties of a person negotiating an instrument by
delivery or by qualified indorsement: (a) that the instrument is genuine and in all respects what it purports to
be; (b) that he has a good title to it, and (c) that all prior parties had capacity to contract.
ISSUE: W/N Napiza can be held liable as an indorser or accommodation party

Ordinarily private respondent may be held liable as an indorser of the check or even as an
accommodation party. However, petitioner BPI, in allowing the withdrawal of private
respondents deposit, failed to exercise the diligence of a good father of a family. BPI violated
its own rules by allowing the withdrawal of an amount that is definitely over and above the
aggregate amount of private respondents dollar deposits that had yet to be cleared. The
proximate cause of the eventual loss of the amount of $2,500.00 on BPI's part was its
personnels negligence in allowing such withdrawal in disregard of its own rules and the
clearing requirement in the banking system. In so doing, BPI assumed the risk of incurring a
loss on account of a forged or counterfeit foreign check and hence, it should suffer the resulting
damage. However, to hold Napiza liable for the amount of the check he deposited by the strict
application of the law and without considering the attending circumstances in the case would
result in an injustice and in the erosion of the public trust in the banking system.
The interest of justice thus demands looking into the events that led to the encashment of the
check.under the Philippine foreign currency deposit system, two requisites must be presented
to petitioner bank by the person withdrawing an amount:

(a) a duly filled-up withdrawal slip, and Napiza signed a blank deposit slip
BUT withdrawal slip itself indicates a special instruction that the amount is payable to
"Ramon A. de Guzman &/or Agnes C. de Guzman."
(b) the depositor's passbook

In depositing the check in his name, Napiza did not become the outright owner of the amount
stated therein. By depositing the check with BPI, he was, in a way, merely designating BPI as
the collecting bank.
This is in consonance with the rule that a negotiable instrument, such as a check, whether
a manager's check or ordinary check, is not legal tender
Negligence is the omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of
something which a prudent and reasonable man would do
While it is true that Napiza's having signed a blank withdrawal slip set in motion the events that
resulted in the withdrawal and encashment of the counterfeit check, the negligence of BPI's
personnel was the proximate cause of the loss that petitioner sustained.
Proximate cause, which is determined by a mixed consideration of logic, common sense, policy
and precedent, 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
The proximate cause = disregard of its own rules and the clearing requirement in the banking

Consolidated Bank and Trust Corporation vs. Court of Appeals G.R. No. 138569, September 11, 2003
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.
Facts: Solidbank is a domestic banking corporation while private respondent L.C. Diaz and Company, CPAs
(L.C. Diaz), is a professional partnership engaged in the practice of accounting and which opened a savings
account with Solidbank. Diaz through its cashier, Mercedes Macaraya , filled up a savings cash deposit slip
and a savings checks deposit slip. Macaraya instructed the messenger of L.C. Diaz, Ismael Calapre, to deposit
the money with Solidbank and give him 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. 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. When
Calapre returned to Solidbank to retrieve the passbook, Teller No. 6 informed him that somebody got the
passbook. Calapre went back to L.C. Diaz and reported the incident to Macaraya. The following day,, L.C. Diaz
through its Chief Executive Officer, Luis C. Diaz, called up Solidbank to stop any transaction using the same
passbook until L.C. Diaz could open a new account followed by a formal written request later that day. It was
also on the same day that L.C. Diaz learned of the unauthorized withdrawal the day before of P300,000 from
its savings account. The withdrawal slip 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.
L.C. Diaz demanded from Solidbank the return of its money but to no avail. Hence, L.C. Diaz filed a Complaint
for Recovery of a Sum of Money against Solidbank with the Regional Trial Court. After trial, the trial court
rendered a decision absolving Solidbank and dismissing the complaint. Court of Appeals reversed the
decision of the trial court.
Issue: Whether or not Solidbank must be held liable for the fraudulent withdrawal on private respondents
Held: 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. However, L.C. Diaz was guilty of contributory negligence in allowing a withdrawal slip
signed by its authorized signatories to fall into the hands of an impostor. Thus, the liability of Solidbank
should be reduced. Hence, the liability of Solidbank for actual damages was reduced to only 60%, the
remaining 40% was borne by private respondent.
The contract between the bank and its depositor is governed by the provisions of the Civil Code on 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 law imposes on banks high standards in view of the fiduciary nature of
banking. RA 8791 declares that the State recognizes the fiduciary nature of banking that requires high
standards of integrity and performance. This new provision in the general banking law, introduced in 2000, is
a statutory affirmation of Supreme Court decisions 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
Issue: Whether or not petitioner bank is liable solely for the amount withdrawn by the impostor.
Held: No. The bank 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. Article 1172 of the Civil Code provides that responsibility arising from negligence in the performance of
every kind of obligation is demandable. The bank is liable to its depositor for breach of the savings deposit
agreement due to negligence or culpa contractual. 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 (Simex
International vs. CA).
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
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. This doctrine is not applicable to the present case. The contributory negligence of the private
respondent or his last clear chance to avoid the loss would not exonerate the petitioner from liability.
However, it serves to reduce the recovery of damages by the private respondent. Under Article 1172, the
liability may be regulated by the courts, according to the circumstances. In this case, respondent L.C. Diaz
was guilty of contributory negligence in allowing a withdrawal slip signed by its authorized signatories to fall
into the hands of an impostor. Thus, the liability of petitioner bank should be reduced.
In PHILIPPINE BANK OF COMMERCE VS. CA, the Supreme Court allocated the damages between the depositor
who is guilty of contributory negligence and the bank on a 40-60 ratio. The same ruling was applied to this
case. Petitioner bank must pay only 60% of the actual damages.
Phil. Banking Corp. vs CA GR. No. 127469
Leonilo Marcos filed in court a complaint for sum of money with damages against Phil. Banking Corporation
(PBC). Marcos allegedly made a time deposit in 2 occasions the amt. of P664,897.67 and P764,897.67 through
the persuasion of his friend Pagsaligan, one of the banks officials. The bank issued receipt for the first deposit
while a letter-certification was issued for his second deposit by Pagsaligan. Pagsaligan kept the various time
deposit certificates. When Marcos wanted to withdraw his time deposit and its accumulated interest
Pagsaligan encouraged him to open a letter of credit to the bank by executing 3 trust receipts agreement. He
signed blank forms for domestic letter of credits, trust receipts agreements and promissory notes. He was
required to deposit 30% of the total amount of credit and his time deposit will secure the remaining 70% of
the letters of credit.
He is now accusing the bank for unjustly collecting payment without deducting the 30% of his down payment
and charging him with accumulating interests since his time deposit serves as collateral for his remaining
obligation. He further denied making a loan of P500,000 with 25% interest per annum covered by a
promissory note produced by the bank. The bank explained that the promissory notes he executed are
distinct from the trust receipt agreement and denied falsifying the promissory note covering for the loan of
P500,000. The evidence presented on the promissory note however is merely a machine copy of the
document. The said loan was already paid by offsetting it from his time deposit.
Whether or not the bank failed to take a proper account on Marcos deposits and payment of his loans?
The court held that the bank is liable for offsetting the time deposit of Marcos to the fictitious promissory note
for the 500,000 loan. The court upheld the findings of the lower court on the discrepancies shown by the
machine copy of the duplicate of the promissory note and the suspicious claim of the bank that it could not
produce the original copy thereof. The mere machine copy of the document has no evidentiary value before
the court. The court held that the bank did not forge the promissory note. Pagsaligan did to cover up his
failure to give the proper account of Marcos time deposits. This however does not excuse the bank to return
to Marcos the correct amount of his time deposit with interest. Bank has the fiduciary duty before its clients.
Its duty is to observe the highest standards of integrity and performance. Assuming Pagsaligan is responsible
for the spurious promissory note the court held that a bank is liable for the wrongful acts of its officers. The
court made the proper account of the total amount due to Marcos ordering the bank to give to him the same
plus moral and exemplary damages.

Samsung Construction Corporation, Inc. v. Far East Bank and Trust Company
G.R. No. 129015; August 13, 2004; Tinga, J.
Samsung Construction held an account with Far East Bank.
One day, a check worth P999,500 payable to case was presented by a certain Roberto Gonzaga to the
Makati Branch of Far East Bank. The check was certified to be true by Jose Sempio, the assistant
accountant of Samsung, who also happened to be present in the bank during the time that the check was
Three bank personnel (teller, Assistant Cashier, and another bank officer) examined the check and
compared the signature appearing on the check with the specimen signatures of Samsungs President

Jong. After ascertaining that the signature was genuine, and that the account had sufficient funds,
Gonzaga was asked to submit 3 proof of his identity. Eventually, Gonzaga was able to encash the check.
When Samsung discovered the unauthorized withdrawal, it filed a complaint against FEBTC for violation of
Sec 23 of the Negotiable Instruments Law.
During the trial, both parties presented their respective expert witnesses:
o Samsung presented NBI Document Examiner Roda Flores.
o FEBTC presented PNP Crime Laboratory document Examiner Rosario Perez.
RTC rendered judgment in favor of Samsung, holding FEBTC liable. It gave more credence to the testimony
of NBI Examiner Flores.
CA reversed the RTC and absolved FEBTC from any liability.
o The contradictory findings of NBI and PNP created doubt as to the whether there was forgery.
o Assuming there was forgery, it was due to the negligence of Samsung.
o As held in PNB v. National City Bank of NY, as between 2 innocent persons, loss would be borne by the
negligent party.
Samsung 45 to SC.

WON the check was forged YES
WON Samsung could set up the defense of forgery in Sec. 23 YES
Petition granted.
WON the check was forged YES
(The details of the forgery are not really important to the lesson. The Court just needed to answer this issue
before the 2nd issue can be resolved.)
The testimony of the NBI Examiner was more credible because even the testimony of the PNP Examiner
reveals that there are a lot of differences in the questioned signature as compared to the standard
signature specimen. The PNP Examiner tried to excuse the differences by asserting that there were
mere variations, but such conclusion was not supported by sufficient cogent reasons.
o The most telling difference between the question and genuine signatures examined by the PNP is in
the final upward stroke in the signature, or the point to the short stroke of the terminal in the capital
letter L. The difference was glaring, yet the PNP Examiners brushed this off as a mere variation.
The NBI Examiner testified that there is a free rapid continuous execution or stroke as shown by the
tampering terminal stroke of the signatures whereas the questioned signature is a hesitating slow drawn
execution stroke.
The Court also compared the qualifications of the NBI Examiner to that the PNP Examiner. The NBI
Examiner was more experienced (15 years) and had examined more than 50,000-55,000 questioned
documents, as opposed to the PNP Examiner who admitted to having examined only around 500
WON Samsung could set up the defense of forgery in Sec. 23 YES
The general rule is to the effect that a forged signature is wholly inoperative, and payment made through
or under such signature is ineffectual or does not discharge the instrument. If payment is made, the
drawee cannot charge it to the drawers account. The traditional justification for the result is that the
drawee is in a superior position to detect a forgery because he has the makers signature and is expected
to know and compare it.
Under Sec 23 of the Negotiable Instruments Law, forgery is a real or absolute defense by the party whose
signature is forged. Such liability attaches even if the bank exerts due diligence and care in preventing
such faulty discharge.
Although the Court recognized that Sec 23 bars a party from setting up the defense of forgery if it is guilty
of negligence, it was unable to conclude that Samsung was guilty of negligence.
o The bare fact that the forgery was committed by an employee of the party whose signature was forged
cannot necessarily imply that such partys negligence was the cause for the forgery.
o Admittedly, the record does not establish what measures Samsung employed to safeguard its blank
checks. Jongs testimony regarding the use of a safety box by Kyu was considered hearsay. But when
CA ruled that Samsung was negligent, it did not really explain how and why.
o In the absence of evidence to the contrary, the court concluded that there was no negligence, the
presumption being that every person takes ordinary care of his concerns.
The CA Decision extensively discussed the FEBTCs efforts in establishing that there no negligence on its
part in the acceptance and payment of the forged check. However, the degree of diligence exercised by
the bank would be irrelevant if the drawer is not precluded from setting up the defense of forgery under
Sec 23 by his own negligence.

WON FEBTC exercised extraordinary diligence required of it by the situation NO

(This is irrelevant but the Court nevertheless made a comment since it was brought up by FEBTC.)
The fact that the check was made out in the amount of nearly 1M is unusual enough ti require a higher
degree of caution on the part of the bank. FEBTC confirmed this through its own internal procedures. As
the amount increases, the number of officers who need to approve it also increases.
Not only did the amount nearly total 1M, it was payable to cash. This should have aroused suspicion of the
banks, as it is not ordinary business practice for a check for such large amount to be made payable to
case or to bearer, instead of to the order of a specified person.
Gonzaga did not carry any written proof that he was authorized by Samsung to encash the check.
FEBTC Senior Assistant Cashier admitted that the bank tried, but failed, to contact Jong over the phone to
verify. The bank just heavily relied on the say-so of Sempio. FEBTC Accountant Velez even admitted that
she did not personally know Sempio, and had met Sempio for the 1 st time only on the day the check was

G.R. No. 125585

June 8, 2005

The controversy involves Lot No. 2204, a parcel of land with an area of 1,058 square meters, located at
Panghulo, Obando, Bulacan. The property had been originally in the possession of Jose Alvarez,
Eduardos grandfather, until his demise in 1916. It remained unregistered until 8 October 1976 when
OCT No. P-153(M) was issued in the name of Eduardo pursuant to a free patent issued in Eduardos
name3 that was entered in the Registry of Deeds of Meycauayan, Bulacan. 4 The subject lot is adjacent
to a fishpond owned by one Ricardo Cruz (Ricardo), predecessor-in-interest of respondents Consuelo
Cruz and Rosalina Cruz-Bautista (Cruzes).

Thereafter, two separate contract of sale was entered into by Eduardo with Ricardo, constituting the
area of 603 square meters of the lot, the first 503 square meters was sold on 19 December 1954,
before it was titled, while the succeeding 50 square meters was sold on 18 March 1981, after it was
In December 1981, Leon Banaag, Jr. (Banaag), as attorney-in-fact of his father-in-law Eduardo,
executed a mortgage with the Rural Bank of San Pascual, Obando Branch (RBSP), for P100,000.00 with
the subject lot as collateral. Banaag deposited the owners duplicate certificate of OCT No. P-153(M)
with the bank.
Upon learning of their right to the subject lot, the Cruzes immediately tried to confront petitioners on
the mortgage and obtain the surrender of the OCT. The Cruzes, however, were thwarted in their bid to
see the heirs. On the advice of the Bureau of Lands, NCR Office, they brought the matter to
the barangay captain of Barangay Panghulo, Obando, Bulacan. During the hearing, petitioners were
informed that the Cruzes had a legal right to the property covered by OCT and needed the OCT for the
purpose of securing a separate title to cover the interest of Ricardo. Petitioners, however, were
unwilling to surrender the OCT.
Secured copy of OCT from RBSP. Made a photocopy of the same OCT. Showed the copy to the Registry
of Deeds which advice them to make a subdivision plan to segregate their interest in the whole
They asked the opinion of Land Registration Officer, who agreed with the advice given by the Registry
of Deeds. Made a subdivision plan with the help of 2 geodetic engineers. Presented the plan to the
Land Management Bureau who approved of the same plan.
After the Cruzes presented the owners duplicate certificate, along with the deeds of sale and the
subdivision plan, the Register of Deeds cancelled the OCT and issued in lieu thereof TCT No. T-9326P(M) covering 603 square meters of Lot No. 2204 in the name of Ricardo and TCT No. T-9327-P(M)
covering the remaining 455 square meters in the name of Eduardo.
On 9 August 1989, the Cruzes went back to the bank and surrendered to Salazar TCT No. 9327-P(M) in
the name of Eduardo and retrieved the title they had earlier given as substitute collateral. After

securing the new separate titles, the Cruzes furnished petitioners with a copy of TCT No. 9327-P(M)
through the barangay captain and paid the real property tax for 1989.
n October of 1989, Banaag went to RBSP, intending to tender full payment of the mortgage obligation.
It was only then that he learned of the dealings of the Cruzes with the bank which eventually led to the
subdivision of the subject lot and the issuance of two separate titles thereon. In exchange for the full
payment of the loan, RBSP tried to persuade petitioners to accept TCT No. T-9327-P(M) in the name of
The trial court found that petitioners were entitled to the reliefs of reconveyance and damages. On this
matter, it ruled that petitioners were bona fide mortgagors of an unclouded title bearing no annotation
of any lien and/or encumbrance. This fact, according to the trial court, was confirmed by the bank
when it accepted the mortgage unconditionally on 25 November 1981. It found that petitioners were
complacent and unperturbed, believing that the title to their property, while serving as security for a
loan, was safely vaulted in the impermeable confines of RBSP. To their surprise and prejudice, said title
was subdivided into two portions, leaving them a portion of 455 square meters from the original total
area of 1,058 square meters, all because of the fraudulent and negligent acts of respondents and
RBSP. The trial court ratiocinated that even assuming that a portion of the subject lot was sold by
Eduardo to Ricardo, petitioners were still not privy to the transaction between the bank and the Cruzes
which eventually led to the subdivision of the OCT into TCTs No. T-9326-P(M) and No. T-9327-P(M),
clearly to the damage and prejudice of petitioners.
The CA reversed the RTC decision. The appellate court ruled that petitioners were not bona
fide mortgagors since as early as 1954 or before the 1981 mortgage, Eduardo already sold to Ricardo
a portion of the subject lot with an area of 553 square meters. This fact, the Court of Appeals noted, is
even supported by a document of sale signed by Eduardo Jr. and Engracia Aniceto, the surviving
spouse of Eduardo, and registered with the Register of Deeds of Bulacan. The appellate court also
found that on 18 March 1981, for the second time, Eduardo sold to Ricardo a separate area containing
50 square meters, as a road right-of-way. Clearly, the OCT was issued only after the first sale. It also
noted that the title was given to the Cruzes by RBSP voluntarily, with knowledge even of the banks
counsel. Hence, the imposition of damages cannot be justified, the Cruzes themselves being the
owners of the property. Certainly, Eduardo misled the bank into accepting the entire area as a
collateral since the 603-square meter portion did not anymore belong to him. The appellate court,
however, concluded that there was no conspiracy between the bank and Salazar.

Issue: W/N the mortgage of the entire property, with the inclusion of the disputed portion
interest, is valid
A careful perusal of the evidence on record reveals that the Cruzes have sufficiently proven their claim of
ownership over the portion of Lot No. 2204 with an area of 553 square meters. The duly notarized instrument
of conveyance was executed in 1954 to which no less than Eduardo was a signatory. The execution of the
deed of sale was rendered beyond doubt by Eduardos admission in his Sinumpaang Salaysay dated 24 April
1963.35These documents make the affirmance of the right of the Cruzes ineluctable.
Registration is not a requirement for validity of the contract as between the parties, for the effect of
registration serves chiefly to bind third persons. The principal purpose of registration is merely to notify other
persons not parties to a contract that a transaction involving the property had been entered into. Where the
party has knowledge of a prior existing interest which is unregistered at the time he acquired a right to the
same land, his knowledge of that prior unregistered interest has the effect of registration as to him.
Further, the heirs of Eduardo cannot be considered third persons for purposes of applying the rule. The
conveyance shall not be valid against any person unless registered, except (1) the grantor, (2) his heirs and
devisees, and (3) third persons having actual notice or knowledge thereof. Not only are petitioners the heirs of
Eduardo, some of them were actually parties to the Kasulatan executed in favor of Ricardo. Thus, the
annotation of the adverse claim of the Cruzes on the OCT is no longer required to bind the heirs of Eduardo,
petitioners herein.
The requirements of a valid mortgage are clearly laid down in Article 2085 of the New Civil Code, viz:
ART. 2085. The following requisites are essential to the contracts of pledge and mortgage:
(1) That they be constituted to secure the fulfillment of a principal obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;

(3) That the persons constituting the pledge or mortgage have the free disposal of their property,
and in the absence thereof, that they be legally authorized for the purpose.
Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging
their own property. (emphasis supplied)
For a person to validly constitute a valid mortgage on real estate, he must be the absolute owner thereof as
required by Article 2085 of the New Civil Code. The mortgagor must be the owner, otherwise the mortgage is
void. In a contract of mortgage, the mortgagor remains to be the owner of the property although the property
is subjected to a lien. A mortgage is regarded as nothing more than a mere lien, encumbrance, or security for
a debt, and passes no title or estate to the mortgagee and gives him no right or claim to the possession of the
property. In this kind of contract, the property mortgaged is merely delivered to the mortgagee to secure the
fulfillment of the principal obligation. Such delivery does not empower the mortgagee to convey any portion
thereof in favor of another person as the right to dispose is an attribute of ownership. The right to dispose
includes the right to donate, to sell, to pledge or mortgage. Thus, the mortgagee, not being the owner of the
property, cannot dispose of the whole or part thereof nor cause the impairment of the security in any manner
without violating the foregoing rule. The mortgagee only owns the mortgage credit, not the property itself.
Issue: W/n bank is liable in this case?
Held: YES. Bank is liable for nominal damages Of deep concern to this Court, however, is the fact that the
bank lent the owners duplicate of the OCT to the Cruzes when the latter presented the instruments of
conveyance as basis of their claim of ownership over a portion of land covered by the title. Simple
rationalization would dictate that a mortgagee-bank has no right to deliver to any stranger any property
entrusted to it other than to those contractually and legally entitled to its possession. Although we cannot
dismiss the banks acknowledgment of the Cruzes claim as legitimized by instruments of conveyance in their
possession, we nonetheless cannot sanction how the bank was inveigled to do the bidding of virtual
strangers. Undoubtedly, the banks cooperative stance facilitated the issuance of the TCTs. To make matters
worse, the bank did not even notify the heirs of Eduardo. The conduct of the bank is as dangerous as it is
unthinkably negligent. However, the aspect does not impair the right of the Cruzes to be recognized as
legitimate owners of their portion of the property.
Undoubtedly, in the absence of the banks participation, the Register of Deeds could not have issued the
disputed TCTs. We cannot find fault on the part of the Register of Deeds in issuing the TCTs as his authority to
issue the same is clearly sanctioned by law. It is thus ministerial on the part of the Register of Deeds to issue
TCT if the deed of conveyance and the original owners duplicate are presented to him as there appears on
theface of the instruments no badge of irregularity or nullity.[55] If there is someone to blame for the shortcut
resorted to by the Cruzes, it would be the bank itself whose manager and legal officer helped the Cruzes to
facilitate the issuance of the TCTs.
The bank should not have allowed complete strangers to take possession of the owners duplicate certificate
even if the purpose is merely for photocopying for a danger of losing the same is more than imminent. They
should be aware of the conclusive presumption in
Section 53. Such act constitutes manifest negligence on the part of the bank which would necessarily hold it
liable for damages under Article 1170 and other relevant provisions of the Civil Code.
In the absence of evidence, the damages that may be awarded may be in the form of nominal damages.
Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by
the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any
loss suffered by him.[57] This award rests on the mortgagors right to rely on the banks observance of the
highest diligence in the conduct of its business. The act of RBSP of entrusting to respondents the owners
duplicate certificate entrusted to it by the mortgagor without even notifying the mortgagor and absent any
prior investigation on the veracity of respondents claim andcharacter is a patent failure to foresee the risk
created by the act in view of the provisions of Section 53 of P.D. No. 1529. This act runs afoul of every banks
mandate to observe the highest degree of diligence in dealing with its clients. Moreover, a mortgagor has also
the right to be afforded due process before deprivation or diminution of his property is effected as the OCT
was still in the name of Eduardo. Notice and hearing are indispensable elements of this right which the bank
miserably ignored.
Under the circumstances, the Court believes the award of P50,000.00 as nominal damages is appropriate.