1SECOND DIVISION

[G.R. No. 147800. November 11, 2003]UNITED COCONUT PLANTERS BANK, petitioner, vs. TEOFILO C. RAMOS, respondent.

D E C I S I O NCALLEJO, SR., J.:

Before us is a petition for review on certiorari of the March 30, 2001 Decision[1] of the Court of Appeals in CA-G.R. CV No. 56737 which affirmed the Decision[2] of the Regional Trial Court (RTC) of Makati City, Branch 148, in Civil Case No. 94-1822.

The AntecedentsOn December 22, 1983, the petitioner United Coconut Planters Bank (UCPB) granted a loan

of P2,800,000 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 corporations 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 (P3,150,000.00) plus interest, penalties and other charges;

2. To pay plaintiff the sum of P20,000.00 for attorneys fees; and3. 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. Villapaa 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 petitioners 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 P900,000 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 denial[12] 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 Villapaa, 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 Villapaa 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 respondents affidavit of denial. For his part, Sheriff Villapaa 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 petitioners LED, suggested that the respondent file the appropriate pleading in Civil Case No. 16453 to

prove his claim that Atty. Montanos 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 Corporations credit line application for P2,000,000 had been approved.[13] Subsequently, on October 22, 1993, the respondent, in his capacity as President and Chairman of the Board of Directors of Ramdustrial Corporation, and Rebecca F. Ramos executed a promissory note for the said amount payable to the UCPB in installments for a period of 180 days.[14] Simultaneously, the respondent and his wife Rebecca F. Ramos acted as sureties to the loan of Ramdustrial Corporation.[15] However, the respondent was concerned because when the proceeds of the loan were released, the bidding period for the San Miguel Corporation project had already elapsed.[16] As business did not go well, Ramdustrial Corporation found it difficult to pay the loan. It thus applied for an additional loan with the UCPB which was, however, denied. The corporation then applied for a loan with the Planters Development Bank (PDB), the proceeds of which would be used to pay its account to the UCPB. The respondent offered to use his property covered by TCT No. 275167 as collateral for its loan. PDB agreed to pay off the outstanding loan obligation of Ramdustrial Corporation with UCPB, on the condition that the mortgage with the latter would be released. UCPB agreed. Pending negotiations with UCPB, the respondent discovered that the notice of levy annotated on TCT No. 275167 (PR-13108) at the instance of the petitioner had not yet been cancelled.[17] When apprised thereof, PDB withheld the release of the loan pending the cancellation of the notice of levy. The account of Ramdustrial Corporation with UCPB thus remained outstanding. The monthly amortization on its loan from UCPB became due and remained unpaid. When the respondent went to the petitioner for the cancellation of the notice of levy annotated on his title, the petitioners 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 Villapaa 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 Villapaa 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. P3,000,000.00 as moral damages;2. 300,000.00 as exemplary damages;3. 200,000.00 as actual damages;4. 200,000.00 as attorneys 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 respondents 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 Villapaa 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 respondents 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 P3,000,000.00 and exemplary damages in the amount of PESOS: FIVE HUNDRED THOUSAND P500,000.00;

2. pay attorneys fees and litigation expenses in an amount of not less than PESOS: TWO HUNDRED THOUSAND P200,000.00;

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 Villapaa 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) P800,000.00 as moral damages;

(2) P100,000.00 as exemplary damages;(3) P100,000.00 as attorneys 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 respondents 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 respondents 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 respondents claim therefor.

Dissatisfied, the petitioner interposed an appeal to the Court of Appeals (CA). On March 30, 2001, the CA rendered a decision affirming, in toto, the decision of the trial court, the decretal portion of which is herein quoted:WHEREFORE, based on the foregoing premises, the assailed decision is hereby AFFIRMED.[22]

The CA ruled that the petitioner was negligent in causing the annotation of notice of levy on the title of the petitioner for its failure to determine with certainty whether the defendant Teofilo Ramos, Sr. in Civil Case No. 16453 was the registered owner of the property covered by TCT No. 275167, and to inform the sheriff that the registered owners of the property were the respondent and his wife Rebecca Ramos, and thereafter request for the cancellation of the motion of levy on the property.

Disappointed, the petitioner filed this instant petition assigning the following errors:I

IN AFFIRMING THE TRIAL COURTS 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 RAMOSS (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.

IITHE COURT OF APPEALS DECISION AFFIRMING THE TRIAL COURTS AWARD OF MORAL DAMAGES TO RESPONDENT RAMOS IN THE AMOUNT OF P800,000 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 ATTORNEYS 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 attorneys fees.

On the first issue, we rule that the petitioner acted negligently when it caused the annotation of the notice of levy in TCT No. 275167.

It bears stressing that the petitioner is a banking corporation, a financial institution with power to issue its promissory notes intended to circulate as money (known as bank notes); or to receive the money of others on general deposit, to form a joint fund that shall be used by the institution for its own benefit, for one or more of the purposes of making temporary loans and discounts, of dealing in notes, foreign and

domestic bills of exchange, coin bullion, credits, and the remission of money; or with both these powers, and with the privileges, in addition to these basic powers, of receiving special deposits, and making collection for the holders of negotiable paper, if the institution sees fit to engage in such business. [25] In funding these businesses, the bank invests the money that it holds in trust of its depositors. For this reason, we have held that the business of a bank is one affected with public interest, for which reason the bank should guard against loss due to negligence or bad faith.[26] In approving the loan of an applicant, the bank concerns itself with proper informations regarding its debtors. The petitioner, as a bank and a financial institution engaged in the grant of loans, is expected to ascertain and verify the identities of the persons it transacts business with.[27] In this case, the petitioner knew that the sureties to the loan granted to ZDC and the defendants in Civil Case No. 94-1822 were the Spouses Teofilo Ramos, Sr. and Amelita Ramos. The names of the Spouses Teofilo Ramos, Sr. and Amelita Ramos were specified in the writ of execution issued by the trial court.

The petitioner, with Atty. Bordalba as the Chief of LED and handling lawyer of Civil Case No. 16453, in coordination with the sheriff, caused the annotation of notice of levy in the respondents 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 debtors name was Teofilo Ramos, Sr. We note, as the Supreme Court of Washington in 1909 had, that a legal name consists of one given name and one surname or family name, and a mistake in a middle name is not regarded as of consequence. However, since the use of initials, instead of a given name, before a surname, has become a practice, the necessity that these initials be all given and correctly given in court proceedings has become of importance in every case, and in many, absolutely essential to a correct designation of the person intended.[29] A middle name is very important or even decisive in a case in which the issue is as between two persons who have the same first name and surname, did the act complained of, or is injured or sued or the like.[30]

In this case, the name of the judgment debtor in Civil Case No. 16453 was Teofilo Ramos, Sr., as appearing in the judgment of the court and in the writ of execution issued by the trial court. The name of the owner of the property covered by TCT No. 275167 was Teofilo C. Ramos. It behooved the petitioner to ascertain whether the defendant Teofilo Ramos, Sr. in Civil Case No. 16453 was the same person who appeared as the owner of the property covered by the said title. If the petitioner had done so, it would have surely discovered that the respondent was not the surety and the judgment debtor in Civil Case No. 16453. The petitioner failed to do so, and merely assumed that the respondent and the judgment debtor Teofilo Ramos, Sr. were one and the same person.

In sum, we find that the petitioner acted negligently in causing the annotation of notice of levy in the title of the herein respondent, and that its negligence was the proximate cause of the damages sustained by the respondent.

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 suit [34] 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 respondents 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.

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

Attorneys 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 petitioners 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--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 P800,000. No exemplary damages can be awarded because the petitioners 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 attorneys 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.Bellosillo, (Chairman), Quisumbing, Austria-Martinez, and Tinga, JJ., concur.

[1] Penned by Associate Justice Elvi John S. Asuncion with Associate Justices Cancio C. Garcia and Oswaldo D. Agcaoili concurring.

[2] Penned by Judge Oscar B. Pimentel.[3] Exhibit 5, Records, p. 150.[4] Id. at 151.[5] Exhibit D, id. at 77.[6] TSN, 24 July 1996, pp. 7-8.[7] Exhibit 7, Records, pp. 154-155.[8] TSN, 24 July 1994, pp. 12-13.[9] Exhibit C, Records, p. 76.[10] TSN, 14 February 1996, p. 21.[11] Id. at 11.[12] Exhibit B, Records, p. 9.[13] Exhibit 6, id. at 152.[14] Exhibit 4, id. at 144.[15] Exhibit 4-A, id. at 145.[16] TSN, 14 February 1996, p. 24.[17] Id. at 30.[18] Exhibit 3, Records, p. 143.[19] Id. at 5.[20] Rollo, pp. 105-106.[21] Records, p. 203.[22] Rollo, p. 74.[23] Id. at 46-47.[24] Id. at 62.[25] Morse, Jr., John T.: A Treatise on the Law of Banks and Banking, Vol. I, 6th Edition, 1928, USA.[26] Rural Bank of Sta.   Ignacia, Inc. v.   Pelagia   Dimatulac, G.R. No. 142015 , April 29, 2003.[27] Adriano v.   Pangilinan , 373 SCRA 544 (2002).[28] Evangelista v. People, 315 SCRA 525 (1999).[29] Carney v. Bigham, 99 P. 21 (1909).[30] Long v. Campbell, 17 SE 197 (1893).[31] Records, p. 3.[32] Article 428, Civil Code.

[33] A cause of action exists if the following elements are present: (1) a right in favor of the plaintiff by whatever means and under whatever means and under whatever law it arises or created; (2) an obligation on the part of the named defendant to respect or not to violate such right; and (3) an act or omission on the part of such defendant violative of the right of the plaintiff or constituting a breach of the obligation of the defendant to the plaintiff for which the latter may maintain an action for recovery of damages. (Vergara   v. Court of Appeals , 319 SCRA 323 [1999]).

[34] Aguila, Jr. v. Court of Appeals, 319 SCRA 246 (1999).[35] Cathay Pacific Airways, Ltd. v. Spouses Daniel Vazquez and Maria Luisa Madrigal Vazquez, G.R. No.

150843, March 14, 2003.[36] Art. 2219. Moral damages may be recovered in the following and analogous cases: 10. Cases and

actions referred to in articles 21, 26, 27, 28, 29, 30, 31, 32, 34 and 35.[37] See note 41.[38] Ching   Sen   Ben v. Court of Appeals , 314 SCRA 762 (1999).

2Republic of the Philippines

SUPREME COURTManila

FIRST DIVISIONG.R. No. 88013 March 19, 1990SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner, vs.THE HONORABLE COURT OF APPEALS and TRADERS ROYAL BANK, respondents.Don P. Porcuincula for petitioner.San Juan, Gonzalez, San Agustin & Sinense for private respondent. CRUZ, J.:We are concerned in this case with the question of damages, specifically moral and exemplary damages. The negligence of the private respondent has already been established. All we have to ascertain is whether the petitioner is entitled to the said damages and, if so, in what amounts.The parties agree on the basic facts. The petitioner is a private corporation engaged in the exportation of food products. It buys these products from various local suppliers and then sells them abroad, particularly in the United States, Canada and the Middle East. Most of its exports are purchased by the petitioner on credit.The petitioner was a depositor of the respondent bank and maintained a checking account in its branch at Romulo Avenue, Cubao, Quezon City. On May 25, 1981, the petitioner deposited to its account in the said bank the amount of P100,000.00, thus increasing its balance as of that date to P190,380.74. 1 Subsequently, the petitioner issued several checks against its deposit but was suprised to learn later that they had been dishonored for insufficient funds.The dishonored checks are the following:

1. Check No. 215391 dated May 29, 1981, in favor of California Manufacturing Company, Inc. for P16,480.00:2. Check No. 215426 dated May 28, 1981, in favor of the Bureau of Internal Revenue in the amount of P3,386.73:3. Check No. 215451 dated June 4, 1981, in favor of Mr. Greg Pedreño in the amount of P7,080.00;4. Check No. 215441 dated June 5, 1981, in favor of Malabon Longlife Trading Corporation in the amount of P42,906.00:5. Check No. 215474 dated June 10, 1981, in favor of Malabon Longlife Trading Corporation in the amount of P12,953.00:6. Check No. 215477 dated June 9, 1981, in favor of Sea-Land Services, Inc. in the amount of P27,024.45:7. Check No. 215412 dated June 10, 1981, in favor of Baguio Country Club Corporation in the amount of P4,385.02: and8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta Bayla in the amount of P6,275.00. 2

As a consequence, the California Manufacturing Corporation sent on June 9, 1981, a letter of demand to the petitioner, threatening prosecution if the dishonored check issued to it was not made good. It also withheld delivery of the order made by the petitioner. Similar letters were sent to the petitioner by the Malabon Long Life Trading, on June 15, 1981, and by the G. and U. Enterprises, on June 10, 1981. Malabon also canceled the petitioner's credit line and demanded that future payments be made by it in cash or

certified check. Meantime, action on the pending orders of the petitioner with the other suppliers whose checks were dishonored was also deferred.The petitioner complained to the respondent bank on June 10, 1981. 3 Investigation disclosed that the sum of P100,000.00 deposited by the petitioner on May 25, 1981, had not been credited to it. The error was rectified on June 17, 1981, and the dishonored checks were paid after they were re-deposited. 4

In its letter dated June 20, 1981, the petitioner demanded reparation from the respondent bank for its "gross and wanton negligence." This demand was not met. The petitioner then filed a complaint in the then Court of First Instance of Rizal claiming from the private respondent moral damages in the sum of P1,000,000.00 and exemplary damages in the sum of P500,000.00, plus 25% attorney's fees, and costs.After trial, Judge Johnico G. Serquinia rendered judgment holding that moral and exemplary damages were not called for under the circumstances. However, observing that the plaintiff's right had been violated, he ordered the defendant to pay nominal damages in the amount of P20,000.00 plus P5,000.00 attorney's fees and costs. 5 This decision was affirmed in toto by the respondent court. 6

The respondent court found with the trial court that the private respondent was guilty of negligence but agreed that the petitioner was nevertheless not entitled to moral damages. It said:

The essential ingredient of moral damages is proof of bad faith (De Aparicio vs. Parogurga, 150 SCRA 280). Indeed, there was the omission by the defendant-appellee bank to credit appellant's deposit of P100,000.00 on May 25, 1981. But the bank rectified its records. It credited the said amount in favor of plaintiff-appellant in less than a month. The dishonored checks were eventually paid. These circumstances negate any imputation or insinuation of malicious, fraudulent, wanton and gross bad faith and negligence on the part of the defendant-appellant.

It is this ruling that is faulted in the petition now before us.This Court has carefully examined the facts of this case and finds that it cannot share some of the conclusions of the lower courts. It seems to us that the negligence of the private respondent had been brushed off rather lightly as if it were a minor infraction requiring no more than a slap on the wrist. We feel it is not enough to say that the private respondent rectified its records and credited the deposit in less than a month as if this were sufficient repentance. The error should not have been committed in the first place. The respondent bank has not even explained why it was committed at all. It is true that the dishonored checks were, as the Court of Appeals put it, "eventually" paid. However, this took almost a month when, properly, the checks should have been paid immediately upon presentment.As the Court sees it, the initial carelessness of the respondent bank, aggravated by the lack of promptitude in repairing its error, justifies the grant of moral damages. This rather lackadaisical attitude toward the complaining depositor constituted the gross negligence, if not wanton bad faith, that the respondent court said had not been established by the petitioner.We also note that while stressing the rectification made by the respondent bank, the decision practically ignored the prejudice suffered by the petitioner. This was simply glossed over if not, indeed, disbelieved. The fact is that the petitioner's credit line was canceled and its orders were not acted upon pending receipt of actual payment by the suppliers. Its business declined. Its reputation was tarnished. Its standing was reduced in the business community. All this was due to the fault of the respondent bank which was undeniably remiss in its duty to the petitioner.Article 2205 of the Civil Code provides that actual or compensatory damages may be received "(2) for injury to the plaintiff s business standing or commercial credit." There is no question that the petitioner did sustain actual injury as a result of the dishonored checks and that the existence of the loss having been established "absolute certainty as to its amount is not required." 7 Such injury should bolster all the more the demand of the petitioner for moral damages and justifies the examination by this Court of the validity and reasonableness of the said claim.We agree that moral damages are not awarded to penalize the defendant but to compensate the plaintiff for the injuries he may have suffered. 8 In the case at bar, the petitioner is seeking such damages for the prejudice sustained by it as a result of the private respondent's fault. The respondent court said that the claimed losses are purely speculative and are not supported by substantial evidence, but if failed to consider that the amount of such losses need not be established with exactitude precisely because of their nature. Moral damages are not susceptible of pecuniary estimation. Article 2216 of the Civil Code specifically provides that "no proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or exemplary damages may be adjudicated." That is why the determination of the amount to be awarded (except liquidated damages) is left to the sound discretion of the court, according to "the circumstances of each case."From every viewpoint except that of the petitioner's, its claim of moral damages in the amount of P1,000,000.00 is nothing short of preposterous. Its business certainly is not that big, or its name that prestigious, to sustain such an extravagant pretense. Moreover, a corporation is not as a rule entitled to moral damages because, not being a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish and moral shock. The only exception to this rule is where the corporation has a good reputation that is debased, resulting in its social humiliation. 9

We shall recognize that the petitioner did suffer injury because of the private respondent's negligence that caused the dishonor of the checks issued by it. The immediate consequence was that its prestige was impaired because of the bouncing checks and confidence in it as a reliable debtor was diminished. The private respondent makes much of the one instance when the petitioner was sued in a collection case, but that did not prove that it did not have a good reputation that could not be marred, more so since that case was ultimately settled. 10 It does not appear that, as the private respondent would portray it, the petitioner is an unsavory and disreputable entity that has no good name to protect.Considering all this, we feel that the award of nominal damages in the sum of P20,000.00 was not the proper relief to which the petitioner was entitled. Under Article 2221 of the Civil Code, "nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered

by him." As we have found that the petitioner has indeed incurred loss through the fault of the private respondent, the proper remedy is the award to it of moral damages, which we impose, in our discretion, in the same amount of P20,000.00.Now for the exemplary damages.The pertinent provisions of the Civil Code are the following:

Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages.Art. 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.

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. Thus, even the humble wage-earner has not hesitated to entrust his life's savings to the bank of his choice, knowing that they will be safe in its custody and will even earn some interest for him. The ordinary person, with equal faith, usually maintains a modest checking account for security and convenience in the settling of his monthly bills and the payment of ordinary expenses. As for business entities like the petitioner, the bank is a trusted and active associate that can help in the running of their affairs, not only in the form of loans when needed but more often in the conduct of their day-to-day transactions like the issuance or encashment of checks.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. A blunder on the part of the bank, such as the dishonor of a check without good reason, can cause the depositor not a little embarrassment if not also financial loss and perhaps even civil and criminal litigation.The point is that as a business affected with public interest and because of the nature of its functions, 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. In the case at bar, it is obvious that the respondent bank was remiss in that duty and violated that relationship. What is especially deplorable is that, having been informed of its error in not crediting the deposit in question to the petitioner, the respondent bank did not immediately correct it but did so only one week later or twenty-three days after the deposit was made. It bears repeating that the record does not contain any satisfactory explanation of why the error was made in the first place and why it was not corrected immediately after its discovery. Such ineptness comes under the concept of the wanton manner contemplated in the Civil Code that calls for the imposition of exemplary damages.After deliberating on this particular matter, the Court, in the exercise of its discretion, hereby imposes upon the respondent bank exemplary damages in the amount of P50,000.00, "by way of example or correction for the public good," in the words of the law. It is expected that this ruling will serve as a warning and deterrent against the repetition of the ineptness and indefference that has been displayed here, lest the confidence of the public in the banking system be further impaired.ACCORDINGLY, the appealed judgment is hereby MODIFIED and the private respondent is ordered to pay the petitioner, in lieu of nominal damages, moral damages in the amount of P20,000.00, and exemplary damages in the amount of P50,000.00 plus the original award of attorney's fees in the amount of P5,000.00, and costs.SO ORDERED.Narvasa, Gancayco, Grino-Aquino and Medialdea, JJ., concur. Footnotes

1 Rollo, p. 4.2 Exhibits 1-a to 1-h.3 Rollo, p. 6.4 Ibid., pp. 6-7.5 Id., p. 24.6 Victor, J., with Ejercito and Pe,  JJ., concuring.7 Cerrano v. Tan Chuco, 38 Phil 392.8 Dee Hua Liong Electrical Equipment Corporation v. Reyes, 145 SCRA 713; San Andres v. Court of Appeals, 116 SCRA 81.9 Mambulao Lumber Co. v. Philippine National Bank, 22 SCRA 359.10 Rollo, pp. 38-41.

3Republic of the Philippines

SUPREME COURTManila

FIRST DIVISIONG.R. No. 127469             January 15, 2004PHILIPPINE BANKING CORPORATION, petitioner, vs.COURT OF APPEALS and LEONILO MARCOS, respondents.

D E C I S I O N

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 FactsOn 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 forP300,000; 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 annumsupposedly 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 onlyP764,897.67 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 forP420,000 and Promissory Note No. 20-979-83 dated 24 October 1983 for P500,000. The BANK stressed that these obligations are separate and distinct from the trust receipt agreements.

When Marcos defaulted in the payment of Promissory Note No. 20-979-83, the BANK debited his time deposits and applied the same to the obligation that is now considered fully paid.8 The BANK insisted that the Deed of Assignment authorized it to apply the time deposits in payment of Promissory Note No. 20-979-83.

In March 1982, the wife of Marcos, Consolacion Marcos, sought the advice of Pagsaligan. Consolacion informed Pagsaligan that she and her husband needed to finance the purchase of construction materials for their business, L.A. Marcos Construction Company. Pagsaligan suggested the opening of the letters of credit and the execution of trust receipts, whereby the BANK would agree to purchase the goods needed 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-partehearing 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 onlyP764,897.67 as claimed by the BANK. The trial court found that Marcos made a time deposit on two occasions. The first time deposit was made on 11 March 1982 for P664,897.67 as shown by Receipt No. 635743. On 12 March 1982, Marcos again made a time deposit for P764,897.67 as acknowledged by Pagsaligan in a letter of certification. The two time deposits thus amounted to P1,429,795.34.

The trial court pointed out that no receipt was issued for the 12 March 1982 time deposit because the letter of certification was sufficient. The trial court made a finding that the certification letter did not include the time deposit made on 11 March 1982. The 12 March 1982 deposit was in cash while the 11 March 1982 deposit was in checks which still had to clear. The checks were not included in the certification letter since the BANK could not credit the amounts of the checks prior to clearing. The trial court declared that even the Deed of Assignment acknowledged that Marcos made several time deposits as the Deed stated that the assigment was charged against "various" time deposits.

The trial court recognized the existence of the Deed of Assignment and the two loans that Marcos supposedly obtained from the BANK on 28 May 1982 for P340,000 and on 2 June 1982 for P420,000. The

two loans amounted to P760,000. On 2 June 1982, the same day that he secured the second loan, Marcos executed a Deed of Assignment assigning to the BANK P760,000 of his time deposits. The trial court concluded that obviously the two loans were immediately paid by virtue of the Deed of Assignment.

The trial court found it strange that Marcos borrowed money from the BANK at a higher rate of interest instead of just withdrawing his time deposits. The trial court saw no rhyme or reason why Marcos had to secure the loans from the BANK. The trial court was convinced that Marcos did not know that what he had signed were loan applications and a Deed of Assignment in payment for his loans. Nonetheless, the trial court recognized "the said loan of P760,000 and its corresponding payment by virtue of the Deed of Assignment for the equal sum."10

If the BANK’s claim is true that the time deposits of Marcos amounted only to P764,897.67 and he had already assigned P760,000 of this amount, the trial court pointed out that what would be left as of 3 June 1982 would only be P4,867.67.11 Yet, after the time deposits had matured, the BANK allowed Marcos to open letters of credit three times. The three letters of credit were all secured by the time deposits of Marcos after he had paid the 30% marginal deposit. The trial court opined that if Marcos’ time deposit was only P764,897.67, then the letters of credit totalling P595,875 (less 30% marginal deposit) was guaranteed by only P4,867.67,12 the remaining time deposits after Marcos had executed the Deed of Assignment for P760,000.

According to the trial court, a security of only P4,867.6713 for a loan worth P595,875 (less 30% marginal deposit) is not only preposterous, it is also comical. Worse, aside from allowing Marcos to have unsecured trust receipts, the BANK still claimed to have granted Marcos another loan for P500,000 on 25 October 1983 covered by Promissory Note No. 20-979-83. The BANK is a commercial bank engaged in the business of lending money. Allowing a loan of more than a million pesos without collateral is in the words of the trial court, "an impossibility and a gross violation of Central Bank Rules and Regulations, which no Bank Manager has such authority to grant."14 Thus, the trial court held that the BANK could not have granted Marcos the loan covered by Promissory Note No. 20-979-83 because it was unsecured by any collateral.The trial court required the BANK to produce the original copies of the loan application and Promissory Note No. 20-979-83 so that it could determine who applied for this loan. However, the BANK presented to the trial court only the "machine copies of the duplicate" of these documents.

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 totallingP569,323.21 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 ofP650,163 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, theP764,897.67 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 ofP664,987.67 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 P 764,897.67   which except for the additional sum of P100,000.00 is practically identical (see underlined figures) to the sum of P 664,897.67   deposited the day before March 11, 1982.Additionally, We agree with the contention of the appellant that the lower court wrongly appreciated the testimony of Mr. Pagsaligan. Our finding is strengthened when we consider the alleged application for loan by the appellee with the appellant in the sum of P500,000.00 dated October 24, 1983. (Exh. "J", p. 40, Records), wherein it was stated that the loan is for additional working capital versus the various time deposit amounting to   P 760,000.00 .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 ofP764,897.67 with 17% interest within 90 days from March 11, 1982 in accordance with the letter-certification and with legal interest thereafter until fully paid. Costs against the appellant.SO ORDERED.18 (Emphasis supplied)

The Issues

The BANK anchors this petition on the following issues:1) WHETHER OR NOT THE PETITIONER [sic] ABLE TO PROVE THE PRIVATE RESPONDENT’S OUTSTANDING OBLIGATIONS SECURED BY THE ASSIGNMENT OF TIME DEPOSITS?

1.1) COROLLARILY, WHETHER OR NOT THE PROVISIONS OF SECTION 8 RULE 10 OF [sic] THEN REVISED RULES OF COURT BE APPLIED [sic] SO AS TO CREATE A JUDICIAL ADMISSION ON THE GENUINENESS AND DUE EXECUTION OF THE ACTIONABLE DOCUMENTS APPENDED TO THE PETITIONER’S ANSWER?

2) WHETHER OR NOT PETITIONER [sic] DEPRIVED OF DUE PROCESS WHEN THE LOWER COURT HAS [sic] DECLARED PETITIONER TO HAVE WAIVED PRESENTATION OF FURTHER EVIDENCE AND CONSIDERED THE CASE SUBMITTED FOR RESOLUTION?19

The Ruling of the Court

The petition is without merit.Procedural Issues

There was no violation of the BANK’s right to procedural due process when the trial court denied the BANK’s motion to cross-examine Marcos. Prior to the denial of the motion, the trial court had properly declared the BANK in default. Since the BANK was in default, Marcos was able to present his evidence ex-parte including his own testimony. When the trial court lifted the order of default, the BANK was restored to its standing and rights in the action. However, as a rule, the proceedings already taken should not be disturbed.20 Nevertheless, it is within the trial court’s discretion to reopen the evidence submitted by the plaintiff and allow the defendant to challenge the same, by cross-examining the plaintiff’s witnesses or introducing countervailing evidence.21 The 1964 Rules of Court, the rules then in effect at the time of the hearing of this case, recognized the trial court’s exercise of this discretion. The 1997 Rules of Court retained this discretion.22 Section 3, Rule 18 of the 1964 Rules of Court reads:

Sec. 3. Relief from order of default. — A party declared in default may any time after discovery thereof and before judgment file a motion under oath to set aside the order of default upon proper showing that his failure to answer was due to fraud, accident, mistake or excusable neglect and that he has a meritorious defense. In such case the order of default may be set aside on such terms and conditions as the judge may impose in the interest of justice. (Emphasis supplied)

The records show that the BANK did not ask the trial court to restore its right to cross-examine Marcos when it sought the lifting of the default order on 9 January 1990. Thus, the order dated 7 February 1990 setting aside the order of default did not confer on the BANK the right to cross-examine Marcos. It was only on 2 March 1990 that the BANK filed the motion to cross-examine Marcos. During the 12 March 1990 hearing, the trial court denied the BANK’s oral manifestation to grant its motion to cross-examine Marcos because there was no proof of service on Marcos. The BANK’s counsel pleaded for reconsideration but the trial court denied the plea and ordered the BANK to present its evidence. Instead of presenting its evidence, the BANK moved for the resetting of the hearing and when the trial court denied the same, the BANK informed the trial court that it was elevating the denial to the "upper court."23

To repeat, the trial court had previously declared the BANK in default. The trial court therefore had the right to decide whether or not to disturb the testimony of Marcos that had already been terminated even before the trial court lifted the order of default.

We do not agree with the appellate court’s ruling that a motion to cross-examine is a non-litigated motion and that the trial court gravely abused its discretion when it denied the motion to cross-examine. A motion to cross-examine is adversarial. The adverse party in this case had the right to resist the motion to cross-examine because the movant had previously forfeited its right to cross-examine the witness. The purpose of a notice of a motion is to avoid surprises on the opposite party and to give him time to study and meet the arguments.24 In a motion to cross-examine, the adverse party has the right not only to prepare a meaningful opposition to the motion but also to be informed that his witness is being recalled for cross-examination. The proof of service was therefore indispensable and the trial court was correct in denying the oral manifestation to grant the motion for cross-examination.

We find no justifiable reason to relax the application of the rule on notice of motions25 to this case. The BANK could have easily re-filed the motion to cross-examine with the requisite notice to Marcos. It did not do so. The BANK did not make good its threat to elevate the denial to a higher court. The BANK waited until the trial court rendered a judgment on the merits before questioning the interlocutory order of denial.

While the right to cross-examine is a vital element of procedural due process, the right does not necessarily require an actual cross-examination, but merely an opportunity to exercise this right if desired by the party entitled to it.26 Clearly, the BANK’s failure to cross-examine is imputable to the BANK when it lost this right27 as it was in default and failed thereafter to exhaust the remedies to secure the exercise of this right at the earliest opportunity.The two other procedural lapses that the BANK attributes to the appellate and trial courts deserve scant consideration.The BANK raises for the very first time the issue of judicial admission on the part of Marcos. The BANK even has the audacity to fault the Court of Appeals for not ruling on this issue when it never raised this matter before the appellate court or before the trial court. Obviously, this issue is only an afterthought. An issue raised for the first time on appeal and not raised timely in the proceedings in the lower court is barred by estoppel.28

The BANK cannot claim that Marcos had admitted the due execution of the documents attached to its answer because the BANK filed its answer late and even failed to serve it on Marcos. The BANK’s answer, including the actionable documents it pleaded and attached to its answer, was a mere scrap of paper. There was nothing that Marcos could specifically deny under oath. Marcos had already completed the presentation of his evidence when the trial court lifted the order of default and admitted the BANK’s answer. The provision of the Rules of Court governing admission of actionable documents was not enacted to reward a party in default. We will not allow a party to gain an advantage from its disregard of the rules.As to the issue of its right to present additional evidence, we agree with the Court of Appeals that the trial court correctly ruled that the BANK had waived this right. The BANK cannot now claim that it was deprived of its right to conduct a re-direct examination of Pagsaligan. The BANK postponed the hearings three times29 because of its inability to secure Pagsaligan’s presence during the hearings. The BANK could have presented another witness or its other evidence but it obstinately insisted on the resetting of the hearing because of Pagsaligan’s absence allegedly due to illness.

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 DepositorThe 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 inSimex 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. 8791.35This fiduciary relationship means that the bank’s obligation to observe "high standards of integrity and performance" is deemed written into every deposit agreement between a bank and its depositor.The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family. Thus, the BANK’s fiduciary duty imposes upon it a higher level of accountability than that expected of Marcos, a businessman, who negligently signed blank forms and entrusted his certificates of time deposits to Pagsaligan without retaining copies of the certificates.

The business of banking is imbued with public interest. The stability of banks largely depends on the confidence of the people in the honesty and efficiency of banks. In Simex International (Manila) Inc. v. Court of Appeals36 we pointed out the depositor’s reasonable expectations from a bank and the bank’s corresponding duty to its depositor, as follows:

In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs.

As the BANK’s depositor, Marcos had the right to expect that the BANK was accurately recording his transactions with it. Upon the maturity of his time deposits, Marcos also had the right to withdraw the amount due him after the BANK had correctly debited his outstanding obligations from his time deposits.

By the very nature of its business, the BANK should have had in its possession the original copies of the disputed promissory note and the records and ledgers evidencing the offsetting of the loan with the time deposits of Marcos. The BANK inexplicably failed to produce the original copies of these documents. Clearly, the BANK failed to treat the account of Marcos with meticulous care.

The BANK claims that it is a reputable banking institution and that it has no reason to forge Promissory Note No. 20-979-83. The trial court and appellate court did not rule that it was the bank that forged the promissory note. It was Pagsaligan, the BANK’s branch manager and a close friend of Marcos, whom the trial court categorically blamed for the fictitious loan agreements. The trial court held that Pagsaligan made up the loan agreement to cover up his inability to account for the time deposits of Marcos.

Whether it was the BANK’s negligence and inefficiency or Pagsaligan’s misdeed that deprived Marcos of the amount due him will not excuse the BANK from its obligation to return to Marcos the correct amount of

his time deposits with interest. The duty to observe "high standards of integrity and performance" imposes on the BANK that obligation. The BANK cannot also unjustly enrich itself by keeping Marcos’ money.

Assuming Pagsaligan was behind the spurious promissory note, the BANK would still be accountable to Marcos. We have held that a bank is liable for the wrongful acts of its officers done in the interest of the bank or in their dealings as bank representatives but not for acts outside the scope of their authority.37 Thus, we held:

A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit.38

The Existence of Promissory Note No. 20-979-83 was not Proven

The BANK failed to produce the best evidence — the original copies of the loan application and promissory note. The Best Evidence Rule provides that the court shall not receive any evidence that is merely substitutionary in its nature, such as photocopies, as long as the original evidence can be had.39 Absent a clear showing that the original writing has been lost, destroyed or cannot be produced in court, the photocopy must be disregarded, being unworthy of any probative value and being an inadmissible piece of evidence.40

What the BANK presented were merely the "machine copies of the duplicate" of the loan application and promissory note. No explanation was ever offered by the BANK for its inability to produce the original copies of the documentary evidence. The BANK also did not comply with the orders of the trial court to submit the originals.

The purpose of the rule requiring the production of the best evidence is the prevention of fraud.41 If a party is in possession of evidence and withholds it, and seeks to substitute inferior evidence in its place, the presumption naturally arises that the better evidence is withheld for fraudulent purposes, which its production would expose and defeat.42

The absence of the original of the documentary evidence casts suspicion on the existence of Promissory Note No. 20-979-83 considering the BANK’s fiduciary duty to keep efficiently a record of its transactions with its depositors. Moreover, the circumstances enumerated by the trial court bolster the conclusion that Promissory Note No. 20-979-83 is bogus. The BANK has only itself to blame for the dearth of competent proof to establish the existence of Promissory Note No. 20-979-83.

Total Amount Due to MarcosThe 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. PAGSALIGANBranch Manager45

The foregoing certification is clear. The total amount of time deposits of Marcos as of 12 March 1982 isP764,897.67, 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 isP851,250 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.50The 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, andP284,937.48, the interest then due on the three trust receipts.

Upon maturity of the three trust receipts, the BANK should have automatically deducted, by way of offsetting, Marcos’ outstanding debt to the BANK from his time deposits and its accumulated interest. Marcos’ time deposits of P764,897.67 had already earned interest54 of P616,318.92 as of 6 March 1987.55 Thus, Marcos’ total funds with the BANK amounted to P1,381,216.59 as of the maturity of the trust receipts. After deducting P880,812.48, the amount Marcos owed the BANK, from Marcos’ funds with the BANK of P1,381,216.59, Marcos’ remaining time deposits as of 6 March 1987 is only P500,404.11. The accumulated interest on this P500,404.11 as of 30 August 1989, the date of filing of Marcos’ complaint with the trial court, is P211,622.96.56 From 30 August 1989, the interest due on the accumulated interest of P211,622.96 should earn legal interest at 12% per annum pursuant to Article 221257 of the Civil Code.

The BANK’s dismal failure to account for Marcos’ money justifies the award of moral58 and exemplary damages.59 Certainly, the BANK, as employer, is liable for the negligence or the misdeed of its branch manager which caused Marcos mental anguish and serious anxiety.60 Moral damages of P100,000 is reasonable and is in accord with our rulings in similar cases involving banks’ negligence with regard to the accounts of their depositors.61

We also award P20,000 to Marcos as exemplary damages. The law allows the grant of exemplary damages by way of example for the public good.62 The public relies on the banks’ fiduciary duty to observe the highest degree of diligence. The banking sector is expected to maintain at all times this high level of meticulousness.63

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION. Petitioner Philippine Banking Corporation is ordered to return to private respondent Leonilo Marcos P500,404.11, the remaining principal amount of his time deposits, with interest at 17% per annum from 30 August 1989 until full payment. Petitioner Philippine Banking Corporation is also ordered to pay to private respondent Leonilo MarcosP211,622.96, 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.Davide, Jr., C.J., (Chairman), Panganiban, Ynares-Santiago, and Azcuna, JJ., concur.

Footnotes

1 Penned by Associate Justice Arturo B. Buena with Associate Justices Ma. Alicia Austria-Martinez and Bernardo Ll. Salas, concurring, Third Division.2 Penned by Judge N. C. Perello.3 Rollo, p. 204.4 The case was docketed as Civil Case No. B-3148.5 The sum of P664,897.67 and P764,897.67 is P1,429,795.34, not P1,428,795.34.6 Rollo, p. 211.7 Should be P1,429,795.34. See note 5.8 Records, p. 11.9 Rollo, p. 231.10 Rollo, p. 256.11 The difference between P764,897.67 and P760,000 is P4,897.67, not P4,867.67.12 Should be P4,897.67. See note 11.13 Should be P4,897.67. See note 11.14 Rollo, p. 257.15 Rollo, p. 262.16 Ibid., pp. 262-263.17 Rollo, p. 35.18 Ibid., p. 37.19 Ibid., p. 321.20 FLORENZ D. REGALADO, REMEDIAL LAW COMPENDIUM, Vol. 1, 173 (Sixth Revised Ed., 1997).21 Ibid.22 Now Section 3(b), Rule 9 of the 1997 Rules of Court.23 TSN, 12 March 1990, p. 12.24 OSCAR M. HERRERA, REMEDIAL LAW, Vol. I, 733 (2000).25 Section 4, Rule 15 of the 1964 Rules of Court.26 Fulgado v. Court of Appeals, G.R. No. 61570, 12 February 1990, 182 SCRA 81.27 See OSCAR M. HERRERA, REMEDIAL LAW, Vol. 6, 176 (1999 ed.).28 Caltex (Philippines), Inc. v. Court of Appeals, G.R. No. 97753, 10 August 1992, 212 SCRA 448.29 Records, p.117.30 Spouses Reaport v. Judge Mariano, 413 Phil. 299 (2001).31 G.R. No. 88013, 19 March 1990, 183 SCRA 360.32 Ibid.33 See Bank of the Philippine Islands v. Intermediate Appellate Court, G.R. No. 69162, 21 February 1992, 206 SCRA 408; Citytrust Banking Corporation v. Intermediate Appellate Court, G.R. No. 84281, 27 May 1994, 232 SCRA 559; Tan v. Court of Appeals, G.R. No. 108555, 20 December 1994, 239 SCRA 310;Metropolitan Bank & Trust Co. v. Court of Appeals, G.R. No. 112576, 26 October 1994, 237 SCRA 761; Philippine Bank of Commerce v. Court of Appeals, 336 Phil. 667 (1997); Firestone v. Court of Appeals, G.R. No. 113236, 5 March 2001, 353 SCRA 601.34 RA No. 8791 was approved on 3 May 2000.35 The Consolidated Bank and Trust Corporation v. Court of Appeals, G.R. No. 138569, 11 September 2003.36 Supra, note 31.37 Prudential Bank v. Court of Appeals, G.R. No. 108957, 14 June 1993, 223 SCRA 350.38 Ibid.39 San Pedro v. Court of Appeals, 333 Phil. 597 (1996).40 Ibid.41 IBM Philippines, Inc. v. National Labor Relations Commission, 365 Phil. 137 (1999).42 Ibid.43 Rollo, p. 21.44 Ibid., p. 373.45 Ibid., pp. 34-35.46 Article 1956, Civil Code of the Philippines.47 EDGARDO L. PARAS, CIVIL CODE OF THE PHILIPPINES, Vol. 5, 832 (14th Ed., 2000); Biesterbos v. Court of Appeals, G.R. No. 152529, 22 September 2003.48 TSN, 18 December 1989, p. 24.49 Records, p. 36.50 Article 2212 of the Civil Code provides:

"If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof.The courts shall also fix the duration of the period when it depends on the will of the debtor.In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them."

51 Rate of Legal Interest = 12% per annumPeriod from 8 March 1983 (Date Trust Receipt No. CD 83.7 was issued) to 6 March 1987 (date when Trust Receipt No. CD 83.7 became due) = 1,459 daysInterest Due = (Value of Trust Receipt No. CD 83.7 after payment of the marginal deposit) (12%) (Number of Days)/ 365 daysInterest Due = (P210,618.75) (12%) (1,459)/365Interest Due = P101,027.76

52 Rate of Legal Interest = 12% per annumPeriod from 15 March 1983 (Date Trust Receipt No. CD 83.9 was issued) to 6 March 1987 (date when Trust Receipt No. CD 83.9 became due) = 1,452 days

Interest Due = (Value of Trust Receipt No. CD 83.9 after payment of the marginal deposit) (12%) (Number of Days)/365 daysInterest Due = (P210,618.75) (12%) (1,452)/365Interest Due = P100,543.04

53 Rate of Legal Interest = 12% per annumPeriod from 15 March 1983 (Date Trust Receipt No. CD 83.10 was issued) to 6 March 1987 (date when Trust Receipt No. CD 83.10 became due) = 1,452 daysInterest Due = (Value of Trust Receipt No. CD 83.10 after payment of the marginal deposit) (12%) (Number of Days)/ 365 daysInterest Due = (P174,637.5) (12%) (1,452)/365Interest Due = P83,366.68

54 The time deposits matured every 90 days. The practice of banks is to compound the interest earned on every renewal of the time deposit. However, Marcos failed to allege and prove this practice. The documents presented in court to prove the time deposits do not contain any stipulation on compounding of interest. Thus, the interest on Marcos’ time deposits is computed on a straight, non-compounded basis. See Mambulao Lumber Co. v. Philippine National Bank, 130 Phil. 366 (1968); The Consolidated Bank and Trust Corporation v. Court of Appeals, G.R. No. 138569, 11 September 2003.55 Stipulated Interest Rate = 17% per annum, with interest earned capitalized every 90 days upon every renewal of the time deposits.

Period from 10 June 1982 (Maturity date of the time deposits) to 6 March 1987 (Due date of the trust receipts) = 1,730 daysInterest Due = (Principal) (17%) (Number of Days)/ 365 daysInterest Due = (P 764,897.67) (17%) (1,730)/365 = P616,318.92

56 Stipulated Interest Rate = 17% per annumPeriod from 6 March 1987 (Due date of the trust receipts) to 30 August 1989 (Date of filing of the complaint with the trial court) = 908 daysInterest Due = (Time deposits and interest –total value of the trust receipts) (17%) (Number of Days)/365 daysInterest Due = (P500,404.11) (17%) (908)/365 = P211,622.96

57 Article 2212 of the Civil Code provides:"Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point."

58 Philippine National Bank v. Court of Appeals, G.R. No. 126152, 28 September 1999, 315 SCRA 309.59 Prudential Bank v. Court of Appeals, G.R. No. 125536, 16 March 2000, 328 SCRA 264.60 The Consolidated Bank and Trust Corporation v. Court of Appeals, G.R. No. 138569, 11 September 2003; Prudential Bank v. Court of Appeals, G.R. No. 125536, 16 March 2000, 328 SCRA 264.61 Ibid. See also Tan v. Court of Appeals, G.R. No. 108555, 20 December 1994, 239 SCRA 310.62 Prudential Bank v. Court of Appeals, supra, note 59.63 Ibid.

4SECOND DIVISION

[G.R. No. 132560. January 30, 2002]WESTMONT BANK (formerly ASSOCIATED BANKING CORP.), petitioner, vs. EUGENE

ONG, respondent.D E C I S I O N

QUISUMBING, J.:This is a petition for review of the decision[1] dated January 13, 1998, of the Court of Appeals in CA-G.R.

CV No. 28304 ordering the petitioner to pay respondent P1,754,787.50 plus twelve percent (12%) interest per annum computed from October 7, 1977, the date of the first extrajudicial demand, plus damages.

The facts of this case are undisputed.Respondent Eugene Ong maintained a current account with petitioner, formerly the Associated

Banking Corporation, but now known as Westmont Bank. Sometime in May 1976, he sold certain shares of

stocks through Island Securities Corporation. To pay Ong, Island Securities purchased two (2) Pacific Banking Corporation managers checks,[2] both dated May 4, 1976, issued in the name of Eugene Ong as payee. Before Ong could get hold of the checks, his friend Paciano Tanlimco got hold of them, forged Ongs signature and deposited these with petitioner, where Tanlimco was also a depositor. Even though Ongs specimen signature was on file, petitioner accepted and credited both checks to the account of Tanlimco, without verifying the signature indorsements appearing at the back thereof. Tanlimco then immediately withdrew the money and absconded.

Instead of going straight to the bank to stop or question the payment, Ong first sought the help of Tanlimcos family to recover the amount. Later, he reported the incident to the Central Bank, which like the first effort, unfortunately proved futile.

It was only on October 7, 1977, about five (5) months from discovery of the fraud, did Ong cry foul and demanded in his complaint that petitioner pay the value of the two checks from the bank on whose gross negligence he imputed his loss. In his suit, he insisted that he did not deliver, negotiate, endorse or transfer to any person or entity the subject checks issued to him and asserted that the signatures on the back were spurious.[3]

The bank did not present evidence to the contrary, but simply contended that since plaintiff Ong claimed to have never received the originals of the two (2) checks in question from Island Securities, much less to have authorized Tanlimco to receive the same, he never acquired ownership of these checks. Thus, he had no legal personality to sue as he is not a real party in interest. The bank then filed a demurrer to evidence which was denied.

On February 8, 1989, after trial on the merits, the Regional Trial Court of Manila, Branch 38, rendered a decision, thus:IN VIEW OF THE FOREGOING, the court hereby renders judgment for the plaintiff and against the defendant, and orders the defendant to pay the plaintiff:

1. The sum of P1,754,787.50 representing the total face value of the two checks in question, exhibits A and B, respectively, with interest thereon at the legal rate of twelve percent (12%) per annum computed from October 7, 1977 (the date of the first extrajudicial demand) up to and until the same shall have been paid in full;

2. Moral damages in the amount of P250,000.00;3. Exemplary or corrective damages in the sum of P100,000.00 by way of example or correction

for the public good;4. Attorneys fees of P50,000.00 and costs of suit.

Defendants counterclaims are dismissed for lack of merit.SO ORDERED.[4]

Petitioner elevated the case to the Court of Appeals without success. In its decision, the appellate court held:WHEREFORE, in view of the foregoing, the appealed decision is AFFIRMED in toto.[5]

Petitioner now comes before this Court on a petition for review, alleging that the Court of Appeals erred:

I... IN AFFIRMING THE TRIAL COURTS CONCLUSION THAT RESPONDENT HAS A CAUSE OF ACTION AGAINST THE PETITIONER.

II... IN AFFIRMING THE TRIAL COURTS DECISION FINDING PETITIONER LIABLE TO RESPONDENT AND DECLARING THAT THE LATTER MAY RECOVER DIRECTLY FROM THE FORMER; AND

III... IN NOT ADJUDGING RESPONDENT GUILTY OF LACHES AND IN NOT ABSOLVING PETITIONER FROM LIABILITY.

Essentially the issues in this case are: (1) whether or not respondent Ong has a cause of action against petitioner Westmont Bank; and (2) whether or not Ong is barred to recover the money from Westmont Bank due to laches.

Respondent admitted that he was never in actual or physical possession of the two (2) checks of the Island Securities nor did he authorize Tanlimco or any of the latters representative to demand, accept and receive the same. For this reason, petitioner argues, respondent cannot sue petitioner because under Section 51 of the Negotiable Instruments Law[6] it is only when a person becomes a holder of a negotiable instrument can he sue in his own name. Conversely, prior to his becoming a holder, he had no right or cause of action under such negotiable instrument. Petitioner further argues that since Section 191[7] of the Negotiable Instruments Law defines a holder as the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof, in order to be a holder, it is a requirement that he be in possession of the instrument or the bearer thereof. Simply stated, since Ong never had possession of the checks nor did he authorize anybody, he did not become a holder thereof hence he cannot sue in his own name.[8]

Petitioner also cites Article 1249[9] of the Civil Code explaining that a check, even if it is a managers check, is not legal tender. Hence, the creditor cannot be compelled to accept payment thru this means.[10] It is petitioners position that for all intents and purposes, Island Securities has not yet tendered payment to respondent Ong, thus, any action by Ong should be directed towards collecting the amount from Island Securities. Petitioner claims that Ongs cause of action against it has not ripened as of yet. It may be that petitioner would be liable to the drawee bank - - but that is a matter between petitioner and drawee-bank, Pacific Banking Corporation.[11]

For its part, respondent Ong leans on the ruling of the trial court and the Court of Appeals which held that the suit of Ong against the petitioner bank is a desirable shortcut to reach the party who ought in any event to be ultimately liable.[12] It likewise cites the ruling of the courts a quo which held that according to the general rule, a bank who has obtained possession of a check upon an unauthorized or forged indorsement of the payees signature and who collects the amount of the check from the drawee is liable

for the proceeds thereof to the payee. The theory of said rule is that the collecting banks possession of such check is wrongful.[13]

Respondent also cites Associated Bank vs. Court of Appeals[14] which held that the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements. The collecting bank is also made liable because it is privy to the depositor who negotiated the check. The bank knows him, his address and history because he is a client. Hence, it is in a better position to detect forgery, fraud or irregularity in the indorsement.[15]

Anent Article 1249 of the Civil Code, Ong points out that bank checks are specifically governed by the Negotiable Instruments Law which is a special law and only in the absence of specific provisions or deficiency in the special law may the Civil Code be invoked.[16]

Considering the contentions of the parties and the evidence on record, we find no reversible error in the assailed decisions of the appellate and trial courts, hence there is no justifiable reason to grant the petition.

Petitioners claim that respondent has no cause of action against the bank is clearly misplaced. As defined, a cause of action is the act or omission by which a party violates a right of another. [17] The essential elements of a cause of action are: (a) a legal right or rights of the plaintiff, (b) a correlative obligation of the defendant, and (c) an act or omission of the defendant in violation of said legal right.[18]

The complaint filed before the trial court expressly alleged respondents right as payee of the managers checks to receive the amount involved, petitioners correlative duty as collecting bank to ensure that the amount gets to the rightful payee or his order, and a breach of that duty because of a blatant act of negligence on the part of petitioner which violated respondents rights.[19]

Under Section 23 of the Negotiable Instruments Law:When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority.

Since the signature of the payee, in the case at bar, was forged to make it appear that he had made an indorsement in favor of the forger, such signature should be deemed as inoperative and ineffectual. Petitioner, as the collecting bank, grossly erred in making payment by virtue of said forged signature. The payee, herein respondent, should therefore be allowed to recover from the collecting bank.

The collecting bank is liable to the payee and must bear the loss because it is its legal duty to ascertain that the payees endorsement was genuine before cashing the check.[20] As a general rule, a bank or corporation who has obtained possession of a check upon an unauthorized or forged indorsement of the payees signature and who collects the amount of the check from the drawee, is liable for the proceeds thereof to the payee or other owner, notwithstanding that the amount has been paid to the person from whom the check was obtained.[21]

The theory of the rule is that the possession of the check on the forged or unauthorized indorsement is wrongful, and when the money had been collected on the check, the bank or other person or corporation can be held as for moneys had and received, and the proceeds are held for the rightful owners who may recover them. The position of the bank taking the check on the forged or unauthorized indorsement is the same as if it had taken the check and collected the money without indorsement at all and the act of the bank amounts to conversion of the check.[22]

Petitioners claim that since there was no delivery yet and respondent has never acquired possession of the checks, respondents remedy is with the drawer and not with petitioner bank.Petitioner relies on the view to the effect that where there is no delivery to the payee and no title vests in him, he ought not to be allowed to recover on the ground that he lost nothing because he never became the owner of the check and still retained his claim of debt against the drawer.[23] However, another view in certain cases holds that even if the absence of delivery is considered, such consideration is not material. The rationale for this view is that in said cases the plaintiff uses one action to reach, by a desirable short cut, the person who ought in any event to be ultimately liable as among the innocent persons involved in the transaction. In other words, the payee ought to be allowed to recover directly from the collecting bank, regardless of whether the check was delivered to the payee or not.[24]

Considering the circumstances in this case, in our view, petitioner could not escape liability for its negligent acts. Admittedly, respondent Eugene Ong at the time the fraudulent transaction took place was a depositor of petitioner bank. Banks are engaged in a business impressed with public interest, and it is their duty to protect in return their many clients and depositors who transact business with them. [25] They have the obligation to treat their clients account meticulously and with the highest degree of care, considering the fiduciary nature of their relationship. The diligence required of banks, therefore, is more than that of a good father of a family.[26] In the present case, petitioner was held to be grossly negligent in performing its duties. As found by the trial court:xxx (A)t the time the questioned checks were accepted for deposit to Paciano Tanlimcos account by defendant bank, defendant bank, admittedly had in its files specimen signatures of plaintiff who maintained a current account with them (Exhibits L-1 and M-1; testimony of Emmanuel Torio). Given the substantial face value of the two checks, totalling P1,754,787.50, and the fact that they were being deposited by a person not the payee, the very least defendant bank should have done, as any reasonable prudent man would have done, was to verify the genuineness of the indorsements thereon. The Court cannot help but note that had defendant conducted even the most cursory comparison with plaintiffs specimen signatures in its files (Exhibit L-1 and M-1) it would have at once seen that the alleged indorsements were falsified and were not those of the plaintiff-payee. However, defendant apparently failed to make such a verification or, what is worse did so but, chose to disregard the obvious dissimilarity of the signatures.The first omission makes it guilty of gross negligence; the second of bad faith. In either case, defendant is liable to plaintiff for the proceeds of the checks in question.[27]

These findings are binding and conclusive on the appellate and the reviewing courts.

On the second issue, petitioner avers that respondent Ong is barred by laches for failing to assert his right for recovery from the bank as soon as he discovered the scam. The lapse of five months before he went to seek relief from the bank, according to petitioner, constitutes laches.

In turn, respondent contends that petitioner presented no evidence to support its claim of laches. On the contrary, the established facts of the case as found by the trial court and affirmed by the Court of Appeals are that respondent left no stone unturned to obtain relief from his predicament.

On the matter of delay in reporting the loss, respondent calls attention to the fact that the checks were issued on May 4, 1976, and on the very next day, May 5, 1976, these were already credited to the account of Paciano Tanlimco and presented for payment to Pacific Banking Corporation. So even if the theft of the checks were discovered and reported earlier, respondent argues, it would not have altered the situation as the encashment of the checks was consummated within twenty four hours and facilitated by the gross negligence of the petitioner bank.[28]

Laches may be defined as the failure or neglect for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier. It is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled thereto has either abandoned or declined to assert it.[29] It concerns itself with whether or not by reason of long inaction or inexcusable neglect, a person claiming a right should be barred from asserting the same, because to allow him to do so would be unjust to the person against whom such right is sought to be enforced.[30]

In the case at bar, it cannot be said that respondent sat on his rights. He immediately acted after knowing of the forgery by proceeding to seek help from the Tanlimco family and later the Central Bank, to remedy the situation and recover his money from the forger, Paciano Tanlimco. Only after he had exhausted possibilities of settling the matter amicably with the family of Tanlimco and through the CB, about five months after the unlawful transaction took place, did he resort to making the demand upon the petitioner and eventually before the court for recovery of the money value of the two checks. These acts cannot be construed as undue delay in or abandonment of the assertion of his rights.

Moreover, the claim of petitioner that respondent should be barred by laches is clearly a vain attempt to deflect responsibility for its negligent act. As explained by the appellate court, it is petitioner which had the last clear chance to stop the fraudulent encashment of the subject checks had it exercised due diligence and followed the proper and regular banking procedures in clearing checks. [31] As we had earlier ruled, the one who had the last clear opportunity to avoid the impending harm but failed to do so is chargeable with the consequences thereof.[32]

WHEREFORE, the instant petition is DENIED for lack of merit. The assailed decision of the Court of Appeals, sustaining the judgment of the Regional Trial Court of Manila, is AFFIRMED.

Costs against petitioner.SO ORDERED.Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.

[1] Rollo, pp. 32-39.[2] No. NI-141439 for P880,850.00 (Exh. A) and No. 141476 for P873,937.50 (Exh. B), RTC Records, pp. 9-

10.[3] Supra, note 1 at 34-35.[4] CA Rollo, pp. 99-100.[5] Supra, note 1 at 38.[6] Sec. 51. Right of holder to sue payment. - The holder of a negotiable instrument may sue thereon in his

own name; and payment to him in due course discharges the instrument.[7] Sec. 191. Definitions and meaning of terms. In this Act, unless the contract otherwise requires:x x xHolder means the payee or indorsee of a bill or note who is in possession of it, or the bearer thereof;x x x[8] Supra, note 1 at 24-25.[9] Art. 1249. xxxThe delivery of promissory notes payable to order, or bills of exchange or other mercantile documents

shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired.

In the meantime, the action derived from the original obligation shall be held in abeyance.[10] Supra, note 1 at 25.[11] Id. at 26.[12] Id. at 47-48.[13] Id. at 48.[14] G.R. No. 107382, 252 SCRA 620, 633 (1996).[15] Supra, note 1 at 48.[16] Supra, note 1 at 49-50 citing Art. 18. Civil Code of the Philippines. In matters which are governed by the

Code of Commerce and special laws, their deficiency shall be supplied by the provisions of this Code.

[17] Sec. 2, Rule 2, 1997 Rules of Court.[18] R.J. Francisco, Civil Procedure 86 (First Edition 2001) Vol. I, citing Ma-ao Sugar Central Co. vs. Barrios,

G.R. No. L-1539, 79 Phil. 666, 667 (1947).[19] RTC Records, pp. 5-6.[20] A. F. Agbayani, Commercial Laws of the Philippines 200 (Vol. I 1987) citing Great Eastern Life Ins.

Co. vs. Hongkong & Shanghai Bank, G.R. No. 18657, 43 Phil 678, 682-683 (1922).

[21] Agbayani, op. cit. 201 citing 21 A.L.R. 1068.[22] Agbayani, op. cit. 202 citing 31 A.L.R. 1070; U.S. Portland Co. vs. U.S. Nat. Bank; L.R.A. 1917-A, 145,

146.; 21 A.L.R. 1072; 31 A.L.R. 1071.[23] Agbayani, op. cit. 207 citing 31 Mich. L. Rev. 819.[24] Agbayani, op. cit. 206-207 citing 31 A.L.R. 1021-2; Brannan, 7th ed., 453.[25] Citytrust Banking Corp. vs. Intermediate Appellate Court, G.R. No. 84281, 232 SCRA 559, 563 (1994).[26] Bank of the Philippine Islands   vs.   Court of Appeals,   G.R. No. 112392 , 326 SCRA 641, 657

(2000), Philippine Bank of Commerce   vs.   Court of Appeals, G.R. No. 97626 , 269 SCRA 695, 708-709 (1997).

[27] Supra, note 2 at 251-252.[28] Supra, note 1 at 50-52.[29] Felizardo   et. al. vs.   Fernandez, G.R. No. 137509 , August 15, 2001, p. 8, citing Heirs of Pedro

Lopez   vs.   De Castro, G.R. No. 112905 , 324 SCRA 591, 614-615 (2000), Catholic Bishop of Balanga vs. Court of Appeals, G.R. No. 112519, 332 Phil. 206, 218-219 (1996), 264 SCRA 181, 192-194 (1996).

[30] Felizardo vs. Fernandez,  id. citing Heirs of Teodoro Dela Cruz   vs.   Court of Appeals, G.R. No. 117384 , 298 SCRA 172, 182 (1998), Pablate vs. Echarri, Jr., G.R. No. L- 24357, 37 SCRA 518, 521-522 (1971).

[31] Supra, note 1 at 51-52.[32] Philippine Bank of Commerce   vs.   CA, G.R. No. 97626 , 269 SCRA 695, 707-708 (1997).

5Republic of the Philippines

SUPREME COURTManila

SECOND DIVISIONG.R. No. 118492       August 15, 2001GREGORIO H. REYES and CONSUELO PUYAT-REYES, petitioners, vs.THE HON. COURT OF APPEALS and FAR EAST BANK AND TRUST COMPANY, respondents.DE LEON, JR., J.:Before us is a petition for review of the Decision1 dated July 22, 1994 and Resolution2 dated December 29, 1994 of the Court of Appeals3 affirming with modification the Decision4 dated November 12, 1992 of the Regional Trial Court of Makati, Metro Manila, Branch 64, which dismissed the complaint for damages of petitioners spouses Gregorio H. Reyes and Consuelo Puyat-Reyes against respondent Far East Bank and Trust Company.The undisputed facts of the case are as follows:In view of the 20th Asian Racing Conference then scheduled to be held in September, 1988 in Sydney, Australia, the Philippine Racing Club, Inc. (PRCI, for brevity) sent four (4) delegates to the said conference. Petitioner Gregorio H. Reyes, as vice-president for finance, racing manager, treasurer, and director of PRCI, sent Godofredo Reyes, the club's chief cashier, to the respondent bank to apply for a foreign exchange demand draft in Australian dollars.Godofredo went to respondent bank's Buendia Branch in Makati City to apply for a demand draft in the amount One Thousand Six Hundred Ten Australian Dollars (AU$1,610.00) payable to the order of the 20th Asian Racing Conference Secretariat of Sydney, Australia. He was attended to by respondent bank's assistant cashier, Mr. Yasis, who at first denied the application for the reason that respondent bank did not have an Australian dollar account in any bank in Sydney. Godofredo asked if there could be a way for respondent bank to accommodate PRCI's urgent need to remit Australian dollars to Sydney. Yasis of respondent bank then informed Godofredo of a roundabout way of effecting the requested remittance to Sydney thus: the respondent bank would draw a demand draft against Westpac Bank in Sydney, Australia (Westpac-Sydney for brevity) and have the latter reimburse itself from the U.S. dollar account of the respondent in Westpac Bank in New York, U.S.A. (Westpac-New York for brevity). This arrangement has been customarily resorted to since the 1960's and the procedure has proven to be problem-free. PRCI and the petitioner Gregorio H. Reyes, acting through Godofredo, agreed to this arrangement or approach in order to effect the urgent transfer of Australian dollars payable to the Secretariat of the 20th Asian Racing Conference.On July 28, 1988, the respondent bank approved the said application of PRCI and issued Foreign Exchange Demand Draft (FXDD) No. 209968 in the sum applied for, that is, One Thousand Six Hundred Ten Australian Dollars (AU$ 1,610.00), payable to the order of the 20th Asian Racing Conference Secretariat of Sydney, Australia, and addressed to Westpac-Sydney as the drawee bank.1âwphi1.nêtOn August 10, 1988, upon due presentment of the foreign exchange demand draft, denominated as FXDD No. 209968, the same was dishonored, with the notice of dishonor stating the following: "xxx No account held with Westpac." Meanwhile, on August 16, 1988, Wespac-New York sent a cable to respondent bank informing the latter that its dollar account in the sum of One Thousand Six Hundred Ten Australian Dollars (AU$ 1,610.00) was debited. On August 19, 1988, in response to PRCI's complaint about the dishonor of the said foreign exchange demand draft, respondent bank informed Westpac-Sydney of the issuance of the said demand draft FXDD No. 209968, drawn against the Wespac-Sydney and informing the latter to be reimbursed from the respondent bank's dollar account in Westpac-New York. The respondent bank on the same day likewise informed Wespac-New York requesting the latter to honor the reimbursement claim of Wespac-Sydney. On September 14, 1988, upon its second presentment for payment, FXDD No. 209968 was again dishonored by Westpac-Sydney for the same reason, that is, that the respondent bank has no deposit dollar account with the drawee Wespac-Sydney.On September 17, 1988 and September 18, 1988, respectively, petitioners spouses Gregorio H. Reyes and Consuelo Puyat-Reyes left for Australia to attend the said racing conference. When petitioner Gregorio H. Reyes arrived in Sydney in the morning of September 18, 1988, he went directly to the lobby of Hotel Regent Sydney to register as a conference delegate. At the registration desk, in the presence of other delegates from various member of the conference secretariat that he could not register because the foreign exchange demand draft for his registration fee had been dishonored for the second time. A discussion ensued in the presence and within the hearing of many delegates who were also registering. Feeling terribly embarrassed and humiliated, petitioner Gregorio H. Reyes asked the lady member of the conference secretariat that he be shown the subject foreign exchange demand draft that had been dishonored as well as the covering letter after which he promised that he would pay the registration fees in cash. In the meantime he demanded that he be given his name plate and conference kit. The lady member of the conference secretariat relented and gave him his name plate and conference kit. It was only two (2) days later, or on September 20, 1988, that he was given the dishonored demand draft and a covering letter. It was then that he actually paid in cash the registration fees as he had earlier promised.Meanwhile, on September 19, 1988, petitioner Consuelo Puyat-Reyes arrived in Sydney. She too was embarassed and humiliated at the registration desk of the conference secretariat when she was told in the presence and within the hearing of other delegates that she could not be registered due to the dishonor of the subject foreign exchange demand draft. She felt herself trembling and unable to look at the people around her. Fortunately, she saw her husband, coming toward her. He saved the situation for her by telling the secretariat member that he had already arranged for the payment of the registration fee in cash once he was shown the dishonored demand draft. Only then was petitioner Puyat-Reyes given her name plate and conference kit.

At the time the incident took place, petitioner Consuelo Puyat-Reyes was a member of the House of Representatives representing the lone Congressional District of Makati, Metro Manila. She has been an officer of the Manila Banking Corporation and was cited by Archbishop Jaime Cardinal Sin as the top lady banker of the year in connection with her conferment of the Pro-Ecclesia et Pontifice Award. She has also been awarded a plaque of appreciation from the Philippine Tuberculosis Society for her extraordinary service as the Society's campaign chairman for the ninth (9th) consecutive year.On November 23, 1988, the petitioners filed in the Regional Trial Court of Makati, Metro Manila, a complaint for damages, docketed as Civil Case No. 88-2468, against the respondent bank due to the dishonor of the said foreign exchange demand draft issued by the respondent bank. The petitioners claim that as a result of the dishonor of the said demand draft, they were exposed to unnecessary shock, social humiliation, and deep mental anguish in a foreign country, and in the presence of an international audience.On November 12, 1992, the trial court rendered judgment in favor of the defendant (respondent bank) and against the plaintiffs (herein petitioners), the dispositive portion of which states:

WHEREFORE, judgment is hereby rendered in favor of the defendant, dismissing plaintiff's complaint, and ordering plaintiffs to pay to defendant, on its counterclaim, the amount of P50,000.00, as reasonable attorney's fees. Costs against the plaintiff.SO ORDERED.5

The petitioners appealed the decision of the trial court to the Court of Appeals. On July 22, 1994, the appellate court affirmed the decision of the trial court but in effect deleted the award of attorney's fees to the defendant (herein respondent bank) and the pronouncement as to the costs. The decretal portion of the decision of the appellate court states:

WHEREFORE, the judgment appealed from, insofar as it dismissed plaintiff's complaint, is hereby AFFIRMED, but is hereby REVERSED and SET ASIDE in all other respect. No special pronouncement as to costs.SO ORDERED.6

According to the appellate court, there is no basis to hold the respondent bank liable for damages for the reason that it exerted every effort for the subject foreign exchange demand draft to be honored. The appellate court found and declared that:

xxx      xxx      xxxThus, the Bank had every reason to believe that the transaction finally went through smoothly, considering that its New York account had been debited and that there was no miscommunication between it and Westpac-New York. SWIFT is a world wide association used by almost all banks and is known to be the most reliable mode of communication in the international banking business. Besides, the above procedure, with the Bank as drawer and Westpac-Sydney as drawee, and with Westpac-New York as the reimbursement Bank had been in place since 1960s and there was no reason for the Bank to suspect that this particular demand draft would not be honored by Westpac-Sydney.From the evidence, it appears that the root cause of the miscommunications of the Bank's SWIFT message is the erroneous decoding on the part of Westpac-Sydney of the Bank's SWIFT message as an MT799 format. However, a closer look at the Bank's Exhs. "6" and "7" would show that despite what appears to be an asterick written over the figure before "99", the figure can still be distinctly seen as a number "1" and not number "7", to the effect that Westpac-Sydney was responsible for the dishonor and not the Bank.Moreover, it is not said asterisk that caused the misleading on the part of the Westpac-Sydney of the numbers "1" to "7", since Exhs. "6" and "7" are just documentary copies of the cable message sent to Wespac-Sydney. Hence, if there was mistake committed by Westpac-Sydney in decoding the cable message which caused the Bank's message to be sent to the wrong department, the mistake was Westpac's, not the Bank's. The Bank had done what an ordinary prudent person is required to do in the particular situation, although appellants expect the Bank to have done more. The Bank having done everything necessary or usual in the ordinary course of banking transaction, it cannot be held liable for any embarrassment and corresponding damage that appellants may have incurred.7

xxx      xxx      xxxHence, this petition, anchored on the following assignment of errors:

ITHE HONORABLE COURT OF APPEALS ERRED IN FINDING PRIVATE RESPONDENT NOT NEGLIGENT BY ERRONEOUSLY APPLYING THE STANDARD OF DILIGENCE OF AN "ORDINARY PRUDENT PERSON" WHEN IN TRUTH A HIGHER DEGREE OF DILIGENCE IS IMPOSED BY LAW UPON THE BANKS.

IITHE HONORABLE COURT OF APPEALS ERRED IN ABSOLVING PRIVATE RESPONDENT FROM LIABILITY BY OVERLOOKING THE FACT THAT THE DISHONOR OF THE DEMAND DRAFT WAS A BREACH OF PRIVATE RESPONDENT'S WARRANTY AS THE DRAWER THEREOF.

IIITHE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT AS SHOWN OVERWHELMINGLY BY THE EVIDENCE, THE DISHONOR OF THE DEMAND DRAFT AS DUE TO PRIVATE RESPONDENT'S NEGLIGENCE AND NOT THE DRAWEE BANK.8

The petitioners contend that due to the fiduciary nature of the relationship between the respondent bank and its clients, the respondent should have exercised a higher degree of diligence than that expected of an ordinary prudent person in the handling of its affairs as in the case at bar. The appellate court, according to petitioners, erred in applying the standard of diligence of an ordinary prudent person only. Petitioners also claim that the respondent bank violate Section 61 of the Negotiable Instruments Law9 which provides the warranty of a drawer that "xxx on due presentment, the instrument will be accepted or paid, or both, according to its tenor xxx." Thus, the petitioners argue that respondent bank should be held liable for

damages for violation of this warranty. The petitioners pray this Court to re-examine the facts to cite certain instances of negligence.It is our view and we hold that there is no reversible error in the decision of the appellate court.Section 1 of Rule 45 of the Revised Rules of Court provides that "(T)he petition (for review) shall raise only questions of law which must be distinctly set forth." Thus, we have ruled that factual findings of the Court of Appeals are conclusive on the parties and not reviewable by this Court – and they carry even more weight when the Court of Appeals affirms the factual findings of the trial court.10

The courts a quo found that respondent bank did not misrepresent that it was maintaining a deposit account with Westpac-Sydney. Respondent bank's assistant cashier explained to Godofredo Reyes, representing PRCI and petitioner Gregorio H. Reyes, how the transfer of Australian dollars would be effected through Westpac-New York where the respondent bank has a dollar account to Westpac-Sydney where the subject foreign exchange demand draft (FXDD No. 209968) could be encashed by the payee, the 20th Asian Racing Conference Secretariat. PRCI and its Vice-President for finance, petitioner Gregorio H. Reyes, through their said representative, agreed to that arrangement or procedure. In other words, the petitioners are estopped from denying the said arrangement or procedure. Similar arrangements have been a long standing practice in banking to facilitate international commercial transactions. In fact, the SWIFT cable message sent by respondent bank to the drawee bank, Westpac-Sydney, stated that it may claim reimbursement from its New York branch, Westpac-New York, where respondent bank has a deposit dollar account. The facts as found by the courts a quo show that respondent bank did not cause an erroneous transmittal of its SWIFT cable message to Westpac-Sydney. It was the erroneous decoding of the cable message on the part of Westpac-Sydney that caused the dishonor of the subject foreign exchange demand draft. An employee of Westpac-Sydney in Sydney, Australia mistakenly read the printed figures in the SWIFT cable message of respondent bank as "MT799" instead of as "MT199". As a result, Westpac-Sydney construed the said cable message as a format for a letter of credit, and not for a demand draft. The appellate court correct found that "the figure before '99' can still be distinctly seen as a number '1' and not number '7'." Indeed, the line of a "7" is in a slanting position while the line of a "1" is in a horizontal position. Thus, the number "1" in "MT199" cannot be construed as "7".11

The evidence also shows that the respondent bank exercised that degree of diligence expected of an ordinary prudent person under the circumstances obtaining. Prior to the first dishonor of the subject foreign exchange demand draft, the respondent bank advised Westpac-New York to honor the reimbursement claim of Westpac-Sydney and to debit the dollar account12 of respondent bank with the former. As soon as the demand draft was dishonored, the respondent bank, thinking that the problem was with the reimbursement and without any idea that it was due to miscommunication, re-confirmed the authority of Westpac-New York to debit its dollar account for the purpose of reimbursing Westpac-Sydney.13 Respondent bank also sent two (2) more cable messages to Westpac-New York inquiring why the demand draft was not honored.14

With these established facts, we now determine the degree of diligence that banks are required to exert in their commercial dealings. In Philippine Bank of Commerce v. Court of Appeals15 upholding a long standing doctrine, we ruled that the degree of diligence required of banks, is more than that of a good father of a family where the fiduciary nature of their relationship with their depositors is concerned. In other words banks are duty bound to treat the deposit accounts of their depositors with the highest degree of care. But the said ruling applies only to cases where banks act under their fiduciary capacity, that is, as depositary of the deposits of their depositors. But the same higher degree of diligence is not expected to be exerted by banks in commercial transactions that do not involve their fiduciary relationship with their depositors.Considering the foregoing, the respondent bank was not required to exert more than the diligence of a good father of a family in regard to the sale and issuance of the subject foreign exchange demand draft. The case at bar does not involve the handling of petitioners' deposit, if any, with the respondent bank. Instead, the relationship involved was that of a buyer and seller, that is, between the respondent bank as the seller of the subject foreign exchange demand draft, and PRCI as the buyer of the same, with the 20th Asian Racing conference Secretariat in Sydney, Australia as the payee thereof. As earlier mentioned, the said foreign exchange demand draft was intended for the payment of the registration fees of the petitioners as delegates of the PRCI to the 20th Asian Racing Conference in Sydney.The evidence shows that the respondent bank did everything within its power to prevent the dishonor of the subject foreign exchange demand draft. The erroneous reading of its cable message to Westpac-Sydney by an employee of the latter could not have been foreseen by the respondent bank. Being unaware that its employee erroneously read the said cable message, Westpac-Sydney merely stated that the respondent bank has no deposit account with it to cover for the amount of One Thousand Six Hundred Ten Australian Dollar (AU $1610.00) indicated in the foreign exchange demand draft. Thus, the respondent bank had the impression that Westpac-New York had not yet made available the amount for reimbursement to Westpac-Sydney despite the fact that respondent bank has a sufficient deposit dollar account with Westpac-New York. That was the reason why the respondent bank had to re-confirm and repeatedly notify Westpac-New York to debit its (respondent bank's) deposit dollar account with it and to transfer or credit the corresponding amount to Westpac-Sydney to cover the amount of the said demand draft.In view of all the foregoing, and considering that the dishonor of the subject foreign exchange demand draft is not attributable to any fault of the respondent bank, whereas the petitioners appeared to be under estoppel as earlier mentioned, it is no longer necessary to discuss the alleged application of Section 61 of the Negotiable Instruments Law to the case at bar. In any event, it was established that the respondent bank acted in good faith and that it did not cause the embarrassment of the petitioners in Sydney, Australia. Hence, the Court of Appeals did not commit any reversable error in its challenged decision.WHEREFORE, the petition is hereby DENIED, and the assailed decision of the Court of Appeals is AFFIRMED. Costs against the petitioners.SO ORDERED.1âwphi1.nêtBellosillo, Mendoza, Quisumbing, and Buena, JJ., concur.

Footnotes:1 Penned by Associate Justice Jorge S. Imperial and concurred in by Associate Justices Pacita Canizares-Nye and Conrado M. Vasquez, Jr.; Rollo, pp. 24-42.

2 Rollo, p. 44.

3 Fourteenth Division.

4 Court of Appeals Rollo, pp. 60-80.

5 Court of Appeals Rollo, p. 80.

6 Rollo, p. 42.

7 Rollo, p. 40.

8 Rollo, p. 14a.

9 Section 61. Liability of drawer. – The drawer by drawing the instrument admits the existence of the payee and his then capacity to indorse; and engages that, on due

presentment, the instrument will be accepted or paid, or both, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken,

he will pay the amount thereof to the holder or to any subsequent indorser who may be compelled to pay it. But the drawer may insert in the instrument an express

stipulation negativing or limiting his own liability to the holder.

10 Borromeo v. Sun, 317 SCRA 176, 182 (1999).

11 Exhibit "6".

12 Exhibit "4".

13 Exhibit "7".

14 Exhibits "9" and "10".

15 269 SCRA 695, 708-709 (1997).

6Republic of the Philippines

SUPREME COURTManila

THIRD DIVISIONG.R. No. 81262 August 25, 1989GLOBE MACKAY CABLE AND RADIO CORP., and HERBERT C. HENDRY, petitioners, vs.THE HONORABLE COURT OF APPEALS and RESTITUTO M. TOBIAS, respondents.Atencia & Arias Law Offices for petitioners.Romulo C. Felizmena for private respondent. CORTES, J.:Private respondent Restituto M. Tobias was employed by petitioner Globe Mackay Cable and Radio Corporation (GLOBE MACKAY) in a dual capacity as a purchasing agent and administrative assistant to the engineering operations manager. In 1972, GLOBE MACKAY discovered fictitious purchases and other fraudulent transactions for which it lost several thousands of pesos.According to private respondent it was he who actually discovered the anomalies and reported them on November 10, 1972 to his immediate superior Eduardo T. Ferraren and to petitioner Herbert C. Hendry who was then the Executive Vice-President and General Manager of GLOBE MACKAY.On November 11, 1972, one day after private respondent Tobias made the report, petitioner Hendry confronted him by stating that he was the number one suspect, and ordered him to take a one week forced leave, not to communicate with the office, to leave his table drawers open, and to leave the office keys.On November 20, 1972, when private respondent Tobias returned to work after the forced leave, petitioner Hendry went up to him and called him a "crook" and a "swindler." Tobias was then ordered to take a lie detector test. He was also instructed to submit specimen of his handwriting, signature, and initials for examination by the police investigators to determine his complicity in the anomalies.On December 6,1972, the Manila police investigators submitted a laboratory crime report (Exh. "A") clearing private respondent of participation in the anomalies.Not satisfied with the police report, petitioners hired a private investigator, retired Col. Jose G. Fernandez, who on December 10, 1972, submitted a report (Exh. "2") finding Tobias guilty. This report however expressly stated that further investigation was still to be conducted.Nevertheless, on December 12, 1972, petitioner Hendry issued a memorandum suspending Tobias from work preparatory to the filing of criminal charges against him.On December 19,1972, Lt. Dioscoro V. Tagle, Metro Manila Police Chief Document Examiner, after investigating other documents pertaining to the alleged anomalous transactions, submitted a second laboratory crime report (Exh. "B") reiterating his previous finding that the handwritings, signatures, and initials appearing in the checks and other documents involved in the fraudulent transactions were not those of Tobias. The lie detector tests conducted on Tobias also yielded negative results.Notwithstanding the two police reports exculpating Tobias from the anomalies and the fact that the report of the private investigator, was, by its own terms, not yet complete, petitioners filed with the City Fiscal of Manila a complaint for estafa through falsification of commercial documents, later amended to just estafa. Subsequently five other criminal complaints were filed against Tobias, four of which were for estafa through Falsification of commercial document while the fifth was for of Article 290 of' the Revised Penal Code (Discovering Secrets Through Seizure of Correspondence).lâwphî1.ñèt Two of these complaints were refiled with the Judge Advocate General's Office, which however, remanded them to the fiscal's office. All of the six criminal complaints were dismissed by the fiscal. Petitioners appealed four of the fiscal's resolutions dismissing the criminal complaints with the Secretary of Justice, who, however, affirmed their dismissal.In the meantime, on January 17, 1973, Tobias received a notice (Exh. "F") from petitioners that his employment has been terminated effective December 13, 1972. Whereupon, Tobias filed a complaint for illegal dismissal. The labor arbiter dismissed the complaint. On appeal, the National Labor Relations Commission (NLRC) reversed the labor arbiter's decision. However, the Secretary of Labor, acting on petitioners' appeal from the NLRC ruling, reinstated the labor arbiter's decision. Tobias appealed the Secretary of Labor's order with the Office of the President. During the pendency of the appeal with said office, petitioners and private respondent Tobias entered into a compromise agreement regarding the latter's complaint for illegal dismissal.Unemployed, Tobias sought employment with the Republic Telephone Company (RETELCO). However, petitioner Hendry, without being asked by RETELCO, wrote a letter to the latter stating that Tobias was dismissed by GLOBE MACKAY due to dishonesty.Private respondent Tobias filed a civil case for damages anchored on alleged unlawful, malicious, oppressive, and abusive acts of petitioners. Petitioner Hendry, claiming illness, did not testify during the hearings. The Regional Trial Court (RTC) of Manila, Branch IX, through Judge Manuel T. Reyes rendered judgment in favor of private respondent by ordering petitioners to pay him eighty thousand pesos (P80,000.00) as actual damages, two hundred thousand pesos (P200,000.00) as moral damages, twenty thousand pesos (P20,000.00) as exemplary damages, thirty thousand pesos (P30,000.00) as attorney's

fees, and costs. Petitioners appealed the RTC decision to the Court of Appeals. On the other hand, Tobias appealed as to the amount of damages. However, the Court of Appeals, an a decision dated August 31, 1987 affirmed the RTC decision in toto. Petitioners' motion for reconsideration having been denied, the instant petition for review on certiorari was filed.The main issue in this case is whether or not petitioners are liable for damages to private respondent.Petitioners contend that they could not be made liable for damages in the lawful exercise of their right to dismiss private respondent.On the other hand, private respondent contends that because of petitioners' abusive manner in dismissing him as well as for the inhuman treatment he got from them, the Petitioners must indemnify him for the damage that he had suffered.One of the more notable innovations of the New Civil Code is the codification of "some basic principles that are to be observed for the rightful relationship between human beings and for the stability of the social order." [REPORT ON THE CODE COMMISSION ON THE PROPOSED CIVIL CODE OF THE PHILIPPINES, p. 39]. The framers of the Code, seeking to remedy the defect of the old Code which merely stated the effects of the law, but failed to draw out its spirit, incorporated certain fundamental precepts which were "designed to indicate certain norms that spring from the fountain of good conscience" and which were also meant to serve as "guides for human conduct [that] should run as golden threads through society, to the end that law may approach its supreme ideal, which is the sway and dominance of justice" (Id.) Foremost among these principles is that pronounced in Article 19 which provides:

Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.

This article, known to contain what is commonly referred to as the principle of abuse of rights, sets certain standards which must be observed not only in the exercise of one's rights but also in the performance of one's duties. These standards are the following: to act with justice; to give everyone his due; and to observe honesty and good faith. The law, therefore, recognizes a primordial limitation on all rights; that in their exercise, the norms of human conduct set forth in Article 19 must be observed. A right, though by itself legal because recognized or granted by law as such, may nevertheless become the source of some illegality. When a right is exercised in a manner which does not conform with the norms enshrined in Article 19 and results in damage to another, a legal wrong is thereby committed for which the wrongdoer must be held responsible. But while Article 19 lays down a rule of conduct for the government of human relations and for the maintenance of social order, it does not provide a remedy for its violation. Generally, an action for damages under either Article 20 or Article 21 would be proper.Article 20, which pertains to damage arising from a violation of law, provides that:

Art. 20. Every person who contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for the same.

However, in the case at bar, petitioners claim that they did not violate any provision of law since they were merely exercising their legal right to dismiss private respondent. This does not, however, leave private respondent with no relief because Article 21 of the Civil Code provides that:

Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage.

This article, adopted to remedy the "countless gaps in the statutes, which leave so many victims of moral wrongs helpless, even though they have actually suffered material and moral injury" [Id.] should "vouchsafe adequate legal remedy for that untold number of moral wrongs which it is impossible for human foresight to provide for specifically in the statutes" [Id. it p. 40; See also PNB v. CA, G.R. No. L-27155, May 18,1978, 83 SCRA 237, 247].In determining whether or not the principle of abuse of rights may be invoked, there is no rigid test which can be applied. While the Court has not hesitated to apply Article 19 whether the legal and factual circumstances called for its application [See for e.g., Velayo v. Shell Co. of the Phil., Ltd., 100 Phil. 186 (1956); PNB v. CA, supra;Grand Union Supermarket, Inc. v. Espino, Jr., G.R. No. L-48250, December 28, 1979, 94 SCRA 953; PAL v. CA, G.R. No. L-46558, July 31,1981,106 SCRA 391; United General Industries, Inc, v. Paler G.R. No. L-30205, March 15,1982,112 SCRA 404; Rubio v. CA, G.R. No. 50911, August 21, 1987, 153 SCRA 183] the question of whether or not the principle of abuse of rights has been violated resulting in damages under Article 20 or Article 21 or other applicable provision of law, depends on the circumstances of each case. And in the instant case, the Court, after examining the record and considering certain significant circumstances, finds that all petitioners have indeed abused the right that they invoke, causing damage to private respondent and for which the latter must now be indemnified.The trial court made a finding that notwithstanding the fact that it was private respondent Tobias who reported the possible existence of anomalous transactions, petitioner Hendry "showed belligerence and told plaintiff (private respondent herein) that he was the number one suspect and to take a one week vacation leave, not to communicate with the office, to leave his table drawers open, and to leave his keys to said defendant (petitioner Hendry)" [RTC Decision, p. 2; Rollo, p. 232]. This, petitioners do not dispute. But regardless of whether or not it was private respondent Tobias who reported the anomalies to petitioners, the latter's reaction towards the former upon uncovering the anomalies was less than civil. An employer who harbors suspicions that an employee has committed dishonesty might be justified in taking the appropriate action such as ordering an investigation and directing the employee to go on a leave. Firmness and the resolve to uncover the truth would also be expected from such employer. But the high-handed treatment accorded Tobias by petitioners was certainly uncalled for. And this reprehensible attitude of petitioners was to continue when private respondent returned to work on November 20, 1972 after his one week forced leave. Upon reporting for work, Tobias was confronted by Hendry who said. "Tobby, you are the crook and swindler in this company." Considering that the first report made by the police investigators was submitted only on December 10, 1972 [See Exh. A] the statement made by petitioner Hendry was baseless. The imputation of guilt without basis and the pattern of harassment during the investigations of Tobias transgress the standards of human conduct set forth in Article 19 of the Civil Code. The Court has already ruled that the right of the employer to dismiss an employee should not be

confused with the manner in which the right is exercised and the effects flowing therefrom. If the dismissal is done abusively, then the employer is liable for damages to the employee [Quisaba v. Sta. Ines-Melale Veneer and Plywood Inc., G.R. No. L-38088, August 30, 1974, 58 SCRA 771; See also Philippine Refining Co., Inc. v. Garcia, G.R. No. L-21871, September 27,1966, 18 SCRA 107] Under the circumstances of the instant case, the petitioners clearly failed to exercise in a legitimate manner their right to dismiss Tobias, giving the latter the right to recover damages under Article 19 in relation to Article 21 of the Civil Code.But petitioners were not content with just dismissing Tobias. Several other tortious acts were committed by petitioners against Tobias after the latter's termination from work. Towards the latter part of January, 1973, after the filing of the first of six criminal complaints against Tobias, the latter talked to Hendry to protest the actions taken against him. In response, Hendry cut short Tobias' protestations by telling him to just confess or else the company would file a hundred more cases against him until he landed in jail. Hendry added that, "You Filipinos cannot be trusted." The threat unmasked petitioner's bad faith in the various actions taken against Tobias. On the other hand, the scornful remark about Filipinos as well as Hendry's earlier statements about Tobias being a "crook" and "swindler" are clear violations of 'Tobias' personal dignity [See Article 26, Civil Code].The next tortious act committed by petitioners was the writing of a letter to RETELCO sometime in October 1974, stating that Tobias had been dismissed by GLOBE MACKAY due to dishonesty. Because of the letter, Tobias failed to gain employment with RETELCO and as a result of which, Tobias remained unemployed for a longer period of time. For this further damage suffered by Tobias, petitioners must likewise be held liable for damages consistent with Article 2176 of the Civil Code. Petitioners, however, contend that they have a "moral, if not legal, duty to forewarn other employers of the kind of employee the plaintiff (private respondent herein) was." [Petition, p. 14; Rollo, p. 15]. Petitioners further claim that "it is the accepted moral and societal obligation of every man to advise or warn his fellowmen of any threat or danger to the latter's life, honor or property. And this includes warning one's brethren of the possible dangers involved in dealing with, or accepting into confidence, a man whose honesty and integrity is suspect" [Id.]. These arguments, rather than justify petitioners' act, reveal a seeming obsession to prevent Tobias from getting a job, even after almost two years from the time Tobias was dismissed.Finally, there is the matter of the filing by petitioners of six criminal complaints against Tobias. Petitioners contend that there is no case against them for malicious prosecution and that they cannot be "penalized for exercising their right and prerogative of seeking justice by filing criminal complaints against an employee who was their principal suspect in the commission of forgeries and in the perpetration of anomalous transactions which defrauded them of substantial sums of money" [Petition, p. 10, Rollo, p. 11].While sound principles of justice and public policy dictate that persons shall have free resort to the courts for redress of wrongs and vindication of their rights [Buenaventura v. Sto. Domingo, 103 Phil. 239 (1958)], the right to institute criminal prosecutions can not be exercised maliciously and in bad faith [Ventura v. Bernabe, G.R. No. L-26760, April 30, 1971, 38 SCRA 5871.] Hence, in Yutuk V. Manila Electric Co., G.R. No. L-13016, May 31, 1961, 2 SCRA 337, the Court held that the right to file criminal complaints should not be used as a weapon to force an alleged debtor to pay an indebtedness. To do so would be a clear perversion of the function of the criminal processes and of the courts of justice. And in Hawpia CA, G.R. No. L-20047, June 30, 1967. 20 SCRA 536 the Court upheld the judgment against the petitioner for actual and moral damages and attorney's fees after making a finding that petitioner, with persistence, filed at least six criminal complaints against respondent, all of which were dismissed.To constitute malicious prosecution, there must be proof that the prosecution was prompted by a design to vex and humiliate a person and that it was initiated deliberately by the defendant knowing that the charges were false and groundless [Manila Gas Corporation v. CA, G.R. No. L-44190, October 30,1980, 100 SCRA 602]. Concededly, the filing of a suit by itself, does not render a person liable for malicious prosecution [Inhelder Corporation v. CA, G.R. No. 52358, May 301983122 SCRA 576]. The mere dismissal by the fiscal of the criminal complaint is not a ground for an award of damages for malicious prosecution if there is no competent evidence to show that the complainant had acted in bad faith [Sison v. David, G.R. No. L-11268, January 28,1961, 1 SCRA 60].In the instant case, however, the trial court made a finding that petitioners acted in bad faith in filing the criminal complaints against Tobias, observing that:x x x

Defendants (petitioners herein) filed with the Fiscal's Office of Manila a total of six (6) criminal cases, five (5) of which were for estafa thru falsification of commercial document and one for violation of Art. 290 of the Revised Penal Code "discovering secrets thru seizure of correspondence," and all were dismissed for insufficiency or lack of evidence." The dismissal of four (4) of the cases was appealed to the Ministry of Justice, but said Ministry invariably sustained the dismissal of the cases. As above adverted to, two of these cases were refiled with the Judge Advocate General's Office of the Armed Forces of the Philippines to railroad plaintiffs arrest and detention in the military stockade, but this was frustrated by a presidential decree transferring criminal cases involving civilians to the civil courts.

x x xTo be sure, when despite the two (2) police reports embodying the findings of Lt. Dioscoro Tagle, Chief Document Examiner of the Manila Police Department, clearing plaintiff of participation or involvement in the fraudulent transactions complained of, despite the negative results of the lie detector tests which defendants compelled plaintiff to undergo, and although the police investigation was "still under follow-up and a supplementary report will be submitted after all the evidence has been gathered," defendants hastily filed six (6) criminal cases with the city Fiscal's Office of Manila, five (5) for estafa thru falsification of commercial document and one (1) for violation of Art. 290 of the Revised Penal Code, so much so that as was to be expected, all six (6) cases were dismissed, with one of the investigating fiscals, Asst. Fiscal de Guia, commenting in one case that, "Indeed, the haphazard way this case was investigated is evident. Evident likewise is the flurry and haste

in the filing of this case against respondent Tobias," there can be no mistaking that defendants would not but be motivated by malicious and unlawful intent to harass, oppress, and cause damage to plaintiff.

x x x[RTC Decision, pp. 5-6; Rollo, pp. 235-236].In addition to the observations made by the trial court, the Court finds it significant that the criminal complaints were filed during the pendency of the illegal dismissal case filed by Tobias against petitioners. This explains the haste in which the complaints were filed, which the trial court earlier noted. But petitioners, to prove their good faith, point to the fact that only six complaints were filed against Tobias when they could have allegedly filed one hundred cases, considering the number of anomalous transactions committed against GLOBE MACKAY. However, petitioners' good faith is belied by the threat made by Hendry after the filing of the first complaint that one hundred more cases would be filed against Tobias. In effect, the possible filing of one hundred more cases was made to hang like the sword of Damocles over the head of Tobias. In fine, considering the haste in which the criminal complaints were filed, the fact that they were filed during the pendency of the illegal dismissal case against petitioners, the threat made by Hendry, the fact that the cases were filed notwithstanding the two police reports exculpating Tobias from involvement in the anomalies committed against GLOBE MACKAY, coupled by the eventual dismissal of all the cases, the Court is led into no other conclusion than that petitioners were motivated by malicious intent in filing the six criminal complaints against Tobias.Petitioners next contend that the award of damages was excessive. In the complaint filed against petitioners, Tobias prayed for the following: one hundred thousand pesos (P100,000.00) as actual damages; fifty thousand pesos (P50,000.00) as exemplary damages; eight hundred thousand pesos (P800,000.00) as moral damages; fifty thousand pesos (P50,000.00) as attorney's fees; and costs. The trial court, after making a computation of the damages incurred by Tobias [See RTC Decision, pp. 7-8; Rollo, pp. 154-1551, awarded him the following: eighty thousand pesos (P80,000.00) as actual damages; two hundred thousand pesos (P200,000.00) as moral damages; twenty thousand pesos (P20,000.00) as exemplary damages; thirty thousand pesos (P30,000.00) as attorney's fees; and, costs. It must be underscored that petitioners have been guilty of committing several actionable tortious acts, i.e., the abusive manner in which they dismissed Tobias from work including the baseless imputation of guilt and the harassment during the investigations; the defamatory language heaped on Tobias as well as the scornful remark on Filipinos; the poison letter sent to RETELCO which resulted in Tobias' loss of possible employment; and, the malicious filing of the criminal complaints. Considering the extent of the damage wrought on Tobias, the Court finds that, contrary to petitioners' contention, the amount of damages awarded to Tobias was reasonable under the circumstances.Yet, petitioners still insist that the award of damages was improper, invoking the principle of damnum absqueinjuria. It is argued that "[t]he only probable actual damage that plaintiff (private respondent herein) could have suffered was a direct result of his having been dismissed from his employment, which was a valid and legal act of the defendants-appellants (petitioners herein).lâwphî1.ñèt " [Petition, p. 17; Rollo, p. 18].According to the principle of damnum absque injuria, damage or loss which does not constitute a violation of a legal right or amount to a legal wrong is not actionable [Escano v. CA, G.R. No. L-47207, September 25, 1980, 100 SCRA 197; See also Gilchrist v. Cuddy 29 Phil, 542 (1915); The Board of Liquidators v. Kalaw, G.R. No. L-18805, August 14, 1967, 20 SCRA 987]. This principle finds no application in this case. It bears repeating that even granting that petitioners might have had the right to dismiss Tobias from work, the abusive manner in which that right was exercised amounted to a legal wrong for which petitioners must now be held liable. Moreover, the damage incurred by Tobias was not only in connection with the abusive manner in which he was dismissed but was also the result of several other quasi-delictual acts committed by petitioners.Petitioners next question the award of moral damages. However, the Court has already ruled in Wassmer v. Velez, G.R. No. L-20089, December 26, 1964, 12 SCRA 648, 653, that [p]er express provision of Article 2219 (10) of the New Civil Code, moral damages are recoverable in the cases mentioned in Article 21 of said Code." Hence, the Court of Appeals committed no error in awarding moral damages to Tobias.Lastly, the award of exemplary damages is impugned by petitioners. Although Article 2231 of the Civil Code provides that "[i]n quasi-delicts, exemplary damages may be granted if the defendant acted with gross negligence," the Court, in Zulueta v. Pan American World Airways, Inc., G.R. No. L- 28589, January 8, 1973, 49 SCRA 1, ruled that if gross negligence warrants the award of exemplary damages, with more reason is its imposition justified when the act performed is deliberate, malicious and tainted with bad faith. As in the Zuluetacase, the nature of the wrongful acts shown to have been committed by petitioners against Tobias is sufficient basis for the award of exemplary damages to the latter.WHEREFORE, the petition is hereby DENIED and the decision of the Court of Appeals in CA-G.R. CV No. 09055 is AFFIRMED.SO ORDERED.Fernan, C.J., Gutierrez, Jr. and Bidin, JJ., concur.Feliciano, J., took no part. Footnotes

** Penned by Justice Jorge R. Coquia and concurred in be Justice Josue N. Bellosillo and Justice Venancio D. Aldecoa Jr.

7SECOND DIVISION

[G.R. No. 131679. February 1, 2000]CAVITE DEVELOPMENT BANK and FAR EAST BANK AND TRUST COMPANY, petitioners, vs. SPOUSES CYRUS LIM and LOLITA CHAN LIM and COURT OF APPEALS, respondents.

D E C I S I O NMENDOZA, J.:This is a petition for review on certiorari of the decision[1] of the Court of Appeals in C.A. GR CV No. 42315 and the order dated December 9, 1997 denying petitioners motion for reconsideration.The following facts are not in dispute.Petitioners Cavite Development Bank (CDB) and Far East Bank and Trust Company (FEBTC) are banking institutions duly organized and existing under Philippine laws. On or about June 15, 1983, a certain Rodolfo Guansing obtained a loan in the amount of P90,000.00 from CDB, to secure which he mortgaged a parcel of land situated at No. 63 Calavite Street, La Loma, Quezon City and covered by TCT No. 300809 registered in his name. As Guansing defaulted in the payment of his loan, CDB foreclosed the mortgage. At the foreclosure sale held on March 15, 1984, the mortgaged property was sold to CDB as the highest bidder. Guansing failed to redeem, and on March 2, 1987, CDB consolidated title to the property in its name. TCT No. 300809 in the name of Guansing was cancelled and, in lieu thereof, TCT No. 355588 was issued in the name of CDB.On June 16, 1988, private respondent Lolita Chan Lim, assisted by a broker named Remedios Gatpandan, offered to purchase the property from CDB. The written Offer to Purchase, signed by Lim and Gatpandan, states in part:

We hereby offer to purchase your property at #63 Calavite and Retiro Sts., La Loma, Quezon City for P300,000.00 under the following terms and conditions:

(1) 10% Option Money;(2) Balance payable in cash;(3) Provided that the property shall be cleared of illegal occupants or tenants. Scjuris

Pursuant to the foregoing terms and conditions of the offer, Lim paid CDB P30,000.00 as Option Money, for which she was issued Official Receipt No. 3160, dated June 17, 1988, by CDB. However, after some time following up the sale, Lim discovered that the subject property was originally registered in the name of Perfecto Guansing, father of mortgagor Rodolfo Guansing, under TCT No. 91148. Rodolfo succeeded in having the property registered in his name under TCT No. 300809, the same title he mortgaged to CDB and from which the latters title (TCT No. 355588) was derived. It appears, however, that the father, Perfecto, instituted Civil Case No. Q-39732 in the Regional Trial Court, Branch 83, Quezon City, for the cancellation of his sons title. On March 23, 1984, the trial court rendered a decision[2] restoring Perfectos previous title (TCT No. 91148) and cancelling TCT No. 300809 on the ground that the latter was fraudulently secured by Rodolfo. This decision has since become final and executory.Aggrieved by what she considered a serious misrepresentation by CDB and its mother-company, FEBTC, on their ability to sell the subject property, Lim, joined by her husband, filed on August 29, 1989 an action for specific performance and damages against petitioners in the Regional Trial Court, Branch 96, Quezon City, where it was docketed as Civil Case No. Q-89-2863. On April 20, 1990, the complaint was amended by impleading the Register of Deeds of Quezon City as an additional defendant.On March 10, 1993, the trial court rendered a decision in favor of the Lim spouses. It ruled that: (1) there was a perfected contract of sale between Lim and CDB, contrary to the latters contention that the written offer to purchase and the payment of P30,000.00 were merely pre-conditions to the sale and still subject to the approval of FEBTC; (2) performance by CDB of its obligation under the perfected contract of sale had become impossible on account of the 1984 decision in Civil Case No. Q-39732 cancelling the title in the name of mortgagor Rodolfo Guansing; (3) CDB and FEBTC were not exempt from liability despite the impossibility of performance, because they could not credibly disclaim knowledge of the cancellation of Rodolfo Guansings title without admitting their failure to discharge their duties to the public as reputable banking institutions; and (4) CDB and FEBTC are liable for damages for the prejudice caused against the Lims.[3] Based on the foregoing findings, the trial court ordered CDB and FEBTC to pay private respondents, jointly and severally, the amount of P30,000.00 plus interest at the legal rate computed from June 17,

1988 until full payment. It also ordered petitioners to pay private respondents, jointly and severally, the amounts of P250,000.00 as moral damages, P50,000.00 as exemplary damages, P30,000.00 as attorneys fees, and the costs of the suit.[4]

Petitioners brought the matter to the Court of Appeals, which, on October 14, 1997, affirmed in toto the decision of the Regional Trial Court. Petitioners moved for reconsideration, but their motion was denied by the appellate court on December 9, 1997. Hence, this petition. Petitioners contend that - Jjlex

1. The Honorable Court of Appeals erred when it held that petitioners CDB and FEBTC were aware of the decision dated March 23, 1984 of the Regional Trial Court of Quezon City in Civil Case No. Q-39732.2. The Honorable Court of Appeals erred in ordering petitioners to pay interest on the deposit of THIRTY THOUSAND PESOS (P30,000.00) by applying Article 2209 of the New Civil Code.3. The Honorable Court of Appeals erred in ordering petitioners to pay moral damages, exemplary damages, attorneys fees and costs of suit.

I.At the outset, it is necessary to determine the legal relation, if any, of the parties.Petitioners deny that a contract of sale was ever perfected between them and private respondent Lolita Chan Lim. They contend that Lims letter-offer clearly states that the sum of P30,000.00 was given as option money, not as earnest money.[5] They thus conclude that the contract between CDB and Lim was merely an option contract, not a contract of sale.The contention has no merit. Contracts are not defined by the parties thereto but by principles of law.[6] In determining the nature of a contract, the courts are not bound by the name or title given to it by the contracting parties.[7] In the case at bar, the sum of P30,000.00, although denominated in the offer to purchase as "option money," is actually in the nature of earnest money or down payment when considered with the other terms of the offer. In Carceler v. Court of Appeals,[8] we explained the nature of an option contract, viz. -

An option contract is a preparatory contract in which one party grants to the other, for a fixed period and under specified conditions, the power to decide, whether or not to enter into a principal contract, it binds the party who has given the option not to enter into the principal contract with any other person during the period designated, and within that period, to enter into such contract with the one to whom the option was granted, if the latter should decide to use the option. It is a separate agreement distinct from the contract to which the parties may enter upon the consummation of the option. Newmiso

An option contract is therefore a contract separate from and preparatory to a contract of sale which, if perfected, does not result in the perfection or consummation of the sale. Only when the option is exercised may a sale be perfected.In this case, however, after the payment of the 10% option money, the Offer to Purchase provides for the payment only of the balance of the purchase price, implying that the "option money" forms part of the purchase price. This is precisely the result of paying earnest money under Art. 1482 of the Civil Code. It is clear then that the parties in this case actually entered into a contract of sale, partially consummated as to the payment of the price. Moreover, the following findings of the trial court based on the testimony of the witnesses establish that CDB accepted Lims offer to purchase:

It is further to be noted that CDB and FEBTC already considered plaintiffs offer as good and no longer subject to a final approval. In his testimony for the defendants on February 13, 1992, FEBTCs Leomar Guzman stated that he was then in the Acquired Assets Department of FEBTC wherein plaintiffs offer to purchase was endorsed thereto by Myoresco Abadilla, CDBs senior vice-president, with a recommendation that the necessary petition for writ of possession be filed in the proper court; that the recommendation was in accord with one of the conditions of the offer, i.e., the clearing of the property of illegal occupants or tenants (tsn, p. 12); that, in compliance with the request, a petition for writ of possession was thereafter filed on July 22, 1988 (Exhs. 1 and 1-A); that the offer met the requirements of the banks; and that no rejection of the offer was thereafter relayed to the plaintiffs (p. 17); which was not a normal procedure, and neither did the banks return the amount of P30,000.00 to the plaintiffs.[9]

Given CDBs acceptance of Lims offer to purchase, it appears that a contract of sale was perfected and, indeed, partially executed because of the partial payment of the purchase price. There is, however, a serious legal obstacle to such sale, rendering it impossible for CDB to perform its obligation as seller to deliver and transfer ownership of the property. AcctmisNemo dat quod non habet, as an ancient Latin maxim says. One cannot give what one does not have. In applying this precept to a contract of sale, a distinction must be kept in mind between the "perfection" and "consummation" stages of the contract.A contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.[10] It is, therefore, not required that, at the perfection stage, the seller be the owner of the thing sold or even that such subject matter of the sale exists at that point in time.[11] Thus, under Art. 1434 of the Civil Code, when a person sells or alienates a thing which, at that time, was not his, but later acquires title thereto, such title passes by operation of law to the buyer or grantee. This is the same principle behind the sale of "future goods" under Art. 1462 of the Civil Code. However, under Art. 1459, at the time of delivery or consummation stage of the sale, it is required that the seller be the owner of the thing sold. Otherwise, he will not be able to comply with his obligation to transfer ownership to the buyer. It is at the consummation stage where the principle of nemo dat quod non habetapplies.In Dignos v. Court of Appeals,[12] the subject contract of sale was held void as the sellers of the subject land were no longer the owners of the same because of a prior sale.[13] Again, inNool v. Court of Appeals,[14] we

ruled that a contract of repurchase, in which the seller does not have any title to the property sold, is invalid:

We cannot sustain petitioners view. Article 1370 of the Civil Code is applicable only to valid and enforceable contracts. The Regional Trial Court and the Court of Appeals ruled that the principal contract of sale contained in Exhibit C and the auxiliary contract of repurchase in Exhibit D are both void. This conclusion of the two lower courts appears to find support in Dignos v. Court of Appeals, where the Court held:

"Be that as it may, it is evident that when petitioners sold said land to the Cabigas spouses, they were no longer owners of the same and the sale is null and void."

In the present case, it is clear that the sellers no longer had any title to the parcels of land at the time of sale. Since Exhibit D, the alleged contract of repurchase, was dependent on the validity of Exhibit C, it is itself void. A void contract cannot give rise to a valid one. Verily, Article 1422 of the Civil Code provides that (a) contract which is the direct result of a previous illegal contract, is also void and inexistent."We should however add that Dignos did not cite its basis for ruling that a "sale is null and void" where the sellers "were no longer the owners" of the property. Such a situation (where the sellers were no longer owners) does not appear to be one of the void contracts enumerated in Article 1409 of the Civil Code. Moreover, the Civil Code itself recognizes a sale where the goods are to be acquired x x x by the seller after the perfection of the contract of sale, clearly implying that a sale is possible even if the seller was not the owner at the time of sale, provided he acquires title to the property later on. MisactIn the present case, however, it is likewise clear that the sellers can no longer deliver the object of the sale to the buyers, as the buyers themselves have already acquired title and delivery thereof from the rightful owner, the DBP. Thus, such contract may be deemed to be inoperative and may thus fall, by analogy, under item No. 5 of Article 1409 of the Civil Code: Those which contemplate an impossible service. Article 1459 of the Civil Code provides that "the vendor must have a right to transfer the ownership thereof [subject of the sale] at the time it is delivered." Here, delivery of ownership is no longer possible. It has become impossible.[15]

In this case, the sale by CDB to Lim of the property mortgaged in 1983 by Rodolfo Guansing must, therefore, be deemed a nullity for CDB did not have a valid title to the said property. To be sure, CDB never acquired a valid title to the property because the foreclosure sale, by virtue of which the property had been awarded to CDB as highest bidder, is likewise void since the mortgagor was not the owner of the property foreclosed.A foreclosure sale, though essentially a "forced sale," is still a sale in accordance with Art. 1458 of the Civil Code, under which the mortgagor in default, the forced seller, becomes obliged to transfer the ownership of the thing sold to the highest bidder who, in turn, is obliged to pay therefor the bid price in money or its equivalent. Being a sale, the rule that the seller must be the owner of the thing sold also applies in a foreclosure sale. This is the reason Art. 2085[16] of the Civil Code, in providing for the essential requisites of the contract of mortgage and pledge, requires, among other things, that the mortgagor or pledgor be the absolute owner of the thing pledged or mortgaged, in anticipation of a possible foreclosure sale should the mortgagor default in the payment of the loan.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 therefrom 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 a Torrens Certificate of Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title.[17] The public interest in upholding the indefeasibility of a certificate of title, as evidence of the 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. SdjadThis principle is cited by petitioners in claiming that, as a mortgagee bank, it is not required to make a detailed investigation of the history of the title of the property given as security before accepting a mortgage.We are not convinced, however, that under the circumstances of this case, CDB can be considered a mortgagee in good faith. While petitioners are not expected to conduct an exhaustive investigation on the history of the mortgagors title, they cannot be excused from the duty of exercising the due diligence required of banking institutions. In Tomas v. Tomas,[18] we noted that it is standard practice for banks, before approving a loan, to send representatives to the premises of the land offered as collateral and to investigate who are the real owners thereof, noting that banks are expected to exercise more care and prudence than private individuals in their dealings, even those involving registered lands, for their business is affected with public interest. We held thus:

We, indeed, find more weight and vigor in a doctrine which recognizes a better right for the innocent original registered owner who obtained his certificate of title through perfectly legal and regular proceedings, than one who obtains his certificate from a totally void one, as to prevail over judicial pronouncements to the effect that one dealing with a registered land, such as a purchaser, is under no obligation to look beyond the certificate of title of the vendor, for in the latter case, good faith has yet to be established by the vendee or transferee, being the most essential condition, coupled with valuable consideration, to entitle him to respect for his newly acquired title even as against the holder of an earlier and perfectly valid title. There might be circumstances apparent on the face of the certificate of title which could excite suspicion as to prompt inquiry, such as when the transfer is not by virtue of a voluntary act of the original registered owner, as in the instant case, where it was by means of a self-executed deed of extra-judicial settlement, a fact which should be noted

on the face of Eusebia Tomas certificate of title. Failing to make such inquiry would hardly be consistent with any pretense of good faith, which the appellant bank invokes to claim the right to be protected as a mortgagee, and for the reversal of the judgment rendered against it by the lower court.[19]

In this case, there is no evidence that CDB observed its duty of diligence in ascertaining the validity of Rodolfo Guansings title. It appears that Rodolfo Guansing obtained his fraudulent title by executing an Extra-Judicial Settlement of the Estate With Waiver where he made it appear that he and Perfecto Guansing were the only surviving heirs entitled to the property, and that Perfecto had waived all his rights thereto. This self-executed deed should have placed CDB on guard against any possible defect in or question as to the mortgagors title. Moreover, the alleged ocular inspection report[20] by CDBs representative was never formally offered in evidence. Indeed, petitioners admit that they are aware that the subject land was being occupied by persons other than Rodolfo Guansing and that said persons, who are the heirs of Perfecto Guansing, contest the title of Rodolfo.[21] Sppedsc

II.The sale by CDB to Lim being void, the question now arises as to who, if any, among the parties was at fault for the nullity of the contract. Both the trial court and the appellate court found petitioners guilty of fraud, because on June 16, 1988, when Lim was asked by CDB to pay the 10% option money, CDB already knew that it was no longer the owner of the said property, its title having been cancelled.[22] Petitioners contend that: (1) such finding of the appellate court is founded entirely on speculation and conjecture; (2) neither CDB nor FEBTC was a party in the case where the mortgagors title was cancelled; (3) CDB is not privy to any problem among the Guansings; and (4) the final decision cancelling the mortgagors title was not annotated in the latters title.As a rule, only questions of law may be raised in a petition for review, except in circumstances where questions of fact may be properly raised.[23] Here, while petitioners raise these factual issues, they have not sufficiently shown that the instant case falls under any of the exceptions to the above rule. We are thus bound by the findings of fact of the appellate court. In any case, we are convinced of petitioners negligence in approving the mortgage application of Rodolfo Guansing.

III.We now come to the civil effects of the void contract of sale between the parties. Article 1412(2) of the Civil Code provides:

If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed:

. . . .(2).......When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply with his promise.

Private respondents are thus entitled to recover the P30,000.00 option money paid by them. Moreover, since the filing of the action for damages against petitioners amounted to a demand by respondents for the return of their money, interest thereon at the legal rate should be computed from August 29, 1989, the date of filing of Civil Case No. Q-89-2863, not June 17, 1988, when petitioners accepted the payment. This is in accord with our ruling in Castillo v. Abalayan[24] that in case of a void sale, the seller has no right whatsoever to keep the money paid by virtue thereof and should refund it, with interest at the legal rate, computed from the date of filing of the complaint until fully paid. Indeed, Art. 1412(2) which provides that the non-guilty party "may demand the return of what he has given" clearly implies that without such prior demand, the obligation to return what was given does not become legally demandable. SccalrConsidering CDBs negligence, we sustain the award of moral damages on the basis of Arts. 21 and 2219 of the Civil Code and our ruling in Tan v. Court of Appeals[25] that moral damages may be recovered even if a banks negligence is not attended with malice and bad faith. We find, however, that the sum of P250,000.00 awarded by the trial court is excessive. Moral damages are only intended to alleviate the moral suffering undergone by private respondents, not to enrich them at the expense of the petitioners.[26] Accordingly, the award of moral damages must be reduced to P50,000.00.Likewise, the award of P50,000.00 as exemplary damages, although justified under Art. 2232 of the Civil Code, is excessive and should be reduced to P30,000.00. The award of P30,000.00 attorneys fees based on Art. 2208, pars. 1, 2, 5 and 11 of the Civil Code should similarly be reduced to P20,000.00.WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the MODIFICATION as to the award of damages as above stated.SO ORDERED.2/29/00 2:19 PMBellosillo, (Chairman), Quisumbing, Buena, and De Leon, Jr., JJ., concur.

[1] Per Justice B.A. Adefuin-de la Cruz and concurred in by Justice Fidel F. Purisima (now Associate Justice of the Supreme Court) and Justice Ricardo P. Galvez.[2] Exhibit 2; Records, pp. 149-151.[3] RTC Decision, CA Rollo, pp. 32-34.[4] Id., at p. 35.[5] Petition, p. 13; Rollo, p. 21.[6] Borromeo v. Court of Appeals, 47 SCRA 65 (1972)[7] Baluran v. Navarro, 79 SCRA 309 (1977)[8] G.R. No. 127471, February 10, 1999.[9] RTC Decision, CA Rollo, p. 49.[10] Civil Code, Art. 1475.

[11] Martin v. Reyes, 91 Phil. 666 (1952)[12] 158 SCRA 375 (1988)[13] Id., p. 383.[14] 276 SCRA 144 (1997)[15] Id., at pp. 157-158.[16] "The following requisites are essential to the contracts of pledge and mortgage:. . . .(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged."[17] Philippine National Bank v. Intermediate Appellate Court, 176 SCRA 736 (1989), citing Quimson v. Suarez, 45 Phil 901 (1924)[18] 98 SCRA 280 (1980) (Empasis added)[19] Id., at 287.[20] TSN of the testimony of Atty. Rafael Hilao, Jr., p. 10, April 10, 1992.[21] Petition, p. 8; Appellants Brief, p. 6; Rollo, pp. 6 and 16.[22] CA Decision, Rollo, p. 40.[23] See Philippine Home Assurance Corp. v. Court of Appeals, 257 SCRA 468 (1996)[24] 30 SCRA 359 (1969)[25] 239 SCRA 310 (1994)[26] Zenith Insurance Corporation v. Court of Appeals, 185 SCRA 402 (1990)

8 

SECOND DIVISIONHEIRS OF EDUARDO MANLAPAT, G.R. No. 125585represented by GLORIA MANLAPAT-BANAAG and LEON M. BANAAG, JR., Petitioners, Present: PUNO, J.,*

Chairman,- versus - AUSTRIA-MARTINEZ,Acting Chairman,CALLEJO, SR.,TINGA, and

CHICO-NAZARIO, JJ.HON. COURT OF APPEALS,RURAL BANK OF SAN PASCUAL,INC., and JOSE B. SALAZAR,CONSUELO CRUZ and Promulgated:ROSALINA CRUZ-BAUTISTA,and the REGISTER OF DEEDS ofMeycauayan, Bulacan, June 8, 2005Respondents. x-------------------------------------------------------------------x 

D E C I S I O N 

TINGA, J.:  

Before this Court is a Rule 45 petition assailing the Decision[1] dated 29 September 1994 of the Court of Appeals that reversed theDecision[2] dated 30 April 1991 of the Regional Trial Court (RTC) of Bulacan, Branch 6, Malolos. The trial court declared Transfer Certificates of Title (TCTs) No. T-9326-P(M)

and No. T-9327-P(M) as void ab initio and ordered the restoration of Original Certificate of Title (OCT) No. P-153(M) in the name of Eduardo Manlapat (Eduardo), petitioners predecessor-in-interest.

 The controversy involves Lot No. 2204, a parcel of land with an area of 1,058 square meters,

located at Panghulo, Obando, Bulacan. The property had been originally in the possession of Jose Alvarez, Eduardos grandfather, until his demise in 1916. It remained unregistered until 8 October 1976 when OCT No. P-153(M) was issued in the name of Eduardo pursuant to a free patent issued in Eduardos name [3] that was entered in the Registry of Deeds of Meycauayan, Bulacan.[4] The subject lot is adjacent to a fishpond owned by one Ricardo Cruz (Ricardo), predecessor-in-interest of respondents Consuelo Cruz and Rosalina Cruz-Bautista (Cruzes).[5]

 On 19 December 1954, before the subject lot was titled, Eduardo sold a portion thereof with an

area of 553 square meters to Ricardo. The sale is evidenced by a deed of sale entitled Kasulatan ng Bilihang Tuluyan ng Lupang Walang Titulo (Kasulatan)[6] which was signed by Eduardo himself as vendor and his wife Engracia Aniceto with a certain Santiago Enriquez signing as witness. The deed was notarized by Notary Public Manolo Cruz.[7] On 4 April 1963, the Kasulatan was registered with the Register of Deeds of Bulacan.[8]

 On 18 March 1981, another Deed of Sale[9] conveying another portion of the subject lot consisting of

50 square meters as right of way was executed by Eduardo in favor of Ricardo in order to reach the portion covered by the first sale executed in 1954 and to have access to his fishpond from the provincial road.[10] The deed was signed by Eduardo himself and his wife Engracia Aniceto, together with Eduardo Manlapat, Jr. and Patricio Manlapat. The same was also duly notarized on 18 July 1981 by Notary Public Arsenio Guevarra.[11]

 In December 1981, Leon Banaag, Jr. (Banaag), as attorney-in-fact of his father-in-law Eduardo,

executed a mortgage with the Rural Bank of San Pascual, Obando Branch (RBSP), for P100,000.00 with the subject lot as collateral. Banaag deposited the owners duplicate certificate of OCT No. P-153(M) with the bank.

 On 31 August 1986, Ricardo died without learning of the prior issuance of OCT No. P-153(M) in the

name of Eduardo.[12] His heirs, the Cruzes, were not immediately aware of the consummated sale between Eduardo and Ricardo.

 Eduardo himself died on 4 April 1987. He was survived by his heirs, Engracia Aniceto, his spouse;

and children, Patricio, Bonifacio, Eduardo, Corazon, Anselmo, Teresita and Gloria, all surnamed Manlapat.[13] Neither did the heirs of Eduardo (petitioners) inform the Cruzes of the prior sale in favor of their predecessor-in-interest, Ricardo. Yet subsequently, the Cruzes came to learn about the sale and the issuance of the OCT in the name of Eduardo.

 Upon learning of their right to the subject lot, the Cruzes immediately tried to confront petitioners

on the mortgage and obtain the surrender of the OCT. The Cruzes, however, were thwarted in their bid to see the heirs. On the advice of the Bureau of Lands, NCR Office, they brought the matter to the barangay captain of Barangay Panghulo, Obando, Bulacan. During the hearing, petitioners were informed that the Cruzes had a legal right to the property covered by OCT and needed the OCT for the purpose of securing a separate title to cover the interest of Ricardo. Petitioners, however, were unwilling to surrender the OCT.[14]

 Having failed to physically obtain the title from petitioners, in July 1989, the Cruzes instead went to

RBSP which had custody of the owners duplicate certificate of the OCT, earlier surrendered as a consequence of the mortgage. Transacting with RBSPs manager, Jose Salazar (Salazar), the Cruzes sought to borrow the owners duplicate certificate for the purpose of photocopying the same and thereafter showing a copy thereof to the Register of Deeds. Salazar allowed the Cruzes to bring the owners duplicate certificate outside the bank premises when the latter showed theKasulatan.[15] The Cruzes returned the owners duplicate certificate on the same day after having copied the same. They then brought the copy of the OCT to Register of Deeds Jose Flores (Flores) of Meycauayan and showed the same to him to secure his legal opinion as to how the Cruzes could legally protect their interest in the property and register the same.[16] Flores suggested the preparation of a subdivision plan to be able to segregate the area purchased by Ricardo from Eduardo and have the same covered by a separate title.[17]

 Thereafter, the Cruzes solicited the opinion of Ricardo Arandilla (Arandilla), Land Registration

Officer, Director III, Legal Affairs Department, Land Registration Authority at Quezon City, who agreed with the advice given by Flores.[18] Relying on the suggestions of Flores and Arandilla, the Cruzes hired two geodetic engineers to prepare the corresponding subdivision plan. The subdivision plan was presented to the Land Management Bureau, Region III, and there it was approved by a certain Mr. Pambid of said office on 21 July 1989.

 After securing the approval of the subdivision plan, the Cruzes went back to RBSP and again asked

for the owners duplicate certificate from Salazar. The Cruzes informed him that the presentation of the owners duplicate certificate was necessary, per advise of the Register of Deeds, for the cancellation of the OCT and the issuance in lieu thereof of two separate titles in the names of Ricardo and Eduardo in accordance with the approved subdivision plan.[19] Before giving the owners duplicate certificate, Salazar required the Cruzes to see Atty. Renato Santiago (Atty. Santiago), legal counsel of RBSP, to secure from the latter a clearance to borrow the title. Atty. Santiago would give the clearance on the condition that

only Cruzes put up a substitute collateral, which they did.[20] As a result, the Cruzes got hold again of the owners duplicate certificate.

 After the Cruzes presented the owners duplicate certificate, along with the deeds of sale and the

subdivision plan, the Register of Deeds cancelled the OCT and issued in lieu thereof TCT No. T-9326-P(M) covering 603 square meters of Lot No. 2204 in the name of Ricardo and TCT No. T-9327-P(M) covering the remaining 455 square meters in the name of Eduardo.[21]

 On 9 August 1989, the Cruzes went back to the bank and surrendered to Salazar TCT No. 9327-P(M)

in the name of Eduardo and retrieved the title they had earlier given as substitute collateral. After securing the new separate titles, the Cruzes furnished petitioners with a copy of TCT No. 9327-P(M) through the barangay captain and paid the real property tax for 1989.[22]

 The Cruzes also sent a formal letter to Guillermo Reyes, Jr., Director, Supervision Sector,

Department III of the Central Bank of the Philippines, inquiring whether they committed any violation of existing bank laws under the circumstances. A certain Zosimo Topacio, Jr. of the Supervision Sector sent a reply letter advising the Cruzes, since the matter is between them and the bank, to get in touch with the bank for the final settlement of the case.[23]

 In October of 1989, Banaag went to RBSP, intending to tender full payment of the mortgage

obligation. It was only then that he learned of the dealings of the Cruzes with the bank which eventually led to the subdivision of the subject lot and the issuance of two separate titles thereon. In exchange for the full payment of the loan, RBSP tried to persuade petitioners to accept TCT No. T-9327-P(M) in the name of Eduardo.[24]

 As a result, three (3) cases were lodged, later consolidated, with the trial court, all involving the

issuance of the TCTs, to wit:  

(1) Civil Case No. 650-M-89, for reconveyance with damages filed by the heirs of Eduardo Manlapat against Consuelo Cruz, Rosalina Cruz-Bautista, Rural Bank of San Pascual, Jose Salazar and Jose Flores, in his capacity as Deputy Registrar, Meycauayan Branch of the Registry of Deeds of Bulacan;

 (2) Civil Case No. 141-M-90 for damages filed by Jose Salazar against Consuelo Cruz,

et. [sic] al.; and (3) Civil Case No. 644-M-89, for declaration of nullity of title with damages filed by

Rural Bank of San Pascual, Inc. against the spouses Ricardo Cruz and Consuelo Cruz, et al.[25]

 After trial of the consolidated cases, the RTC of Malolos rendered a decision in favor of the heirs of

Eduardo, the dispositive portion of which reads: 

WHEREFORE, premised from the foregoing, judgment is hereby rendered: 1.Declaring Transfer Certificates of Title Nos. T-9326-P(M) and T-9327-P(M)

as void ab initio and ordering the Register of Deeds, Meycauayan Branch to cancel said titles and to restore Original Certificate of Title No. P-153(M) in the name of plaintiffs predecessor-in-interest Eduardo Manlapat;

 2.-Ordering the defendants Rural Bank of San Pascual, Jose Salazar,

Consuelo Cruz and Rosalina Cruz-Bautista, to pay the plaintiffs Heirs of Eduardo Manlapat, jointly and severally, the following:

 a)P200,000.00 as moral damages;b)P50,000.00 as exemplary damages;c)P20,000.00 as attorneys fees; andd)the costs of the suit. 3.Dismissing the counterclaims. 

SO ORDERED.[26]

  The trial court found that petitioners were entitled to the reliefs of reconveyance and damages. On this matter, it ruled that petitioners were bona fide mortgagors of an unclouded title bearing no annotation of any lien and/or encumbrance. This fact, according to the trial court, was confirmed by the bank when it accepted the mortgage unconditionally on 25 November 1981. It found that petitioners were complacent and unperturbed, believing that the title to their property, while serving as security for a loan, was safely vaulted in the impermeable confines of RBSP. To their surprise and prejudice, said title was subdivided into two portions, leaving them a portion of 455 square meters from the original total area of 1,058 square meters, all because of the fraudulent and negligent acts of respondents and RBSP. The trial court ratiocinated that even assuming that a portion of the subject lot was sold by Eduardo to Ricardo, petitioners were still not privy to the transaction between the bank and the Cruzes which eventually led to

the subdivision of the OCT into TCTs No. T-9326-P(M) and No. T-9327-P(M), clearly to the damage and prejudice of petitioners.[27]

 Concerning the claims for damages, the trial court found the same to be bereft of merit. It ruled

that although the act of the Cruzes could be deemed fraudulent, still it would not constitute intrinsic fraud. Salazar, nonetheless, was clearly guilty of negligence in letting the Cruzes borrow the owners duplicate certificate of the OCT. Neither the bank nor its manager had business entrusting to strangers titles mortgaged to it by other persons for whatever reason. It was a clear violation of the mortgage and banking laws, the trial court concluded.

 The trial court also ruled that although Salazar was personally responsible for allowing the title to

be borrowed, the bank could not escape liability for it was guilty of contributory negligence. The evidence showed that RBSPs legal counsel was sought for advice regarding respondents request. This could only mean that RBSP through its lawyer if not through its manager had known in advance of the Cruzes intention and still it did nothing to prevent the eventuality. Salazar was not even summarily dismissed by the bank if he was indeed the sole person to blame. Hence, the banks claim for damages must necessarily fail.[28]

 The trial court granted the prayer for the annulment of the TCTs as a necessary consequence of its declaration that reconveyance was in order. As to Flores, his work being ministerial as Deputy Register of the Bulacan Registry of Deeds, the trial court absolved him of any liability with a stern warning that he should deal with his future transactions more carefully and in the strictest sense as a responsible government official.[29]

 Aggrieved by the decision of the trial court, RBSP, Salazar and the Cruzes appealed to the Court of

Appeals. The appellate court, however, reversed the decision of the RTC. The decretal text of the decision reads: 

THE FOREGOING CONSIDERED, the appealed decision is hereby reversed and set aside, with costs against the appellees.

 SO ORDERED.[30]

 The appellate court ruled that petitioners were not bona fide mortgagors since as early as 1954 or

before the 1981 mortgage, Eduardo already sold to Ricardo a portion of the subject lot with an area of 553 square meters. This fact, the Court of Appeals noted, is even supported by a document of sale signed by Eduardo Jr. and Engracia Aniceto, the surviving spouse of Eduardo, and registered with the Register of Deeds of Bulacan. The appellate court also found that on 18 March 1981, for the second time, Eduardo sold to Ricardo a separate area containing 50 square meters, as a road right-of-way.[31] Clearly, the OCT was issued only after the first sale. It also noted that the title was given to the Cruzes by RBSP voluntarily, with knowledge even of the banks counsel.[32] Hence, the imposition of damages cannot be justified, the Cruzes themselves being the owners of the property. Certainly, Eduardo misled the bank into accepting the entire area as a collateral since the 603-square meter portion did not anymore belong to him. The appellate court, however, concluded that there was no conspiracy between the bank and Salazar.[33]

 Hence, this petition for review on certiorari. Petitioners ascribe errors to the appellate court by asking the following questions, to wit: (a) can a

mortgagor be compelled to receive from the mortgagee a smaller portion of the originally encumbered title partitioned during the subsistence of the mortgage, without the knowledge of, or authority derived from, the registered owner; (b) can the mortgagee question the veracity of the registered title of the mortgagor, as noted in the owners duplicate certificate, and thus, deliver the certificate to such third persons, invoking an adverse, prior, and unregistered claim against the registered title of the mortgagor; (c) can an adverse prior claim against a registered title be noted, registered and entered without a competent court order; and (d) can belief of ownership justify the taking of property without due process of law?[34]

 The kernel of the controversy boils down to the issue of whether the cancellation of the OCT in the

name of the petitioners predecessor-in-interest and its splitting into two separate titles, one for the petitioners and the other for the Cruzes, may be accorded legal recognition given the peculiar factual backdrop of the case. We rule in the affirmative.

   Private respondents (Cruzes) ownthe portion titled in their names Consonant with law and justice, the ultimate denouement of the property dispute lies in the

determination of the respective bases of the warring claims. Here, as in other legal disputes, what is written generally deserves credence.

 A careful perusal of the evidence on record reveals that the Cruzes have sufficiently proven their

claim of ownership over the portion of Lot No. 2204 with an area of 553 square meters. The duly notarized instrument of conveyance was executed in 1954 to which no less than Eduardo was a signatory. The

execution of the deed of sale was rendered beyond doubt by Eduardos admission in his Sinumpaang Salaysay dated 24 April 1963.[35] These documents make the affirmance of the right of the Cruzes ineluctable. The apparent irregularity, however, in the obtention of the owners duplicate certificate from the bank, later to be presented to the Register of Deeds to secure the issuance of two new TCTs in place of the OCT, is another matter.

 Petitioners argue that the 1954 deed of sale was not annotated on the OCT which was issued in

1976 in favor of Eduardo; thus, the Cruzes claim of ownership based on the sale would not hold water. The Court is not persuaded. 

Registration is not a requirement for validity of the contract as between the parties, for the effect of registration serves chiefly to bind third persons.[36] The principal purpose of registration is merely to notify other persons not parties to a contract that a transaction involving the property had been entered into. Where the party has knowledge of a prior existing interest which is unregistered at the time he acquired a right to the same land, his knowledge of that prior unregistered interest has the effect of registration as to him.[37]

 Further, the heirs of Eduardo cannot be considered third persons for purposes of applying the rule.

The conveyance shall not be valid against any person unless registered, except (1) the grantor, (2) his heirs and devisees, and (3) third persons having actual notice or knowledge thereof. [38] Not only are petitioners the heirs of Eduardo, some of them were actually parties to the Kasulatan executed in favor of Ricardo. Thus, the annotation of the adverse claim of the Cruzes on the OCT is no longer required to bind the heirs of Eduardo, petitioners herein.

 Petitioners had no right to constitutemortgage over disputed portion

 The requirements of a valid mortgage are clearly laid down in Article 2085 of the New Civil

Code, viz: 

ART. 2085. The following requisites are essential to the contracts of pledge and mortgage: (1)      That they be constituted to secure the fulfillment of a principal obligation;(2)      That the pledgor or mortgagor be the absolute owner of the thing

pledged or mortgaged;(3)      That the persons constituting the pledge or mortgage have the free

disposal of their property, and in the absence thereof, that they be legally authorized for the purpose.

 Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property. (emphasis supplied)

  

For a person to validly constitute a valid mortgage on real estate, he must be the absolute owner thereof as required by Article 2085 of the New Civil Code.[39] The mortgagor must be the owner, otherwise the mortgage is void.[40] In a contract of mortgage, the mortgagor remains to be the owner of the property although the property is subjected to a lien.[41] A mortgage is regarded as nothing more than a mere lien, encumbrance, or security for a debt, and passes no title or estate to the mortgagee and gives him no right or claim to the possession of the property.[42] In this kind of contract, the property mortgaged is merely delivered to the mortgagee to secure the fulfillment of the principal obligation.[43] Such delivery does not empower the mortgagee to convey any portion thereof in favor of another person as the right to dispose is an attribute of ownership.[44] The right to dispose includes the right to donate, to sell, to pledge or mortgage. Thus, the mortgagee, not being the owner of the property, cannot dispose of the whole or part thereof nor cause the impairment of the security in any manner without violating the foregoing rule.[45] The mortgagee only owns the mortgage credit, not the property itself.[46]

 Petitioners submit as an issue whether a mortgagor may be compelled to receive from the

mortgagee a smaller portion of the lot covered by the originally encumbered title, which lot was partitioned during the subsistence of the mortgage without the knowledge or authority of the mortgagor as registered owner. This formulation is disingenuous, baselessly assuming, as it does, as an admitted fact that the mortgagor is the owner of the mortgaged property in its entirety. Indeed, it has not become a salient issue in this case since the mortgagor was not the owner of the entire mortgaged property in the first place.

 Issuance of OCT No. P-153(M), improper

 It is a glaring fact that OCT No. P-153(M) covering the property mortgaged was in the name of

Eduardo, without any annotation of any prior disposition or encumbrance. However, the property was sufficiently shown to be not entirely owned by Eduardo as evidenced by the Kasulatan. Readily apparent upon perusal of the records is that the OCT was issued in 1976, long after the Kasulatan was executed way back in 1954. Thus, a portion of the property registered in Eduardos name arising from the grant of free patent did not actually belong to him. The utilization of the Torrens system to perpetrate fraud cannot be accorded judicial sanction.

 Time and again, this Court has ruled that the principle of indefeasibility of a Torrens title does not

apply where fraud attended the issuance of the title, as was conclusively established in this case. The Torrens title does not furnish a shied for fraud.[47] Registration does not vest title. It is not a mode of acquiring ownership but is merely evidence of such title over a particular property. It does not give the holder any better right than what he actually has, especially if the registration was done in bad faith. The effect is that it is as if no registration was made at all.[48] In fact, this Court has ruled that a decree of registration cut off or extinguished a right acquired by a person when such right refers to a lien or encumbrance on the landnot to the right of ownership thereofwhich was not annotated on the certificate of title issued thereon.[49]

 Issuance of TCT Nos. T-9326-P(M)and T-9327-P(M), Valid

  

The validity of the issuance of two TCTs, one for the portion sold to the predecessor-in-interest of the Cruzes and the other for the portion retained by petitioners, is readily apparent from Section 53 of the Presidential Decree (P.D.) No. 1529 or the Property Registration Decree.  It provides:

 SEC 53. Presentation of owners duplicate upon entry of new certificate. No voluntary

instrument shall be registered by the Register of Deeds, unless the owners duplicate certificate is presented with such instrument, except in cases expressly provided for in this Decree or upon order of the court, for cause shown.

 The production of the owners duplicate certificate, whenever any voluntary

instrument is presented for registration, shall be conclusive authority from the registered owner to the Register of Deeds to enter a new certificate or to make a memorandum of registration in accordance with such instrument, and the new certificate or memorandum shall be binding upon the registered owner and upon all persons claiming under him, in favor of every purchaser for value and in good faith.

 In all cases of registration procured by fraud, the owner may pursue all his legal and

equitable remedies against the parties to such fraud without prejudice, however, to the rights of any innocent holder of the decree of registration on the original petition or application, any subsequent registration procured by the presentation of a forged duplicate certificate of title, or a forged deed or instrument, shall be null and void. (emphasis supplied)

  

Petitioners argue that the issuance of the TCTs violated the third paragraph of Section 53 of P.D. No. 1529. The argument is baseless. It must be noted that the provision speaks of forged duplicate certificate of title and forged deed or instrument. Neither instance obtains in this case. What the Cruzes presented before the Register of Deeds was the very genuine owners duplicate certificate earlier deposited by Banaag, Eduardos attorney-in-fact, with RBSP. Likewise, the instruments of conveyance are authentic, not forged. Section 53 has never been clearer on the point that as long as the owners duplicate certificate is presented to the Register of Deeds together with the instrument of conveyance, such presentation serves as conclusive authority to the Register of Deeds to issue a transfer certificate or make a memorandum of registration in accordance with the instrument. 

The records of the case show that despite the efforts made by the Cruzes in persuading the heirs of Eduardo to allow them to secure a separate TCT on the claimed portion, their ownership being amply evidenced by the Kasulatan and Sinumpaang Salaysay where Eduardo himself acknowledged the sales in favor of Ricardo, the heirs adamantly rejected the notion of separate titling. This prompted the Cruzes to approach the bank manager of RBSP for the purpose of protecting their property right. They succeeded in persuading the latter to lend the owners duplicate certificate. Despite the apparent irregularity in allowing the Cruzes to get hold of the owners duplicate certificate, the bank officers consented to the Cruzes plan to register the deeds of sale and secure two new separate titles, without notifying the heirs of Eduardo about it.

 Further, the law on the matter, specifically P.D. No. 1529, has no explicit requirement as to the

manner of acquiring the owners duplicate for purposes of issuing a TCT. This led the Register of Deeds of Meycauayan as well as the Central Bank officer, in rendering an opinion on the legal feasibility of the process resorted to by the Cruzes. Section 53 of P.D. No. 1529 simply requires the production of the owners duplicate certificate, whenever any voluntary instrument is presented for registration, and the same shall be conclusive authority from the registered owner to the Register of Deeds to enter a new certificate or to make a memorandum of registration in accordance with such instrument, and the new certificate or memorandum shall be binding upon the registered owner and upon all persons claiming under him, in favor of every purchaser for value and in good faith.

Quite interesting, however, is the contention of the heirs of Eduardo that the surreptitious lending of the owners duplicate certificate constitutes fraud within the ambit of the third paragraph of Section 53 which could nullify the eventual issuance of the TCTs. Yet we cannot subscribe to their position.

Impelled by the inaction of the heirs of Eduardo as to their claim, the Cruzes went to the bank where the property was mortgaged. Through its manager and legal officer, they were assured of recovery of the claimed parcel of land since they are the successors-in-interest of the real owner thereof. Relying on the bank officers opinion as to the legality of the means sought to be employed by them and the

suggestion of the Central Bank officer that the matter could be best settled between them and the bank, the Cruzes pursued the titling of the claimed portion in the name of Ricardo. The Register of Deeds eventually issued the disputed TCTs.

 The Cruzes resorted to such means to protect their interest in the property that rightfully belongs to

them only because of the bank officers acquiescence thereto. The Cruzes could not have secured a separate TCT in the name of Ricardo without the banks approval. Banks, their business being impressed with public interest, are expected to exercise more care and prudence than private individuals in their dealings, even those involving registered lands.[50] The highest degree of diligence is expected, and high standards of integrity and performance are even required of it.[51]

 Indeed, petitioners contend that the mortgagee cannot question the veracity of the registered title

of the mortgagor as noted in the owners duplicate certificate, and, thus, he cannot deliver the certificate to such third persons invoking an adverse, prior, and unregistered claim against the registered title of the mortgagor. The strength of this argument is diluted by the peculiar factual milieu of the case.

 A mortgagee can rely on what appears on the certificate of title presented by the mortgagor and an

innocent mortgagee is not expected to conduct an exhaustive investigation on the history of the mortgagors title. This rule is strictly applied to banking institutions. A mortgagee-bank must exercise due diligence before entering into said contract. Judicial notice is taken of the standard practice for banks, before approving a loan, to send representatives to the premises of the land offered as collateral and to investigate who the real owners thereof are.[52]

 Banks, indeed, should exercise more care and prudence in dealing even with registered lands, than

private individuals, as their business is one affected with public interest. Banks keep in trust money belonging to their depositors, which they should guard against loss by not committing any act of negligence that amounts to lack of good faith. Absent good faith, banks would be denied the protective mantle of the land registration statute, Act 496, which extends only to purchasers for value and good faith, as well as to mortgagees of the same character and description. [53] Thus, this Court clarified that the rule that persons dealing with registered lands can rely solely on the certificate of title does notapply to banks.[54]

 Bank Liable for Nominal Damages Of deep concern to this Court, however, is the fact that the bank lent the owners duplicate of the

OCT to the Cruzes when the latter presented the instruments of conveyance as basis of their claim of ownership over a portion of land covered by the title. Simple rationalization would dictate that a mortgagee-bank has no right to deliver to any stranger any property entrusted to it other than to those contractually and legally entitled to its possession. Although we cannot dismiss the banks acknowledgment of the Cruzes claim as legitimized by instruments of conveyance in their possession, we nonetheless cannot sanction how the bank was inveigled to do the bidding of virtual strangers. Undoubtedly, the banks cooperative stance facilitated the issuance of the TCTs. To make matters worse, the bank did not even notify the heirs of Eduardo. The conduct of the bank is as dangerous as it is unthinkably negligent. However, the aspect does not impair the right of the Cruzes to be recognized as legitimate owners of their portion of the property. 

Undoubtedly, in the absence of the banks participation, the Register of Deeds could not have issued the disputed TCTs. We cannot find fault on the part of the Register of Deeds in issuing the TCTs as his authority to issue the same is clearly sanctioned by law. It is thus ministerial on the part of the Register of Deeds to issue TCT if the deed of conveyance and the original owners duplicate are presented to him as there appears on theface of the instruments no badge of irregularity or

nullity.[55] If there is someone to blame for the shortcut resorted to by the Cruzes, it would be the bank itself whose manager and legal officer helped the Cruzes to facilitate the issuance of the TCTs. 

The bank should not have allowed complete strangers to take possession of the owners duplicate certificate even if the purpose is merely for photocopying for a danger of losing the same is more than imminent. They should be aware of the conclusive presumption inSection 53. Such act constitutes manifest negligence on the part of the bank which would necessarily hold it liable for damages under Article 1170 and other relevant provisions of the Civil Code.[56]

 In the absence of evidence, the damages that may be awarded may be in the form of nominal

damages. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him.[57] This award rests on the mortgagors right to rely on the banks observance of the highest diligence in the conduct of its business. The act of RBSP of entrusting to respondents the owners duplicate certificate entrusted to it by the mortgagor without even notifying the mortgagor and absent any prior investigation on the veracity of respondents claim and character is a patent failure to foresee the risk created by the act in view of the provisions of Section 53 of P.D. No. 1529. This act runs afoul of every banks mandate to observe the highest degree of diligence in dealing with its clients. Moreover, a mortgagor has also the right to be afforded due process before deprivation or diminution of his property is effected as the OCT was still in the name of Eduardo. Notice and hearing are indispensable elements of this right which the bank miserably ignored.

 Under the circumstances, the Court believes the award of P50,000.00 as nominal damages is

appropriate.  Five-Year Prohibition against alienationor encumbrance under the Public Land Act  One vital point. Apparently glossed over by the courts below and the parties is an aspect which is

essential, spread as it is all over the record and intertwined with the crux of the controversy, relating as it does to the validity of the dispositions of the subject property and the mortgage thereon. Eduardo was issued a title in 1976 on the basis of his free patent application. Such application implies the recognition of the public dominion character of the land and, hence, the five (5)-year prohibition imposed by the Public Land Act against alienation or encumbrance of the land covered by a free patent or homestead [58] should have been considered. 

The deed of sale covering the fifty (50)-square meter right of way executed by Eduardo on 18 March 1981 is obviously covered by the proscription, the free patent having been issued on 8 October 1976. However, petitioners may recover the portion sold since the prohibition was imposed in favor of the free patent holder. In Philippine National Bank v. De los Reyes,[59] this Court ruled squarely on the point, thus:

 While the law bars recovery in a case where the object of the contract is contrary to law and one or both parties acted in bad faith, we cannot here apply the doctrine of in pari delicto which admits of an exception, namely, that when the contract is merely prohibited by law, not illegal per se, and the prohibition is designed for the protection of the party seeking to recover, he is entitled to the relief prayed for whenever public policy is enhanced thereby. Under the Public Land Act, the prohibition to alienate is predicated on the fundamental policy of the State to preserve and keep in the family of the homesteader that portion of public land which the State has gratuitously given to him, and recovery is allowed even where the land acquired under the Public Land Act was sold and not merely encumbered, within the prohibited period.[60]

  The sale of the 553 square meter portion is a different story. It was executed in 1954, twenty-two

(22) years before the issuance of the patent in 1976. Apparently, Eduardo disposed of the portion even before he thought of applying for a free patent. Where the sale or transfer took place before the filing of the free patent application, whether by the vendor or the vendee, the prohibition should not be applied. In such situation, neither the prohibition nor the rationale therefor which isto keep in the family of the patentee that portion of the public land which the government has gratuitously given him, by shielding him from the temptation to dispose of his landholding, could be relevant. Precisely, he had disposed of his rights to the lot even before the government could give the title to him.

 The mortgage executed in favor of RBSP is also beyond the pale of the prohibition, as it was forged

in December 1981 a few months past the period of prohibition. 

WHEREFORE, the Decision of the Court of Appeals is AFFIRMED, subject to the modifications herein. Respondent Rural Bank of San Pascual is hereby ORDERED to PAY petitioners Fifty Thousand Pesos (P50,000.00) by way of nominal damages. Respondents Consuelo Cruz and Rosalina Cruz-Bautista are hereby DIVESTED of title to, and respondent Register of Deeds of Meycauayan, Bulacan is accordingly ORDERED to segregate, the portion of fifty (50) square meters of the subject Lot No. 2204, as depicted in

the approved plan covering the lot, marked as Exhibit A, and to issue a new title covering the said portion in the name of the petitioners at the expense of the petitioners. No costs.

 SO ORDERED.    [1]Rollo, pp. 51-65. Decision penned by Associate Justice Bernardo Ll. Salas and concurred in by

Justices Jorge S. Imperial and Hector L. Hofilea.  [2]Id. at 42-48. Decision penned by Judge Pablo S. Villanueva. [3]The Sinumpaang Salaysay signed by Eduardo on 24 April 1963 shows that he is the only heir of

his grandfather Jose Alvarez who died in 1916. Eduardos mother, daughter of Alvarez, predeceased her father. The sworn statement also shows that the subject lot was in the possession of his grandfather at the time of his death. See also Exhibit 2 - E, p. 4.

 [4]The Bureau of Lands issued Free Patent No. 111-6 in the name of Eduardo which became the

basis for the issuance of OCT No. P-153(M) by the Register of Deeds dated October 8, 1976. [5]Rollo. p. 28. [6]Exhibits, p. 3. [7]Records, p. 30. See also Rollo, p. 213. The deed was entered in the notarial book of the notary

public as Document No. 29, Page 6, Book No. I, Series of 1954. [8]Rollo, p. 213. The deed was recorded as Inscription No. 16707, Page No. 257, Volume 89, File No.

21819. [9]Records, p. 10. Annex A.  [10]Rollo, p. 97. [11]Records, p. 11. See also Rollo, p. 97. The deed was entered in the notarial book of the notary

public as Document No. 261, Page 54, Book XIII, Series of 1981. [12]Rollo, p. 98. [13]Records, p. 4.  [14]Rollo, p. 99. See also Exhibit, p. 21. The Sinumpaang Salaysay of Barangay Captain Bonifacio

Enriquez of Panghulo, Obando, Bulacan attested to the fact that on July 1989 the Cruzes lodged a complaint with his office regarding a lot with an area of 1,058 square meters, 553 square meters of which was sold to Ricardo on 19 December 1954. This sale was confirmed by Eduardo through aSinumpaang Salaysay dated 24 April 1963.

  [15]Id. at 52 and 100.

 [16]Id. at 100. [17]Ibid. [18]Id. at 101.  [19]Ibid. [20]Id. at 102.  [21]Id. at 28-29. [22]Id. at 103-104. [23]Exhibit, p. 18.  [24]Rollo, p. 29. 

[25]Supra notes 1 and 2. 

 [26]Rollo, p. 48.  [27]Id. at 46.  [28]Id. at 47-48. [29]Id. at 48. [30]Id. at 65.

  [31]Id. at 56. [32]Id. at 57. [33]Id. at 65.  [34]Id. at 31-32.

  [35]Exhibit No. 4.  [36]Samanilla v. Cajucom, et al., 107 Phil. 432 (1960). [37]Lagandaon v. Court of Appeals, G.R. Nos. 102526-31, 21 May 1998, 290 SCRA 330. [38]PEA, REGISTRATION OF LAND TITLES AND DEEDS, 1994 ed., p. 28. [39]Lagrosa v. Court of Appeals, 371 Phil. 225 (1999). [40]National Bank v. Palma Gil, 55 Phil. 639 (1930-1931); Contreras v. China Banking Corporation, 76

Phil. 709 (1946). An agent cannot therefore mortgage in his own name the property of the principal, otherwise the

contract is void. But the agent can do so, in the name of the principal, for here the mortgagor is the principal. Hence, if the agent is properly authorized, the contract is valid. See Arenas v. Raymundo, 19 Phil. 46 (1911).

 [41]Ching Sen Ben v. Court of Appeals, 373 Phil. 544 (1999). [42]Lagrosa v. Court of Appeals, supra note 39, citing Adlawan v. Torres, 233 SCRA 645. That is why Article 2130 of the New Civil Code provides that a stipulation forbidding the owner from

alienating the immovable mortgaged shall be void. [43]Ownership is retained by the mortgagor since the latter merely subjects it to a lien. In case of

nonpayment of debt secured by a mortgage, the mortgagee has the right to foreclose the mortgaged property and have it sold to satisfy the outstanding indebtedness to enforce his right and consolidation of ownership is not an appropriate remedy. Only upon the lapse of the redemption period and the judgment debtor failed to exercise his right of redemption, ownership will vest or be consolidated in the purchaser. (Dr. Igmidio Cuevas Lat, LAW ON MORTGAGE, 2001 ed., p. 1)

 [44]Article 428 of the Civil Code of the Philippines provides:

 ART. 428. The owner has the right to enjoy and dispose of a thing, without other

limitations than those established by law. 

The owner has also a right of action against the holder and possessor of the thing in order to recover it.

  [45]Article 2088 of the Civil Code of the Philippines provides: 

ART. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void. [46]Article 2128 of the Civil Code of the Philippines provides:

 ART. 2128. The mortgage credit may be alienated or assigned to a third person, in

whole or in part, with the formalities required by law. 

 [47]Sacdalan v. Court of Appeals, G.R. No. 128967, 20 May 2004, 428 SCRA 586; Republic v. Court of

Appeals, G.R. No. 60169, 23 March 1990, 183 SCRA 620; Adille v. Court of Appeals, G.R. No. 44546, 29 January 1988, 157 SCRA 455; Amerol v. Bagumbaran, G.R. No. 33261, 30 September 1987, 154 SCRA 396.

 [48]Avila v. Tapucar, G.R. No. 45947, 27 August 1991, 201 SCRA 148; Miranda v. Court of Appeals,

G.R. No. 46064, 7 September 1989, 177 SCRA 303, citing De Guzman v. Court of Appeals, 156 SCRA 701.  [49]Development Bank of the Philippines v. Court of Appeals, 387 Phil. 283 (2000).  [50]Development Bank of the Philippines v. Court of Appeals, 387 Phil. 283 (2000), citing Cavite

Development Bank v. Lim, G.R. No. 13169, 1 February 2000, 324 SCRA 346, citing Tomas v. Tomas, 98 SCRA 280(1980).

 [51]Bank of the Philippine Islands v. Casa Montessori Internationale, et al, G.R. No. 149454 and Casa

Montessori Internationale v. Bank of the Philippine Islands, G.R. No. 149507, 28 May 2004, 430 SCRA 261.  [52]Tomas v. Tomas, No. L-36897, 25 June 1980, 98 SCRA 280. [53]Government Service Insurance System v. Court of Appeals, G.R. No. 128471, 6 March 1998, 287

SCRA 204, 209, citing Tomas v. Tomas, supra note 50. 

[54]Id. at 210, citing Rural Bank of Compostela v. Court of Appeals, et al, G.R. No. 122801, 8 April 1997.

 [55]See PEA, REGISTRATION OF LAND TITLES AND DEEDS, 1994 ed., p. 519 citing Tinatan v. Serilla,

54 O.G. 23, September 15, 1958, Court of Appeals; Gonzales v. Basa, Jr., 73 Phil. 704 (1942). [56]The following Civil Code provisions are pertinent: 

Article 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages.

 Article 1172. Responsibility arising from negligence in the performance of

every kind of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances.

Article 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.

 Article 20. Every person who, contrary to law, willfully or negligently causes

damage to another, shall indemnify the latter for the same. Article 21. Any person who willfully causes loss or injury to another in a

manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage.

 Article 1973. . . . . The depositary is responsible for the negligence of his

employees. 

[57]Article 2221 of the Civil Code. See also my Separate Opinion in the case of Agabon v. NLRC, G.R. No. 158693, November 17,

2004: Nominal damages are adjudicated in order that a right of a plaintiff which has been violated or invaded by another may be vindicated or recognized without having to indemnify the plaintiff for any loss suffered by him. Nominal damages may likewise be awarded in every obligation arising from law, contracts, quasi-contracts, acts or omissions punished by law and quasi-delicts, or where any property right has been invaded.

 . . . [I]t should be recognized that nominal damages are not meant to be compensatory, and should

not be computed through a formula based on actual losses. Consequently, nominal damages are usually limited in pecuniary value. This fact should be impressed upon the prospective claimant, especially one who is contemplating seeking actual/compensatory damages.  

[58]SECTION 118. Except in favor of the Government or any of its branches, units, or institutions, lands acquired under free patent or homestead provisions shall not be subject to encumbrance or alienation from the date of the approval of the application and for a term of five years from and after the date of issuance of the patent or grant, nor shall they become liable to the satisfaction of any debt contracted prior to the expiration of said period, but the improvements or crops on the land may be mortgaged or pledged to qualified persons, associations, or corporations.

 No alienation, transfer, or conveyance of any homestead after five years and before twenty-five

years after issuance of title shall be valid without the approval of the Secretary of Agriculture and Commerce, which approval shall not be denied except on constitutional and legal grounds. 

[59]G.R. Nos. 46898-99, 28 November 1989, 179 SCRA 619. 

[60]Id. at 628-629, citing Pascua v. Talens, 80 Phil. 792 (1949); Delos Santos v. Roman Catholic Church of Midsayap, et al., 94 Phil. 405 (1954); Ras v. Sua, et al., 25 SCRA 153 (1968).

 

9 

THIRD DIVISION  

LILLIAN N. MERCADO, CYNTHIA M. FEKARIS, and JULIAN MERCADO, JR., represented by their Attorney-In-Fact, ALFREDO M. PEREZ,Petitioners,  

- versus -  ALLIED BANKING CORPORATION,Respondent.

  G.R. No. 171460 Present: YNARES-SANTIAGO,  J.,Chairperson,AUSTRIA-MARTINEZ,CHICO-NAZARIO, andNACHURA, JJ.  Promulgated: July 24, 2007

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x  

D E C I S I O N  CHICO-NAZARIO, J.:  Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, filed by petitioners Lillian N. Mercado, Cynthia M. Fekaris and Julian Mercado, Jr., represented by their Attorney-In-Fact, Alfredo M. Perez, seeking to reverse and set aside the Decision[1] of the Court of Appeals dated 12 October 2005, and its Resolution[2] dated 15 February 2006 in CA-G.R. CV No. 82636. The Court of Appeals, in its assailed Decision and Resolution, reversed the Decision[3] of the Regional Trial Court (RTC) of Quezon City, Branch 220 dated 23 September 2003, declaring the deeds of real estate mortgage constituted on TCT No. RT-18206 (106338) null and void. The dispositive portion of the assailed Court of Appeals Decision thus reads: WHEREFORE, the appealed decision is REVERSED and SET ASIDE, and a new judgment is hereby

entered dismissing the [petitioners] complaint.[4]

  

Petitioners are heirs of Perla N. Mercado (Perla). Perla, during her lifetime, owned several pieces of real property situated in different provinces of the Philippines.

 Respondent, on the other hand, is a banking institution duly authorized as such under the Philippine

laws. On 28 May 1992, Perla executed a Special Power of Attorney (SPA) in favor of her husband, Julian D.

Mercado (Julian) over several pieces of real property registered under her name, authorizing the latter to perform the following acts:

 1. To act in my behalf, to sell, alienate, mortgage, lease and deal otherwise over the

different parcels of land described hereinafter, to wit: a)                  Calapan, Oriental Mindoro Properties covered by Transfer

Certificates of Title Nos. T-53618 - 3,522 Square Meters, T-46810 3,953 Square Meters, T-53140 177 Square Meters, T-21403 263 square Meters, T- 46807 39 Square Meters of the Registry of Deeds of Oriental Mindoro;

  b)                 Susana Heights, Muntinlupa covered by Transfer Certificates of

Title Nos. T-108954 600 Square Meters and RT-106338 805 Square Meters of the Registry of Deeds of Pasig (now Makati);

 

c)                 Personal property 1983 Car with Vehicle Registration No. R-16381; Model 1983; Make Toyota; Engine No. T- 2464

 2.                  To sign for and in my behalf any act of strict dominion or ownership any sale,

disposition, mortgage, lease or any other transactions including quit-claims, waiver and relinquishment of rights in and over the parcels of land situated in General Trias, Cavite, covered by Transfer Certificates of Title Nos. T-112254 and T-112255 of the Registry of Deeds of Cavite, in conjunction with his co-owner and in the person ATTY. AUGUSTO F. DEL ROSARIO;

 3.                  To exercise any or all acts of strict dominion or ownership over the above-

mentioned properties, rights and interest therein. (Emphasis supplied.)  On the strength of the aforesaid SPA, Julian, on 12 December 1996, obtained a loan from the respondent in the amount of P3,000,000.00, secured by real estate mortgage constituted on TCT No. RT-18206 (106338) which covers a parcel of land with an area of 805 square meters, registered with the Registry of Deeds of Quezon City (subject property).[5]

 Still using the subject property as security, Julian obtained an additional loan from the respondent

in the sum of P5,000,000.00, evidenced by a Promissory Note[6] he executed on 5 February 1997 as another real estate mortgage (REM).

 It appears, however, that there was no property identified in the SPA as TCT No. RT 18206

(106338) and registered with the Registry of Deeds of Quezon City. What was identified in the SPA instead was the property covered by TCT No. RT-106338 registered with the Registry of Deeds of Pasig.

 Subsequently, Julian defaulted on the payment of his loan obligations. Thus, respondent initiated

extra-judicial foreclosure proceedings over the subject property which was subsequently sold at public auction wherein the respondent was declared as the highest bidder as shown in the Sheriffs Certificate of Sale dated 15 January 1998.[7]

 On 23 March 1999, petitioners initiated with the RTC an action for the annulment of REM

constituted over the subject property on the ground that the same was not covered by the SPA and that the said SPA, at the time the loan obligations were contracted, no longer had force and effect since it was previously revoked by Perla on 10 March 1993, as evidenced by the Revocation of SPA signed by the latter.[8]

 Petitioners likewise alleged that together with the copy of the Revocation of SPA, Perla, in a Letter

dated 23 January 1996, notified the Registry of Deeds of Quezon City that any attempt to mortgage or sell the subject property must be with her full consent documented in the form of an SPA duly authenticated before the Philippine Consulate General in New York. [9]

 In the absence of authority to do so, the REM constituted by Julian over the subject property was

null and void; thus, petitioners likewise prayed that the subsequent extra-judicial foreclosure proceedings and the auction sale of the subject property be also nullified.

 In its Answer with Compulsory Counterclaim,[10] respondent averred that, contrary to petitioners

allegations, the SPA in favor of Julian included the subject property, covered by one of the titles specified in paragraph 1(b) thereof, TCT No. RT- 106338 registered with the Registry of Deeds of Pasig (now Makati). The subject property was purportedly registered previously under TCT No. T-106338, and was only subsequently reconstituted as TCT RT-18206 (106338). Moreover, TCT No. T-106338 was actually registered with the Registry of Deeds of Quezon City and not before the Registry of Deeds of Pasig (now Makati). Respondent explained that the discrepancy in the designation of the Registry of Deeds in the SPA was merely an error that must not prevail over the clear intention of Perla to include the subject property in the said SPA. In sum, the property referred to in the SPA Perla executed in favor of Julian as covered by TCT No. 106338 of the Registry of Deeds of Pasig (now Makati) and the subject property in the case at bar, covered by RT 18206 (106338) of the Registry of Deeds of Quezon City, are one and the same.

 On 23 September 2003, the RTC rendered a Decision declaring the REM constituted over the

subject property null and void, for Julian was not authorized by the terms of the SPA to mortgage the same. The court a quo  likewise ordered that the foreclosure proceedings and the auction sale conducted pursuant to the void REM, be nullified. The dispositive portion of the Decision reads:

 WHEREFORE, premises considered, judgment is hereby rendered in favor of the

[herein petitioners] and against the [herein respondent] Bank: 1. Declaring the Real Estate Mortgages constituted and registered under Entry Nos.

PE-4543/RT-18206 and 2012/RT-18206 annotated on TCT No. RT-18206 (106338) of the Registry of Deeds of Quezon City as NULL and VOID;

 

2. Declaring the Sheriffs Sale and Certificate of Sale under FRE No. 2217 dated January 15, 1998 over the property covered by TCT No. RT-18206 (106338) of the Registry of Deeds of Quezon City as NULL and VOID;

 3. Ordering the defendant Registry of Deeds of Quezon City to cancel the annotation

of Real Estate Mortgages appearing on Entry Nos. PE-4543/RT-18206 and 2012/RT-18206 on TCT No. RT-18206 (106338) of the Registry of Deeds of Quezon City;

 4. Ordering the [respondent] Bank to deliver/return to the [petitioners] represented

by their attorney-in-fact Alfredo M. Perez, the original Owners Duplicate Copy of TCT No. RT-18206 (106338) free from the encumbrances referred to above; and

 5. Ordering the [respondent] Bank to pay the [petitioners] the amount

of P100,000.00 as for attorneys fees plus cost of the suit. The other claim for damages and counterclaim are hereby DENIED for lack of merit.

[11]

  

Aggrieved, respondent appealed the adverse Decision before the Court of Appeals. In a Decision dated 12 October 2005, the Court of Appeals reversed the RTC Decision and upheld

the validity of the REM constituted over the subject property on the strength of the SPA. The appellate court declared that Perla intended the subject property to be included in the SPA she executed in favor of Julian, and that her subsequent revocation of the said SPA, not being contained in a public instrument, cannot bind third persons.

 The Motion for Reconsideration interposed by the petitioners was denied by the Court of Appeals in

its Resolution dated 15 February 2006. Petitioners are now before us assailing the Decision and Resolution rendered by the Court of

Appeals raising several issues, which are summarized as follows: I WHETHER OR NOT THERE WAS A VALID MORTGAGE CONSTITUTED OVER SUBJECT

PROPERTY. II WHETHER OR NOT THERE WAS A VALID REVOCATION OF THE SPA. III WHETHER OR NOT THE RESPONDENT WAS A MORTGAGEE-IN- GOOD FAITH.  For a mortgage to be valid, Article 2085 of the Civil Code enumerates the following essential

requisites: 

Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:

 (1) That they be constituted to secure the fulfillment of a principal obligation; (2) That the pledgor or mortgagor be the absolute owner of the thing pledged or

mortgaged; (3) That the persons constituting the pledge or mortgage have the free disposal of

their property, and in the absence thereof, that they be legally authorized for the purpose. Third persons who are not parties to the principal obligation may secure the latter by

pledging or mortgaging their own property.  

In the case at bar, it was Julian who obtained the loan obligations from respondent which he secured with the mortgage of the subject property. The property mortgaged was owned by his wife, Perla, considered a third party to the loan obligations between Julian and respondent. It was, thus, a situation recognized by the last paragraph of Article 2085 of the Civil Code afore-quoted. However, since it was not Perla who personally mortgaged her own property to secure Julians loan obligations with respondent, we proceed to determining if she duly authorized Julian to do so on her behalf.

 Under Article 1878 of the Civil Code, a special power of attorney is necessary in cases where real

rights over immovable property are created or conveyed.[12] In the SPA executed by Perla in favor of Julian on 28 May 1992, the latter was conferred with the authority to sell, alienate, mortgage, lease and deal otherwise the different pieces of real and personal property registered in Perlas name. The SPA likewise authorized Julian [t]o exercise any or all acts of strict dominion or ownership over the identified properties, and rights and interest therein. The existence and due execution of this SPA by Perla was not denied or challenged by petitioners.

 

There is no question therefore that Julian was vested with the power to mortgage the pieces of property identified in the SPA. However, as to whether the subject property was among those identified in the SPA, so as to render Julians mortgage of the same valid, is a question we still must resolve.

 Petitioners insist that the subject property was not included in the SPA, considering that it

contained an exclusive enumeration of the pieces of property over which Julian had authority, and these include only: (1) TCT No. T-53618, with an area of 3,522 square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (2) TCT No. T-46810, with an area of 3,953 square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (3) TCT No. T-53140, with an area of 177 square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (4) TCT No. T-21403, with an area of 263 square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (5) TCT No. T-46807, with an area of 39 square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (6) TCT No. T-108954, with an area of 690 square meters and located at Susana Heights, Muntinlupa; (7) RT-106338 805 Square Meters registered with the Registry of Deeds of Pasig (now Makati); and (8)Personal Property consisting of a 1983 Car with Vehicle Registration No. R-16381, Model 1983, Make Toyota, and Engine No. T- 2464. Nowhere is it stated in the SPA that Julians authority extends to the subject property covered by TCT No. RT 18206 (106338) registered with the Registry of Deeds of Quezon City. Consequently, the act of Julian of constituting a mortgage over the subject property is unenforceable for having been done without authority.

 Respondent, on the other hand, mainly hinges its argument on the declarations made by the Court

of Appeals that there was no property covered by TCT No. 106338registered with the Registry of Deeds of Pasig (now Makati); but there exists a property, the subject property herein, covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds of Quezon City. Further verification would reveal that TCT No. RT-18206 is merely a reconstitution of TCT No. 106338, and the property covered by both certificates of title is actually situated in Quezon City and not Pasig. From the foregoing circumstances, respondent argues that Perla intended to include the subject property in the SPA, and the failure of the instrument to reflect the recent TCT Number or the exact designation of the Registry of Deeds, should not defeat Perlas clear intention.

 After an examination of the literal terms of the SPA, we find that the subject property was not among those enumerated therein. There is no obvious reference to the subject property covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds of Quezon City. 

There was also nothing in the language of the SPA from which we could deduce the intention of Perla to include the subject property therein. We cannot attribute such alleged intention to Perla who executed the SPA when the language of the instrument is bare of any indication suggestive of such intention. Contrariwise, to adopt the intent theory advanced by the respondent, in the absence of clear and convincing evidence to that effect, would run afoul of the express tenor of the SPA and thus defeat Perlas true intention. In cases where the terms of the contract are clear as to leave no room for interpretation, resort to circumstantial evidence to ascertain the true intent of the parties, is not countenanced. As aptly stated in the case of JMA House, Incorporated v. Sta. Monica Industrial and Development Corporation,[13] thus: 

[T]he law is that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control. When the language of the contract is explicit, leaving no doubt as to the intention of the drafters, the courts may not read into it [in] any other intention that would contradict its main import. The clear terms of the contract should never be the subject matter of interpretation. Neither abstract justice nor the rule on liberal interpretation justifies the creation of a contract for the parties which they did not make themselves or the imposition upon one party to a contract or obligation not assumed simply or merely to avoid seeming hardships. The true meaning must be enforced, as it is to be presumed that the contracting parties know their scope and effects.[14]

  

Equally relevant is the rule that a power of attorney must be strictly construed and pursued. The instrument will be held to grant only those powers which are specified therein, and the agent may neither go beyond nor deviate from the power of attorney.[15] Where powers and duties are specified and defined in an instrument, all such powers and duties are limited and are confined to those which are specified and defined, and all other powers and duties are excluded.[16] This is but in accord with the disinclination of courts to enlarge the authority granted beyond the powers expressly given and those which incidentally flow or derive therefrom as being usual and reasonably necessary and proper for the performance of such express powers.[17]

 Even the commentaries of renowned Civilist Manresa[18] supports a strict and limited construction of the terms of a power of attorney:

 The law, which must look after the interests of all, cannot permit a man to express

himself in a vague and general way with reference to the right he confers upon another for the purpose of alienation or hypothecation, whereby he might be despoiled of all he

possessed and be brought to ruin, such excessive authority must be set down in the most formal and explicit terms, and when this is not done, the law reasonably presumes that the principal did not mean to confer it.

  

In this case, we are not convinced that the property covered by TCT No. 106338 registered with the Registry of Deeds of Pasig (now Makati) is the same as the subject property covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds of Quezon City. The records of the case are stripped of supporting proofs to verify the respondents claim that the two titles cover the same property. It failed to present any certification from the Registries of Deeds concerned to support its assertion. Neither did respondent take the effort of submitting and making part of the records of this case copies of TCTs No. RT-106338 of the Registry of Deeds of Pasig (now Makati) and RT-18206 (106338) of the Registry of Deeds of Quezon City, and closely comparing the technical descriptions of the properties covered by the said TCTs. The bare and sweeping statement of respondent that the properties covered by the two certificates of title are one and the same contains nothing but empty imputation of a fact that could hardly be given any evidentiary weight by this Court. Having arrived at the conclusion that Julian was not conferred by Perla with the authority to mortgage the subject property under the terms of the SPA, the real estate mortgages Julian executed over the said property are therefore unenforceable. 

Assuming arguendo that the subject property was indeed included in the SPA executed by Perla in favor of Julian, the said SPA was revoked by virtue of a public instrument executed by Perla on 10 March 1993. To address respondents assertion that the said revocation was unenforceable against it as a third party to the SPA and as one who relied on the same in good faith, we quote with approval the following ruling of the RTC on this matter:

 Moreover, an agency is extinguished, among others, by its revocation (Article 1999,

New Civil Code of the Philippines). The principal may revoke the agency at will, and compel the agent to return the document evidencing the agency. Such revocation may be express or implied (Article 1920, supra).

 In this case, the revocation of the agency or Special Power of Attorney is expressed

and by a public document executed on March 10, 1993. The Register of Deeds of Quezon City was even notified that any attempt to

mortgage or sell the property covered by TCT No. [RT-18206] 106338 located at No. 21 Hillside Drive, Blue Ridge, Quezon City must have the full consent documented in the form of a special power of attorney duly authenticated at the Philippine Consulate General,New York City, N.Y., U.S.A.

 The non-annotation of the revocation of the Special Power of Attorney on TCT No. RT-

18206 is of no consequence as far as the revocations existence and legal effect is concerned since actual notice is always superior to constructive notice. The actual notice of the revocation relayed to defendant Registry of Deeds of Quezon City is not denied by either the Registry of Deeds of Quezon City or the defendant Bank. In which case, there appears no reason why Section 52 of the Property Registration Decree (P.D. No. 1529) should not apply to the situation. Said Section 52 of P.D. No. 1529 provides:

 Section 52. Constructive notice upon registration. Every conveyance,

mortgage, lease, lien, attachment, order, judgment, instrument or entry affecting registered land shall, if registered, filed or entered in the Office of the Register of Deeds for the province or city where the land to which it relates lies, be constructive notice to all persons from the time of such registering, filing or entering. (Pres. Decree No. 1529, Section 53) (emphasis ours) It thus developed that at the time the first loan transaction with defendant Bank was

effected on December 12, 1996, there was on record at the Office of the Register of Deeds of Quezon City that the special power of attorney granted Julian, Sr. by Perla had been revoked. That notice, works as constructive notice to third parties of its being filed, effectively rendering Julian, Sr. without authority to act for and in behalf of Perla as of the date the revocation letter was received by the Register of Deeds of Quezon City on February 7, 1996.[19]

 Given that Perla revoked the SPA as early as 10 March 1993, and that she informed the Registry of Deeds of Quezon City of such revocation in a letter dated 23 January 1996 and received by the latter on 7 February 1996, then third parties to the SPA are constructively notified that the same had been revoked and Julian no longer had any authority to mortgage the subject property. Although the revocation may not be annotated on TCT No. RT-18206 (106338), as the RTC pointed out, neither the Registry of Deeds of Quezon City nor respondent denied that Perlas 23 January 1996 letter was received by and filed with the Registry of Deeds of Quezon City. Respondent would have undoubtedly come across said letter if it indeed diligently investigated the subject property and the circumstances surrounding its mortgage.

The final issue to be threshed out by this Court is whether the respondent is a mortgagee-in-good faith. Respondent fervently asserts that it exercised reasonable diligence required of a prudent man in dealing with the subject property.

 Elaborating, respondent claims to have carefully verified Julians authority over the subject property

which was validly contained in the SPA. It stresses that the SPA was annotated at the back of the TCT of the subject property. Finally, after conducting an investigation, it found that the property covered by TCT No. 106338, registered with the Registry of Deeds of Pasig (now Makati) referred to in the SPA, and the subject property, covered by TCT No. 18206 (106338) registered with the Registry of Deeds of Quezon City, are one and the same property. From the foregoing, respondent concluded that Julian was indeed authorized to constitute a mortgage over the subject property.We are unconvinced. The property listed in the real estate mortgages Julian executed in favor of PNB is the one covered by TCT#RT-18206(106338). On the other hand, the Special Power of Attorney referred to TCT No. RT-106338 805 Square Meters of the Registry of Deeds of Pasig now Makati. The palpable difference between the TCT numbers referred to in the real estate mortgages and Julians SPA, coupled with the fact that the said TCTs are registered in the Registries of Deeds of different cities, should have put respondent on guard. Respondents claim of prudence is debunked by the fact that it had conveniently or otherwise overlooked the inconsistent details appearing on the face of the documents, which it was relying on for its rights as mortgagee, and which significantly affected the identification of the property being mortgaged. In Arrofo v. Quio,[20] we have elucidated that:

 [Settled is the rule that] a person dealing with registered lands [is not required] to

inquire further than what the Torrens title on its face indicates. This rule, however, is not absolute but admits of exceptions. Thus, while its is true, x x x that a person dealing with registered lands need not go beyond the certificate of title, it is likewise a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts which should put a reasonable man on his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor or mortgagor. His mere refusal to face up the fact that such defect exists, or his willful closing of his eyes to the possibility of the existence of a defect in the vendors or mortgagors title, will not make him an innocent purchaser for value, if it afterwards develops that the title was in fact defective, and it appears that he had such notice of the defect as would have led to its discovery had he acted with the measure of precaution which may be required of a prudent man in a like situation.

  

By putting blinders on its eyes, and by refusing to see the patent defect in the scope of Julians authority, easily discernable from the plain terms of the SPA, respondent cannot now claim to be an innocent mortgagee.

 Further, in the case of Abad v. Guimba,[21] we laid down the principle that 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, thus: 

While [the] one who buys from the registered owner does not need to look behind the certificate of title, one who buys from [the] one who is not [the] registered owner is expected to examine not only the certificate of title but all 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.[22]

  

This principle is applied more strenuously when the mortgagee is a bank or a banking institution. Thus, in the case of Cruz v. Bancom Finance Corporation,[23] 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.[24]

 Hence, considering that the property being mortgaged by Julian was not his, and there are

additional doubts or suspicions as to the real identity of the same, the respondent bank should have proceeded with its transactions with Julian only with utmost caution. As a bank, respondent must subject all its transactions to the most rigid scrutiny, since its business is impressed with public interest and its fiduciary character requires high standards of integrity and performance.[25] Where respondent acted in undue haste in granting the mortgage loans in favor of Julian and disregarding the apparent defects in the latters authority as agent, it failed to discharge the degree of diligence required of it as a banking corporation.

 Thus, even granting for the sake of argument that the subject property and the one identified in the

SPA are one and the same, it would not elevate respondents status to that of an innocent mortgagee. As a

banking institution, jurisprudence stringently requires that respondent should take more precautions than an ordinary prudent man should, to ascertain the status and condition of the properties offered as collateral and to verify the scope of the authority of the agents dealing with these. Had respondent acted with the required degree of diligence, it could have acquired knowledge of the letter dated 23 January 1996 sent by Perla to the Registry of Deeds of Quezon City which recorded the same. The failure of the respondent to investigate into the circumstances surrounding the mortgage of the subject property belies its contention of good faith. 

On a last note, we find that the real estate mortgages constituted over the subject property are unenforceable and not null and void, as ruled by the RTC. It is best to reiterate that the said mortgage was entered into by Julian on behalf of Perla without the latters authority and consequently, unenforceable under Article 1403(1) of the Civil Code. Unenforceable contracts are those which cannot be enforced by a proper action in court, unless they are ratified, because either they are entered into without or in excess of authority or they do not comply with the statute of frauds or both of the contracting parties do not possess the required legal capacity.[26] An unenforceable contract may be ratified, expressly or impliedly, by the person in whose behalf it has been executed, before it is revoked by the other contracting party.[27] Without Perlas ratification of the same, the real estate mortgages constituted by Julian over the subject property cannot be enforced by any action in court against Perla and/or her successors in interest.

In sum, we rule that the contracts of real estate mortgage constituted over the subject property covered by TCT No. RT 18206 (106338) registered with the Registry of Deeds of Quezon City are unenforceable. Consequently, the foreclosure proceedings and the auction sale of the subject property conducted in pursuance of these unenforceable contracts are null and void. This, however, is without prejudice to the right of the respondent to proceed against Julian, in his personal capacity, for the amount of the loans.

 WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition is GRANTED. The Decision

dated 12 October 2005 and its Resolution dated 15 February 2006rendered by the Court of Appeals in CA-G.R. CV No. 82636, are hereby REVERSED. The Decision dated 23 September 2003 of the Regional Trial Court of Quezon City, Branch 220, in Civil Case No. Q-99-37145, is hereby REINSTATED and AFFIRMED with modification that the real estate mortgages constituted over TCT No. RT 18206 (106338) are not null and void but UNENFORCEABLE. No costs.

 SO ORDERED.   

[1] Penned by Associate Justice Delilah Vidallon-Magtolis with Associate Justices Josefina Guevara-Salonga and Fernanda Lampas-Peralta, concurring. Rollo, pp. 44-59.

[2] Id. at 61-64.[3] Id. at 71-84.[4] Id. at 59.[5] Susana Heights, Muntinlupa covered by Transfer Certificates of Title Nos. T-108954 690 square meters;

and RT-106338 805 square meters of the Registry of Deeds of Pasig (now Makati);[6] Id. at 106-109.[7] Id. at 73[8] Id. at 74.[9] Id. at 74-75.[10] Id. at 96-103.[11] Id. at 84.[12] Paragraph 12 of Article 1878, Civil Code of the Philippines.[13] G.R. No. 154156, 31 August 2006, 500 SCRA 526.[14] Id. at 545-546.[15] Angeles v. Philippine National Railways (PNR), G.R. No. 150128, 31 August 2006, 500 SCRA 444, 453.[16] Bank of the Philippine Islands v. De Coster, 49 Phil. 574, 589 (1926) as cited in Philippine National Bank

v. Sta. Maria, 139 Phil. 781, 786 (1969).[17] Philippine National Bank v. Sta. Maria, id.[18] Vol. II, p. 60.[19] Rollo, pp. 80-81.[20] G.R. No. 145794, 26 January 2005, 449 SCRA 284.[21] G.R. No. 157002, 29 July 2005, 465 SCRA 356.[22] Id. at 368-369.[23] 429 Phil. 225 (2002).[24] Id. at 239.[25] THE GENERAL BANKING LAW OF 2000, Section 2.[26] Article 1403, Civil Code of the Philippines.[27] Article 1317, Civil Code of the Philippines.

10

Republic of the PhilippinesSUPREME COURT

ManilaSECOND DIVISION

G.R. No. 142668             August 31, 2004UNITED COCONUT PLANTERS BANK and LUIS MA. ONGSIAPCO, petitioners, vs.RUBEN E. BASCO, respondent.

D E C I S I O N

CALLEJO, SR., J.:This is a petition for review on certiorari assailing the Decision1 of the Court of Appeals dated March 30, 2000, affirming, with modifications, the Decision2 of the Regional Trial Court (RTC), Makati City, Branch 146, which found the petitioner bank liable for payment of damages and attorney's fees.

The Case for the RespondentRespondent Ruben E. Basco had been employed with the petitioner United Coconut Planters Bank (UCPB) for seventeen (17) years.3 He was also a stockholder thereof and owned 804 common shares of stock at the par value of P1.00.4 He likewise maintained a checking account with the bank at its Las Piñas Branch under Account No. 117-001520-6.5 Aside from his employment with the bank, the respondent also worked as an underwriter at the United Coconut Planters Life Association (Coco Life), a subsidiary of UCPB since December, 1992.6 The respondent also solicited insurance policies from UCPB employees.On June 19, 1995, the respondent received a letter from the UCPB informing him of the termination of his employment with the bank for grave abuse of discretion and authority, and breach of trust in the conduct of his job as Bank Operations Manager of its Olongapo Branch. The respondent thereafter filed a complaint for illegal dismissal, non-payment of salaries, and damages against the bank in the National Labor Relations Commission (NLRC), docketed as NLRC Cases Nos. 00-09-05354-92 and 00-09-05354-93. However, the respondent still frequented the UCPB main office in Makati City to solicit insurance policies from the employees thereat. He also discussed the complaint he filed against the bank with the said employees.7

The respondent was also employed by All-Asia Life Insurance Company as an underwriter. At one time, the lawyers of the UCPB had an informal conference with him at the head office of the bank, during which the respondent was offered money so that the case could be amicably settled. The respondent revealed the incident to some of the bank employees.8

On November 15, 1995, Luis Ma. Ongsiapco, UCPB First Vice-President, Human Resource Division, issued a Memorandum to Jesus Belanio, the Vice-President of the Security Department, informing him that the respondent's employment had been terminated as of June 19, 1995, that the latter filed charges against the bank and that the case was still on-going. Ongsiapco instructed Belanio not to allow the respondent access to all bank premises.9 Attached to the Memorandum was a passport-size picture of the respondent. The next day, the security guards on duty were directed to strictly impose the security procedure in conformity with Ongsiapco's Memorandum.10

On December 7, 1995, the respondent, through counsel, wrote Ongsiapco, requesting that such Memorandum be reconsidered, and that he be allowed entry into the bank premises.11 His counsel emphasized that –

In the meantime, we are more concerned with your denying Mr. Basco "access to all bank premises." As you may know, he is currently connected with Cocolife as insurance agent. Given his 17-year tenure with your bank, he has established good relationships with many UCPB employees, who comprise the main source of his solicitations. In thecourse of his work as insurance agent, he needs free access to your bank premises, within reason, to add the unnecessary. Your memorandum has effectively curtailed his livelihood and he is once again becoming a victim of another "illegal termination," so to speak. And Shakespeare said: "You take his life when you do take the means whereby he lives."Mr. Basco's work as an insurance agent directly benefits UCPB, Cocolife's mother company. He performs his work in your premises peacefully without causing any disruption of bank operations. To deny him access to your premises for no reason except the pendency of the labor case, the outcome of which is still in doubt – his liability, if any, certainly has not been proven – is a clear abuse of right in violation of our client's rights. Denying him access to the bank, which is of a quasi-public nature, is an undue restriction on his freedom of movement and right to make a livelihood, comprising gross violations of his basic human rights. (This is Human Rights Week, ironically).We understand that Mr. Basco has been a stockholder of record of 804 common shares of the capital stock of UCPB since July 1983. As such, he certainly deserves better treatment than the one he has been receiving from your office regarding property he partly owns. He is a particle of corporate sovereignty. We doubt that you can impose the functional equivalent of the penalty of destierro on our client who really wishes only to keep his small place in the sun, to survive and breathe. No activity can be more legitimate than to toil for a living. Let us live and let live.12

In his reply dated December 12, 1995, Ongsiapco informed the respondent that his request could not be granted:

As you understand, we are a banking institution; and as such, we deal with matters involving confidences of clients. This is among the many reasons why we, as a matter of policy, do not allow non-employees to have free access to areas where our employees work. Of course, there are places where visitors may meet our officers and employees to discuss business matters; unfortunately, we have limited areas where our officers and employees can entertain non-official matters.Furthermore, in keeping with good business practices, the Bank prohibits solicitation, peddling and selling of goods, service and other commodities within its premises as it disrupts the efficient performance and function of the employees.Please be assured that it is farthest from our intention to discriminate against your client. In the same vein, it is highly improper for us to carve exceptions to our policies simply to accommodate your client's business ventures.13

The respondent was undaunted. At 5:30 p.m. of December 21, 1995, he went to the office of Junne Cacay, the Assistant Manager of the Makati Branch. Cacay was then having a conference with Bong Braganza, an officer of the UCPB Sucat Branch. Cacay entertained the respondent although the latter did have an appointment. Cacay even informed him that he had a friend who wanted to procure an insurance policy.14 Momentarily, a security guard of the bank approached the respondent and told him that it was already past office hours. He was also reminded not to stay longer than he should in the bank premises.15 Cacay told the guard that the respondent would be leaving shortly.16 The respondent was embarrassed and told Cacay that he was already leaving.17

At 1:30 p.m. of January 31, 1996, the respondent went to the UCPB Makati Branch to receive a check from Rene Jolo, a bank employee, and to deposit money with the bank for a friend.18 He seated himself on a sofa fronting the teller's booth19 where other people were also seated.20 Meanwhile, two security guards approached the respondent. The guards showed him the Ongsiapco's Memorandum and told him to leave the bank premises. The respondent pleaded that he be allowed to finish his transaction before leaving. One of the security guards contacted the management and was told to allow the respondent to finish his transaction with the bank.Momentarily, Jose Regino Casil, an employee of the bank who was in the 7th floor of the building, was asked by Rene Jolo to bring a check to the respondent, who was waiting in the lobby in front of the teller's booth.21 Casil agreed and went down to the ground floor of the building, through the elevator. He was standing in the working area near the Automated Teller Machine (ATM) Section22 in the ground floor when he saw the respondent standing near the sofa23 near the two security guards.24 He motioned the respondent to come and get the check, but the security guard tapped the respondent on the shoulder and prevented the latter from approaching Casil. The latter then walked towards the respondent and handed him the check from Jolo.Before leaving, the respondent requested the security guard to log his presence in the logbook. The guard did as requested and the respondent's presence was recorded in the logbook.25

On March 11, 1996, the respondent filed a complaint for damages against the petitioners UCPB and Ongsiapco in the RTC of Manila, alleging inter alia, that –

12. It is readily apparent from this exchange of correspondence that defendant bank'' acknowledged reason for barring plaintiff from its premises - the pending labor case – is a mere pretense for its real vindictive and invidious intent: to prevent plaintiff, and plaintiff alone, from carrying out his trade as an insurance agent among defendant bank's employees, a practice openly and commonly allowed and tolerated (encouraged even, for some favored proverbial sacred cows) in the bank premises, now being unjustly denied to plaintiff on spurious grounds.13. Defendants, to this day, have refused to act on plaintiff's claim to be allowed even in only the "limited areas where [the bank's] officers and employees can entertain non-official matters" and have maintained the policy banning plaintiff from all bank premises. As he had dared exercised his legal right to question his dismissal, he is being penalized with a variation of destierro, available in criminal cases where the standard however, after proper hearing, is much more stringent and based on more noble grounds than mere pique or vindictiveness.14. This appallingly discriminatory policy resulted in an incident on January 31, 1996 at 1:30 p.m. at defendant bank's branch located at its head office, which caused plaintiff tremendous undeserved humiliation, embarrassment, and loss of face.26

…15. Defendants' memorandum and the consequent acts of defendants' security guards, together with defendant Ongsiapco's disingenuous letter of December 12, 1995, are suggestive of malice and bad faith in derogation of plaintiff's right and dignity as a human being and citizen of this country, which acts have caused him considerable undeserved embarrassment. Even if defendants, for the sake of argument, may be acting within their rights, they cannot exercise same abusively, as they must, always, act with justice and in good faith, and give plaintiff his due.27

The respondent prayed that, after trial, judgment be rendered in his favor, as follows:WHEREFORE, it is respectfully prayed that judgment issue ordering defendants:1. To rescind the directive to its agents barring plaintiff from all bank premises as embodied in the memorandum of November 15, 1995, and allow plaintiff access to the premises of defendant bank, including all its branches, which are open to members of the general public, during reasonable hours, to be able to conduct lawful business without being subject to invidious discrimination; and2. To pay plaintiff P100,000.00 as moral damages, P100,000.00 as exemplary damages, and P50,000.00 by way of attorney's fees.Plaintiff likewise prays for costs, interest, the disbursements of this action, and such other further relief as may be deemed just and equitable in the premises.28

In their Answer to the complaint, the petitioners interposed the following affirmative defenses:9. Plaintiff had been employed as Branch Operations Officer, Olongapo Branch, of defendant United Coconut Planters Bank.In or about the period May to June 1992, he was, together with other fellow officers and employees, investigated by the bank in connection with various anomalies. As a result of the investigation, plaintiff was recommended terminated on findings of fraud and abuse of discretion in the performance of his work. He was found by the bank's Committee on Employee Discipline to have been guilty of committing or taking part in the commission of the following:

a. Abuse of discretion in connection with actions taken beyond or outside the limits of his authority.b. Borrowing money from a bank client.c. Gross negligence or dereliction of duty in the implementation of bank policies or valid orders from management.d. Direct refusal or willful failure to perform, or delay in performing, an assigned task.e. Fraud or willful breach of trust in the conduct of his work.f. Falsification or forgery of bank records/documents.

10. Plaintiff thereafter decided to contest his termination by filing an action for illegal dismissal against the bank.Despite the pendency of this litigation, plaintiff was reported visiting employees of the bank in their place of work during work hours, and circulating false information concerning the status of his case against the bank, including alleged offers by management of a monetary settlement for his "illegal dismissal."11. Defendants acted to protect the bank's interest by preventing plaintiff's access to the bank's offices, and at the same time informing him of that decision.Plaintiff purported to insist on seeing and talking to the bank's employees despite this decision, claiming he needed to do this in connection with his insurance solicitation activities, but the bank has not reconsidered.12. The complaint states, and plaintiff has, no cause of action against defendants.29

The petitioners likewise interposed compulsory counterclaims for damages.

The Case for the Petitioners

The petitioners adduced evidence that a day or so before November 15, 1995, petitioner Ongsiapco was at the 10th floor of the main office of the bank where the training room of the Management Development Training Office was located. Some of the bank's management employees were then undergoing training. The bank also kept important records in the said floor. When Ongsiapco passed by, he saw the respondent talking to some of the trainees. Ongsiapco was surprised because non-participants in the training were not supposed to be in the premises.30 Besides, the respondent had been dismissed and had filed complaints against the bank with the NLRC. Ongsiapco was worried that bank records could be purloined and employees could be hurt.

The next day, Ongsiapco contacted the training supervisor and inquired why the respondent was in the training room the day before. The supervisor replied that he did not know why.31 Thus, on November 15, 1995, Ongsiapco issued a Memorandum to Belanio, the Vice-President for Security Services, directing the latter not to allow the respondent access to the bank premises near the working area.32 The said Memorandum was circulated by the Chief of Security to the security guards and bank employees.At about 12:30 p.m. on January 31, 1996, Security Guard Raul Caspe, a substitute for the regular guard who was on leave, noticed the respondent seated on the sofa in front of the teller's booth.33 Caspe notified his superior of the respondent's presence, and was instructed not to confront the respondent if the latter was going to make a deposit or withdrawal.34 Caspe was also instructed not to allow the respondent to go to the upper floors of the building.35 The respondent went to the teller's booth and, after a while, seated himself anew on the sofa. Momentarily, Caspe noticed Casil, another employee of the bank who was at the working section of the Deposit Service Department (DSD), motioning to the respondent to get the check. The latter stood up and proceeded in the direction of Casil's workstation. After the respondent had taken about six to seven paces from the sofa, Caspe and the company guard approached him. The guards politely showed Ongsiapco's Memorandum to the respondent and told the latter that he was not allowed to enter the DSD working area; it was lunch break and no outsider was allowed in that area.36 The respondent looked at the Memorandum and complied.On May 29, 1998, the trial court rendered judgment in favor of the respondent. The fallo of the decision reads:

WHEREFORE, premises considered, defendants are hereby adjudged liable to plaintiff and orders them to rescind and set-aside the Memorandum of November 15, 1995 and orders them to pay plaintiff the following:1) the amount of P100,000.00 as moral damages;2) the amount of P50,000.00 as exemplary damages;3) P50,000.00 for and as attorney's fees;4) Cost of suit.Defendants' counterclaim is dismissed for lack of merit.SO ORDERED.37

The trial court held that the petitioners abused their right; hence, were liable to the respondent for damages under Article 19 of the New Civil Code.The petitioners appealed the decision to the Court of Appeals and raised the following issues:

4.1 Did the appellants abuse their right when they issued the Memorandum?4.2 Did the appellants abuse their right when Basco was asked to leave the bank premises, in implementation of the Memorandum, on 21 December 1995?4.3. Did the appellants abuse their right when Basco was asked to leave the bank premises, in implementation of the Memorandum, on 31 January 1995?4.4. Is Basco entitled to moral and exemplary damages and attorney's fees?4.5. Are the appellants entitled to their counterclaim?38

The CA rendered a Decision on March 30, 2000, affirming the decision of the RTC with modifications. The CA deleted the awards for moral and exemplary damages, but ordered the petitioner bank to pay nominal damages on its finding that latter abused its right when its security guards stopped the respondent from proceeding to the working area near the ATM section to get the check from Casil. The decretal portion of the decision reads:

WHEREFORE, the Decision of the Regional Trial Court dated May 29, 1998 is hereby MODIFIED as follows:1. The awards for moral and exemplary damages are deleted;2. The award for attorney's fees is deleted;3. The order rescinding Memorandum dated November 15, 1995 is set aside; and4. UCPB is ordered to pay nominal damages in the amount of P25,000.00 to plaintiff-appellee.Costs de oficio.39

The Present PetitionThe petitioners now raise the following issues before this Court:

I. Whether or not the appellate court erred when it found that UCPB excessively exercised its right to self-help to the detriment of Basco as a depositor, when on January 31, 1996, its security personnel stopped respondent from proceeding to the area restricted to UCPB's employees.II. Whether or not the appellate court erred when it ruled that respondent is entitled to nominal damages.III. Whether or not the appellate court erred when it did not award the petitioners' valid and lawful counterclaim.40

The core issues are the following: (a) whether or not the petitioner bank abused its right when it issued, through petitioner Ongsiapco, the Memorandum barring the respondent access to all bank premises; (b) whether or not petitioner bank is liable for nominal damages in view of the incident involving its security guard Caspe, who stopped the respondent from proceeding to the working area of the ATM section to get the check from Casil; and (c) whether or not the petitioner bank is entitled to damages on its counterclaim.

The Ruling of the CourtOn the first issue, the petitioners aver that the petitioner bank has the right to prohibit the respondent from access to all bank premises under Article 429 of the New Civil Code, which provides that:

Art. 429. The owner or lawful possessor of a thing has the right to exclude any person from the enjoyment and disposal thereof. For this purpose, he may use such force as may be reasonably necessary to repel or prevent an actual or threatened unlawful physical invasion or usurpation of his property.

The petitioners contend that the provision which enunciates the principle of self-help applies when there is a legitimate necessity to personally or through another, prevent not only an unlawful, actual, but also a

threatened unlawful aggression or usurpation of its properties and records, and its personnel and customers/clients who are in its premises. The petitioners assert that petitioner Ongsiapco issued his Memorandum dated November 15, 1995 because the respondent had been dismissed from his employment for varied grave offenses; hence, his presence in the premises of the bank posed a threat to the integrity of its records and to the persons of its personnel. Besides, the petitioners contend, the respondent, while in the bank premises, conversed with bank employees about his complaint for illegal dismissal against the petitioner bank then pending before the Labor Arbiter, including negotiations with the petitioner bank's counsels for an amicable settlement of the said case.The respondent, for his part, avers that Article 429 of the New Civil Code does not give to the petitioner bank the absolute right to exclude him, a stockholder and a depositor, from having access to the bank premises, absent any clear and convincing evidence that his presence therein posed an imminent threat or peril to its property and records, and the persons of its customers/clients.We agree with the respondent bank that it has the right to exclude certain individuals from its premises or to limit their access thereto as to time, to protect, not only its premises and records, but also the persons of its personnel and its customers/clients while in the premises. After all, by its very nature, the business of the petitioner bank is so impressed with public trust; banks are mandated to exercise a higher degree of diligence in the handling of its affairs than that expected of an ordinary business enterprise.41 Banks handle transactions involving millions of pesos and properties worth considerable sums of money. The banking business will thrive only as long as it maintains the trust and confidence of its customers/clients. Indeed, the very nature of their work, the degree of responsibility, care and trustworthiness expected of officials and employees of the bank is far greater than those of ordinary officers and employees in the other business firms.42 Hence, no effort must be spared by banks and their officers and employees to ensure and preserve the trust and confidence of the general public and its customers/clients, as well as the integrity of its records and the safety and well being of its customers/clients while in its premises. For the said purpose, banks may impose reasonable conditions or limitations to access by non-employees to its premises and records, such as the exclusion of non-employees from the working areas for employees, even absent any imminent or actual unlawful aggression on or an invasion of its properties or usurpation thereof, provided that such limitations are not contrary to the law.43

It bears stressing that property rights must be considered, for many purposes, not as absolute, unrestricted dominions but as an aggregation of qualified privileges, the limits of which are prescribed by the equality of rights, and the correlation of rights and obligations necessary for the highest enjoyment of property by the entire community of proprietors.44 Indeed, in Rellosa vs. Pellosis,45 we held that:

Petitioner might verily be the owner of the land, with the right to enjoy and to exclude any person from the enjoyment and disposal thereof, but the exercise of these rights is not without limitations. The abuse of rights rule established in Article 19 of the Civil Code requires every person to act with justice, to give everyone his due; and to observe honesty and good faith. When right is exercised in a manner which discards these norms resulting in damage to another, a legal wrong is committed for which the actor can be held accountable.

Rights of property, like all other social and conventional rights, are subject to such reasonable limitations in their enjoyment and to such reasonable restraints established by law.46

In this case, the Memorandum of the petitioner Ongsiapco dated November 15, 1995, reads as follows:MEMO TO : MR. JESUS M. BELANIOVice PresidentSecurity DepartmentD A T E : 15 November 1995R E : MR. RUBEN E. BASCOPlease be advised that Mr. Ruben E. Basco was terminated for a cause by the Bank on 19 June 1992. He filed charges against the bank and the case is still on-going.In view of this, he should not be allowed access to all bank premises.

(Sgd.) LUIS MA. ONGSIAPCOFirst Vice PresidentHuman Resource Division

16 November 1995

TO: ALL GUARDSON DUTYStrictly adhere/impose Security Procedure RE: Admission to Bank premises.For your compliance.

(Signature) 11/16/95JOSE G. TORIAGA47

On its face, the Memorandum barred the respondent, a stockholder of the petitioner bank and one of its depositors, from gaining access to all bank premises under all circumstances. The said Memorandum is all-embracing and admits of no exceptions whatsoever. Moreover, the security guards were enjoined to strictly implement the same.We agree that the petitioner may prohibit non-employees from entering the working area of the ATM section. However, under the said Memorandum, even if the respondent wished to go to the bank to encash a check drawn and issued to him by a depositor of the petitioner bank in payment of an obligation, or to withdraw from his account therein, or to transact business with the said bank and exercise his right as a depositor, he could not do so as he was barred from entry into the bank. Even if the respondent wanted to go to the petitioner bank to confer with the corporate secretary in connection with his shares of stock therein, he could not do so, since as stated in the Memorandum of petitioner Ongsiapco, he would not be

allowed access to all the bank premises. The said Memorandum, as worded, violates the right of the respondent as a stockholder or a depositor of the petitioner bank, for being capricious and arbitrary.The Memorandum even contravenes Article XII, paragraph 4 (4.1 and 4.2) of the Code of Ethics issued by the petitioner bank itself, which provides that one whose employment had been terminated by the petitioner bank may, nevertheless, be allowed access to bank premises, thus:

4.1 As a client of the Bank in the transaction of a regular bank-client activity.4.2 When the offending party is on official business concerning his employment with the Bank with the prior approval and supervision of the Head of HRD or of the Division Head, or of the Branch Head in case of branches.48

For another, the Memorandum, as worded, is contrary to the intention of the petitioners. Evidently, the petitioners did not intend to bar the respondent from access to all bank premises under all circumstances. When he testified, petitioner Ongsiapco admitted that a bank employee whose services had been terminated may be allowed to see an employee of the bank and may be allowed access to the bank premises under certain conditions, viz:

ATTY. R. ALIKPALAQ       So the permission you are referring to is merely a permission to be granted by the security guard?A       No, sir, not the security guard. The security will call the office where they are going. Because this is the same procedure they do for visitors. Anybody who wants to see anybody in the bank before they are allowed access or entry, they call up the department or the division.Q       So I want to clarify, Mr. Witness. Former bank employees are not allowed within the bank premises until after the security guard call, which ever department they are headed for, and that they give the permission and they tell the security guard to allow the person?A       Yes, Sir, that is the usual procedure.Q       If an employee resigned from the bank, same treatment?A       Yes, Sir.Q       If an employee was terminated by the bank for cause, same treatment?A       Yes, Sir.Q       Outsiders who are not employees or who were never employees of the bank also must ask permission?A       Yes, Sir. Because there is a security control at the lobby.Q       You mentioned that this is a general rule?A       Yes, Sir.Q       Is this rule written down in black and white anywhere?A       I think this is more of a security procedure.Q       But being a huge financial institution, we expect Cocobank has its procedure written down in black and white?ATTY. A. BATUHANYour Honor, objection. Argumentative, Your Honor.There is no question posed at all, Your Honor.C O U R TAnswer. Is there any guideline?A       There must be a guideline of the security.Q       But you are not very familiar about the security procedures?A       Yes, Sir.ATTY. R. ALIKPALAQ       Mr. Ongsiapco, the agency that you hired follows certain procedures?A       Yes, Sir.Q       Which of course are under the direct control and supervision of the bank?A       Yes, Sir.Q       And did the security agency have any of this procedure written down?A       It will be given to them by the Security Department, because they are under the Security Department.Q       But if an employee is only entering the ground floor bank area, where customers of the bank are normally allowed, whether depositors or not, they don't need to ask for express permission, is that correct?A       Yes, if they are client.Q       Even if they are not client, but let us say they have to encash a check paid to them by someone?A       He is a client then.Q       But he is not yet a client when he enters the bank premises. He only becomes … you know because you do not all these people, you do not know every client of the bank so you just allow them inside the bank?A       Yes, the premises.49

Petitioner Ongsiapco also testified that a former employee who is a customer/client of the petitioner bank also has access to the bank premises, except those areas reserved for its officers and employees, such as the working areas:

ATTY. R. ALIKPALAQ       So Mr. Witness, just for the sake of clarity. The ground floor area is where the regular consumer banking services are held? What do you call this portion?A       That is the Deposit Servicing Department.Q       Where the ….A       Where the people transact business.ATTY. R. ALIKAPALA

Q       They are freely allowed in this area?A       Yes, Sir.Q       This is the area where there are counters, Teller, where a person would normally go to let us say open a bank account or to request for manager's check, is that correct?A       Yes, Sir.Q       So, in this portion, no, I mean beyond this portion, meaning the working areas and second floor up, outsiders will have to ask express permission from the security guard?A       Yes, Sir.Q       And you say that the security guards are instructed to verify the purpose of every person who goes into this area?A       As far as I know, sir.50

It behooved the petitioners to revise such Memorandum to conform to its Code of Ethics and their intentions when it was issued, absent facts and circumstances that occurred pendente lite which warrant the retention of the Memorandum as presently worded.On the second issue, the Court of Appeals ruled that the petitioner bank is liable for nominal damages to the respondent despite its finding that the petitioners had the right to issue the Memorandum. The CA ratiocinated that the petitioner bank should have allowed the respondent to walk towards the restricted area of the ATM section until they were sure that he had entered such area, and only then could the guards enforce the Memorandum of petitioner Ongsiapco. The Court of Appeals ruled that for such failure of the security guards, the petitioner bank thereby abused its right of self-help and violated the respondent's right as one of its depositors:

With respect, however, to the second incident on January 31, 1996, it appears that although according to UCPB security personnel they tried to stop plaintiff-appellee from proceeding to the stairs leading to the upper floors, which were limited to bank personnel only (TSN, pp. 6-9, June 4, 1997), the said act exposed plaintiff-appellee to humiliation considering that it was done in full view of other bank customers. UCPB security personnel should have waited until they were sure that plaintiff-appellee had entered the restricted areas and then implemented the memorandum order by asking him to leave the premises. Technically, plaintiff-appellee was still in the depositing area when UCPB security personnel approached him. In this case, UCPB's exercise of its right to self-help was in excess and abusive to the detriment of the right of plaintiff-appellee as depositor of said Bank, hence, warranting the award of nominal damages in favor of plaintiff-appellee. Nominal damages are adjudicated in order that a right of a plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized and not for the purpose of indemnifying any loss suffered by him (Japan Airlines vs. Court of Appeals, 294 SCRA 19).51

The petitioners contend that the respondent is not entitled to nominal damages and that the appellate court erred in so ruling for the following reasons: (a) the respondent failed to prove that the petitioner bank violated any of his rights; (b) the respondent did not suffer any humiliation because of the overt acts of the security guards; (c) even if the respondent did suffer humiliation, there was no breach of duty committed by the petitioner bank since its security guards politely asked the respondent not to proceed to the working area of the ATM section because they merely acted pursuant to the Memorandum of petitioner Ongsiapco, and accordingly, under Article 429 of the New Civil Code, this is a case of damnum absque injuria;52 and (d) the respondent staged the whole incident so that he could create evidence to file suit against the petitioners.We rule in favor of the petitioners.The evidence on record shows that Casil was in the working area of the ATM section on the ground floor when he motioned the respondent to approach him and receive the check. The respondent then stood up and walked towards the direction of Casil. Indubitably, the respondent was set to enter the working area, where non-employees were prohibited entry; from there, the respondent could go up to the upper floors of the bank's premises through the elevator or the stairway. Caspe and the company guard had no other recourse but prevent the respondent from going to and entering such working area. The security guards need not have waited for the respondent to actually commence entering the working area before stopping the latter. Indeed, it would have been more embarrassing for the respondent to have started walking to the working area only to be halted by two uniformed security guards and disallowed entry, in full view of bank customers. It bears stressing that the security guards were polite to the respondent and even apologized for any inconvenience caused him. The respondent could have just motioned to Casil to give him the check at the lobby near the teller's booth, instead of proceeding to and entering the working area himself, which the respondent knew to be an area off-limits to non-employees. He did not.The respondent failed to adduce evidence other than his testimony that people in the ground floor of the petitioner bank saw him being stopped from proceeding to the working area of the bank. Evidently, the respondent did not suffer embarrassment, inconvenience or discomfort which, however, partakes of the nature ofdamnum absque injuria, i.e. damage without injury or damage inflicted without injustice, or loss or damage without violation of legal rights, or a wrong due to a pain for which the law provides no remedy.53 Hence, the award of nominal damages by the Court of Appeals should be deleted.On the third issue, we now hold that the petitioner bank is not entitled to damages and attorney's fees as its counterclaim. There is no evidence on record that the respondent acted in bad faith or with malice in filing his complaint against the petitioners. Well-settled is the rule that the commencement of an action does not per se make the action wrongful and subject the action to damages, for the law could not have meant to impose a penalty on the right to litigate.We reiterate case law that if damages result from a party's exercise of a right, it is damnum absque injuria.54

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed Decision of the Court of Appeals is REVERSED and SET ASIDE. The complaint of the respondent in the trial court and the counterclaims of the petitioners are DISMISSED.No costs.

SO ORDERED.Austria-Martinez, (Acting Chairman), Tinga, and Chico-Nazario, JJ., concur.Puno, (Chairman), J., on official leave.

Footnotes1 Penned by Justice Salome M. Montoya (retired), with Associate Justices Bernardo Ll. Salas (retired) and Presbitero J. Velasco (now SC Court Administrator), concurring.2 Penned by Judge Salvador S. Tensuan.3 TSN, 26 February 1997, p. 5.4 Exhibits "I" to "I-3;" Records, pp. 122-123.5 Exhibit "H;" Id. at 121.6 TSN, 26 February 1997, p. 4.7 TSN, 5, March 1997, p. 9.8 TSN, 5 March 1997, pp. 9-10.9 Exhibit "C;" Records, p. 11410 Ibid. (bottom portion).11 Exhibit "D;" Records, pp. 115-116.12 Idem, supra.13 Exhibit "7;" Records, p. 118.14 TSN, 19 March 1995, p. 5.15 Ibid.16 TSN, 26 February 1997, p. 5.17 TSN, 19 March 1997, p. 6.18 TSN, 26 February 1997, p. 15; TSN, 5 March 1997, p. 16.19 Exhibits "K-3," "K-5" & "K-6;" Records, p. 125.20 Exhibit "K-7;" Id.21 TSN, 19 March 1997, p. 12.22 Exhibit "K-2;" Records, p. 125.23 Exhibit "K-1;" Id.24 Exhibit "K-3;" Id.25 Exhibit "E-1;" Id. at 117.26 Records, p. 4.27 Id. at 5.28 Id. at 6.29 Records, pp. 22-23.30 TSN, 4 June 1997, pp. 20-24.31 Id. at 37.32 TSN, 4 June 1995, p. 42.33 Id. at 3-4.34 Id. at 5.35 TSN, 4 June 1997, p. 5.36 Ibid.37 Records, pp. 294-295.38 CA Rollo, p. 29.39 Rollo, pp. 48-49.40 Id. at 29.41 Lim Sio Bio vs. Court of Appeals, 221 SCRA 307 (1993).42 Philippine Commercial and International Bank vs. Court of Appeals, 350 SCRA 446 (2001).43 Tolentino, New Civil Code of the Philippines, 1987 Ed., p. 88.44 63 American Jurisprudence 2d. Property, p. 97.45 362 SCRA 486 (2001).46 State of Washington vs. Dexter, 13 ALR 20, p. 108IC (1949), citing Story of the Constitution, Section 1984, Volume 2, 5th Ed.47 Exhibit "C," Records, p. 114.48 Exhibit "12;" Records, p. 213.49 TSN, 4 June 1997, pp. 28-31.50 TSN, 4 June 1997, pp. 28-32.51 Rollo, p. 47.52 Ibid.53 Atlas Banking Corporation vs. Williams, 361 SCRA 446 (2001).54 ABS-CBN Broadcasting Corporation vs. Court of Appeals, 301 SCRA 572 (1999).