1. G.R. No.
o. L-30511 February 14, 1980 Respondent Central Bank admits that it is charged with the duty of administering the banking system
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
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 respondent Overseas Bank of Manila. Respondent Central Bank claims that as of March
12, 1965, the 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
1
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 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)
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
and
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
3
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 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;
4
(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.

5
 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.
6
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 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
7
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.
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.
8
 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.
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
9
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.
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,
10
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.
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
11
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.

12
 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 Certiorari under Rule 45 of the Rules of Court assails the June 9,
1
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 Attorney5 authorizing his brother to sell their
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.
13
 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
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 2085 39 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
14
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.

15
 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
16
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 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:
17
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 its promissory notes intended to circulate as money (known as bank notes); or to receive the money of
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
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
18
middle name is very important or even decisive in a case in which the issue is as between two persons
who have the same first name and surname, did the act complained of, or is injured or sued or the
like.30
In this case, the name of the judgment debtor in Civil Case No. 16453 was Teofilo Ramos, Sr., as
appearing in the judgment of the court and in the writ of execution issued by the trial court. The name
of the owner of the property covered by TCT No. 275167 was Teofilo C. Ramos. It behooved the
petitioner to ascertain whether the defendant Teofilo Ramos, Sr. in Civil Case No. 16453 was the same
person who appeared as the owner of the property covered by the said title. If the petitioner had done
so, it would have surely discovered that the respondent was not the surety and the judgment debtor in
Civil Case No. 16453. The petitioner failed to do so, and merely assumed that the respondent and the
judgment debtor Teofilo Ramos, Sr. were one and the same person.
In sum, we find that the petitioner acted negligently in causing the annotation of notice of levy in the
title of the herein respondent, and that its negligence was the proximate cause of the damages
sustained by the respondent.
On the second issue, the petitioner insists that the respondent is not the real party-in-interest to file
the action for damages, as he was not the one who applied for a loan from UCPB and PDB but
Ramdustrial Corporation, of which he was merely the President and Chairman of the Board of Directors.
We do not agree. The respondent very clearly stated in his complaint that as a result of the unlawful
levy by the petitioner of his property, he suffered sleepless nights, moral shock, and almost a heart
attack due to high blood pressure.31
It must be underscored that the registered owner of the property which was unlawfully levied by the
petitioner is the respondent. As owner of the property, the respondent has the right to enjoy, encumber
and dispose of his property without other limitations than those established by law. The owner also has
a right of action against the holder and possessor of the thing in order to recover it.32 Necessarily,
upon the annotation of the notice of levy on the TCT, his right to use, encumber and dispose of his
property was diminished, if not negated. He could no longer mortgage the same or use it as collateral
for a loan.
Arising from his right of ownership over the said property is a cause of action against persons or parties
who have disturbed his rights as an owner.33 As an owner, he is one who would be benefited or injured
by the judgment, or who is entitled to the avails of the suit34 for an action for damages against one
who disturbed his right of ownership.
Hence, regardless of the fact that the respondent was not the loan applicant with the UCPB and PDB,
as the registered owner of the property whose ownership had been unlawfully disturbed and limited by
the unlawful annotation of notice of levy on his TCT, the respondent had the legal standing to file the
said action for damages. In both instances, the 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
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.
19
 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
20
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.
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
21
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.

22
 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.
23
Therefore, the 24% interest rate agreed upon by parties does not violate the Usury Law, as amended
by P.D. 116.
This Court has consistently held that for sometime now, usury has been legally non-inexistent and that
interest can now be charged as lender and borrower may agree upon. 7 As a matter of fact, Section 1
of Central Bank Circular No. 905 states that:
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:
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.
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:
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 the prosecution of suits for collection and the foreclosure of mortgages against debtors of the
bank by the liquidator are among the usual and ordinary transactions pertaining to the administration
of a bank. x x x.
Likewise, in Banco Filipino Savings and Mortgage Bank vs. Ybañez, 14 where one of the issues was
whether respondent bank can collect interest on its loans during its period of liquidation and closure,
this Court held:
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.
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.

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:

24
 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 Certiorari assails the October 28, 2005 Decision of the Court of Appeals in
1 2
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" sent by Citytrust showed petitioner's
9
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.
25
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
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
26
may be, with interest thereon at the rate specified in the mortgage, and all the costs, and judicial and A. I know its [sic] there in the mortgage loan what I said is that I was requesting for a condonation.
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 Q. So, you are [sic] not questioning it?

As correctly pointed out by the appellate court, the general rule in redemption is that it is not sufficient A. Yes, sir.
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 Q. In your complaint there is an allegation that the computation has no basis, do you confirm that, do
of the right to repurchase. Bona fide redemption necessarily implies a reasonable and valid tender of you still maintain that?
the entire purchase price, otherwise the rule on the redemption period fixed by law can easily be
A. Yes.
circumvented.30
Q. Why do you say so?
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 A. I was just hoping that some of the items could be condone[d] because they were rather high,
price, the redemptioner may preserve his right of redemption through judicial action which must be although, normally, in the mortgage contract it is really stated that they charge twenty five percent for
filed within the one-year period of redemption. The filing of a court action to enforce redemption, being attorney's fees, so I agreed with it.
equivalent to a formal offer to redeem, would have the effect of preserving his redemptive rights and
"freezing" the expiration of the one-year period.33 Bona fide tender of the redemption price, within the Q. So, it is not your statement in your complaint that the computation has no basis, is not correct?
prescribed period 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. A. Yes, sir.
Where the right to redeem is exercised through judicial action within the reglementary period, the offer
to redeem, accompanied by a bona fide tender of the redemption price, while proper, may be Q. So, the twenty five percent computation here has a basis, which is the mortgage loan agreement,
unessential.34 correct?

It should, however, be noted that in Hi-Yield Realty, Inc. v. Court of Appeals,35 we held that the action A. Yes, in your agreement.
for judicial redemption should be filed on time and in good faith, the redemption price is finally
Q. And in that agreement you have your signature therein?
determined 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 A. Yes.
redemption by expiration 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 Q. And you have read that before signing it?
indefinitely; and (3) once the redemption price is determined within a reasonable time, the
redemptioner must make prompt payment in full.36 A. Yes, sir.

The records show that the correct redemption price had been determined prior to the filing of the Q. So, also with this liquidated damages of ten percent (10%), there is a basis under the mortgage loan
complaint for judicial redemption. Petitioner had been furnished updated Statements of Account agreement?
specifying the redemption price even prior to the consolidation of the title of the foreclosed property in
the bank's name. The inclusion of late payment charges, foreclosure expense, attorney's fees, liquidated A. I'm not sure.
damages, foreclosure fee, and interests therein was pursuant to the Loan Agreement. Considering that
the Loan Agreement was read and freely adhered to by petitioner, the stipulations therein are binding Q. I will show you again the mortgage loan agreement xxx.
on her.37
xxxx
Moreover, petitioner admitted during trial that she was not questioning the computation of the
Q. Now, Ms. Witness, can you now say that this statement of account is with basis, accurate and with
redemption price, but she was requesting for a condonation of certain fees and charges.
basis [sic]?
Q. Now Madam Witness, during the last hearing, you were questioning the statement of account, the
A. It has a basis, based on your conditions as prepared by the bank.
computation, is that correct?
Q. Which you have conform[ed] to?
A. Yes, sir.
A. Yes, I have to because I executed a loan.
Q. In particular, you were questioning the attorney's fees of twenty five percent (25%), is that correct?
Q. But the bank did not compel you to apply for a loan?
A. Yes, sir.
A. No, they did not compel me.
Q. Did you not read the mortgage loan agreement, Madam Witness?
Q. And you are only asking this court to reduce?
27
A. Yes, if possible.38(Emphasis supplied)

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. Ms. Witness, you stated that based on your computation[,] the redemption price should be three
million pesos (P3,000,000.00) more or less?

A. More or less.

Q. Do you have this amount right now? Do you have this three million (P3M) more or less, do you have
this amount right now?

A. Not right now, but if we will be given a few days to produce it, we will give us [sic] that kind.

xxxx

Q. Did you tender this amount of three million pesos (P3M) more or less, to the bank?

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.

28
 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.
29
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
30
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:
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.
31
 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.
32
Solidbanks Breach of its Contractual Obligation
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
33
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:
xxx Ilagan also had with him (before the withdrawal) a forged check of PBC and indicated the amount
of P90,000 which he deposited in favor of L.C. Diaz and Company. After successfully withdrawing this
large 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 extravagantly and lavishly spent his money but a big part of his loot was wasted in
cockfight and horse racing. Ilagan was apprehended and meekly admitted his guilt.28[28] (Emphasis
supplied.)
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 passbook with the withdrawal slip.
We uphold the finding of the trial and appellate courts that a certain Noel Tamayo withdrew the
P300,000. 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 withdrawal slip signed by its authorized signatories to fall into the hands of an impostor. Thus, the
liability of Solidbank should be reduced.
In Philippine Bank of Commerce v. Court of Appeals,33[33] where the Court held the depositor
guilty of contributory negligence, we allocated the damages between the depositor and the bank on a
40-60 ratio. 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.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION. Petitioner
Solidbank 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 respondent L.C. Diaz and Company, CPAs. Proportionate costs. SO ORDERED.
34
 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,
35
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 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 Decision dated 10 September 2004, the appellate court granted the petition filed by the spouses
19
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:
36
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 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
37
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

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.

38