FIRST DIVISION

SPS.
EDGAR AND DINAH G.R. No. 161319
OMENGAN,
Petitioners, Present:
-versus-

PHILIPPPINE NATIONAL BANK,

HENRY M. MONTALVO AND
MANUEL S. ACIERTO,*
Respondents. Promulgated:

January 23, 2007

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DECISION
CORONA, J.
This petition for review on certiorari [1] seeks a review and reversal of the Court of Appeals (CA) decision [2] and
resolution[3] in CA-G.R. CV No. 71302.
In October 1996, the Philippine National Bank (PNB) Tabuk (Kalinga) Branch approved petitioners-spouses application
for a revolving credit line of P3 million. The loan was secured by two residential lots in Tabuk, Kalinga-Apayao covered
by Transfer Certificate of Title (TCT) Nos. 12954 and 12112. The certificates of title, issued by the Registry of Deeds of
the Province of Kalinga-Apayao, were in the name of Edgar[4] Omengan married to Dinah Omengan.
The first P2.5 million was released by Branch Manager Henry Montalvo on three separate dates. The release of the
final half million was, however, withheld byMontalvo because of a letter allegedly sent by Edgars sisters. It read:
Appas, Tabuk
Kalinga
7 November 1996
The Manager
Philippine National Bank
Tabuk Branch
Poblacion, Tabuk
Kalinga
Sir:
This refers to the land at Appas, Tabuk in the name of our brother, Edgar Omengan, which was mortgaged to [the] Bank in the
amount of Three Million Pesos (P3,000,000.00), the sum of [P2.5 Million] had already been released and received by our brother,
Edgar.
In this connection, it is requested that the remaining unreleased balance of [half a million pesos] be held in abeyance pending an
understanding by the rest of the brothers and sisters of Edgar. Please be informed that the property mortgaged, while in the
name of Edgar Omengan, is owned in co-ownership by all the children of the late Roberto and Elnora Omengan. The
lawyer who drafted the document registering the subject property under Edgars name can attest to this fact. We had
a prior understanding with Edgar in allowing him to make use of the property as collateral, but he refuses to comply
with such arrangement. Hence, this letter. (emphasis ours)
Very truly yours,
(Sgd.) Shirley O. Gamon (Sgd.) Imogene O. Bangao
(Sgd.) Caroline O. Salicob (Sgd.) Alice O. Claver[5]

Montalvo was eventually replaced as branch manager by Manuel Acierto who released the remaining half million pesos
to petitioners on May 2, 1997. Acierto also recommended the approval of a P2 million increase in their credit line to
the Cagayan Valley Business Center Credit Committee in Santiago City.
The credit committee approved the increase of petitioners credit line (from P3 million to P5 million), provided Edgars
sisters gave their conformity. Acierto informed petitioners of the conditional approval of their credit line.
But petitioners failed to secure the consent of Edgars sisters; hence, PNB put on hold the release of the additional P2
million.
On October 7, 1998, Edgar Omengan demanded the release of the P2 million. He claimed that the condition for its
release was not part of his credit line agreement with PNB because it was added without his consent. PNB denied his
request.
On March 3, 1999, petitioners filed a complaint for breach of contract and damages against PNB with the Regional Trial
Court (RTC), Branch 25 in Tabuk, Kalinga. After trial, the court decided in favor of petitioners.
Accordingly, judgment is hereby rendered finding in favor of [petitioners.] [PNB is ordered]:
1) To release without delay in favor of [petitioners] the amount of P2,000,000.00 to complete
the P5,000,000.00 credit line agreement;
2) To pay [petitioners] the amount of P2,760,000.00 representing the losses and/or expected
income of the [petitioners] for three years;
3) To pay lawful interest, until the amount aforementioned on paragraphs 1 and 2 above are fully
paid; and
4) To pay the costs.
SO ORDERED.[6]

The CA, however, on June 18, 2003, reversed and set aside the RTC decision dated April 21, 2001.[7]
Petitioners now contend that the CA erred when it did not sustain the finding of breach of contract by the RTC. [8]
The existence of breach of contract is a factual matter not usually reviewed in a petition filed under Rule 45. But since
the RTC and the CA had contradictory findings, we are constrained to rule on this issue.
Was there a breach of contract? There was none.
Breach of contract is defined as follows:
[It] is the failure without legal reason to comply with the terms of a contract. It is also defined as the
[f]ailure, without legal excuse, to perform any promise which forms the whole or part of the contract. [9]
In this case, the parties agreed on a P3 million credit line. This sum was completely released to petitioners who
subsequently applied[10] for an increase in their credit line. This was conditionally approved by PNBs credit committee.
For all intents and purposes, petitioners sought an additional loan.
The condition attached to the increase in credit line requiring petitioners to acquire the conformity of Edgars sisters
was never acknowledged and accepted by petitioners. Thus, as to the additional loan, no meeting of the minds
actually occurred and no breach of contract could be attributed to PNB. There was no perfected contract over the
increase in credit line.
[T]he business of a bank is one affected with public interest, for which reason the bank should guard against loss due
to negligence or bad faith. In approving the loan of an applicant, the bank concerns itself with proper [information]
regarding its debtors.[11] Any investigation previously conducted on the property offered by petitioners as collateral did
not preclude PNB from considering new information on the same property as security for a subsequent loan. The credit
and property investigation for the original loan of P3 million did not oblige PNB to grant and release any additional
loan. At the time the original P3 million credit line was approved, the title to the property appeared to pertain
exclusively to petitioners. By the time the application for an increase was considered, however, PNB already had
reason to suspect petitioners claim of exclusive ownership.
A mortgagee can rely on what appears on the certificate of title presented by the mortgagor and an
innocent mortgagee is not expected to conduct an exhaustive investigation on the history of the
mortgagors title. This rule is strictly applied to banking institutions. xxx
Banks, indeed, should exercise more care and prudence in dealing even with registered
lands, than private individuals, as their business is one affected with public interest. xxx
Thus, this Court clarified that the rule that persons dealing with registered lands can rely
solely on the certificate of title does not apply to banks.[12](emphasis supplied)
Here, PNB had acquired information sufficient to induce a reasonably prudent person to inquire into the status of the
title over the subject property. Instead of defending their position, petitioners merely insisted that reliance on the face
of the certificate of title (in their name) was sufficient. This principle, as already mentioned, was not applicable to
financial institutions like PNB.
In truth, petitioners had every chance to turn the situation in their favor if, as they said, they really owned the
subject property alone, to the exclusion of any other owner(s). Unfortunately, all they offered were bare denials of the
co-ownership claimed by Edgars sisters.
PNB exercised reasonable prudence in requiring the above-mentioned condition for the release of the
additional loan. If the condition proved unacceptable to petitioners, the parties could have discussed other terms
instead of making an obstinate and outright demand for the release of the additional amount. If the alleged coownership in fact had no leg to stand on, petitioners could have introduced evidence other than a simple denial of its
existence.
Since PNB did not breach any contract and since it exercised the degree of diligence expected of it, it cannot
be held liable for damages.
WHEREFORE, the decision and resolution of the Court of Appeals in CA-G.R. CV No. 71302 are hereby AFFIRMED.
Costs against petitioners.
SO ORDERED.

SECOND DIVISION
[G.R. No. 147800. November 11, 2003]
UNITED COCONUT PLANTERS BANK, petitioner, vs. TEOFILO C. RAMOS, respondent.
DECISION
CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the March 30, 2001 Decision of the Court of Appeals in CA-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]

[2]

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 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:
[3]

1. To pay plaintiff the sum of THREE MILLION ONE HUNDRED FIFTY THOUSAND PESOS (P3,150,000.00)
plus interest, penalties and other charges;
2. To pay plaintiff the sum of P20,000.00 for attorneys fees; and
3. To pay the cost of suit.

[4]

The decision became final and executory. On motion of the petitioner, the court issued on December 18, 1990 a
writ of execution for the enforcement of its decision ordering Deputy Sheriff Pioquinto P. Villapaa to levy 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.
[5]

To help the Sheriff implement the writ, Atty. Cesar Bordalba, the head of the Litigation and Enforcement Division
(LED) of the petitioner, requested Eduardo C. Reniva, an appraiser of the petitioners Credit and Appraisal Investigation
Department (CAID) on July 17, 1992 to ascertain if the defendants had any leviable real and personal property.The
lawyer furnished Reniva with a copy of Tax Declaration B-023-07600-R covering a property in Quezon City. In the
course of his investigation, Reniva found that the property was a residential lot, identified as Lot 12, Block 5, Ocampo
Avenue, Don Jose Subdivision, Quezon City, with an area of 400 square meters, covered by TCT No. 275167 (PR-13108)
under the name of Teofilo C. Ramos, President and Chairman of the Board of Directors of the Ramdustrial Corporation,
married to Rebecca F. Ramos. The property was covered by Tax Declaration No. B-023-07600-R under the names of the
said spouses. Reniva went to the property to inspect it and to verify the identity of the owner thereof. He saw workers
on the property constructing a bungalow. 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.
[6]

[7]

[8]

On July 22, 1992, Reniva submitted a report on his appraisal of the property. He stated therein that the fair market
value of the property as of August 1, 1992 was P900,000 and that the owner thereof was Teofilo C. Ramos, married to
Rebecca Ramos. When appraised by the petitioner of the said report, the Sheriff prepared a notice of levy in Civil Case
No. 16453 stating, inter alia, that the defendants were Teofilo Ramos, Sr. and his wife Amelita Ramos and caused the
annotation thereof by the Register of Deeds on the said title.
[9]

Meanwhile, in August of 1993, Ramdustrial Corporation applied for a loan with the UCPB, a sister company of the
petitioner, using the property covered by TCT No. 275167 (PR-13108) as collateral therefor. The Ramdustrial
Corporation intended to use the proceeds of the loan as additional capital as it needed to participate in a bidding
project of San Miguel Corporation. 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.
[10]

The respondent was shocked by the information. He was not a party in the said case; neither was he aware that
his property had been levied by the sheriff in the said case.His blood temperature rose so much that immediately after
the meeting, he proceeded to his doctor, Dr. Gatchalian, at the St. Lukes Medical Center, who gave the respondent the
usual treatment and medication for cardio-vascular and hypertension problems.
[11]

Upon advise from his lawyer, Atty. Carmelito Montano, the respondent executed an affidavit of denial 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.
[12]

In a conversation over the phone with Atty. Carmelito Montano, Atty. Cesar Bordalba, the head of the petitioners
LED, suggested that the respondent file the appropriate pleading in Civil Case No. 16453 to prove his claim that Atty.
Montanos client, Teofilo C. Ramos, was not defendant Teofilo Ramos, Sr., the defendant in Civil Case No. 16453.
On October 21, 1993, the respondent was informed by the UCPB that Ramdustrial Corporations credit line
application for P2,000,000 had been approved. Subsequently, on October 22, 1993, the respondent, in his capacity as
President and Chairman of the Board of Directors of Ramdustrial Corporation, and Rebecca F. Ramos executed a
promissory note for the said amount payable to the UCPB in installments for a period of 180 days. Simultaneously,
the respondent and his wife Rebecca F. Ramos acted as sureties to the loan of Ramdustrial Corporation. However, the
respondent was concerned because when the proceeds of the loan were released, the bidding period for the San
Miguel Corporation project had already elapsed. As business did not go well, Ramdustrial Corporation found it difficult
to pay the loan. It thus applied for an additional loan with the UCPB which was, however, denied. The corporation then
applied for a loan with the Planters Development Bank (PDB), the proceeds of which would be used to pay its account
to the UCPB. The respondent offered to use his property covered by TCT No. 275167 as collateral for its loan. PDB
agreed to pay off the outstanding loan obligation of Ramdustrial Corporation with UCPB, on the condition that the
mortgage with the latter would be released. UCPB agreed. Pending negotiations with UCPB, the respondent discovered
that the notice of levy annotated on TCT No. 275167 (PR-13108) at the instance of the petitioner had not yet been
cancelled. When apprised thereof, PDB withheld the release of the loan pending the cancellation of the notice of
levy. The account of Ramdustrial Corporation with UCPB thus remained outstanding. The monthly amortization on its
loan from UCPB became due and remained unpaid. When the respondent went to the petitioner for the cancellation of
the notice of levy annotated on his title, the petitioners counsel suggested to the respondent that he file a motion to
cancel the levy on execution to enable the court to resolve the issue. The petitioner assured the respondent that the
motion would not be opposed. Rather than wait for the petitioner to act, the respondent, through counsel, filed the
said motion on April 8, 1994. As promised, the petitioner did not oppose the motion. The court granted the motion and
issued an order on April 12, 1994 ordering the Register of Deeds to cancel the levy. The Register of Deeds of Quezon
City complied and cancelled the notice of levy.
[13]

[14]

[15]

[16]

[17]

[18]

Despite the cancellation of the notice of levy, the respondent filed, on May 26, 1994, a complaint for damages
against the petitioner and Sheriff Villapaa before the RTC of Makati City, raffled to Branch 148 and docketed as Civil
Case No. 94-1822. Therein, the respondent (as plaintiff) alleged that he was the owner of a parcel of land covered by
TCT No. 275167; that Teofilo Ramos, Sr., one of the judgment debtors of UCPB in Civil Case No. 16453, was only his
namesake; that without any legal basis, the petitioner and Sheriff Villapaa caused the annotation of a notice to levy on
the TCT of his aforesaid property which caused the disapproval of his loan from UCPB and, thus made him lose an
opportunity to participate in the bidding of a considerable project; that by reason of such wrongful annotation of notice
of levy, he suffered sleepless nights, moral shock, mental anguish and almost a heart attack due to high blood
pressure. He thus prayed:

WHEREFORE, premises considered, it is most respectfully prayed of the Honorable Regional Trial Court that after due
hearing, judgment be rendered in his favor by ordering defendants jointly and severally, to pay as follows:
1. P3,000,000.00 as moral damages;
2. 300,000.00 as exemplary damages;
3. 200,000.00 as actual damages;
4. 200,000.00 as attorneys fees;
5. Cost of suit.

[19]

In its answer, the petitioner, while admitting that it made a mistake in causing the annotation of notice of levy on
the TCT of the respondent, denied that it was motivated by malice and bad faith. The petitioner alleged that after
ascertaining that it indeed made a mistake, it proposed that the respondent file a motion to cancel levy with a promise
that it would not oppose the said motion. However, the respondent dilly-dallied and failed to file the said motion;
forthwith, if any damages were sustained by the respondent, it was because it took him quite a long time to file the
motion. The petitioner should not thus be made to suffer for the consequences of the respondents delay.
The petitioner further asserted that it had no knowledge that there were two persons bearing the same name
Teofilo Ramos; it was only when Sheriff Villapaa notified the petitioner that a certain Teofilo C. Ramos who appeared to
be the registered owner of TCT No. 275167 that it learned for the first time the notice of levy on the respondents
property; forthwith, the petitioner held in abeyance the sale of the levied property at public auction; barred by the
failure of the respondent to file a third-party claim in Civil Case No. 16453, the petitioner could not cause the removal
of the levy; in lieu thereof, it suggested to the respondent the filing of a motion to cancel levy and that the petitioner
will not oppose such motion; surprisingly, it was only on April 12, 1994 that the respondent filed such motion; the
petitioner was thus surprised that the respondent filed an action for damages against it for his failure to secure a
timely loan from the UCPB and PDB. The petitioner thus prayed:
WHEREFORE, in view of the foregoing premises, it is respectfully prayed of this Honorable Court that judgment be
rendered in favor of defendant UCPB, dismissing the complaint in toto and ordering the plaintiff to:
1. pay moral damages in the amount of PESOS: THREE MILLION P3,000,000.00 and exemplary damages in
the amount of PESOS: FIVE HUNDRED THOUSAND P500,000.00;
2. pay attorneys fees and litigation expenses in an amount of not less than PESOS: TWO HUNDRED
THOUSAND P200,000.00;
Other reliefs and remedies deemed just and equitable under the premises are also prayed for.

[20]

In the meantime, in 1995, PDB released the proceeds of the loan of Ramdustrial Corporation which the latter
remitted to UCPB.
On March 4, 1997, the RTC rendered a decision in favor of the respondent. The complaint against Sheriff Villapaa
was dismissed on the ground that he was merely performing his duties. The decretal part of the decision is herein
quoted:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendant
UCPB, and the latter is hereby ordered to pay the following:
(1) P800,000.00 as moral damages;
(2) P100,000.00 as exemplary damages;
(3) P100,000.00 as attorneys fees;

(4) Cost of suit.

[21]

The trial court found that contrary to the contention of the petitioner, it acted with caution in looking for leviable
properties of the judgment debtors/defendants in Civil Case No. 16453, it proceeded with haste as it did not take into
consideration that the defendant Teofilo Ramos was married to Amelita Ramos and had a Sr. in his name, while the
respondent was married to Rebecca Ramos and had C for his middle initial. The investigation conducted by CAID
appraiser Eduardo C. Reniva did not conclusively ascertain if the respondent and Teofilo Ramos, Sr. were one and the
same person.
The trial court further stated that while it was Ramdustrial Corporation which applied for a loan with UCPB and
PDB, the respondent, as Chairman of Ramdustrial Corporation, with his wife Rebecca Ramos, signed in the promissory
note and acted as sureties on the said obligations. Moreover, the property which was levied was the respondents only
property where he and his family resided. Thus, the thought of losing it for reasons not of his own doing gave rise to
his entitlement to moral damages.
The trial court further ruled that the mere fact that the petitioner did not file an opposition to the respondents
motion to cancel levy did not negate its negligence and bad faith. However, the court considered the cancellation of
annotation of levy as a mitigating factor on the damages caused to the respondent. For failure to show that he suffered
actual damages, the court a quo dismissed the respondents claim therefor.
Dissatisfied, the petitioner interposed an appeal to the Court of Appeals (CA). On March 30, 2001, the CA rendered
a decision affirming, in toto, the decision of the trial court, the decretal portion of which is herein quoted:
WHEREFORE, based on the foregoing premises, the assailed decision is hereby AFFIRMED.

[22]

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

IN AFFIRMING THE TRIAL COURTS ORDER, THE COURT OF APPEALS COMMITTED MANIFESTLY MISTAKEN INFERENCES
AND EGREGIOUS MISAPPREHENSION OF FACTS AND GRAVE ERRORS OF LAW, CONSIDERING THAT:
A. ON THE EVIDENCE, THE BORROWER OF THE LOAN, WHICH RESPONDENT RAMOS CLAIMED HE TRIED TO OBTAIN, WAS
RAMDUSTRIAL CORPORATION.HENCE, ANY DAMAGE RESULTING FROM THE ANNOTATION WAS SUFFERED BY THE
CORPORATION AND NOT BY RESPONDENT RAMOS.
B. THE DELAY IN THE CANCELLATION OF THE ANNOTATION WAS OF RESPONDENT RAMOSS (SIC) OWN DOING.
C. THE LOAN APPLICATIONS WITH UNITED COCONUT SAVINGS BANK AND PLANTERS DEVELOPMENT BANK WERE GRANTED PRIOR
TO THE CANCELLATION OF THE ANNOTATION ON THE TITLE OF THE SUBJECT PROPERTY.
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. UCPB WAS NOT NEGLIGENT WHEN IT CAUSED THE LEVY ON THE SUBJECT PROPERTY.
B. AS A MATTER OF LAW, MORAL DAMAGES CANNOT BE AWARDED ON A FINDING OF MERE NEGLIGENCE.
C. IN ANY EVENT, THE AWARD OF MORAL DAMAGES TO RESPONDENT RAMOS WAS UNREASONABLE AND OPPRESSIVE.
III

THE AWARD OF EXEMPLARY DAMAGES AND ATTORNEYS FEES IS CONTRARY TO LAW SINCE THE AWARD OF MORAL
DAMAGES WAS IMPROPER IN THE FIRST PLACE.
[23]

UCPB prayed that:

WHEREFORE, petitioner UNITED COCONUT PLANTERS BANK respectfully prays that this Honorable Court render
judgment reversing and setting aside the Court of Appeals Decisiondated 30 March 2001, and ordering the dismissal of
respondent Ramos Complaint dated 05 May 1994.
[24]

In his comment, the respondent alleged that the CA did not err in affirming, in toto, the decision of the trial
court. He prayed that the petition be denied due course.
The issues posed for our resolution are the following: (a) whether or not the petitioner acted negligently in
causing the annotation of levy on the title of the respondent; (b) if so, whether or not the respondent was the real
party-in-interest as plaintiff to file an action for damages against the petitioner considering that the loan applicant with
UCPB and PDB was RAMDUSTRIAL CORPORATION; (c) if so, whether or not the respondent is entitled to moral
damages, exemplary damages and attorneys fees.
On the first issue, we rule that the petitioner acted negligently when it caused the annotation of the notice of levy
in TCT No. 275167.
It bears stressing that the petitioner is a banking corporation, a financial institution with power to issue its
promissory notes intended to circulate as money (known as bank notes); or to receive the money of others on general
deposit, to form a joint fund that shall be used by the institution for its own benefit, for one or more of the purposes of
making temporary loans and discounts, of dealing in notes, foreign and domestic bills of exchange, coin bullion,
credits, and the remission of money; or with both these powers, and with the privileges, in addition to these basic
powers, of receiving special deposits, and making collection for the holders of negotiable paper, if the institution sees
fit to engage in such business. In funding these businesses, the bank invests the money that it holds in trust of its
depositors. For this reason, we have held that the business of a bank is one affected with public interest, for which
reason the bank should guard against loss due to negligence or bad faith. In approving the loan of an applicant, the
bank concerns itself with proper informations regarding its debtors. The petitioner, as a bank and a financial institution
engaged in the grant of loans, is expected to ascertain and verify the identities of the persons it transacts business
with. 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.
[25]

[26]

[27]

The petitioner, with Atty. Bordalba as the Chief of LED and handling lawyer of Civil Case No. 16453, in coordination
with the sheriff, caused the annotation of notice of levy in the respondents title despite its knowledge that the property
was owned by the respondent and his wife Rebecca Ramos, who were not privies to the loan availment of ZDC nor
parties-defendants in Civil Case No. 16453. Even when the respondent informed the petitioner, through counsel, that
the property levied by the sheriff was owned by the respondent, the petitioner failed to have the annotation cancelled
by the Register of Deeds.
In determining whether or not the petitioner acted negligently, the constant test is: Did the defendant in doing the
negligent act use that reasonable care and caution which an ordinarily prudent person would have used in the same
situation? If not, then he is guilty of negligence. 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.
[28]

The petitioner has access to more facilities in confirming the identity of their judgment debtors. It should have
acted more cautiously, especially since some uncertainty had been reported by the appraiser whom the petitioner had
tasked to make verifications. It appears that the petitioner treated the uncertainty raised by appraiser Eduardo C.
Reniva as a flimsy matter. It placed more importance on the information regarding the marketability and market value
of the property, utterly disregarding the identity of the registered owner thereof.
It should not be amiss to note that the judgment debtors name was Teofilo Ramos, Sr. We note, as the Supreme
Court of Washington in 1909 had, that a legal name consists of one given name and one surname or family name, and
a mistake in a middle name is not regarded as of consequence. However, since the use of initials, instead of a given

name, before a surname, has become a practice, the necessity that these initials be all given and correctly given in
court proceedings has become of importance in every case, and in many, absolutely essential to a correct designation
of the person intended. A middle name is very important or even decisive in a case in which the issue is as between
two persons who have the same first name and surname, did the act complained of, or is injured or sued or the like.
[29]

[30]

In this case, the name of the judgment debtor in Civil Case No. 16453 was Teofilo Ramos, Sr., as appearing in the
judgment of the court and in the writ of execution issued by the trial court. The name of the owner of the property
covered by TCT No. 275167 was Teofilo C. Ramos. It behooved the petitioner to ascertain whether the defendant Teofilo
Ramos, Sr. in Civil Case No. 16453 was the same person who appeared as the owner of the property covered by the
said title. If the petitioner had done so, it would have surely discovered that the respondent was not the surety and the
judgment debtor in Civil Case No. 16453. The petitioner failed to do so, and merely assumed that the respondent and
the judgment debtor Teofilo Ramos, Sr. were one and the same person.
In sum, we find that the petitioner acted negligently in causing the annotation of notice of levy in the title of the
herein respondent, and that its negligence was the proximate cause of the damages sustained by the respondent.
On the second issue, the petitioner insists that the respondent is not the real party-in-interest to file the action for
damages, as he was not the one who applied for a loan from UCPB and PDB but Ramdustrial Corporation, of which he
was merely the President and Chairman of the Board of Directors.
We do not agree. The respondent very clearly stated in his complaint that as a result of the unlawful levy by the
petitioner of his property, he suffered sleepless nights, moral shock, and almost a heart attack due to high blood
pressure.
[31]

It must be underscored that the registered owner of the property which was unlawfully levied by the petitioner is
the respondent. As owner of the property, the respondent has the right to enjoy, encumber and dispose of his property
without other limitations than those established by law. The owner also has a right of action against the holder and
possessor of the thing in order to recover it. 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.
[32]

Arising from his right of ownership over the said property is a cause of action against persons or parties who have
disturbed his rights as an owner. As an owner, he is one who would be benefited or injured by the judgment, or who is
entitled to the avails of the suit for an action for damages against one who disturbed his right of ownership.
[33]

[34]

Hence, regardless of the fact that the respondent was not the loan applicant with the UCPB and PDB, as the
registered owner of the property whose ownership had been unlawfully disturbed and limited by the unlawful
annotation of notice of levy on his TCT, the respondent had the legal standing to file the said action for damages. In
both instances, the respondents property was used as collateral of the loans applied for by Ramdustrial
Corporation. Moreover, the respondent, together with his wife, was a surety of the aforesaid loans.
While it is true that the loss of business opportunities cannot be used as a reason for an action for damages
arising from loss of business opportunities caused by the negligent act of the petitioner, the respondent, as a
registered owner whose right of ownership had been disturbed and limited, clearly has the legal personality and cause
of action to file an action for damages. Not even the respondents failure to have the annotation cancelled immediately
after he came to know of the said wrongful levy negates his cause of action.
On the third issue, for the award of moral damages to be granted, the following must exist: (1) there must be an
injury clearly sustained by the claimant, whether physical, mental or psychological; (2) there must be a culpable act or
omission factually established; (3) the wrongful act or omission of the defendant is the proximate cause of the injury
sustained by the claimant; and (4) the award for damages is predicated on any of the cases stated in Article 2219 of
the Civil Code.
[35]

In the case at bar, although the respondent was not the loan applicant and the business opportunities lost were
those of Ramdustrial Corporation, all four requisites were established. First, the respondent sustained injuries in that
his physical health and cardio-vascular ailment were aggravated; his fear that his one and only property would be
foreclosed, hounded him endlessly; and his reputation as mortgagor had been tarnished. Second, the annotation of
notice of levy on the TCT of the private respondent was wrongful, arising as it did from the petitioners negligent act of

allowing the levy without verifying the identity of its judgment debtor. Third, such wrongful levy was the proximate
cause of the respondents misery. Fourth, the award for damages is predicated on Article 2219 of the Civil Code,
particularly, number 10 thereof.
[36]

Although the respondent was able to establish the petitioners negligence, we cannot, however, allow the award
for exemplary damages, absent the private respondents failure to show that the petitioner acted with malice and bad
faith. It is a requisite in the grant of exemplary damages that the act of the offender must be accompanied by bad
faith or done in a wanton, fraudulent or malevolent manner.
[37]

Attorneys fees may be awarded when a party is compelled to litigate or to incur expenses to protect his interest
by reason of an unjustified act of the other party. In this case, the respondent was compelled to engage the services of
counsel and to incur expenses of litigation in order to protect his interest to the subject property against the
petitioners unlawful levy. The award is reasonable in view of the time it has taken this case to be resolved.
[38]

In sum, we rule that the petitioner acted negligently in levying the property of the respondent despite doubts as
to the identity of the respondent vis--vis its judgment debtor.By reason of such negligent act, a wrongful levy was
made, causing physical, mental and psychological injuries on the person of the respondent. Such injuries entitle the
respondent to an award of moral damages in the amount of P800,000. No exemplary damages can be awarded
because the petitioners negligent act was not tainted with malice and bad faith. By reason of such wrongful levy, the
respondent had to hire the services of counsel to cause the cancellation of the annotation; hence, the award of
attorneys fees.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 56737 is AFFIRMED WITH
MODIFICATION. The award for exemplary damages is deleted. No costs.
SO ORDERED.

THIRD DIVISION

LILLIAN N. MERCADO, CYNTHIA M.

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

G.R. No. 171460

Present:

- versus Promulgated:
ALLIED BANKING CORPORATION,

July 24, 2007

Respondent.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
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 petitioners
Lillian N. Mercado, Cynthia M. Fekaris and Julian Mercado, Jr., represented by their Attorney-In-Fact, Alfredo M. Perez,
seeking to reverse and set aside the Decision [1] of the Court of Appeals dated 12 October 2005, and its
Resolution[2] dated 15 February 2006 in CA-G.R. CV No. 82636. The Court of Appeals, in its assailed Decision and
Resolution, reversed the Decision[3] of the Regional Trial Court (RTC) of Quezon City, Branch 220 dated 23 September
2003, declaring the deeds of real estate mortgage constituted on TCT No. RT-18206 (106338) null and void. The
dispositive portion of the assailed Court of Appeals Decision thus reads:
WHEREFORE, the appealed decision is REVERSED and SET ASIDE, and a new judgment is hereby entered
dismissing the [petitioners] complaint.[4]
Petitioners are heirs of Perla N. Mercado (Perla). Perla, during her lifetime, owned several pieces of real
property situated in different provinces of thePhilippines.
Respondent, on the other hand, is a banking institution duly authorized as such under the Philippine laws.
On 28 May 1992, Perla executed a Special Power of Attorney (SPA) in favor of her husband, Julian D. Mercado
(Julian) over several pieces of real property registered under her name, authorizing the latter to perform the following
acts:
1. To act in my behalf, to sell, alienate, mortgage, lease and deal otherwise over the different
parcels of land described hereinafter, to wit:
a)

2.

3.

Calapan, Oriental Mindoro Properties covered by Transfer Certificates of Title Nos.

T-53618 - 3,522 Square Meters, T-46810 3,953 Square Meters, T-53140 177
Square Meters, T-21403 263 square Meters, T- 46807 39 Square Meters of the
Registry of Deeds of Oriental Mindoro;
b)
Susana Heights, Muntinlupa covered by Transfer Certificates of Title Nos. T108954 600 Square Meters and RT-106338 805 Square Meters of the
Registry of Deeds of Pasig (now Makati);
c)
Personal property 1983 Car with Vehicle Registration No. R-16381; Model 1983;
Make Toyota; Engine No. T- 2464
To sign for and in my behalf any act of strict dominion or ownership any sale, disposition,
mortgage, lease or any other transactions including quit-claims, waiver and relinquishment of
rights in and over the parcels of land situated in General Trias, Cavite, covered by Transfer
Certificates of Title Nos. T-112254 and T-112255 of the Registry of Deeds of Cavite, in
conjunction with his co-owner and in the person ATTY. AUGUSTO F. DEL ROSARIO;
To exercise any or all acts of strict dominion or ownership over the above-mentioned properties,
rights and interest therein. (Emphasis supplied.)

On the strength of the aforesaid SPA, Julian, on 12 December 1996, obtained a loan from the respondent in the amount
of P3,000,000.00, secured by real estate mortgage constituted on TCT No. RT-18206 (106338) which covers a parcel
of land with an area of 805 square meters, registered with the Registry of Deeds of Quezon City (subject property). [5]
Still using the subject property as security, Julian obtained an additional loan from the respondent in the sum
of P5,000,000.00, evidenced by a Promissory Note [6] he executed on 5 February 1997 as another real estate mortgage
(REM).
It appears, however, that there was no property identified in the SPA as TCT No. RT 18206 (106338) and
registered with the Registry of Deeds of Quezon City. What was identified in the SPA instead was the property
covered by TCT No. RT-106338 registered with the Registry of Deeds of Pasig.
Subsequently, Julian defaulted on the payment of his loan obligations. Thus, respondent initiated extra-judicial
foreclosure proceedings over the subject property which was subsequently sold at public auction wherein the
respondent was declared as the highest bidder as shown in the Sheriffs Certificate of Sale dated 15 January 1998.[7]
On 23 March 1999, petitioners initiated with the RTC an action for the annulment of REM constituted over the
subject property on the ground that the same was not covered by the SPA and that the said SPA, at the time the loan
obligations were contracted, no longer had force and effect since it was previously revoked by Perla on 10 March 1993,
as evidenced by the Revocation of SPA signed by the latter. [8]
Petitioners likewise alleged that together with the copy of the Revocation of SPA, Perla, in a Letter dated 23
January 1996, notified the Registry of Deeds of Quezon City that any attempt to mortgage or sell the subject property
must be with her full consent documented in the form of an SPA duly authenticated before the Philippine Consulate
General in New York. [9]
In the absence of authority to do so, the REM constituted by Julian over the subject property was null and void;
thus, petitioners likewise prayed that the subsequent extra-judicial foreclosure proceedings and the auction sale of the
subject property be also nullified.
In its Answer with Compulsory Counterclaim, [10] respondent averred that, contrary to petitioners allegations,
the SPA in favor of Julian included the subject property, covered by one of the titles specified in paragraph 1(b)
thereof, TCT No. RT- 106338 registered with the Registry of Deeds of Pasig (now Makati). The subject property
was purportedly registered previously under TCT No. T-106338, and was only subsequently reconstituted as TCT RT18206 (106338). Moreover,TCT No. T-106338 was actually registered with the Registry of Deeds of Quezon
City and not before the Registry of Deeds of Pasig (now Makati). Respondent explained that the discrepancy in
the designation of the Registry of Deeds in the SPA was merely an error that must not prevail over the clear intention
of Perla to include the subject property in the said SPA. In sum, the property referred to in the SPA Perla executed in
favor of Julian as covered by TCT No. 106338 of theRegistry of Deeds of Pasig (now Makati) and the subject
property in the case at bar, covered by RT 18206 (106338) of the Registry of Deeds of Quezon City, are one and
the same.
On 23 September 2003, the RTC rendered a Decision declaring the REM constituted over the subject property
null and void, for Julian was not authorized by the terms of the SPA to mortgage the same. The court a quo likewise
ordered that the foreclosure proceedings and the auction sale conducted pursuant to the void REM, be nullified. The
dispositive portion of the Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the [herein
petitioners] and against the [herein respondent] Bank:
1. Declaring the Real Estate Mortgages constituted and registered under Entry Nos. PE4543/RT-18206 and 2012/RT-18206 annotated on TCT No. RT-18206 (106338) of the Registry of Deeds
of Quezon City as NULL and VOID;
2. Declaring the Sheriffs Sale and Certificate of Sale under FRE No. 2217 dated January 15,
1998 over the property covered by TCT No. RT-18206 (106338) of the Registry of Deeds of Quezon
City as NULL and VOID;
3. Ordering the defendant Registry of Deeds of Quezon City to cancel the annotation of Real
Estate Mortgages appearing on Entry Nos. PE-4543/RT-18206 and 2012/RT-18206 on TCT No. RT-18206
(106338) of the Registry of Deeds of Quezon City;
4. Ordering the [respondent] Bank to deliver/return to the [petitioners] represented by their
attorney-in-fact Alfredo M. Perez, the original Owners Duplicate Copy of TCT No. RT-18206 (106338)
free from the encumbrances referred to above; and
5. Ordering the [respondent] Bank to pay the [petitioners] the amount of P100,000.00 as for
attorneys fees plus cost of the suit.

The other claim for damages and counterclaim are hereby DENIED for lack of merit. [11]
Aggrieved, respondent appealed the adverse Decision before the Court of Appeals.
In a Decision dated 12 October 2005, the Court of Appeals reversed the RTC Decision and upheld the validity of
the REM constituted over the subject property on the strength of the SPA. The appellate court declared that Perla
intended the subject property to be included in the SPA she executed in favor of Julian, and that her subsequent
revocation of the said SPA, not being contained in a public instrument, cannot bind third persons.
The Motion for Reconsideration interposed by the petitioners was denied by the Court of Appeals in its
Resolution dated 15 February 2006.
Petitioners are now before us assailing the Decision and Resolution rendered by the Court of Appeals raising
several issues, which are summarized as follows:
I WHETHER OR NOT THERE WAS A VALID MORTGAGE CONSTITUTED OVER SUBJECT PROPERTY.
II WHETHER OR NOT THERE WAS A VALID REVOCATION OF THE SPA.
III WHETHER OR NOT THE RESPONDENT WAS A MORTGAGEE-IN- GOOD FAITH.
For a mortgage to be valid, Article 2085 of the Civil Code enumerates the following essential requisites:
Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:
(1) That they be constituted to secure the fulfillment of a principal obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free disposal of their
property, and in the absence thereof, that they be legally authorized for the purpose.
Third persons who are not parties to the principal obligation may secure the latter by pledging
or mortgaging their own property.

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

Under Article 1878 of the Civil Code, a special power of attorney is necessary in cases where real rights over
immovable property are created or conveyed.[12]In the SPA executed by Perla in favor of Julian on 28 May 1992, the
latter was conferred with the authority to sell, alienate, mortgage, lease and deal otherwise the different pieces of
real and personal property registered in Perlas name. The SPA likewise authorized Julian [t]o exercise any or all acts of
strict dominion or ownership over the identified properties, and rights and interest therein. The existence and due
execution of this SPA by Perla was not denied or challenged by petitioners.
There is no question therefore that Julian was vested with the power to mortgage the pieces of property
identified in the SPA. However, as to whether the subject property was among those identified in the SPA, so as to
render Julians mortgage of the same valid, is a question we still must resolve.
Petitioners insist that the subject property was not included in the SPA, considering that it contained an
exclusive enumeration of the pieces of property over which Julian had authority, and these include only: (1) TCT No. T53618, with an area of 3,522 square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of
Deeds of Oriental Mindoro; (2) TCT No. T-46810, with an area of 3,953 square meters, located at Calapan, Oriental
Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (3) TCT No. T-53140, with an area of 177
square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (4)
TCT No. T-21403, with an area of 263 square meters, located at Calapan, Oriental Mindoro, and registered with the
Registry of Deeds of Oriental Mindoro; (5) TCT No. T- 46807, with an area of 39 square meters, located at Calapan,
Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (6) TCT No. T-108954, with an area of
690 square meters and located at Susana Heights, Muntinlupa; (7) RT-106338 805 Square Meters registered with
the Registry of Deeds of Pasig (now Makati); and (8) Personal Property consisting of a 1983 Car with Vehicle
Registration No. R-16381, Model 1983, Make Toyota, and Engine No. T- 2464. Nowhere is it stated in the SPA that
Julians authority extends to the subject property covered by TCT No. RT 18206 (106338) registered with the
Registry of Deeds of Quezon City. Consequently, the act of Julian of constituting a mortgage over the subject property
is unenforceable for having been done without authority.

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

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

There was also nothing in the language of the SPA from which we could deduce the intention of Perla to include
the subject property therein. We cannot attribute such alleged intention to Perla who executed the SPA when the
language of the instrument is bare of any indication suggestive of such intention.Contrariwise, to adopt the intent
theory advanced by the respondent, in the absence of clear and convincing evidence to that effect, would run afoul of
the express tenor of the SPA and thus defeat Perlas true intention.
In cases where the terms of the contract are clear as to leave no room for interpretation, resort to circumstantial
evidence to ascertain the true intent of the parties, is not countenanced. As aptly stated in the case of JMA House,
Incorporated v. Sta. Monica Industrial and Development Corporation, [13] thus:
[T]he law is that if the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulation shall control.When the language of the
contract is explicit, leaving no doubt as to the intention of the drafters, the courts may not read into it
[in] any other intention that would contradict its main import. The clear terms of the contract should
never be the subject matter of interpretation. Neither abstract justice nor the rule on liberal
interpretation justifies the creation of a contract for the parties which they did not make themselves or
the imposition upon one party to a contract or obligation not assumed simply or merely to avoid
seeming hardships. The true meaning must be enforced, as it is to be presumed that the contracting
parties know their scope and effects.[14]
Equally relevant is the rule that a power of attorney must be strictly construed and pursued. The instrument will be
held to grant only those powers which are specified therein, and the agent may neither go beyond nor deviate from
the power of attorney.[15] Where powers and duties are specified and defined in an instrument, all such powers and
duties are limited and are confined to those which are specified and defined, and all other powers and duties are
excluded.[16] This is but in accord with the disinclination of courts to enlarge the authority granted beyond the powers
expressly given and those which incidentally flow or derive therefrom as being usual and reasonably necessary and
proper for the performance of such express powers.[17]
Even the commentaries of renowned Civilist Manresa[18] supports a strict and limited construction of the terms of a
power of attorney:
The law, which must look after the interests of all, cannot permit a man to express himself in a
vague and general way with reference to the right he confers upon another for the purpose of
alienation or hypothecation, whereby he might be despoiled of all he possessed and be brought to
ruin, such excessive authority must be set down in the most formal and explicit terms, and when this is
not done, the law reasonably presumes that the principal did not mean to confer it.
In this case, we are not convinced that the property covered by TCT No. 106338 registered with the Registry of
Deeds of Pasig (now Makati) is the same as the subject property covered by TCT No. RT-18206 (106338) registered
with the Registry of Deeds of Quezon City. The records of the case are stripped of supporting proofs to verify the
respondents claim that the two titles cover the same property. It failed to present any certification from the Registries
of Deeds concerned to support its assertion. Neither did respondent take the effort of submitting and making part of
the records of this case copies of TCTs No. RT-106338 of the Registry of Deeds of Pasig (now Makati) and RT-18206
(106338) of the Registry of Deeds of Quezon City, and closely comparing the technical descriptions of the properties
covered by the said TCTs. The bare and sweeping statement of respondent that the properties covered by the two
certificates of title are one and the same contains nothing but empty imputation of a fact that could hardly be given
any evidentiary weight by this Court.

Having arrived at the conclusion that Julian was not conferred by Perla with the authority to mortgage the subject
property under the terms of the SPA, the real estate mortgages Julian executed over the said property are therefore
unenforceable.
Assuming arguendo that the subject property was indeed included in the SPA executed by Perla in favor of
Julian, the said SPA was revoked by virtue of a public instrument executed by Perla on 10 March 1993. To address
respondents assertion that the said revocation was unenforceable against it as a third party to the SPA and as one who
relied on the same in good faith, we quote with approval the following ruling of the RTC on this matter:
Moreover, an agency is extinguished, among others, by its revocation (Article 1999, New Civil
Code of the Philippines). The principal may revoke the agency at will, and compel the agent to return
the document evidencing the agency. Such revocation may be express or implied (Article 1920, supra).
In this case, the revocation of the agency or Special Power of Attorney is expressed and by a
public document executed on March 10, 1993.
The Register of Deeds of Quezon City was even notified that any attempt to mortgage or sell
the property covered by TCT No. [RT-18206] 106338 located atNo. 21 Hillside Drive, Blue
Ridge, Quezon City must have the full consent documented in the form of a special power of attorney
duly authenticated at the Philippine Consulate General, New York City, N.Y., U.S.A.
The non-annotation of the revocation of the Special Power of Attorney on TCT No. RT-18206 is
of no consequence as far as the revocations existence and legal effect is concerned since actual notice
is always superior to constructive notice. The actual notice of the revocation relayed to defendant
Registry of Deeds of Quezon City is not denied by either the Registry of Deeds of Quezon City or the
defendant Bank. In which case, there appears no reason why Section 52 of the Property Registration
Decree (P.D. No. 1529) should not apply to the situation. Said Section 52 of P.D. No. 1529 provides:
Section 52. Constructive notice upon registration. Every conveyance,
mortgage, lease, lien, attachment, order, judgment, instrument or entry affecting
registered land shall, if registered, filed or entered in the Office of the Register of
Deeds for the province or city where the land to which it relates lies, beconstructive
notice to all persons from the time of such registering, filing or entering. (Pres.
Decree No. 1529, Section 53) (emphasis ours)
It thus developed that at the time the first loan transaction with defendant Bank was effected
on December 12, 1996, there was on record at the Office of the Register of Deeds of Quezon City that
the special power of attorney granted Julian, Sr. by Perla had been revoked. That notice, works as
constructive notice to third parties of its being filed, effectively rendering Julian, Sr. without authority to
act for and in behalf of Perla as of the date the revocation letter was received by the Register of Deeds
of Quezon City on February 7, 1996.[19]
Given that Perla revoked the SPA as early as 10 March 1993, and that she informed the Registry of Deeds of Quezon
City of such revocation in a letter dated 23 January 1996 and received by the latter on 7 February 1996, then third
parties to the SPA are constructively notified that the same had been revoked and Julian no longer had any authority to
mortgage the subject property. Although the revocation may not be annotated on TCT No. RT-18206 (106338), as the
RTC pointed out, neither the Registry of Deeds of Quezon City nor respondent denied that Perlas 23 January 1996 letter
was received by and filed with the Registry of Deeds of Quezon City. Respondent would have undoubtedly come across
said letter if it indeed diligently investigated the subject property and the circumstances surrounding its mortgage.
The final issue to be threshed out by this Court is whether the respondent is a mortgagee-in-good
faith. Respondent fervently asserts that it exercised reasonable diligence required of a prudent man in dealing with the
subject property.
Elaborating, respondent claims to have carefully verified Julians authority over the subject property which was
validly contained in the SPA. It stresses that the SPA was annotated at the back of the TCT of the subject
property. Finally, after conducting an investigation, it found that the property covered by TCT No. 106338,registered
with the Registry of Deeds of Pasig (now Makati) referred to in the SPA, and the subject property, covered by TCT No.
18206 (106338) registered with the Registry of Deeds of Quezon City, are one and the same property. From the
foregoing, respondent concluded that Julian was indeed authorized to constitute a mortgage over the subject property.
We are unconvinced. The property listed in the real estate mortgages Julian executed in favor of PNB is the one
covered by TCT#RT-18206(106338). On the other hand, the Special Power of Attorney referred to TCT No. RT-106338
805 Square Meters of the Registry of Deeds of Pasig now Makati. The palpable difference between the TCT numbers
referred to in the real estate mortgages and Julians SPA, coupled with the fact that the said TCTs are registered in the
Registries of Deeds of different cities, should have put respondent on guard. Respondents claim of prudence is
debunked by the fact that it had conveniently or otherwise overlooked the inconsistent details appearing on the face of

the documents, which it was relying on for its rights as mortgagee, and which significantly affected the identification of
the property being mortgaged. In Arrofo v. Quio,[20] we have elucidated that:

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

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

Further, in the case of Abad v. Guimba,[21] we laid down the principle that where the mortgagee does not
directly deal with the registered owner of real property, the law requires that a higher degree of prudence be exercised
by the mortgagee, thus:

While [the] one who buys from the registered owner does not need to look behind the certificate of
title, one who buys from [the] one who is not [the] registered owner is expected to examine not only
the certificate of title but all factual circumstances necessary for [one] to determine if there are any
flaws in the title of the transferor, or in [the] capacity to transfer the land. Although the instant case
does not involve a sale but only a mortgage, the same rule applies inasmuch as the law itself includes
a mortgagee in the term purchaser.[22]

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

Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike

private individuals, it is expected to exercise greater care and prudence in its dealings, including those
involving registered lands. A banking institution is expected to exercise due diligence before entering
into a mortgage contract. The ascertainment of the status or condition of a property offered to it as
security for a loan must be a standard and indispensable part of its operations. [24]

Hence, considering that the property being mortgaged by Julian was not his, and there are additional doubts or
suspicions as to the real identity of the same, the respondent bank should have proceeded with its transactions with
Julian only with utmost caution. As a bank, respondent must subject all its transactions to the most rigid scrutiny, since
its business is impressed with public interest and its fiduciary character requires high standards of integrity and
performance.[25] Where respondent acted in undue haste in granting the mortgage loans in favor of Julian and
disregarding the apparent defects in the latters authority as agent, it failed to discharge the degree of diligence
required of it as a banking corporation.

Thus, even granting for the sake of argument that the subject property and the one identified in the SPA are
one and the same, it would not elevate respondents status to that of an innocent mortgagee. As a banking institution,
jurisprudence stringently requires that respondent should take more precautions than an ordinary prudent man should,
to ascertain the status and condition of the properties offered as collateral and to verify the scope of the authority of
the agents dealing with these.Had respondent acted with the required degree of diligence, it could have acquired
knowledge of the letter dated 23 January 1996 sent by Perla to the Registry of Deeds of Quezon City which recorded
the same. The failure of the respondent to investigate into the circumstances surrounding the mortgage of the subject
property belies its contention of good faith.
On a last note, we find that the real estate mortgages constituted over the subject property are unenforceable
and not null and void, as ruled by the RTC. It is best to reiterate that the said mortgage was entered into by Julian on
behalf of Perla without the latters authority and consequently, unenforceable under Article 1403(1) of the Civil
Code. Unenforceable contracts are those which cannot be enforced by a proper action in court, unless they are ratified,
because either they are entered into without or in excess of authority or they do not comply with the statute of frauds
or both of the contracting parties do not possess the required legal capacity. [26] An unenforceable contract may be
ratified, expressly or impliedly, by the person in whose behalf it has been executed, before it is revoked by the other
contracting party.[27] Without Perlas ratification of the same, the real estate mortgages constituted by Julian over the
subject property cannot be enforced by any action in court against Perla and/or her successors in interest.
In sum, we rule that the contracts of real estate mortgage constituted over the subject property covered
by TCT No. RT 18206 (106338) registered with the Registry of Deeds of Quezon City are
unenforceable. Consequently, the foreclosure proceedings and the auction sale of the subject property conducted in
pursuance of these unenforceable contracts are null and void. This, however, is without prejudice to the right of the
respondent to proceed against Julian, in his personal capacity, for the amount of the loans.
WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition is GRANTED. The Decision dated 12
October 2005 and its Resolution dated 15 February 2006 rendered by the Court of Appeals in CA-G.R. CV No. 82636,
are hereby REVERSED. The Decision dated 23 September 2003 of the Regional Trial Court of Quezon City, Branch
220, in Civil Case No. Q-99-37145, is hereby REINSTATED and AFFIRMED with modification that the real estate
mortgages constituted over TCT No. RT 18206 (106338) are not null and void but UNENFORCEABLE. No costs.
SO ORDERED.