UNITED COCONUT PLANTERS BANK, petitioner, vs. TEOFILO C. RAMOS, respondent. DECISION CALLEJO, SR., J.

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

The Antecedents On 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 [3] Amelita Ramos as sureties. 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. 2. 3. To pay plaintiff the sum of THREE MILLION ONE HUNDRED FIFTY THOUSAND PESOS (P3,150,000.00) plus interest, penalties and other charges; To pay plaintiff the sum of P20,000.00 for attorneys fees; and [4] To pay the cost of suit.

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 [5] and attach all the real and personal properties belonging to the aforesaid defendants to satisfy the judgment. 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 [6] in Quezon City. 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 [7] Board of Directors of the Ramdustrial Corporation, married to Rebecca F. Ramos. 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 [8] bungalow. 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 wasP900,000 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 [9] Ramos and caused the annotation thereof by the Register of Deeds on the said title. 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 [10] project of San Miguel Corporation. 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 [11] gave the respondent the usual treatment and medication for cardio-vascular and hypertension problems. Upon advise from his lawyer, Atty. Carmelito Montano, the respondent executed an affidavit of [12] denial 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 [13] application for P2,000,000 had been approved. 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 [14] days. Simultaneously, the respondent and his wife Rebecca F. Ramos acted as sureties to the loan of [15] Ramdustrial Corporation. However, the respondent was concerned because when the proceeds of the loan were [16] released, the bidding period for the San Miguel Corporation project had already elapsed. 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. [17] 275167 (PR-13108) at the instance of the petitioner had not yet been cancelled. 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, 1994ordering the Register of Deeds to cancel the levy. The Register of Deeds of Quezon City [18] complied and cancelled the notice of levy. 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. 2. 3. 4. 5. P3,000,000.00 as moral damages; 300,000.00 as exemplary damages; 200,000.00 as actual damages; 200,000.00 as attorneys fees; 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 THOUSANDP500,000.00; pay attorneys fees and litigation expenses in an amount of not less than PESOS: TWO HUNDRED THOUSAND P200,000.00;
[20]

2.

Other reliefs and remedies deemed just and equitable under the premises are also prayed for.

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; [21] (4) Cost of suit. 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. THE DELAY IN THE CANCELLATION OF THE ANNOTATION WAS OF RESPONDENT RAMOSS (SIC) OWN DOING. 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.

B. C.

II THE 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. B. C. III THE AWARD OF EXEMPLARY DAMAGES AND ATTORNEYS FEES IS CONTRARY TO LAW SINCE THE [23] AWARD OF MORAL DAMAGES WAS IMPROPER IN THEFIRST PLACE. 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 Decisiondated 30 March 2001, and ordering the [24] dismissal of respondent Ramos Complaint dated 05 May 1994. 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 [25] institution sees fit to engage in such business. 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 [26] interest, for which reason the bank should guard against loss due to negligence or bad faith. 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 [27] persons it transacts business with. 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. UCPB WAS NOT NEGLIGENT WHEN IT CAUSED THE LEVY ON THE SUBJECT PROPERTY. AS A MATTER OF LAW, MORAL DAMAGES CANNOT BE AWARDED ON A FINDING OF MERE NEGLIGENCE. IN ANY EVENT, THE AWARD OF MORAL DAMAGES TO RESPONDENT RAMOS WAS UNREASONABLE AND OPPRESSIVE.

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 [28] same situation? If not, then he is guilty of negligence. 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 [29] essential to a correct designation of the person intended. 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 [30] complained of, or is injured or sued or the like. 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 [31] pressure. 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 [32] holder and possessor of the thing in order to recover it. 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 [33] have disturbed his rights as an owner. As an owner, he is one who would be benefited or injured by the [34] judgment, or who is entitled to the avails of the suit 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 [35] Article 2219 of the Civil Code. 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 [36] the Civil Code, particularly, number 10 thereof. 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 [37] by bad faith or done in a wanton, fraudulent or malevolent manner. 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 [38] resolved. 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.

BPI FAMILY SAVINGS CORPORATION, Respondent. DECISION SANDOVAL-GUTIERREZ, J.:

BANK,

INC., Petitioner,

vs. FIRST

METRO

INVESTMENT

For our resolution is the instant petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, 1 2 as amended, assailing the Decision dated July 4, 1997 and Resolution dated January 28, 1998 of the Court of Appeals in CA-G.R. CV No. 44986,First Metro Investment Corporation vs. BPI Family Bank. The facts as found by the trial court and affirmed by the Court of Appeals are as follows: First Metro Investment Corporation (FMIC), respondent, is an investment house organized under Philippine laws.Petitioner, Bank of Philippine Islands Family Savings Bank, Inc. is a banking corporation also organized under Philippine laws. On August 25, 1989, FMIC, through its Executive Vice President Antonio Ong, opened current account no. 840107473-0 and deposited METROBANK check no. 898679 of P100 million with BPI Family Bank* (BPI FB) San Francisco del Monte Branch (Quezon City). Ong made the deposit upon request of his friend, Ador de Asis, a close acquaintance of Jaime Sebastian, then Branch Manager of BPI FB San Francisco del Monte Branch.Sebastians aim was to increase the deposit level in his Branch. BPI FB, through Sebastian, guaranteed the payment of P14,667,687.01 representing 17% per annum interest of P100 million deposited by FMIC. The latter, in turn, assured BPI FB that it will maintain its deposit of P100 million for a period of one year on condition that the interest of 17% per annum is paid in advance. This agreement between the parties was reached through their communications in writing. Subsequently, BPI FB paid FMIC 17% interest or P14,667,687.01 upon clearance of the latters check deposit. However, on August 29, 1989, on the basis of an Authority to Debit signed by Ong and Ma. Theresa David, Senior Manager of FMIC, BPI FB transferred P80 million from FMICs current account to the savings account of Tevesteco Arrastre Stevedoring, Inc. (Tevesteco). FMIC denied having authorized the transfer of its funds to Tevesteco, claiming that the signatures of Ong and David were falsified. Thereupon, to recover immediately its deposit, FMIC, on September 12, 1989, issued BPI FB check no. 129077 for P86,057,646.72 payable to itself and drawn on its deposit withBPI FB SFDM branch. But upon presentation for payment on September 13, 1989, BPI FB dishonored the check as it was drawn against insufficient funds (DAIF). Consequently, FMIC filed with the Regional Trial Court, Branch 146, Makati City Civil Case No. 89-5280 against BPI FB. FMIC likewise caused the filing by the Office of the State Prosecutors of an Information for estafa against Ong, de Asis, Sebastian and four others. However, the Information was dismissed on the basis of a demurrer to evidence filed by the accused. On October 1, 1993, the trial court rendered its Decision in Civil Case No. 89-5280, the dispositive portion of which reads: Premises considered, judgment is rendered in favor of plaintiff, ordering defendant to pay: a.the amount of P80 million with interest at the legal rate from the time this complaint was filed less P14,667,678.01; b.the amount of P100,000.00 as reasonable attorneys fees; and c.the cost. SO ORDERED. On appeal by both parties, the Court of Appeals rendered a Decision affirming the assailed Decision with modification, thus: WHEREFORE, considering all the foregoing, this Court hereby modifies the decision of the trial court and adjudges BPI Family Bank liable to First Metro Investment Corporation for the amount of P65,332,321.99 plus interest at 17% per annum from August 29, 1989 until fully restored. Further, this 17% interest shall itself earn interest at 12% from October 4, 1989 until fully paid. SO ORDERED. BPI FB then filed a motion for reconsideration but was denied by the Court of Appeals.

In the instant petition, BPI FB ascribes to the Appellate Court the following assignments of error: A. IN VALIDATING A CLEARLY ILLEGAL AND VOID AGREEMENT BETWEEN FMIC AND AN OVERSTEPPING BRANCH MANAGER OF BPI FB, THE COURT OF APPEALS DECIDED THE APPEALED CASE IN A MANNER NOT IN ACCORDANCE WITH LAW OR THE APPLICAPLE DECISIONS OF THE HONORABLE COURT. B.THE COURT OF APPEALS TOTALLY IGNORED THE JUDICIAL ADMISSIONS MADE BY FMIC WHEN IT CHARACTERIZED THE TRANSACTION BETWEEN FMIC AND BPI FB AS A TIME DEPOSIT WHEN IN FACT IT WAS AN INTEREST-BEARING CURRENT ACCOUNT WHICH, UNDER THE EXISTING BANK REGULATIONS, WAS AN ILLEGAL TRANSACTION. C.THE COURT OF APPEALS COMMITTED AN EGREGIOUS ERROR IN RULING THAT BPI FB CLOTHED ITS BRANCH MANAGER WITH APPARENT AUTHORITY TO ENTER INTO SUCH A PATENTLY ILLEGAL ARRANGEMENT. D.THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN IT REFUSED TO CONSIDER THE NEGLIGENT ACTS COMMITTED BY FMIC ITSELF WHICH LED TO THE TRANSFER OF THE P80 MILLION FROM THE FMIC ACCOUNT TO THE TEVESTECO ACCOUNT. E.THE COURT OF APPEALS DID NOT ADHERE TO SETTLED JURISPRUDENCE WHEN IT ADJUDGED BPI FB LIABLE TO FMIC FOR AN AMOUNT WHICH WAS MORE THAN WHAT WAS CONTEMPLATED OR PRAYED FOR IN FMICS COMPLAINT, MOTION FOR RECONSIDERATION OF THE TRIAL COURTS DECISION AND APPEAL BRIEF. F.IN SUPPORT OF ITS ALTERNATIVE PRAYER, PETITIONER SUBMITS THAT THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT ORDERING THE CONSOLIDATION OF THE INSTANT CASE WITH THE TEVESTECO CASE WHICH IS STILL PENDING BEFORE THE MAKATI REGIONAL TRIAL COURT. Petitioner BPI FB contends that the Court of Appeals erred in awarding the 17% per annum interest corresponding to the amount deposited by respondent FMIC. Petitioner insists that respondents deposit is not a special savings account similar to a time deposit, but actually a demand deposit, withdrawable upon demand, proscribed from earning interest under Central Bank Circular 777. Petitioner further contends that the transaction is not valid as its Branch Manager, Jaime Sebastian, clearly overstepped his authority in entering into such an agreement with respondents Executive Vice President. We hold that the parties did not intend the deposit to be treated as a demand deposit but rather as an interestearning time deposit not withdrawable any time. This is quite obvious from the communications between Jaime Sebastian, petitioners Branch Manager, and Antonio Ong, respondents Executive Vice President. Both agreed that the deposit of P100 million was non-withdrawable for one year upon payment in advance of the 17% per annum interest. Respondents time deposit of P100 million was accepted by petitioner as shown by a deposit slip prepared and signed by Ong himself who indicated therein the account number to which the deposit is to be credited, the name of FMIC as depositor or account holder, the date of deposit, and the amount of P100 million as deposit in check. Clearly, when respondent FMIC invested its money with petitioner BPI FB, they intended the P100 million as a time deposit, to earn 17% per annum interest and to remain intact until its maturity date one year thereafter. Ordinarily, a time deposit is defined as one the payment of which cannot legally be required within such a 3 specified number of days. In contrast, demand deposits are all those liabilities of the Bangko Sentral and of other banks which are denominated in Philippine currency and are subject to payment in legal tender upon demand by the 4 presentation of (depositors) checks. While it may be true that barely one month and seven days from the date of deposit, respondent FMIC demanded the withdrawal ofP86,057,646.72 through the issuance of a check payable to itself, the same was made as a result of the fraudulent and unauthorized transfer by petitioner BPI FB of its P80 million deposit to Tevestecos savings account.Certainly, such was a normal reaction of respondent as a depositor to petitioners failure in its fiduciary duty to treat its account with the highest degree of care. Under this circumstance, the withdrawal of deposit by respondent FMIC before the one-year maturity date did not change the nature of its time deposit to one of demand deposit. On another tack, petitioners argument that Central Bank regulations prohibit demand deposit from earning interest is bereft of merit.

Under Central Bank Circular No. 22, Series of 1994, demand deposits shall not be subject to any interest rate ceiling. This, in effect, is an open authority to pay interest on demand deposits, such interest not being subject to any rate ceiling. Likewise, time deposits are not subject to interest rate ceiling. In fact, the rate ceiling was abolished and even allowed to float depending on the market conditions. Sections 1244 and 1244.1 of the Manual of Regulations of the Central Bank of the Philippines provide: Sec. 1244. Interest on time deposit. Time deposits shall not be subject to any interest rate ceiling. Sec. 1244.1. Time of payment. Interest on time deposit may be paid at maturity or upon withdrawal or in advance. Provided, however, That interest paid in advance shall not exceed the interest for one year. Thus, even assuming that respondents account with petitioner is a demand deposit, still it would earn interest. Going back to the unauthorized transfer of respondents funds to Tevesteco, in its attempt to evade any liability therefor, petitioner now impugns the validity of the subject agreement on the ground that its Branch Manager, Jaime Sebastian, overstepped the limits of his authority in accepting respondents deposit with 17% interest per annum.We have held that if a corporation knowingly permits its officer, or any other agent, to perform acts within the scope of an apparent authority, holding him out to the public as possessing power to do those acts, the corporation will, as against any person who has dealt in good faith with the corporation through such agent, be 5 6 estopped from denying such authority. We reiterated this doctrine in Prudential Bank vs. Court of Appeals, thus: A bank holding out its officers and agent 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. 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 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. In Francisco vs. Government Service Insurance System, we ruled: Corporate transactions would speedily come to a standstill were every person dealing with a corporation held dutybound to disbelieve every act of its responsible officers, no matter how regular they should appear on their face. This Court has observed in Ramirez vs. Orientalist Co., 38 Phil. 634, 654-655, that In passing upon the liability of a corporation in cases of this kind it is always well to keep in mind the situation as it presents itself to the third party with whom the contract is made.Naturally he can have little or no information as to what occurs in corporate meetings; and he must necessarily rely upon the external manifestations of corporate consent. The integrity of commercial transactions can only be maintained by holding the corporation strictly to the liability fixed upon it by its agents in accordance with law; and we would be sorry to announce a doctrine which would permit the property of a man in the city of Paris to be whisked out of his hands and carried into a remote quarter of the earth without recourse against the corporation whose name and authority had been used in the manner disclosed in this case. As already observed, it is familiar doctrine that if a corporation knowingly permits one of its officers, or any other agent, to do acts within the scope of an apparent authority, and thus holds him out to the public as possessing power to do those acts, the corporation will, as against any one who has in good faith dealt with the corporation through such agent, be estopped from denying his authority; and where it is said if the corporation permits, this means the same as if the thing is permitted by the directing power of the corporation. Petitioner maintains that respondent should have first inquired whether the deposit of P100 Million and the fixing of the interest rate were pursuant to its (petitioners) internal procedures. Petitioners stance is a futile attempt to evade an obligation clearly established by the intent of the parties. What transpires in the corporate board room is entirely an internal matter. Hence, petitioner may not impute negligence on the part of respondents representative in failing to find out the scope of authority of petitioners Branch Manager. Indeed, the public has the right to rely on the trustworthiness of bank managers and their acts. Obviously, confidence in the banking system, which necessarily includes reliance on bank managers, is vital in the economic life of our society. Significantly, the transaction was actually acknowledged and ratified by petitioner when it paid respondent in advance the interest for one year. Thus, petitioner is estopped from denying that it authorized its Branch Manager to enter into an agreement with respondents Executive Vice President concerning the deposit with the corresponding 17% interest per annum. Anent the award of interest, petitioner contends that such award is not in order as it had not been prayed for by respondent in its complaint nor was it an issue agreed upon by the parties during the pre-trial of the case. Nonetheless, the rule is well settled that when the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in
7

writing, as in this case. Furthermore, the interest due shall itself earn legal interest from the time it is 8 judicially demanded. Besides, the matter of how much interest respondent is entitled to falls squarely within the issues framed by the parties in their respective pleadings filed with the court a quo. At any rate, courts may indeed grant the relief warranted by the allegations and proof even if no such specific relief is prayed for if only to 9 conclude a complete and thorough resolution of the issues involved. Finally, petitioner faults the Court of Appeals in not ordering the consolidation of Civil Case No. 89-4996 (filed by petitioner against Tevesteco) with Civil Case No. 89-5280 (the instant case). According to petitioner, had there been consolidation of these two cases, it would have been shown that the P80 Million transferred to Tevestecos account were proceeds of a loan extended by respondent FMIC to Tevesteco. Suffice it to state that as found by both the trial court and the Appellate Court, petitioners transfer of respondentsP80M to Tevesteco was unauthorized and tainted with fraud. At this point, we must emphasize that this Court is not a trier of facts. Thus, we uphold the finding of both lower courts that petitioner failed to exercise that degree of diligence required by the nature of its obligations to its depositors. A bank is under obligation to treat the accounts of its depositors with meticulous care, whether such 10 account consists only of a few hundred pesos or of million of pesos. Here, petitioner cannot claim it exercised such a degree of care required of it and must, therefore, bear the consequence. WHEREFORE, the petition is DENIED. The assailed Decision dated July 4, 1997 and the Resolution dated January 28, 1998 of the Court of Appeals in CA-G.R. CV No. 44986 are hereby AFFIRMED. Costs against petitioner. SO ORDERED.

SPOUSES GEORGE MORAN and LIBRADA P. MORAN, petitioners, vs. THE HON. COURT OF APPEALS and CITYTRUST BANKING CORPORATION, respondents. Gonzales, Batiller, Bilog & Associates for petitioners.

Agcaoli & Associates for private respondent.

REGALADO, J.: Petitioner spouses George and Librada Moran are the owners of the Wack-Wack Petron gasoline station located at Shaw Boulevard, corner Old Wack-Wack Road, Mandaluyong, Metro Manila. They regularly purchased bulk fuel and other related products from Petrophil Corporation on cash on delivery (COD) basis. Orders for bulk fuel and 1 other related products were made by telephone and payments were effected by personal checks upon delivery. Petitioners maintained three joint accounts, namely one current account (No. 37-00066-7) and two savings accounts, (Nos. 1037002387 and 1037001372) with the Shaw Boulevard branch of Citytrust Banking Corporation. As a special privilege to the Morans, whom it considered as valued clients, the bank allowed them to maintain a zero balance in their current account. Transfers from Saving Account No. 1037002387 to their current account could be made only with their prior authorization, but they gave written authority to Citytrust to automatically transfer funds from their Savings Account No. 1037001372 to their Current Account No. 37-00066-7 at any time whenever the funds in their current account were insufficient to meet withdrawals from said current account. Such 2 arrangement for automatic transfer of funds was called a pre-authorized transfer (PAT) agreement. The PAT letter-agreement entered into by the parties on March 19, 1982 contained the following provisions: xxx xxx xxx 1. The transfer may be effected on the day following the overdrawing of the current account, but the check/s would be honored if the savings account has sufficient balance to cover the overdraft. 2. The regular charges on overdraft, and activity fees will be imposed by the Bank. 3. This is merely an accommodation on our part and we have the right, at all times and for any reasonwhatsoever, to refuse to effect transfer of funds at our sole and absolute option and discretion, reserving our right to terminate this arrangement at any time without written notice to you. 4. You hold CITYTRUST free and harmless for any and all omissions or oversight in executing this 3 automatic transfer of funds; . . . xxx xxx xxx On December 12, 1983, petitioners, through Librada Moran, drew a check (Citytrust No. 041960) for P50,576.00 payable to Petrophil 4 Corporation. The next day, December 13, 1983, petitioners, again through Librada Moran, issued another check 5 (Citytrust No. 041962) in the amount of P56,090.00 in favor of the same corporation. The total sum of the two checks was P106,666.00. On December 14, 1983, Petrophil Corporation deposited the two aforementioned checks to its account with the Pandacan branch of the Philippine National Bank (PNB), the collecting bank. In turn, PNB, Pandacan branch presented them for clearing with the Philippine Clearing House Corporation in the afternoon of the same day. The records show that on December 14, 1983, Current Account No. 37-00066-7 had a zero balance, while Savings Account No. 1037001372 (covered by the PAT) had an available balance of 6 7 P26,104.30 and Savings Account No. 1037002387 had an available balance of P43,268.39. At about ten o'clock in the morning of the following day, December 15, 1983, petitioner George Moran went to the bank, as was his regular practice, to personally oversee their daily transactions with the bank. He deposited in their 8 Savings Account No. 1037002387 the amounts of P10,874.58 and P6,754.25, and he likewise deposited in their 9 Savings Account No. 1037001372 the amounts of P5,900.00, P35,100.00 and 30.00. The amount of P40,000.00 was then transferred by him from Saving Account No. 1037002387 to their current account by means of a pro formawithdrawal form (a debit memorandum), which was provided by the bank, authorizing the latter to make the necessary transfer. At the same time, the amount of P66,666.00 was transferred from Savings Account No. 10 1037001372 to the same current account through the pre-authorized transfer (PAT) agreement. Sometime on December 15 or 16, 1983 George Moran was informed by his wife Librada, that Petrophil refused to deliver their orders on a credit basis because the two checks they had previously issued were dishonored upon 11 presentment for payment. Apparently, the bank dishonored the checks due to "insufficiency of funds." The nondelivery of gasoline forced petitioners to temporarily stop business operations, allegedly causing them to suffer loss

of earnings. In addition, Petrophil cancelled their credit accommodation, forcing them to pay for their purchases in 12 cash. George Moran, furious and upset, demanded an explanation from Raul Diaz, the branch manager. Failing to get a sufficient explanation, he talked to a certain Villareal, a bank officer, who allegedly told him that Amy Belen 13 Ragodo, the customer service officer, had committed a "grave error". On December 16 or 17, 1983, Diaz went to the Moran residence to get the signatures of the petitioners on an application for a manager's check so that the dishonored checks could be redeemed. Diaz then went to Petrophil to 14 personally present the checks in payment for the two dishonored checks. In a chance meeting around May or June, 1984, George Moran learned from one Constancio Magno, credit manager of Petrophil, that the latter received from Citytrust, through Diaz, a letter dated December 16, 1983, notifying them that the two aforementioned checks were "inadvertently dishonored . . . due to operational error." 15 Said letter was received by Petrophil on January 4, 1984. On July 24, 1984, or a little over six months after the incident, petitioners, through counsel, wrote Citytrust claiming that the bank's dishonor of the checks caused them besmirched business and personal reputation, shame and anxiety, hence they were contemplating the filing of the necessary legal actions unless the bank issued a 16 certification clearing their name and paid them P1,000,000.00 as moral damages. The bank did not act favorably on their demands, hence petitioners filed a complaint for damages on September 8, 1984, with the Regional Trial Court, Branch 159 at Pasig, Metro Manila, which was docketed therein as Civil Case No. 51549. In turn, Citytrust filed a counterclaim for damages, alleging that the case filed against it was unfounded and unjust. After trial, a decision dated October 9, 1989 was rendered by the trial court dismissing both the complaint and the 17 counterclaim. On appeal, the Court of Appeals rendered judgment in CA-G.R. CV No. 25009 on October 9, 1989 18 affirming the decision of the trial court. We start some basic and accepted rules, statutory and doctrinal. A check is a bill of exchange drawn on a bank 19 payable on demand. Thus, a check is a written order addressed to a bank or persons carrying on the business of banking, by a party having money in their hands, requesting them to pay on presentment, to a person named 20 therein or to bearer or order, a named sum of money. Fixed savings and current deposits of money in banks and similar institutions shall be governed by the provisions 21 concerning simple loan. In other words, the relationship between the bank and the depositor is that of a debtor 22 and creditor. By virtue of the contract of deposit between the banker and its depositor, the banker agrees to pay 23 checks drawn by the depositor provided that said depositor has money in the hands of the bank. Hence, where the bank possesses funds of a depositor, it is bound to honor his checks to the extent of the amount of his deposits. The failure of a bank to pay the check of a merchant or a trader, when the deposit is sufficient, entitles the drawer to substantial damages without any proof of actual 24 damages. Conversely, a bank is not liable for its refusal to pay a check on account of insufficient funds, notwithstanding the 25 fact that a deposit may be made later in the day. Before a bank depositor may maintain a suit to recover a 26 specific amount from his bank, he must first show that he had on deposit sufficient funds to meet his demand. The present action for damages accordingly hinges on the resolution of the inquiry as to whether or not petitioners had sufficient funds in their accounts when the bank dishonored the checks in question. In view of the factual findings of the two lower courts the correctness of which are challenged by what appear to be plausible, arguments, we feel that the same should properly be resolved by us. This would necessarily require us to inquire into both the savings and current accounts of petitioners in relation to the PAT arrangement. On December 14, 1983, when PNB, Pandacan branch, presented the checks for collection, the available balance for Savings Account No. 1037001372 was P26,104.30 while Current Account No. 37-00066-7 expectedly had a zero balance. On December 15, 1983, at approximately ten o'clock in the morning, petitioners, through George Moran, learned that P66,666.00 from Saving Account No. 1037001372 was transferred to their current account. Another P40,000.00 was transferred from Saving Accounts No. 1037002387 to the current account. Considering that the transfers were by then sufficient to cover the two checks, it is asserted by petitioners that such fact should have prevented the dishonor of the checks. It appears, however, that it was not so. As explained by respondent court in its decision, Gerard E. Rionisto, head of the centralized clearing unit of Citytrust, detailed on the witness stand the standard clearing procedure adopted by respondent bank and the Philippine Clearing House Corporation, to wit:.

Q: Let me again re-phase the question. Most of (sic) these two checks issued by Mrs. Librada Moran under the accounts of the plaintiffs with Citytrust Banking Corporation were drawn dated December 12, 1983 and December 13, 1983(and) these two (2) checks were made payable to Petrophil Corporation. On record, Petrophil Corporation presented these two (2) checks for clearing with PNB Pandacan Branch on December 14, 1983. Now in accordance with the bank, what would happen with these checks drawn with (sic) PNB on December 14, 1983?. A: So these checks will now be presented by PNB with the Philippine Clearing House on December 14, and then the Philippine Clearing House will process it until midnight of December 14. Citytrust will send a clearing representative to the Philippine Clearing House at around 2:00 o'clock in the morning of December 15 and then get the checks. The checks will now be processed at the Citytrust Computer at around 3:00 o'clock in the morning of December 14 (sic)but it will be processed for balance of Citytrust as of December 14 because for one, we have not opened on December 15 at 3:00 o'clock. Under the clearing house rules, we are supposed to process it on the date it was presented for clearing. (tsn, 27 September 9, 1988, pp. 9-10). Considering the clearing process adopted, as explained in the aforequoted testimony, it is clear that the available balance on December 14, 1983 was used by the bank in determining whether or not there was sufficient cash deposited to fund the two checks, although what was stamped on the dorsal side of the two checks in question was "DAIF/12-15-83," since December 15, 1983 was the actual date when the checks were processed. As earlier stated, when petitioners' checks were dishonored due to insufficiency of funds, the available balance of Savings Account No. 1037001372, which was the subject of the PAT agreement, was not enough to cover either of the two checks. On December 14, 1983, when PNB, Pandacan branch presented the checks for collection, the available balance for Savings Account No. 1037001372, to repeat, was only P26,104.30 while Current Account No. 37-00067 had no available balance. It was only on December 15, 1983 at around ten o'clock in the morning that the necessary funds were deposited, which unfortunately was too late to prevent the dishonor of the checks. Petitioners argue that public respondent, by relying heavily on Rionisto's testimony, failed to consider the fact that the witness himself admitted that he had no personal knowledge surrounding the dishonor of the two checks in question. Thus, although he knew the standard clearing procedure, it does not necessarily mean that the same procedure was adopted with regard to the two checks. We do not agree. Section 3(q), Rule 131 of the Rules of Court provides a disputable presumption in law that the ordinary course of business has been followed. In the absence of a contrary showing, it is presumed that the acts in question were in conformity with the usual conduct of business. In the case at bar, petitioners failed to present countervailing evidence to rebut the presumption that the checks involved underwent the same regular process for clearing of checks followed by the bank since 1983. Petitioner had no reason to complain, for they alone were at fault. A drawer must remember his responsibilities every time he issues a check. He must personally keep track of his available balance in the bank and not rely on the bank to notify him of the necessity to fund certain check she previously issued. A check, as distinguished from an ordinary bill of exchange, is supposed to be drawn against a previous deposit of funds for it is ordinarily 28 intended for immediately payment. Moreover, between the time of the issuance of said checks on December 12 and 13 and the time of their presentment on December 14, petitioners had, at the very least, twenty-four hours to replenish their balance in the bank. As previously noted, it was only during business hours in the morning of December 15, 1983, that P66,666.00 was automatically transferred from Savings Account No. 1037001372 to Current Account No. 37-00066-7, and another P40,000.00 was transferred from Savings Account No. 1037002387 to the same current by a debit memorandum. Petitioners argue that if indeed the checks were dishonored in the early morning of December 15, 1983, the bank would not have automatically transferred P66,666.00 to said current account. They theorize that the checks having already been dishonored, there was no necessity to put into effect the pre-authorized transfer agreement. That theory is incorrect. When the transfer from both savings accounts to the current account were made, they were done in the hope that the checks may be retrieved, thus preventing their dishonor. Unfortunately, respondent bank did not succeed in effectuating its good intentions. The transfers were made to preserve its relations with petitioners whom it knew were valued clients, hence it wanted to prevent the dishonor of their checks, if the same was at all possible. Although not admitting fault, it tried its best to make sure that the checks would not bounce. Under similar circumstances, it was held in Whitman vs. First National Bank that a bank performs its full duty where, upon the receipt of a check drawn against an account in which there are insufficient funds to pay it in full, it
29

endeavors to induce the drawer to make good his account so that the check can be paid, and failing in this, it protests the check on the following morning and notifies its correspondent bank by the telegraph of the protest. It cannot, therefore, be held liable to the payee and holder of the check for not protesting it upon the day when it was received. In fact, the court added that the bank did more that it was required to do by making an effort to induce the drawer to deposit sufficient money to make the check good, and by notifying its correspondent of the dishonor of the check by telegram. Petitioners maintain that at the time the checks were dishonored, they had already deposited sufficient funds to cover said checks. To prove their point, petitioners quoted in their petition the following testimony of said witness Rionisto, to wit: Q: Now according to you, you would receive the checks from (being deposited to) the collecting bank which in this particular example was the Pandacan Branch of PNB which in turn will deliver it to the Philippine Clearing House and the Philippine Clearing House will deliver it to your office around 12:00 o'clock of December . . . ? A: Around 2:00 o'clock of December 15. We sent a clearing representative. Q: And the checks will be processed in accordance with the balance available as of December 14? A: Yes, sir. Q: And naturally you will place there "drawn against insufficient funds, December 14, 1983"? A: Yes, sir. Q: Are you sure about that? A: Yes, sir . . . (tsn, September 9, 1988, p. 14)
30

Obviously witness Rionisto was merely confused as to the dates (December 14 and 15) because it did not jibe with his previous testimony, wherein he categorically stated that "the checks will now be processed as the Citytrust Computer at around 3:00 in the morning of December 14 (sic) but it will be processed for balance of Citytrust as of December 14 because for one, we have not opened on December 15 at 3:00 o'clock. Under the clearing house rules, we are supposed to process it on the date it was presented for 31 clearing." Analyzing the procedure he had previously explained, and analyzing his testimony in its entirety and not in truncated portions, it would logically and ineluctably appear that he actually meant December 15, and not December 14. In the early morning of every business day, prior to banking hours, the various branches of Citytrust would receive a computer printout called the "rejected transactions" report from the head office. The report contains, among others, a listing of "checks to be funded." When Citytrust, Shaw Boulevard branch, received said report in the earl y morning of December 15, 1983, the two checks involved were included in the "checks to be funded." That report was used by the bank as its basis in dishonoring the two checks in question. Petitioner contends that the bank erred when it did so because on previous occasions, the report was merely used by the bank as a basis for determining whether or not it was necessary to notify them of the need to deposit certain amounts in their accounts. Amy Belen Rogado, a bank employee, testified that she would normally copy the details stated in the report and transfer in on a "pink slip." These pink slips were then given to George Moran. In turn, George Moran testified that he would deposit the necessary funds stated in the pink slips. As a matter of fact, so petitioner asseverated, not a single check written on the notices was ever dishonored after he had funded said checks with the bank. Thus, petitioner argues, the checks were not yet dishonored after the bank received the report in the early morning of December 15, 1983. Said argument does not persuade. If ever petitioners on previous occasions were given notices every time a check was presented for clearing and payment and there were no adequate funds in their accounts, these were, at most, mere accommodations on the part of respondent bank. It was not a requirement or a general banking practice, hence non-compliance therewith could not lay the bank open to blame or rebuke. Legally, the bank had all the right to dishonor the checks because there were no sufficient funds to speak of in the first place. If the demand is by check, a drawer must have to his credit enough to cover the demand. If his credit with the bank is less than the 32 amount on the face of the check, the bank may lawfully refuse payment.

Pursuing this matter further, the bank could also not be faulted for not accepting either of the two checks. The first check issued was in the amount of P50,576.00, while the second one was for P56,090.00. Savings Account No. 1307001372 then had a balance of only P26,104.30. This being the case, Citytrust could not be expected to accept for payment either one of the two checks nor partially honor one check. A bank is under no obligation to make part payment on a check, up to only the amount of the drawer's funds, where the check is drawn for an amount larger than what the drawer has on deposit. Such a practice of paying checks in part has never existed. Upon partial payment, the check holder could not be called upon to surrender the check, and the bank would be without a voucher affording a certain means of showing the payment. The rule is based on commercial convenience, and any rule that would work such manifest inconvenience should not be recognized. A check is intended not only to transfer a right to the amount named in it, but to serve the further purpose of affording 33 evidence for the bank of the payment of such amount when the check is taken up. On the other hand, assuming arguendo that Savings Account No. 1037002387, which is not covered by a prearranged automatic transfer agreement, had enough amount deposited to cover both checks (which is not so in this case), the bank still had no obligation to honor said checks as there was then no authority given to it to make the transfer of funds. Where a depositor has two accounts with a bank, an open account and a savings account, and draws a check upon the open account for more money than the account contains, the bank may rightfully refuse to 34 pay the check, and is under no duty to make up the deficiency from the savings account. We are agree with respondent Court of Appeals in its assessment and interpretation of the nature of the letter of Citytrust to Petrophil, dated December 16, 1983. As aptly and correctly stated by said court, ". . . the letter is not an admission of liability as it was written merely to maintain the goodwill and continued patronage of plaintiffappellants. (This) cannot be characterized as baseless, considering the totality of the circumstances surrounding its 35 writing." In the present case, the actions taken by the bank after the incident clearly show that there was neither malice nor bad faith, but rather a clear intent to mollify an obviously agitated client. Raul Diaz, the branch manager, even went for this purpose to the Moran residence to facilitate their application for a manager's check. Later, he went to the Petrophil Corporation to personally redeem the checks. Still later, the letter was sent by respondent bank to Petrophil explaining that the dishonor of the checks was due to "operational error." However, we reiterate, it would be a mistake to construe that letter as an admission of guilt on the part of the bank. It knew that it was confronted with a client who obviously was not willing to admit any fault on his part, although the facts show otherwise. Thus, respondent bank ran the risk of losing the business of an important and influential member of the financial community if it did not do anything to assuage the feelings of petitioners. It will be recalled that the credit standing of the Morans with Petrophil Corporation was involved, which fact, more than anything, displeased them, to say the least. On demand of petitioners that their names be cleared, the bank considered it more prudent to send the letter. It never realized that it would thereafter be used by petitioners as one of the bases of their legal action. It will be noted that there was no reason for the bank to send the letter to Petrophil Corporation since the latter was not a client nor was it demanding any explanation. Clearly, therefore, the letter was merely intended to accommodate the request of the Morans and was part of the series of damage-control measures taken by the bank to placate petitioners. Respondent Court of Appeals perceptively observed that "all these somehow pacified plaintiffs-appellants (herein petitioners) for they did not thereafter take immediate punitive action against the defendant-appellee (herein private respondent). As pointed out by the court a quo, it took plaintiffs-appellants about six (6) months after the dishonor of the checks to demand that defendant-appellee pay them P1,000,000.00 as damages. At that time, plaintiffsappellants had discovered the letter of Mr. Diaz attributing the dishonor of their checks to 'operational error'. The 36 attempt to unduly ride on the letter of Mr. Diaz speaks for itself." On the above premises which irresistibly commend themselves to our acceptance, we find no cogent and sufficient to award actual, moral, or exemplary damages to petitioners. Although we take judicial notice of the fact that there is a fiduciary relationship between a bank and its depositors, as well as the extent of diligence expected of it in 37 handling the accounts entrusted to its care, the bank may not be held responsible for such damages in the 38 absence of fraud, bad faith, malice, or wanton attitude. WHEREFORE, finding no reversible error in the judgment appealed from, the same is hereby AFFIRMED, with costs against petitioners. SO ORDERED.

G.R. No. 167848

April 27, 2007

BANK OF COMMERCE, Petitioner, vs. SPS. PRUDENCIO SAN PABLO, JR., and NATIVIDAD O. SAN PABLO, Respondents. DECISION CHICO-NAZARIO, J.: Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, filed by 1 petitioner Bank of Commerce seeking to reverse and set aside the Decision of the Court of Appeals dated 10 2 September 2004, and its Resolution dated 10 March 2005. The Court of Appeals, in its assailed Decision and 3 Resolution reversed the Decision of the Regional Trial Court (RTC) of Mandaue City, Branch 56 dated 25 June 4 2002, which affirmed the Decision, of the Municipal Trial Court (MTC) of Mandaue City, Branch 2, dismissing for lack of merit the complaint against Melencio Santos (Santos) and the Bank of Commerce filed by the respondent Spouses Prudencio (Prudencio) and Natividad (Natividad) San Pablo for the declaration of nullity of the Special Power of Attorney (SPA) and cancellation of Real Estate Mortgage. The dispositive portion of the Court of Appeals Decision reads: WHEREFORE, the Petition for review is GRANTED and the assailed Decision and Order of the Regional Trial Court, Branch 56, Mandaue City, Cebu, in Civil Case 4135-A must be as they are hereby, SET ASIDE. We therefore declare the so-called Special Power of Attorney, the Deed of Real Estate Mortgage and the Foreclosure proceedings to be NULL and VOID ab initio. And, in the meantime, if the subject Lot No. 1882-C-1-A covered by Transfer Certificate of Title No. (26469)-7561 has been sold and a new transfer certificate of title had been issued, let the Registry of deeds of Mandaue City cancel the new title and issue a new one in favor of Natividad O. San Pablo, unless the new title holder is a purchaser in good faith and for value. In the latter case, respondent Bank of Commerce and respondent Melencio G. Santos are hereby held jointly and severally liable to petitioners for the fair market value of the property as of the date of finality of this decision. Moreover, private respondents are likewise held jointly and severally liable to petitioners P50,000.00 as moral damages, P25,000.00 as exemplary damages,P25,000.00 plus P1,000.00 per count appearance as attorneys fees and P10,000.00 as litigation expenses. No costs. The antecedent factual and procedural facts of this case are as follows: On 20 December 1994, Santos obtained a loan from Direct Funders Management and Consultancy Inc., (Direct 5 Funders) in the amount of P1,064,000.40. As a security for the loan obligation, Natividad executed a SPA in favor of Santos, authorizing the latter to mortgage to Direct Funders a paraphernal real property registered under her name and covered by Transfer 7 Certificate of Title (TCT) No. (26469)-7561 (subject property). In the Deed of Real Estate Mortgage executed in favor of Direct Funders, Natividad and her husband, Prudencio, signed as the co-mortgagors of Santos. It was, however, clear between the parties that the loan obligation was for the sole benefit of Santos and the spouses San Pablo merely signed the deed in order to accommodate the former. The aforesaid accommodation transaction was made possible because Prudencio and Santos were close friends and business associates. Indeed, Prudencio was an incorporator and a member of the Board of Directors of Intergems Fashion Jewelries Corporation (Intergems), a domestic corporation in which Santos acted as the President. Sometime in June 1995, the spouses San Pablo received a letter from Direct Funders informing them that Santos failed to pay his loan obligation with the latter. When confronted with the matter, Santos promised to promptly settle his obligation with Direct Funders, which he actually did the following month.
8 6

Upon learning that Santos debt with Direct Funders had been fully settled, the spouses San Pablo then demanded from Santos to turn over to them the TCT of the subject property but the latter failed to do so despite repeated demands. Such refusal prompted the spouses San Pablo to inquire as to the status of the TCT of the subject property with the Register of Deeds of Mandaue City and to their surprise, they discovered that the property was again used by Santos as collateral for another loan obligation he secured from the Bank of Commerce. As shown in the annotation stamped at the back of the title, the spouses San Pablo purportedly authorized Santos to mortgage the subject property to the Bank of Commerce, as evidenced by the SPA allegedly signed by Natividad on 29 March 1995. It was further shown from the annotation at the back of the title that the spouses San Pablo signed a Deed of Real Estate Mortgage over the subject property in favor of Bank of Commerce, which they never 9 did. In order to free the subject property from unauthorized encumbrances, the spouses San Pablo, on 22 December 1995, filed a Complaint seeking for the Quieting of Title and Nullification of the SPA and the deed of real estate mortgage with the prayer for damages against Santos and the Bank of Commerce before the MTC of Mandaue City, Branch 2. In their complaint, the spouses San Pablo claimed that their signatures on the SPA and the Deed of Real Estate Mortgage allegedly executed to secure a loan with the Bank of Commerce were forged. They claimed that while the loan with the Direct Funders was obtained with their consent and direct participation, they never authorized the subsequent loan obligation with the Bank of Commerce. During the pendency of the case, the Bank of Commerce, for non-payment of the loan, initiated the foreclosure proceedings on the strength of the contested Deed of Real Estate Mortgage. During the auction sale, the Bank of Commerce emerged as the highest bidder and thus a Certificate of Sale was issued under its name. Accordingly, 10 the spouses San Pablo amended their complaint to include the prayer for annulment of the foreclosure sale. In his Answer, Santos countered that the loan with the Bank of Commerce was deliberately resorted to with the consent, knowledge and direct participation of the spouses San Pablo in order to pay off the obligation with Direct Funders. In fact, it was Prudencio who caused the preparation of the SPA and together with Santos, they went to the Bank of Commerce, Cebu City Branch to apply for the loan. In addition, Santos averred that the spouses San Pablo were receiving consideration from Intergems for extending accommodation transactions in favor of the latter. For its part, Bank of Commerce filed an Answer with Compulsory Counterclaim, alleging that the spouses San Pablo, represented by their attorney-in-fact, Santos, together with Intergems, obtained a loan in the amount ofP1,218,000.00. It denied the allegation advanced by the spouses San Pablo that the SPA and the Deed of Real Estate Mortgage were spurious. Since the loan already became due and demandable, the Bank of Commerce sought the foreclosure of the subject property. After the Pre-Trial Conference, trial on the merits ensued. During the trial, Anastacio Barbarona, Jr., the Manager of the Bank of Commerce, Cebu City Branch, testified that 13 the spouses San Pablo personally signed the Deed of Real Estate Mortgage in his presence. The testimony of a document examiner and a handwriting expert, however, belied this claim. The expert witness, after carefully examining the loan documents with the Bank of Commerce, attested that the signatures of the spouses San Pablo 14 on the SPA and the Deed of Real Estate Mortgage were forged. On 10 July 2001, the MTC rendered a Decision, dismissing the complaint for lack of merit. The MTC declared that while it was proven that the signatures of the spouses San Pablo on the loan documents were forged, the Bank of Commerce was nevertheless in good faith. The dispositive portion of the decision reads: WHEREFORE, foregoing considered, the instant complaint is hereby ordered DISMISSED for lack of merit. The dismissal of this case is without prejudice to the filing of the appropriate criminal action against those responsible for the falsification of the questioned special power of attorney and deed of real estate mortgage. Aggrieved, the spouses San Pablo appealed the adverse decision to the RTC of Mandaue City, Branch 56, which, 16 in turn, affirmed the unfavorable ruling of the MTC in its Decision promulgated on 25 June 2002. The decretal part of the said decision reads: WHEREFORE, in view of the foregoing, the Court hereby resolves to affirm the assailed Decision. Similarly ill-fated was the Motion for Reconsideration filed by the spouses San Pablo which was denied by the RTC 17 for lack of merit.
15 12 11

Unyielding, the spouses San Pablo elevated the matter before the Court of Appeals through a Petition for Review 18 under Rule 42 of the Revised Rules of Court, assailing the adverse decisions of the MTC and RTC. In a Decision dated 10 September 2004, the appellate court granted the petition filed by the spouses San Pablo and reversed the decisions of the MTC and RTC. In setting aside the rulings of the lower courts, the Court of Appeals ruled that since it was duly proven that the signatures of the spouses San Pablo on the loan documents were forged, then such spurious documents could never become a valid source of title. The mortgage contract executed by Santos over the subject property in favor of Bank of Commerce, without the authority of the spouses San Pablo, was therefore unenforceable, unless ratified. The Bank of Commerce is now before this Court assailing the adverse decision rendered by the Court of 20 Appeals. For the resolution of this Court are the following issues: I. WHETHER OR NOT THE MTC HAS JURISDICTION TO HEAR THE CASE FILED BY THE SPOUSES SAN PABLO. II. WHETHER OR NOT THE FORGED SPA AND SPECIAL POWER OF ATTORNEY COULD BECOME A VALID SOURCE OF A RIGHT TO FORECLOSE A PROPERTY. III. WHETHER OR NOT THE AWARDS OF DAMAGES, ATTRONEYS FEES AND LITIGATION EXPENSES ARE PROPER IN THE INSTANT CASE. In questioning the adverse ruling of the appellate court, the Bank of Commerce, for the first time in more than 10 years of pendency of the instant case, raises the issue of jurisdiction. It asseverates that since the subject matter of the case is incapable of pecuniary estimation, the complaint for quieting of title and annulment of the SPA, the Deed of Real Estate Mortgage, and foreclosure proceedings should have been originally filed with the RTC and not with the MTC. The decision rendered by the MTC, which did not acquire jurisdiction over the subject matter of the case, is therefore void from the very beginning. Necessarily, the Court of Appeals erred in giving due course to the petition when the tribunal originally trying the case had no authority to try the issue. We do not agree. Upon cursory reading of the records, we gathered that the case filed by the spouses San Pablo before the MTC was an action for quieting of title, and nullification of the SPA, Deed of Real Estate Mortgage, and foreclosure proceedings. While the body of the complaint consists mainly of allegations of forgery, however, the primary object of the spouses San Pablo in filing the same was to effectively free the title from any unauthorized lien imposed upon it. Clearly, the crux of the controversy before the MTC chiefly hinges on the question of who has the better title over the subject property. Is it the spouses San Pablo who claim that their signatures on the loan document were forged? Or is it the Bank of Commerce which maintains that the SPA and the Deed of Real Estate Mortgage were duly executed and, therefore, a valid source of its right to foreclose the subject property for non-payment of loan? An action for quieting of title is a common law remedy for the removal of any cloud upon or doubt or uncertainty 21 with respect to title to real property. As clarified by this Court in Baricuatro, Jr. v. Court of Appeals : x x x Originating in equity jurisprudence, its purpose is to secure " an adjudication that a claim of title to or an interest in property, adverse to that of the complainant, is invalid, so that the complainant and those claiming under him may be forever afterward free from any danger or hostile claim. In an action for quieting of title, the competent court is tasked to determine the respective rights of the complainant and other claimants, " not only to place things in their proper place, to make the one who has no rights to said immovable respect and not disturb the other, but also for the benefit of both, so that he who has the right would see every cloud of doubt over the property dissipated, and he could afterwards without fear introduce the improvements he may desire, to use, and even to abuse the property as he deems best (citation omitted). Such remedy may be availed of under the circumstances enumerated in the Civil Code: "ART. 476. Whenever there is a cloud on title to real property or any interest therein, by reason of any instrument, record, claim, encumbrance or proceeding which is apparently valid or effective but is in truth and in fact invalid,
19

ineffective, voidable, or unenforceable, and may be prejudicial to said title, an action may be brought to remove such cloud or to quiet the title, An action may also be brought to prevent a cloud from being cast upon title to real property or any interest therein." The mortgage of the subject property to the Bank of Commerce, annotated on the Spouses San Pablos TCT, constitutes a cloud on their title to the subject property, which may, at first, appear valid and effective, but is allegedly invalid or voidable for having been made without their knowledge and authority as registered owners. We thus have established that the case filed by the spouses San Pablo before the MTC is actually an action for 22 quieting of title, a real action, the jurisdiction over which is determined by the assessed value of the property. The assessed value of the subject property located in Mandaue City, as alleged in the complaint, is P4,900.00, which aptly falls within the jurisdiction of the MTC. According to Section 33 of Batas Pambansa Blg. 129, as amended, otherwise known as The Judiciary Reorganization Act of 1980: Sec. 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in Civil Cases. Metropolitan Trial Courts, Municipal Trial Courts, and Municipal Circuit Trial Courts shall exercise: xxxx (3) Exclusive original jurisdiction in all civil actions which involve title to, or possession of, real property, or any interest therein where the assessed value of the property or interest therein does not exceed twenty thousand pesos (P20,000.00) or, in civil actions in Metro Manila, where such assessed value does not exceed Fifty thousand pesos (P50,000.0) exclusive of interest, damages of whatever kind, attorneys fees litigation expenses and costs: Provided, That in cases of land not declared for taxation purposes, the value of such property shall be determined by the assessed value of the adjacent lots. (As amended, R.A. No. 7691.) Even granting for the sake of argument that the MTC did not have jurisdiction over the case, the Bank of Commerce is nevertheless estopped from repudiating the authority of the court to try and decide the case after having actively participated in the proceedings before it and invoking its jurisdiction by seeking an affirmative relief therefrom. As we have explained quite frequently, a party may be barred from raising questions of jurisdiction when estoppel by laches has set in. Estoppel by laches is failure or neglect for unreasonable and unexplained length of time to do what, by exercising due diligence, ought to have been done earlier, warranting the presumption that the party entitled to assert it has either abandoned it or has acquiesced to the correctness or fairness of its resolution. This doctrine is based on grounds of public policy which, for the peace of the society, requires the discouragement of stale claims, and, unlike the statute of limitations, is not a mere question of time but is principally an issue of 23 inequity or unfairness in permitting a right or claim to be enforced or espoused. In Soliven v. Fastforms Philippines, Inc., we thus ruled: While it is true that jurisdiction may be raised at any time, "this rule presupposes that estoppel has not supervened." In the instant case, respondent actively participated in all stages of the proceedings before the trial court and invoked its authority by asking for an affirmative relief. Clearly, respondent is estopped from challenging 24 the trial courts jurisdiction, especially when the adverse judgment is rendered. Participation in all stages before the trial court, that included invoking its authority in asking for affirmative relief, 25 effectively bars the party by estoppel from challenging the courts jurisdiction. The Court frowns upon the undesirable practice of a party participating in the proceedings and submitting his case for decision and then 26 accepting the judgment, only if favorable, and attacking it for lack of jurisdiction when adverse. We now proceed to resolve the issue of whether a forged SPA or Deed of Real Estate Mortgage could be a source of a valid title. Settled is the fact, as found by the MTC and as affirmed by both the RTC and the Court of Appeals, that the SPA and the Deed of Real Estate Mortgage had been forged. Such fact is no longer disputed by the parties. Thus, the only issue remaining to be threshed out in the instant petition is whether the Bank of Commerce is a mortgagee in good faith. The MTC and the RTC held that the Bank of Commerce acted in good faith in entering into the loan transaction with Santos, while the Court of Appeals, on the other hand, ruled otherwise. The Bank of Commerce posits that it is a mortgagee in good faith and therefore entitled to protection under the law. It strenuously asserts that it is an innocent party who had no knowledge that the right of Santos to mortgage the subject property was merely simulated. In Cavite Development Bank v. Spouses Lim,
27

the Court explained the doctrine of mortgagee in good faith, thus:

There is, however, a situation where, despite the fact that the mortgagor is not the owner of the mortgaged property, his title being fraudulent, the mortgage contract and any foreclosure sale arising there from are given effect by reason of public policy. This is the doctrine of "the mortgagee in good faith" based on the rule that all persons dealing with property covered by the Torrens Certificates of Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title. The public interest in upholding the indefeasibility of a certificate of title, as evidence of lawful ownership of the land or of any encumbrance thereon, protects a buyer or mortgagee who, in good faith, relied upon what appears on the face of the certificate of title. Indeed, a mortgagee has a right to rely in good faith on the certificate of title of the mortgagor of the property given as security, and in the absence of any sign that might arouse suspicion, the mortgagee has no obligation to undertake further investigation. This doctrine pre-supposes, however, that the mortgagor, who is not the rightful owner of the property, has already succeeded in obtaining Torrens title over the property in his name and that, after obtaining the said title, he succeeds in mortgaging the property to another who relies on what appears on the title. This is not the situation in the case at bar since Santos was not the registered owner for he merely represented himself to be the attorney-in-fact of the spouses San Pablo. In cases where the mortgagee does not directly deal with the registered owner of real property, the law requires that a higher degree of prudence be exercised by the mortgagee. As we have enunciated in the case of Abad v. 28 Guimba: x x x While one who buys from the registered owner does not need to look behind the certificate of title, one who buys from one who is not a registered owner is expected to examine not only the certificate of title but all the factual circumstances necessary for [one] to determine if there are any flaws in the title of the transferor, or in [the] capacity to transfer the land. Although the instant case does not involve a sale but only a mortgage, the same rule applies inasmuch as the law itself includes a mortgagee in the term "purchaser." This principle is applied more strenuously when the mortgagee is a bank or a banking institution. In the case ofCruz v. Bancom Finance Corporation, We ruled: Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike private individuals, it is expected to exercise greater care and prudence in its dealings, including those involving registered lands. A banking institution is expected to exercise due diligence before entering into a mortgage contract. The ascertainment of the status or condition of a property offered to it as security for a loan must be a standard and 29 indispensable part of its operations. We never fail to stress the remarkable significance of a banking institution to commercial transactions, in particular, and to the countrys economy in general. The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of every civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce, banks have become an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and, most 30 of all, confidence. Consequently, the highest degree of diligence is expected, and high standards of integrity and 31 performance are even required, of it. The Bank of Commerce clearly failed to observe the required degree of caution in ascertaining the genuineness and extent of the authority of Santos to mortgage the subject property. It should not have simply relied on the face of the documents submitted by Santos, as its undertaking to lend a considerable amount of money required of it a greater degree of diligence. That the person applying for the loan is other than the registered owner of the real property being mortgaged should have already raised a red flag and which should have induced the Bank of Commerce to make inquiries into and confirm Santos authority to mortgage the Spouses San Pablos property. A person who deliberately ignores a significant fact that could create suspicion in an otherwise reasonable person is 32 not an innocent purchaser for value. Having laid that the bank of Commerce is not in good faith necessitates us to award moral damages, exemplary damages, attorneys fees and costs of litigation in favor of the spouses San Pablo. Moral damages are not awarded 33 to penalize the defendant but to compensate the plaintiff for the injuries he may have suffered. Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, 34 such damages are justly due. In the instant case, we find that the award of moral damages is proper. The Bank of Commerce, in allowing Santos to secure a loan out of the property belonging to the spouses San Pablo, without taking the necessary precaution demanded by the circumstances owing to the public policy imbued in the banking business, caused injury to the latter which calls for the imposition of moral damages. As for the award of exemplary damages, we deem that the same is proper for the Bank of Commerce was remiss in its obligation to inquire into the veracity of Santos authority to mortgage the subject property, causing damage to the spouses San 35 Pablo. Finally, we rule that the award of attorneys fees and litigation expenses is valid since the spouses San 36 Pablo were compelled to litigate and thus incur expenses in order to protect its rights over the subject property.

Prescinding from the above, we thus rule that the forged SPA and Deed of Real Estate Mortgage is void ab initio. Consequently, the foreclosure proceedings conducted on the strength of the said SPA and Deed of Real Estate Mortgage, is likewise void ab initio. Since the Bank of Commerce is not a mortgagee in good faith or an innocent purchaser for value on the auction sale, it is not entitled to the protection of its rights to the subject property. Considering further that it was not shown that the Bank of Commerce has already transferred the subject property to a third person who is an innocent purchaser for value (since no intervention or third-party claim was interposed during the pendency of this case), it is but proper that the subject property should be retained by the Spouses San Pablo. WHEREFORE, in view of the foregoing, the instant petition is DENIED. The Decision dated 10 September 2004 rendered by the Court of Appeals in CA-G.R. SP No. 76562, is hereby AFFIRMED. The SPA, the Deed of Real Estate Mortgage, and the Foreclosure Proceedings conducted in pursuant to said deed, are hereby declared VOID AB INITIO. The Register of Deeds of Mandaue City is hereby DIRECTED to cancel Entry Nos. 9089-V.9-D.B and 9084-V.9-D.B annotated on TCT No.-(26469)-7561 in the name of Natividad Opolontesima San Pablo. The Bank of Commerce is hereby ORDERED to pay the spouses San Pablo P50,000.00 as moral damages, P25,000.00 as exemplary damages, P20,000.00 as attorneys fees and P20,000.00 as litigation expenses. Cost against the petitioner. SO ORDERED.

G.R. No. 69162 February 21, 1992 BANK OF THE vs. THE INTERMEDIATE APPELLATE COURT CANLAS,respondents. Leonen, Ramirez & Associates for petitioner. L. Emmanuel B. Canilao for private respondents. PHILIPPINE and the SPOUSES ISLANDS, petitioner,

ARTHUR CANLAS and VIVIENE

GRIO-AQUINO, J.: In a decision dated September 3, 1984, the Intermediate Appellate Court (now Court of Appeals) in AC-G.R. CV No. 69178 entitled, "Arthur A. Canlas, et al., Plaintiff-Appellees vs. Commercial Bank and Trust Company of the Philippines, Defendant-Appellant," reduced to P105,000 the P465,000 damage-award of the trial court to the private respondents for an error of a bank teller which resulted in the dishonor of two small checks which the private respondents had issued against their joint current account. This petition for review of that decision was filed by the Bank. The respondent spouses, Arthur and Vivienne Canlas, opened a joint current account No. 210-520-73 on April 25, 1977 in the Quezon City branch of the Commercial Bank and Trust Company of the Philippines (CBTC) with an initial deposit of P2,250. Prior thereto, Arthur Canlas had an existing separate personal checking account No. 210442-41 in the same branch. When the respondent spouses opened their joint current account, the "new accounts" teller of the bank pulled out from the bank's files the old and existing signature card of respondent Arthur Canlas for Current Account No. 210442-41 for use as I D and reference. By mistake, she placed the old personal account number of Arthur Canlas on the deposit slip for the new joint checking account of the spouses so that the initial deposit of P2,250 for the joint

checking account was miscredited to Arthur's personal account (p. 9, Rollo). The spouses subsequently deposited other amounts in their joint account. However, when respondent Vivienne Canlas issued a check for Pl,639.89 in April 1977 and another check for P1,160.00 on June 1, 1977, one of the checks was dishonored by the bank for insufficient funds and a penalty of P20 was deducted from the account in both instances. In view of the overdrawings, the bank tried to call up the spouses at the telephone number which they had given in their application form, but the bank could not contact them because they actually reside in Porac, Pampanga. The city address and telephone number which they gave to the bank belonged to Mrs. Canlas' parents. On December 15, 1977, the private respondents filed a complaint for damages against CBTC in the Court of First Instance of Pampanga (p. 113, Rollo). On February 27, 1978, the bank filed a motion to dismiss the complaint for improper venue. The motion was denied. During the pendency of the case, the Bank of the Philippine Islands (BPI) and CBTC were merged. As the surviving corporation under the merger agreement and under Section 80 (5) of the Corporation Code of the Philippines, BPI took over the prosecution and defense of any pending claims, actions or proceedings by and against CBTC. On May 5, 1981, the Regional Trial Court of Pampanga rendered a decision against BPI, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered sentencing defendant to pay the plaintiff the following: 1. P 5,000.00 as actual damages; 2. P 150,000.00 for plaintiff Arthur Canlas and P150,000.00 for plaintiff Vivienne S. Canlas representing moral damages; 3. P 150.000.00 as exemplary damages; 4. P 10,000.00 as attorney's fees; and 5. Costs. (p. 36, Rollo). On appeal, the Intermediate Appellate Court deleted the actual damages and reduced the other awards. The dispositive portion of its decision reads: WHEREFORE, the judgment appealed from is hereby modified as follows: 1. The award of P50,000.00 in actual damages is herewith deleted. 2. Moral damages of P50,000.00 is awarded to plaintiffs-appellees Arthur Canlas and Vivienne S. Canlas, not P50,000.00 each. 3. Exemplary damages is likewise reduced to the sum of P50,000.00 and attorney's fees to P5,000.00. Costs against the defendants appellant. (p. 40, Rollo.) Petitioner filed this petition for review alleging that the appellate court erred in holding that: 1. The venue of the case had been properly laid at Pampanga in the light of private respondents' earlier declaration that Quezon City is their true residence. 2. The petitioner was guilty of gross negligence in the handling of private respondents' bank account. 3. Private respondents are entitled to the moral and exemplary damages and attorney's fees adjudged by the respondent appellate court.

On the question of venue raised by petitioner, it is evident that personal actions may be instituted in the Court of First Instance (now Regional Trial Court) of the province where the defendant or any of the defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff (Section 2[b], Rule 4 of the Rules of Court). In this case, there was ample proof that the residence of the plaintiffs is B. Sacan, Porac, Pampanga (p. 117, Rollo). The city address of Mrs. Canlas' parents was placed by the private respondents in their application for a joint checking account, at the suggestion of the new accounts teller, presumably to facilitate mailing of the bank statements and communicating with the private respondents in case any problems should arise involving the account. No waiver of their provincial residence for purposes of determining the venue of an action against the bank may be inferred from the so-called "misrepresentation" of their true residence. The appellate court based its award of moral and exemplary damages, and attorney's fees on its finding that the mistake committed by the new accounts teller of the petitioner constituted "serious" negligence (p. 38, Rollo). Said court further stressed that it cannot absolve the petitioner from liability for damages to the private respondents, even on the assumption of an honest mistake on its part, because of the embarrassment that even an honest mistake can cause its depositors (p. 31, Rollo). There is no merit in petitioner's argument that it should not be considered negligent, much less held liable for damages on account of the inadvertence of its bank employee for Article 1173 of the Civil Code only requires it to exercise the diligence of a good father of family. In Simex International (Manila), Inc. vs. Court of Appeals (183 SCRA 360, 367), this Court stressed the fiduciary nature of the relationship between a bank and its depositors and the extent of diligence expected of it in handling the accounts entrusted to its care. 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. . . . The bank is not expected to be infallible but, as correctly observed by respondent Appellate Court, in this instance, it must bear the blame for not discovering the mistake of its teller despite the established procedure requiring the papers and bank books to pass through a battery of bank personnel whose duty it is to check and countercheck them for possible errors. Apparently, the officials and employees tasked to do that did not perform their duties with due care, as may be gathered from the testimony of the bank's lone witness, Antonio Enciso, who casually declared that "the approving officer does not have to see the account numbers and all those things. Those are very petty things for the approving manager to look into" (p. 78, Record on Appeal). Unfortunately, it was a "petty thing," like the incorrect account number that the bank teller wrote on the initial deposit slip for the newly-opened joint current account of the Canlas spouses, that sparked this half-a-million-peso damage suit against the bank. While the bank's negligence may not have been attended with malice and bad faith, nevertheless, it caused serious anxiety, embarrassment and humiliation to the private respondents for which they are entitled to recover reasonable moral damages (American Express International, Inc. vs. IAC, 167 SCRA 209). The award of reasonable attorney's fees is proper for the private respondents were compelled to litigate to protect their interest (Art. 2208, Civil Code). However, the absence of malice and bad faith renders the award of exemplary damages improper (Globe Mackay Cable and Radio Corp. vs. Court of Appeals, 176 SCRA 778). WHEREFORE, the petition for review is granted. The appealed decision is MODIFIED by deleting the award of exemplary damages to the private respondents. In all other respects, the decision of the Intermediate Appellate Court, now Court of Appeals, is AFFIRMED. No costs. SO ORDERED.