BPI vs Roxas G.R. No. 157833Facts: Gregorio C. Roxas, respondent, is a trader, delivered stocks of vegetable oil to spouses Rodrigo and Marissa Cawili. As payment therefor, spouses Cawili issued a personal check in the amount of P348,805.50. However, when respondent tried to encash the check, it was dishonored by the drawee bank. Spouses Cawili then assured him that they would replace the bounced check with a cashiers check from the Bank of the Philippine Islands (BPI), petitioner.

On March 31, 1993, respondent and Rodrigo Cawili went to petitioners branch at Shaw Boulevard, Mandaluyong City where Elma Capistrano, the branch manager, personally attended to them. Upon Elmas instructions, Lita Sagun, the bank teller, prepared BPI Cashiers Check No. 14428 in the amount of P348,805.50, drawn against the account of Marissa Cawili, payable to respondent. Rodrigo then handed the check to respondent in the presence of Elma.

The following day, April 1, 1993, respondent returned to petitioners branch at Shaw Boulevard to encash the cashiers check but it was dishonored. Elma informed him that Marissas account was closed on that date.

Despite respondents insistence, the bank officers refused to encash the check and tried to retrieve it from respondent. He then called his lawyer who advised him to deposit the check in his (respondents) account at Citytrust, Ortigas Avenue. However, the check was dishonored on the ground Account Closed.

On September 23, 1993, respondent filed with the Regional Trial Court, Branch 263, Pasig City a complaint for sum of money against petitioner, docketed as Civil Case No. 63663. Respondent prayed that petitioner be ordered to pay the amount of the check, damages and cost of the suit.

In its answer, petitioner specifically denied the allegations in the complaint, claiming that it issued the check by mistake in good faith; that its dishonor was due to lack of consideration; and that respondents remedy was to sue Rodrigo Cawili who purchased the check. As a counterclaim, petitioner prayed that respondent be ordered to pay attorneys fees and expenses of litigation.

Petitioner filed a third-party complaint against spouses Cawili. They were later declared in default for their failure to file their answer.

After trial, the RTC rendered a Decision, the dispositive portion of which reads:WHEREFORE, in view of the foregoing premises, this Court hereby renders judgment in favor of herein plaintiff and orders the defendant, Bank of the Philippine Islands, to pay Gerardo C. Roxas:

 1)      The sum of P348,805.50, the face value of the cashiers check, with legal interest thereon computed from April 1, 1993 until the amount is fully paid;2)      The sum of P50,000.00 for moral damages;3)      The sum of P50,000.00 as exemplary damages to serve as an example for the public good;4)      The sum of P25,000.00 for and as attorneys fees; and the5)      Costs of suit.

As to the third-party complaint, third-party defendants Spouses Rodrigo and Marissa Cawili are hereby ordered to indemnify defendant Bank of the Philippine Islands such amount(s) adjudged and actually paid by it to herein plaintiff Gregorio C. Roxas, including the costs of suit.

 SO ORDERED.

 On appeal, the Court of Appeals, in its Decision, affirmed the trial

courts judgment.

Issue: Petitioner ascribes to the Court of Appeals the following errors: (1) in finding that respondent is a holder in due course; and (2) in holding that it (petitioner) is liable to respondent for the amount of the cashiers check.

Held: Section 52 of the Negotiable Instruments Law provides:

What constitutes a holder in due course. A holder in due course is a holder who has taken the instrument under the following conditions:(a)    That it is complete and regular upon its face;(b)    That he became the holder of it before it was overdue and without notice that it had been previously dishonored, if such was the fact;(c)    That he took it in good faith and for value;(d)    That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of person negotiating it.

As a general rule, under the above provision, every holder is presumed prima facie to be a holder in due course. One who claims otherwise has the onus probandi to prove that one or more of the conditions required to constitute a holder in due course are lacking. In this case, petitioner contends that the element of value is not present, therefore, respondent could not be a holder in due course.Petitioners contention lacks merit. Section 25 of the same law states:

SEC. 25. Value, what constitutes. Value is any consideration sufficient to support a simple contract. An antecedent or pre-

existing debt constitutes value; and is deemed as such whether the instrument is payable on demand or at a future time. 

 In Walker Rubber Corp. v. Nederlandsch Indische & Handelsbank, N.V. and South Sea Surety & Insurance Co., Inc.,this Court ruled that value in general terms may be some right, interest, profit or benefit to the party who makes the contract or some forbearance, detriment, loan, responsibility, etc. on the other side. Here, there is no dispute that respondent received Rodrigo Cawilis cashiers check as payment for the formers vegetable oil. The fact that it was Rodrigo who purchased the cashiers check from petitioner will not affect respondents status as a holder for value since the check was delivered to him as payment for the vegetable oil he sold to spouses Cawili. Verily, the Court of Appeals did not err in concluding that respondent is a holder in due course of the cashiers check.

Furthermore, it bears emphasis that the disputed check is a cashiers check. In International Corporate Bank v. Spouses Gueco, this Court held that a cashiers check is really the banks own check and may be treated as a promissory note with the bank as the maker. The check becomes the primary obligation of the bank which issues it and constitutes a written promise to pay upon demand . In New Pacific Timber & Supply Co. Inc. v. Seeris, this Court took judicial notice of the well-known and accepted practice in the business sector that a cashiers check is deemed as cash. This is because the mere issuance of a cashiers check is considered acceptance thereof.

In view of the above pronouncements, petitioner bank became liable to respondent from the moment it issued the cashiers check. Having been accepted by respondent, subject to no condition whatsoever, petitioner should have paid the same upon presentment by the former.WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals (Fourth Division) in CA-G.R. CV No. 67980 is AFFIRMED. Costs against petitioner.

SIMEX VS CA G.R. No. 88013

Facts: petitioner is a private corporation engaged in the exportation of food products. It buys these products from various local suppliers and then sells them abroad, particularly in the United States, Canada and the Middle East. Most of its exports are purchased by the petitioner on credit.

The petitioner was a depositor of the respondent bank and maintained a checking account in its branch at Romulo Avenue, Cubao, Quezon City. On May 25, 1981, the petitioner deposited to its account in the said bank the amount of P100,000.00, thus increasing its balance as of that date to P190,380.74. 1

Subsequently, the petitioner issued several checks against its deposit but was suprised to learn later that they had been dishonored for insufficient funds.

As a consequence, the California Manufacturing Corporation sent on June 9, 1981, a letter of demand to the petitioner, threatening prosecution if the dishonored check issued to it was not made good. It also withheld delivery of the order made by the petitioner. Similar letters were sent to the petitioner by the Malabon Long Life Trading, on June 15, 1981, and by the G. and U. Enterprises, on June 10, 1981. Malabon also canceled the petitioner's credit line and demanded that future payments be made by it in cash or certified check. Meantime, action on the pending orders of the petitioner with the other suppliers whose checks were dishonored was also deferred.The petitioner complained to the respondent bank on June 10, 1981. 3

Investigation disclosed that the sum of P100,000.00 deposited by the petitioner on May 25, 1981, had not been credited to it. The error was rectified on June 17, 1981, and the dishonored checks were paid after they were re-deposited. 4

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

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

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

Issue: We are concerned in this case with the question of damages, specifically moral and exemplary damages. The negligence of the private respondent has already been established. All we have to ascertain is whether the petitioner is entitled to the said damages and, if so, in what amounts.

Held: This Court has carefully examined the facts of this case and finds that it cannot share some of the conclusions of the lower courts. It seems to us that the negligence of the private respondent had been brushed off rather lightly as if it

were a minor infraction requiring no more than a slap on the wrist. We feel it is not enough to say that the private respondent rectified its records and credited the deposit in less than a month as if this were sufficient repentance. The error should not have been committed in the first place. The respondent bank has not even explained why it was committed at all. It is true that the dishonored checks were, as the Court of Appeals put it, "eventually" paid. However, this took almost a month when, properly, the checks should have been paid immediately upon presentment.

As the Court sees it, the initial carelessness of the respondent bank, aggravated by the lack of promptitude in repairing its error, justifies the grant of moral damages. This rather lackadaisical attitude toward the complaining depositor constituted the gross negligence, if not wanton bad faith, that the respondent court said had not been established by the petitioner.

We also note that while stressing the rectification made by the respondent bank, the decision practically ignored the prejudice suffered by the petitioner. This was simply glossed over if not, indeed, disbelieved. The fact is that the petitioner's credit line was canceled and its orders were not acted upon pending receipt of actual payment by the suppliers. Its business declined. Its reputation was tarnished. Its standing was reduced in the business community. All this was due to the fault of the respondent bank which was undeniably remiss in its duty to the petitioner.Article 2205 of the Civil Code provides that actual or compensatory damages may be received "(2) for injury to the plaintiff s business standing or commercial credit." There is no question that the petitioner did sustain actual injury as a result of the dishonored checks and that the existence of the loss having been established "absolute certainty as to its amount is not required." 7 Such injury should bolster all the more the demand of the petitioner for moral damages and justifies the examination by this Court of the validity and reasonableness of the said claim.

We agree that moral damages are not awarded to penalize the defendant but to compensate the plaintiff for the injuries he may have suffered. 8 In the case at bar, the petitioner is seeking such damages for the prejudice sustained by it as a result of the private respondent's fault. The respondent court said that the claimed losses are purely speculative and are not supported by substantial evidence, but if failed to consider that the amount of such losses need not be established with exactitude precisely because of their nature. Moral damages are not susceptible of pecuniary estimation. Article 2216 of the Civil Code specifically provides that "no proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or exemplary damages may be adjudicated." That is why the determination of the amount to be awarded (except liquidated damages) is left to the sound discretion of the court, according to "the circumstances of each case."

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

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

The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of every civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce, banks have become an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and, most of all, confidence. Thus, even the humble wage-earner has not hesitated to entrust his life's savings to the bank of his choice, knowing that they will be safe in its custody and will even earn some interest for him. The ordinary person, with equal faith, usually maintains a modest checking account for security and convenience in the settling of his monthly bills and the payment of ordinary expenses. As for business entities like the petitioner, the bank is a trusted and active associate that can help in the running of their affairs, not only in the form of loans when needed but more often in the conduct of their day-to-day transactions like the issuance or encashment of checks.

In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs. A blunder on the part of the bank, such as the dishonor of a check without good reason, can cause the depositor not a little embarrassment if not also financial loss and perhaps even civil and criminal litigation.

The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. In the case at bar, it is obvious that the respondent bank was remiss in that duty and violated that relationship. What is especially deplorable is that, having been informed of its error in not crediting the deposit in question to the petitioner, the respondent bank did not immediately correct it but did so only one week later or twenty-three days after the deposit was made. It bears repeating that the record does not contain any satisfactory explanation of why the error was made in the first place and why it was not corrected immediately after its discovery. Such ineptness comes under the concept of the wanton manner contemplated in the Civil Code that calls for the imposition of exemplary damages.After deliberating on this particular matter, the Court, in the exercise of its discretion, hereby imposes upon the respondent bank exemplary damages in the amount of P50,000.00, "by way of example or correction for the public good," in the words of the law. It is expected that this ruling will serve as a warning and deterrent against the repetition of the ineptness and indefference that has been displayed here, lest the confidence of the public in the banking system be further impaired.

ACCORDINGLY, the appealed judgment is hereby MODIFIED and the private respondent is ordered to pay the petitioner, in lieu of nominal damages, moral damages in the amount of P20,000.00, and exemplary damages in the amount of P50,000.00 plus the original award of attorney's fees in the amount of P5,000.00, and costs.

BPI VS CA G.R. No. 104612

FACTS: Private respondents Eastern Plywood Corporation (Eastern) andBenigno D. Lim (Lim), an officer and stockholder of Eastern, held at least one joint bank account ("and/or" account) with the Commercial Bank and Trust Co. (CBTC), the predecessor-in-interest of petitioner Bank of the Philippine Islands (BPI). Sometime in March 1975, a joint checking account ("and" account) with Lim in the amount of P120,000.00 was opened by Mariano Velasco with funds withdrawn from the account of Eastern and/or Lim. Various amounts were later deposited or withdrawn from the joint account of Velasco and Lim. The money therein was placed in the money market.Velasco died on 7 April 1977. At the time of his death, the outstanding balance of the account stood at P662,522.87. On 5 May 1977, by virtue of an Indemnity Undertaking executed by Lim for himself and as President and General Manager of Eastern, 2 one-half of this amount was provisionally released and transferred to one of the bank accounts of Eastern with CBTC. 3

Thereafter, on 18 August 1978, Eastern obtained a loan of P73,000.00 from CBTC as "Additional Working Capital," evidenced by the "Disclosure Statement on Loan/Credit Transaction" (Disclosure Statement) signed by CBTC through its branch manager, Ceferino Jimenez, and Eastern, through Lim, as its President and General Manager. 4 The loan was payable on demand with interest at 14% per annum.For this loan, Eastern issued on the same day a negotiable promissory note for P73,000.00 payable on demand to the order of CBTC with interest at 14% per annum. 5 The note was signed by Lim both in his own capacity and as President and General Manager of Eastern. No reference to any security for the loan appears on the note. In the Disclosure Statement, the box with the printed word "UNSECURED" was marked with "X" — meaning unsecured, while the line with the words "this loan is wholly/partly secured by" is followed by the typewritten words "Hold-Out on a 1:1 on C/A No. 2310-001-42," which refers to the joint account of Velasco and Lim with a balance of P331,261.44.

In addition, Eastern and Lim, and CBTC signed another document entitled "Holdout Agreement," also dated 18 August 1978, 6 wherein it was stated that "as security for the Loan [Lim and Eastern] have offered [CBTC] and the latter accepts a holdout on said [Current Account No. 2310-011-42 in the joint names of Lim and Velasco] to the full extent of their alleged interests therein as these may appear as a result of final and definitive judicial action or a settlement between and among the contesting parties thereto." 7 Paragraph 02 of the Agreement provides as follows:Eastply [Eastern] and Mr. Lim hereby confer upon Comtrust [CBTC], when and if their alleged interests in the Account Balance shall have been established with finality, ample and sufficient power as shall be necessary to retain said Account Balance and enable Comtrust to apply the Account Balance for the purpose of liquidating the Loan in respect of principal and/or accrued interest.And paragraph 05 thereof reads:

The acceptance of this holdout shall not impair the right of Comtrust to declare the loan payable on demand at any time, nor shall the existence hereof and the non-resolution of the dispute between the contending parties in respect of entitlement to the Account Balance, preclude Comtrust from instituting an action for recovery against Eastply and/or Mr. Lim in the event the Loan is declared due and payable and Eastply and/or Mr. Lim shall default in payment of all obligations and liabilities thereunder.

In the meantime, a case for the settlement of Velasco's estate was filed with Branch 152 of the RTC of Pasig, entitled "In re Intestate Estate of Mariano Velasco," and docketed as Sp. Proc. No. 8959. In the said case, the whole balance of P331,261.44 in the aforesaid joint account of Velasco and Lim was being claimed as part of Velasco's estate. On 9 September 1986, the intestate court granted the urgent motion of the heirs of Velasco to withdraw the deposit under the joint account of Lim and Velasco and authorized the heirs to divide among themselves the amount withdrawn. 8

Sometime in 1980, CBTC was merged with BPI. 9 On 2 December 1987, BPI filed with the RTC of Manila a complaint against Lim and Eastern demanding payment

of the promissory note for P73,000.00. The complaint was docketed as Civil Case No. 87- 42967 and was raffled to Branch 19 of the said court, then presided over by Judge Wenceslao M. Polo. Defendants Lim and Eastern, in turn, filed a counterclaim against BPI for the return of the balance in the disputed account subject of the Holdout Agreement and the interests thereon after deducting the amount due on the promissory note.After due proceedings, the trial court rendered its decision on15 November 1990 dismissing the complaint because BPI failed to make out its case. Furthermore, it ruled that "the promissory note in question is subject to the 'hold-out' agreement," 10 and that based on this agreement, "it was the duty of plaintiff Bank [BPI] to debit the account of the defendants under the promissory note to set off the loan even though the same has no fixed maturity." 11 As to the defendants' counterclaim, the trial court, recognizing the fact that the entire amount in question had been withdrawn by Velasco's heirs pursuant to the order of the intestate court in Sp. Proc. No. 8959, denied it because the "said claim cannot be awarded without disturbing the resolution" of the intestate court. 12

Both parties appealed from the said decision to the Court of Appeals. Their appeal was docketed as CA-G.R. CV No. 25739.On 23 January 1991, the Court of Appeals rendered a decision affirming the decision of the trial court. It, however, failed to rule on the defendants' (private respondents') partial appeal from the trial court's denial of their counterclaim. Upon their motion for reconsideration, the Court of Appeals promulgated on 6 March 1992 an Amended Decision 13 wherein it ruled that the settlement of Velasco's estate had nothing to do with the claim of the defendants for the return of the balance of their account with CBTC/BPI as they were not privy to that case, and that the defendants, as depositors of CBTC/BPI, are the latter's creditors; hence, CBTC/BPI should have protected the defendants' interest in Sp. Proc. No. 8959 when the said account was claimed by Velasco's estate. It then ordered BPI "to pay defendants the amount of P331,261.44 representing the outstanding balance in the bank account of defendants." 14

On 22 April 1992, BPI filed the instant petition alleging therein that the Holdout Agreement in question was subject to a suspensive condition stated therein, viz., that the "P331,261.44 shall become a security for respondent Lim's promissory note only if respondents' Lim and Eastern Plywood Corporation's interests to that amount are established as a result of a final and definitive judicial action or a settlement between and among the contesting parties thereto." 15

Hence, BPI asserts, the Court of Appeals erred in affirming the trial court's decision dismissing the complaint on the ground that it was the duty of CBTC to debit the account of the defendants to set off the amount of P73,000.00 covered by the promissory note.Private respondents Eastern and Lim dispute the "suspensive condition" argument of the petitioner. They interpret the findings of both the trial and appellate courts that the money deposited in the joint account of Velasco and Lim came from Eastern and Lim's own account as a finding that the money deposited in the joint account of Lim and Velasco "rightfully belong[ed] to Eastern Plywood Corporation and/or Benigno Lim." And because the latter are the rightful owners of the money in question, the suspensive condition does not find any application in this case and the bank had the duty to set off this deposit with the loan. They add that the ruling of the lower court that they own the disputed amount is the final and definitive judicial action required by the Holdout Agreement; hence, the petitioner can only hold the amount of P73,000.00 representing the security required for the note and must return the rest. 16

The petitioner filed a Reply to the aforesaid Comment. The private respondents filed a Rejoinder thereto.

We gave due course to the petition and required the parties to submit simultaneously their memoranda.

ISSUE: The key issues in this case are whether BPI can demand payment of the loan of P73,000.00 despite the existence of the Holdout Agreement and whether BPI is still liable to the private respondents on the account subject of the Holdout Agreement after its withdrawal by the heirs of Velasco.

HELD: The collection suit of BPI is based on the promissory note for P73,000.00. On its face, the note is an unconditional promise to pay the said amount, and as stated by the respondent Court of Appeals, "[t]here is no question that the promissory note is a negotiable instrument." 17 It further correctly ruled that BPI was not a holder in due course because the note was not indorsed to BPI by the payee, CBTC. Only a negotiation by indorsement could have operated as a valid transfer to make BPI a holder in due course. It acquired the note from CBTC by the contract of merger or sale between the two banks. BPI, therefore, took the note subject to the Holdout Agreement.We disagree, however, with the Court of Appeals in its interpretation of the Holdout Agreement. It is clear from paragraph 02 thereof that CBTC, or BPI as its successor-in-interest, had every right to demand that Eastern and Lim settle their liability under the promissory note. It cannot be compelled to retain and apply the deposit in Lim and Velasco's joint account to the payment of the note. What the agreement conferred on CBTC was a power, not a duty. Generally, a bank is under no duty or obligation to make the application. 18 To apply the deposit to the payment of a loan is a privilege, a right of set-off which the bank has the option to exercise. 19

Also, paragraph 05 of the Holdout Agreement itself states that notwithstanding the agreement, CBTC was not in any way precluded from demanding payment from Eastern and from instituting an action to recover payment of the loan. What it provides is an alternative, not an exclusive, method of enforcing its claim on the note. When it demanded payment of the debt directly from Eastern and Lim, BPI had opted not to exercise its right to apply part of the deposit subject of the Holdout Agreement to the payment of the promissory note for P73,000.00. Its suit for the enforcement of the note was then in order and it was error for the trial court to dismiss it on the theory that it was set off by an

equivalent portion in C/A No. 2310-001-42 which BPI should have debited. The Court of Appeals also erred in affirming such dismissal.

The "suspensive condition" theory of the petitioner is, therefore, untenable.

The Court of Appeals correctly decided on the counterclaim. The counterclaim of Eastern and Lim for the return of the P331,261.44 20 was equivalent to a demand that they be allowed to withdraw their deposit with the bank. Article 1980 of the Civil Code expressly provides that "[f]ixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan." In Serrano vs. Central Bank of the Philippines, 21 we held that bank deposits are in the nature of irregular deposits; they are really loans because they earn interest. The relationship then between a depositor and a bank is one of creditor and debtor. The deposit under the questioned account was an ordinary bank deposit; hence, it was payable on demand of the depositor. 22

The account was proved and established to belong to Eastern even if it was deposited in the names of Lim and Velasco. As the real creditor of the bank, Eastern has the right to withdraw it or to demand payment thereof. BPI cannot be relieved of its duty to pay Eastern simply because it already allowed the heirs of Velasco to withdraw the whole balance of the account. The petitioner should not have allowed such withdrawal because it had admitted in the Holdout Agreement the questioned ownership of the money deposited in the account. As early as 12 May 1979, CBTC was notified by the Corporate Secretary of Eastern that the deposit in the joint account of Velasco and Lim was being claimed by them and that one-half was being claimed by the heirs of Velasco. 23

Moreover, the order of the court in Sp. Proc. No. 8959 merely authorized the heirs of Velasco to withdraw the account. BPI was not specifically ordered to release the account to the said heirs; hence, it was under no judicial compulsion to do so. The authorization given to the heirs of Velasco cannot be construed as a final determination or adjudication that the account belonged to Velasco. We have ruled that when the ownership of a particular property is disputed, the determination by a probate court of whether that property is included in the estate of a deceased is merely provisional in character and cannot be the subject of execution. 24

Because the ownership of the deposit remained undetermined, BPI, as the debtor with respect thereto, had no right to pay to persons other than those in whose favor the obligation was constituted or whose right or authority to receive payment is indisputable. The payment of the money deposited with BPI that will extinguish its obligation to the creditor-depositor is payment to the person of the creditor or to one authorized by him or by the law to receive it. 25 Payment made by the debtor to the wrong party does not extinguish the obligation as to the creditor who is without fault or negligence, even if the debtor acted in utmost good faith and by mistake as to the person of the creditor, or through error induced by fraud of a third person. 26 The payment then by BPI to the heirs of Velasco, even if done in good faith, did not extinguish its obligation to the true depositor, Eastern.In the light of the above findings, the dismissal of the petitioner's complaint is reversed and set aside. The award on the counterclaim is sustained subject to a modification of the interest.

WHEREFORE, the instant petition is partly GRANTED. The challenged amended decision in CA-G.R. CV No. 25735 is hereby MODIFIED. As modified:(1) Private respondents are ordered to pay the petitioner the promissory note for P73,000.00 with interest at:(a) 14% per annum on the principal, computed from18 August 1978 until payment;(b) 12% per annum on the interest which had accrued up to the date of the filing of the complaint, computed from that date until payment pursuant to Article 2212 of the Civil Code.(2) The award of P331,264.44 in favor of the private respondents shall bear interest at the rate of 12% per annum computed from the filing of the counterclaim.No pronouncement as to costs.

PNB VS SMC G.R. No. 186063  

FACTS: On July 1, 1996, respondent San Miguel Corporation (SMC, for brevity) entered into an Exclusive Dealership Agreement with a certain Rodolfo R. Goroza (Goroza, hereafter), wherein the latter was given by SMC the right to trade, deal, market or otherwise sell its various beer products.Goroza applied for a credit line with SMC, but one of the requirements for the credit line was a letter of credit. Thus, Goroza applied for and was granted a letter of credit by the PNB in the amount of two million pesos (P2,000,000.00). Under the credit agreement, the PNB has the obligation to release the proceeds of Goroza's credit line to SMC upon presentation of the invoices and official receipts of Goroza's purchases of SMC beer products to the PNB, Butuan Branch.

On August 1, 1996, Goroza availed of his credit line with PNB and started selling SMC's beer products x x x.On February 11, 1997, Goroza applied for an additional credit line with the PNB. The latter granted Goroza a one (1) year revolving credit line in the amount not exceeding two million four hundred thousand pesos (P2,400,000.00). Thus, Goroza's total credit line reached four million four hundred thousand pesos (P4,400,000.00) x x x. Initially, Goroza was able to pay his credit purchases with SMC x x x. Sometime in January 1998, however, Goroza started to become delinquent with his accounts.Demands to pay the amount of three million seven hundred twenty-two thousand four hundred forty pesos and 88/100 (P3,722,440.88) were made by SMC against Goroza and PNB, but neither of them paid. Thus, on April 23, 2003, SMC filed a Complaint for collection of sum of money against PNB and Goroza with the respondent Regional Trial Court Branch 3, Butuan City.3

After summons, herein petitioner filed its Answer,4 while Goroza did not. Upon respondent's Motion to Declare Defendant in Default,5 Goroza was declared in default.

Trial ensued insofar as Goroza was concerned and respondent presented its evidence ex parte against the former. Respondent made a formal offer of its exhibits on April 6, 2004 and the trial court admitted them on June 16, 2004.

Thereafter, on January 21, 2005, pre-trial between PNB and SMC was held.6

On May 10, 2005, the RTC rendered a Decision,7 disposing as follows:WHEREFORE, the Court hereby renders judgment in favor

of plaintiff [SMC] ordering defendant Rodolfo Goroza to pay plaintiff the following:

1. The principal amount of P3,722,440.00;2. The interest of 12% per annum on the principal amount reckoned from January 27, 1998 up to the time of execution of the Judgment of this case;3. Attorney's fees of P30,000.00;4. Litigation expenses of P20,000.00.SO ORDERED.8

Goroza filed a Notice of Appeal,9 while SMC filed a Motion for Reconsideration.10

On July 14, 2005, the RTC granted SMC's motion for reconsideration. The trial court amended its Decision by increasing the award of litigation expenses to P90,652.50.11

Thereafter, on July 25, 2005, the RTC issued an Order,12 pertinent portions of which read as follows:

x x x xFinding the Notice of Appeal filed within the reglementary period and the corresponding appeal fee paid, x x x. The same is hereby given due course.Considering that the case as against defendant PNB is still on-going, let the Record in this case insofar as defendant Rodolfo R. Goroza is concerned, be reproduced at the expense of defendant-appellant so that the same can be forwarded to the Court of Appeals, together with the exhibits and transcript of stenographic notes in the required number of copies.SO ORDERED.13

In the meantime, trial continued with respect to PNB.On September 27, 2005, PNB filed an Urgent Motion to Terminate Proceedings14

on the ground that a decision was already rendered on May 10, 2005 finding Goroza solely liable.The RTC denied PNB's motion in its Resolution15 dated October 11, 2005.On October 14, 2005, the RTC issued a Supplemental Judgment,16 thus:The Court omitted by inadvertence to insert in its decision dated May 10, 2005 the phrase "without prejudice to the decision that will be made against the other co-defendant, PNB, which was not declared in default."WHEREFORE, the phrase "without prejudice to the decision made against the other defendant PNB which was not declared in default" shall be inserted in the dispositive portion of said decision.SO ORDERED.17

On even date, the RTC also issued an Amended Order,18 to wit:The Court's Order dated July 25, 2005 is hereby amended to include the phrase "this appeal applies only to defendant Rolando Goroza and without prejudice to the continuance of the hearing on the other defendant Philippine National Bank".SO ORDERED.19

PNB then filed a Motion for Reconsideration20 of the above-quoted Supplemental Judgment and Amended Order, but the RTC denied the said motion via its Resolution21 dated July 6, 2006.Aggrieved, PNB filed a special civil action for certiorari with the CA imputing grave abuse of discretion on the part of the RTC for having issued its July 6, 2006 Resolution.22

On June 17, 2008, the CA rendered its questioned Decision denying the petition and affirming the assailed Resolution of the RTC.PNB filed a Motion for Reconsideration,23 but the CA denied it in its assailed Resolution. Hence, the instant petition with the following Assignment of Errors:THE COURT OF APPEALS ERRED IN HOLDING THAT THE TRIAL COURT WAS CORRECT IN RENDERING A SUPPLEMENTAL JUDGMENT AND AMENDED ORDER AGAINST THE BANK DESPITE THE PERFECTION OF APPEAL OF ONE OF THE DEFENDANTS.THE COURT OF APPEALS ERRED IN HOLDING THAT PROCEEDINGS MAY CONTINUE AGAINST PNB DESPITE THE COMPLETE ADJUDICATION OF RELIEF IN FAVOR OF SMC.

ISSUE: PNB contends that the CA erred in holding that the RTC was correct in rendering its Supplemental Judgment and Amended Order despite the perfection of Goroza's appeal. PNB claims that when Goroza's appeal was perfected, the RTC lost jurisdiction over the entire case making the assailed Supplemental Judgment and Amended Order void for having been issued without or in excess of jurisdiction.

PNB also argues that the CA erred in ruling that proceedings against it may continue in the RTC, despite the trial court's complete adjudication of relief in favor of SMC. PNB avers that the May 10, 2005 Decision of the RTC, finding Goroza solely liable to pay the entire amount sought to be recovered by SMC, has settled the obligation of both Goroza and PNB, and that there is no longer any ground to hold PNB for trial and make a separate judgment against it; otherwise, SMC will recover twice for the same cause of action

HELD: The petition lacks merit.It is clear from the proceedings held before and the orders issued by the RTC that the intention of the trial court is to conduct separate proceedings to determine the respective liabilities of Goroza and PNB, and thereafter, to render several and separate judgments for or against them. While ideally, it would have been more prudent for the trial court to render a single decision with respect to Goroza and PNB, the procedure adopted the RTC is, nonetheless, allowed under Section 4, Rule 36 of the Rules of Court, which provides that "in an action against several

defendants, the court may, when a several judgment is proper, render judgment against one or more of them, leaving the action to proceed against the others." In addition, Section 5 of the same Rule states that "when more than one claim for relief is presented in an action, the court at any stage, upon a determination of the issues material to a particular claim and all counterclaims arising out of the transaction or occurrence which is the subject matter of the claim may render a separate judgment disposing of such claim." Further, the same provision provides that "the judgment shall terminate the action with respect to the claim so disposed of and the action shall proceed as to the remaining claims." Thus, the appeal of Goroza, assailing the judgment of the RTC finding him liable, will not prevent the continuation of the ongoing trial between SMC and PNB. The RTC retains jurisdiction insofar as PNB is concerned, because the appeal made by Goroza was only with respect to his own liability. In fact, PNB itself, in its Reply to respondent's Comment, admitted that the May 10, 2005 judgment of the RTC was "decided solely against defendant Rodolfo Goroza."25

The propriety of a several judgment is borne by the fact that SMC's cause of action against PNB stems from the latter's alleged liability under the letters of credit which it issued. On the other hand, SMC's cause of action against Goroza is the latter's failure to pay his obligation to the former.1âwphi1 As to the separate judgment, PNB has a counterclaim against SMC which is yet to be resolved by the RTC.Indeed, the issues between SMC and PNB which are to be resolved by the RTC, as contained in the trial court's Pre-Trial Order dated January 21, 2005, were not addressed by the RTC in its Decision rendered against Goroza. In particular, the RTC judgment against Goroza did not make any determination as to whether or not PNB is liable under the letter of credit it issued and, if so, up to what extent is its liability. In fact, contrary to PNB's claim, there is nothing in the RTC judgment which ruled that Goroza is "solely liable" to pay the amount which SMC seeks to recover.

In this regard, this Court's disquisition on the import of a letter of credit, in the case ofTransfield Philippines, Inc. v. Luzon Hydro Corporation,26 as correctly cited by the CA, is instructive, to wit:By definition, a letter of credit is a written instrument whereby the writer requests or authorizes the addressee to pay money or deliver goods to a third person and assumes responsibility for payment of debt therefor to the addressee. A letter of credit, however, changes its nature as different transactions occur and if carried through to completion ends up as a binding contract between the issuing and honoring banks without any regard or relation to the underlying contract or disputes between the parties thereto.

WESTMONT BANK VS ONG G.R. No. 132560

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

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

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

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

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

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

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

by way of example or correction for the public good;4. Attorneys fees of P50,000.00 and costs of suit.

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

Petitioner elevated the case to the Court of Appeals without success. In its decision, the appellate court held:

WHEREFORE, in view of the foregoing, the appealed decision is AFFIRMED in toto.[5]

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

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

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

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

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

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

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

For its part, respondent Ong leans on the ruling of the trial court and the Court of Appeals which held that the suit of Ong against the petitioner bank is a desirable shortcut to reach the party who ought in any event to be ultimately liable.[12] It likewise cites the ruling of the courts a quo which held that according to the general rule, a bank who has obtained possession of a check upon an unauthorized or forged indorsement of the payees signature and who collects the amount of the check from the drawee is liable for the proceeds thereof to the payee. The theory of said rule is that the collecting banks possession of such check is wrongful.[13]

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

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

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

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

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

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

the forgery or want of authority.

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

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

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

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

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

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

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

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

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

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

to the person against whom such right is sought to be enforced.[30]

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

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

UNITED COCONUT PLANTERS VS RAMOS G.R. No. 147800

FACTS: 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.[3] However, the ZDC failed to pay its account to the petitioner despite demands. The latter filed a complaint with the RTC of Makati against the ZDC, Venicio Ramos and the Spouses Teofilo Ramos, Sr. for the collection of the corporations account. The case was docketed as Civil Case No. 16453. On February 15, 1989, the RTC of Makati, Branch 134, rendered judgment in favor of the petitioner and against the defendants. The decretal portion of the decision reads:1. To pay plaintiff the sum of THREE MILLION ONE HUNDRED FIFTY THOUSAND PESOS (P3,150,000.00) plus interest, penalties and other charges;2. To pay plaintiff the sum of P20,000.00 for attorneys fees; and3. To pay the cost of suit.

The decision became final and executory. On motion of the petitioner, the court issued on December 18, 1990 a writ of execution for the enforcement of its decision ordering Deputy Sheriff Pioquinto P. Villapaa to levy and attach all the real and personal properties belonging to the aforesaid defendants to satisfy the judgment.[5] In the writ of execution, the name of one of the defendants was correctly stated as Teofilo Ramos, Sr.

To help the Sheriff implement the writ, Atty. Cesar Bordalba, the head of the Litigation and Enforcement Division (LED) of the petitioner, requested Eduardo C. Reniva, an appraiser of the petitioners Credit and Appraisal Investigation Department (CAID) on July 17, 1992 to ascertain if the defendants had any leviable real and personal property. The lawyer furnished Reniva with a copy of Tax Declaration B-023-07600-R covering a property in Quezon City.[6] In the course of his investigation, Reniva found that the property was a residential lot, identified as Lot 12, Block 5, Ocampo Avenue, Don Jose Subdivision, Quezon City, with an area of 400 square meters, covered by TCT No. 275167 (PR-13108) under the name of Teofilo C. Ramos, President and Chairman of the Board of Directors of the Ramdustrial Corporation, married to Rebecca F. Ramos.[7] The property was covered by Tax Declaration No. B-023-07600-R under the names of the said spouses. Reniva went to the property to inspect it and to verify the identity of the owner thereof. He saw workers on the property constructing a bungalow.[8] However, he failed to talk to the owner of the property. Per information gathered from the neighborhood, Reniva confirmed that the Spouses Teofilo C. Ramos and Rebecca Ramos owned the property.

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

Meanwhile, in August of 1993, Ramdustrial Corporation applied for a loan with the UCPB, a sister company of the petitioner, using the property covered by TCT No. 275167 (PR-13108) as collateral therefor. The Ramdustrial Corporation intended to use the proceeds of the loan as additional capital as it needed to participate in a bidding project of San Miguel Corporation.[10] In a meeting called for by the UCPB, the respondent was informed that upon verification, a notice of levy was annotated in TCT No. 275167 in favor of the petitioner as plaintiff in Civil Case No. 16453, entitled United Coconut Planters Bank v. Zamboanga Realty Development Corporation, Venicio A. Ramos and Teofilo Ramos, Sr., because of which the bank had to hold in abeyance any action on its loan application.

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

vascular and hypertension problems.[11]Upon advise from his lawyer, Atty. Carmelito Montano, the respondent

executed an affidavit of denial[12] declaring that he and Teofilo Ramos, Sr., one of the judgment debtors in Civil Case No. 16453, were not one and the same person. On September 30, 1993, the respondent, through counsel, Atty. Carmelito A. Montano, wrote Sheriff Villapaa, informing him that a notice of levy was annotated on the title of the residential lot of the respondent, covered by TCT No. 275167 (PR-13108); and that such annotation was irregular and unlawful considering that the respondent was not Teofilo Ramos, Sr. of Iglesia ni Cristo, the defendant in Civil Case No. 16453. He demanded that Sheriff Villapaa cause the cancellation of the said annotation within five days from notice thereof, otherwise the respondent would take the appropriate civil, criminal or administrative action against him. Appended thereto was the respondents affidavit of denial. For his part, Sheriff Villapaa furnished the petitioner with a copy of the said letter.

In a conversation over the phone with Atty. Carmelito Montano, Atty. Cesar Bordalba, the head of the petitioners LED, suggested that the respondent file the appropriate pleading in Civil Case No. 16453 to prove his claim that Atty. Montanos client, Teofilo C. Ramos, was not defendant Teofilo Ramos, Sr., the defendant in Civil Case No. 16453.

On October 21, 1993, the respondent was informed by the UCPB that Ramdustrial Corporations credit line application for P2,000,000 had been approved.[13] Subsequently, on October 22, 1993, the respondent, in his capacity as President and Chairman of the Board of Directors of Ramdustrial Corporation, and Rebecca F. Ramos executed a promissory note for the said amount payable to the UCPB in installments for a period of 180 days.[14] Simultaneously, the respondent and his wife Rebecca F. Ramos acted as sureties to the loan of Ramdustrial Corporation.[15] However, the respondent was concerned because when the proceeds of the loan were released, the bidding period for the San Miguel Corporation project had already elapsed.[16] As business did not go well, Ramdustrial Corporation found it difficult to pay the loan. It thus applied for an additional loan with the UCPB which was, however, denied. The corporation then applied for a loan with the Planters Development Bank (PDB), the proceeds of which would be used to pay its account to the UCPB. The respondent offered to use his property covered by TCT No. 275167 as collateral for its loan. PDB agreed to pay off the outstanding loan obligation of Ramdustrial Corporation with UCPB, on the condition that the mortgage with the latter would be released. UCPB agreed. Pending negotiations with UCPB, the respondent discovered that the notice of levy annotated on TCT No. 275167 (PR-13108) at the instance of the petitioner had not yet been cancelled.[17] When apprised thereof, PDB withheld the release of the loan pending the cancellation of the notice of levy. The account of Ramdustrial Corporation with UCPB thus remained outstanding. The monthly amortization on its loan from UCPB became due and remained unpaid. When the respondent went to the petitioner for the cancellation of the notice of levy annotated on his title, the petitioners counsel suggested to the respondent that he file a motion to cancel the levy on execution to enable the court to resolve the issue. The petitioner assured the respondent that the motion would not be opposed. Rather than wait for the petitioner to act, the respondent, through counsel, filed the said motion on April 8, 1994. As promised, the petitioner did not oppose the motion. The court granted the motion and issued an order on April 12, 1994 ordering the Register of Deeds to cancel the levy. The Register of Deeds of Quezon City complied and cancelled the notice of levy.[18]

Despite the cancellation of the notice of levy, the respondent filed, on May 26, 1994, a complaint for damages against the petitioner and Sheriff Villapaa before the RTC of Makati City, raffled to Branch 148 and docketed as Civil Case No. 94-1822. Therein, the respondent (as plaintiff) alleged that he was the owner of a parcel of land covered by TCT No. 275167; that Teofilo Ramos, Sr., one of the judgment debtors of UCPB in Civil Case No. 16453, was only his namesake; that without any legal basis, the petitioner and Sheriff Villapaa caused the annotation of a notice to levy on the TCT of his aforesaid property which caused the disapproval of his loan from UCPB and, thus made him lose an opportunity to participate in the bidding of a considerable project; that by reason of such wrongful annotation of notice of levy, he suffered sleepless nights, moral shock, mental anguish and almost a heart attack due to high blood pressure. He thus prayed:WHEREFORE, premises considered, it is most respectfully prayed of the Honorable Regional Trial Court that after due hearing, judgment be rendered in his favor by ordering defendants jointly and severally, to pay as follows:1. P3,000,000.00 as moral damages;2. 300,000.00 as exemplary damages;3. 200,000.00 as actual damages;4. 200,000.00 as attorneys fees;5. Cost of suit.[19]

In its answer, the petitioner, while admitting that it made a mistake in causing the annotation of notice of levy on the TCT of the respondent, denied that it was motivated by malice and bad faith. The petitioner alleged that after ascertaining that it indeed made a mistake, it proposed that the respondent file a motion to cancel levy with a promise that it would not oppose the said motion. However, the respondent dilly-dallied and failed to file the said motion; forthwith, if any damages were sustained by the respondent, it was because it took him quite a long time to file the motion. The petitioner should not thus be made to suffer for the consequences of the respondents delay.

The petitioner further asserted that it had no knowledge that there were two persons bearing the same name Teofilo Ramos; it was only when Sheriff Villapaa notified the petitioner that a certain Teofilo C. Ramos who appeared to be the registered owner of TCT No. 275167 that it learned for the first time the notice of levy on the respondents property; forthwith, the petitioner held in abeyance the sale of the levied property at public auction; barred by the failure of the respondent to file a third-party claim in Civil Case No. 16453, the petitioner could not cause the removal of the levy; in lieu thereof, it suggested to the respondent the filing of a motion to cancel levy and that the petitioner will not oppose such motion;

surprisingly, it was only on April 12, 1994 that the respondent filed such motion; the petitioner was thus surprised that the respondent filed an action for damages against it for his failure to secure a timely loan from the UCPB and PDB. The petitioner thus prayed:WHEREFORE, in view of the foregoing premises, it is respectfully prayed of this Honorable Court that judgment be rendered in favor of defendant UCPB, dismissing the complaint in toto and ordering the plaintiff to:1. pay moral damages in the amount of PESOS: THREE MILLION P3,000,000.00 and exemplary damages in the amount of PESOS: FIVE HUNDRED THOUSAND P500,000.00;2. pay attorneys fees and litigation expenses in an amount of not less than PESOS: TWO HUNDRED THOUSAND P200,000.00;

Other reliefs and remedies deemed just and equitable under the premises are also prayed for.[20]

In the meantime, in 1995, PDB released the proceeds of the loan of Ramdustrial Corporation which the latter remitted to UCPB.

On March 4, 1997, the RTC rendered a decision in favor of the respondent. The complaint against Sheriff Villapaa was dismissed on the ground that he was merely performing his duties. The decretal part of the decision is herein quoted:WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendant UCPB, and the latter is hereby ordered to pay the following:(1) P800,000.00 as moral damages;

(2) P100,000.00 as exemplary damages;(3) P100,000.00 as attorneys fees;

(4) Cost of suit.[21]The trial court found that contrary to the contention of the petitioner, it

acted with caution in looking for leviable properties of the judgment debtors/defendants in Civil Case No. 16453, it proceeded with haste as it did not take into consideration that the defendant Teofilo Ramos was married to Amelita Ramos and had a Sr. in his name, while the respondent was married to Rebecca Ramos and had C for his middle initial. The investigation conducted by CAID appraiser Eduardo C. Reniva did not conclusively ascertain if the respondent and Teofilo Ramos, Sr. were one and the same person.

The trial court further stated that while it was Ramdustrial Corporation which applied for a loan with UCPB and PDB, the respondent, as Chairman of Ramdustrial Corporation, with his wife Rebecca Ramos, signed in the promissory note and acted as sureties on the said obligations. Moreover, the property which was levied was the respondents only property where he and his family resided. Thus, the thought of losing it for reasons not of his own doing gave rise to his entitlement to moral damages.

The trial court further ruled that the mere fact that the petitioner did not file an opposition to the respondents motion to cancel levy did not negate its negligence and bad faith. However, the court considered the cancellation of annotation of levy as a mitigating factor on the damages caused to the respondent. For failure to show that he suffered actual damages, the court a quo dismissed the respondents claim therefor.

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

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

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

IIN AFFIRMING THE TRIAL COURTS ORDER, THE COURT OF APPEALS COMMITTED MANIFESTLY MISTAKEN INFERENCES AND EGREGIOUS MISAPPREHENSION OF FACTS AND GRAVE ERRORS OF LAW, CONSIDERING THAT:A. ON THE EVIDENCE, THE BORROWER OF THE LOAN, WHICH RESPONDENT RAMOS CLAIMED HE TRIED TO OBTAIN, WAS RAMDUSTRIAL CORPORATION. HENCE, ANY DAMAGE RESULTING FROM THE ANNOTATION WAS SUFFERED BY THE CORPORATION AND NOT BY RESPONDENT RAMOS.B. THE DELAY IN THE CANCELLATION OF THE ANNOTATION WAS OF RESPONDENT RAMOSS (SIC) OWN DOING.C. THE LOAN APPLICATIONS WITH UNITED COCONUT SAVINGS BANK AND PLANTERS DEVELOPMENT BANK WERE GRANTED PRIOR TO THE CANCELLATION OF THE ANNOTATION ON THE TITLE OF THE SUBJECT PROPERTY.

IITHE COURT OF APPEALS DECISION AFFIRMING THE TRIAL COURTS AWARD OF MORAL DAMAGES TO RESPONDENT RAMOS IN THE AMOUNT OF P800,000 ON A FINDING OF NEGLIGENCE IS CONTRARY TO LAW AND EVIDENCE.A. UCPB WAS NOT NEGLIGENT WHEN IT CAUSED THE LEVY ON THE SUBJECT PROPERTY.B. AS A MATTER OF LAW, MORAL DAMAGES CANNOT BE AWARDED ON A FINDING OF MERE NEGLIGENCE.C. IN ANY EVENT, THE AWARD OF MORAL DAMAGES TO

RESPONDENT RAMOS WAS UNREASONABLE AND OPPRESSIVE.III

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

UCPB prayed that:WHEREFORE, petitioner UNITED COCONUT PLANTERS BANK respectfully prays that this Honorable Court render judgment reversing and setting aside the Court of Appeals Decision dated 30 March 2001, and ordering the dismissal of respondent Ramos Complaint dated 05 May 1994.[24]In his comment, the respondent alleged that the CA did not err in affirming, in toto, the decision of the trial court. He prayed that the petition be denied due course.

ISSUE: (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.

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

It bears stressing that the petitioner is a banking corporation, a financial institution with power to issue its promissory notes intended to circulate as money (known as bank notes); or to receive the money of others on general deposit, to form a joint fund that shall be used by the institution for its own benefit, for one or more of the purposes of making temporary loans and discounts, of dealing in notes, foreign and domestic bills of exchange, coin bullion, credits, and the remission of money; or with both these powers, and with the privileges, in addition to these basic powers, of receiving special deposits, and making collection for the holders of negotiable paper, if the institution sees fit to engage in such business.[25] In funding these businesses, the bank invests the money that it holds in trust of its depositors. For this reason, we have held that the business of a bank is one affected with public interest, for which reason the bank should guard against loss due to negligence or bad faith.[26] In approving the loan of an applicant, the bank concerns itself with proper informations regarding its debtors. The petitioner, as a bank and a financial institution engaged in the grant of loans, is expected to ascertain and verify the identities of the persons it transacts business with.[27] In this case, the petitioner knew that the sureties to the loan granted to ZDC and the defendants in Civil Case No. 94-1822 were the Spouses Teofilo Ramos, Sr. and Amelita Ramos. The names of the Spouses Teofilo Ramos, Sr. and Amelita Ramos were specified in the writ of execution issued by the trial court.

The petitioner, with Atty. Bordalba as the Chief of LED and handling lawyer of Civil Case No. 16453, in coordination with the sheriff, caused the annotation of notice of levy in the respondents title despite its knowledge that the property was owned by the respondent and his wife Rebecca Ramos, who were not privies to the loan availment of ZDC nor parties-defendants in Civil Case No. 16453. Even when the respondent informed the petitioner, through counsel, that the property levied by the sheriff was owned by the respondent, the petitioner failed to have the annotation cancelled by the Register of Deeds.

In determining whether or not the petitioner acted negligently, the constant test is: Did the defendant in doing the negligent act use that reasonable care and caution which an ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence.[28] Considering the testimonial and documentary evidence on record, we are convinced that the petitioner failed to act with the reasonable care and caution which an ordinarily prudent person would have used in the same situation.

The petitioner has access to more facilities in confirming the identity of their judgment debtors. It should have acted more cautiously, especially since some uncertainty had been reported by the appraiser whom the petitioner had tasked to make verifications. It appears that the petitioner treated the uncertainty raised by appraiser Eduardo C. Reniva as a flimsy matter. It placed more importance on the information regarding the marketability and market value of the property, utterly disregarding the identity of the registered owner thereof.

It should not be amiss to note that the judgment debtors name was Teofilo Ramos, Sr. We note, as the Supreme Court of Washington in 1909 had, that a legal name consists of one given name and one surname or family name, and a mistake in a middle name is not regarded as of consequence. However, since the use of initials, instead of a given name, before a surname, has become a practice, the necessity that these initials be all given and correctly given in court proceedings has become of importance in every case, and in many, absolutely essential to a correct designation of the person intended.[29] A middle name is very important or even decisive in a case in which the issue is as between two persons who have the same first name and surname, did the act complained of, or is injured or sued or the like.[30]

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

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

On the second issue, the petitioner insists that the respondent is not the

real party-in-interest to file the action for damages, as he was not the one who applied for a loan from UCPB and PDB but Ramdustrial Corporation, of which he was merely the President and Chairman of the Board of Directors.

We do not agree. The respondent very clearly stated in his complaint that as a result of the unlawful levy by the petitioner of his property, he suffered sleepless nights, moral shock, and almost a heart attack due to high blood pressure.[31]

It must be underscored that the registered owner of the property which was unlawfully levied by the petitioner is the respondent. As owner of the property, the respondent has the right to enjoy, encumber and dispose of his property without other limitations than those established by law. The owner also has a right of action against the holder and possessor of the thing in order to recover it.[32] Necessarily, upon the annotation of the notice of levy on the TCT, his right to use, encumber and dispose of his property was diminished, if not negated. He could no longer mortgage the same or use it as collateral for a loan.

Arising from his right of ownership over the said property is a cause of action against persons or parties who have disturbed his rights as an owner.[33] As an owner, he is one who would be benefited or injured by the judgment, or who is entitled to the avails of the suit[34] for an action for damages against one who disturbed his right of ownership.

Hence, regardless of the fact that the respondent was not the loan applicant with the UCPB and PDB, as the registered owner of the property whose ownership had been unlawfully disturbed and limited by the unlawful annotation of notice of levy on his TCT, the respondent had the legal standing to file the said action for damages. In both instances, the respondents property was used as collateral of the loans applied for by Ramdustrial Corporation. Moreover, the respondent, together with his wife, was a surety of the aforesaid loans.

While it is true that the loss of business opportunities cannot be used as a reason for an action for damages arising from loss of business opportunities caused by the negligent act of the petitioner, the respondent, as a registered owner whose right of ownership had been disturbed and limited, clearly has the legal personality and cause of action to file an action for damages. Not even the respondents failure to have the annotation cancelled immediately after he came to know of the said wrongful levy negates his cause of action.

On the third issue, for the award of moral damages to be granted, the following must exist: (1) there must be an injury clearly sustained by the claimant, whether physical, mental or psychological; (2) there must be a culpable act or omission factually established; (3) the wrongful act or omission of the defendant is the proximate cause of the injury sustained by the claimant; and (4) the award for damages is predicated on any of the cases stated in Article 2219 of the Civil Code.[35]

In the case at bar, although the respondent was not the loan applicant and the business opportunities lost were those of Ramdustrial Corporation, all four requisites were established. First, the respondent sustained injuries in that his physical health and cardio-vascular ailment were aggravated; his fear that his one and only property would be foreclosed, hounded him endlessly; and his reputation as mortgagor had been tarnished. Second, the annotation of notice of levy on the TCT of the private respondent was wrongful, arising as it did from the petitioners negligent act of allowing the levy without verifying the identity of its judgment debtor. Third, such wrongful levy was the proximate cause of the respondents misery. Fourth, the award for damages is predicated on Article 2219 of the Civil Code, particularly, number 10 thereof.[36]

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

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

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

SPS NISCE VS EQUITABLE PCI BANK G.R. No. 167434

FACTS: On November 26, 2002, Equitable PCI Bank1 (Bank) as creditor-mortgagee filed a petition for extrajudicial foreclosure before the Office of the Clerk of Court as Ex-Officio Sheriff of the Regional Trial Court (RTC) of Makati City. It sought to foreclose the following real estate mortgage contracts executed by the spouses Ramon and Natividad Nisce over two parcels of land covered by Transfer Certificate of Title (TCT) Nos. S-83466 and S-83467 of the Registry of Deeds of Rizal: one dated February 26, 1974; two (2) sets of "Additional Real Estate Mortgage" dated September 27, 1978 and June 3, 1996; and an "Amendment to Real Estate Mortgage" dated February 28, 2000. The mortgage contracts were executed by the spouses Nisce to secure their obligation under Promissory Note

Nos. 1042793 and BD-150369, including a Suretyship Agreement executed by Natividad. The obligation of the Nisce spouses totaled P34,087,725.76 broken down as follows:Spouses Ramon & Natividad Nisce - - - - - P17,422,285.99Natividad P. Nisce (surety) - - - - - - - - - - US$57,306.59and - - - - - - - - - - - - P16,665,439.772

On December 2, 2002, the Ex-Officio Sheriff set the sale at public auction at 10:00 a.m. on January 14, 2003,3 or on January 30, 2003 in the event the public auction would not take place on the earlier setting.On January 28, 2003, the Nisce spouses filed before the RTC of Makati City a complaint for "nullity of the Suretyship Agreement, damages and legal compensation" with prayer for injunctive relief against the Bank and the Ex-Officio Sheriff. They alleged the following: in a letter4 dated December 7, 2000 they had requested the bank (through their lawyer-son Atty. Rosanno P. Nisce) to setoff the peso equivalent of their obligation against their US dollar account with PCI Capital Asia Limited (Hong Kong), a subsidiary of the Bank, under Certificate Deposit No. 016125 and Account No. 090-0104 (Passbook No. 83-3041);6 the Bank accepted their offer and requested for an estimate of the balance of their account; they complied with the Bank’s request and in a letter dated February 11, 2002, informed it that the estimated balance of their account as of December 1991 (including the 11.875% per annum interest) was US$51,000.42,7 and that as of December 2002, Natividad’s US dollar deposit with it amounted to at least P9,000,000.00; they were surprised when they received a letter from the Bank demanding payment of their loan account, and later a petition for extrajudicial foreclosure.The spouses Nisce also pointed out that the petition for foreclosure filed by the Bank included the alleged obligation of Natividad as surety for the loan of Vista Norte Trading Corporation, a company owned and managed by their son Dino Giovanni P. Nisce (P16,665,439.77 and US$57,306.59). They insisted, however, that the suretyship agreement was null and void for the following reasons:(a) x x x [I]t was executed without the knowledge and consent of plaintiff Ramon M. Nisce, who is by law the administrator of the conjugal partnership;(b) The suretyship agreement did not redound to the benefit of the conjugal partnership and therefore did not bind the same;(c) Assuming, arguendo, that the suretyship contract was valid and binding, any obligation arising therefrom is not covered by plaintiffs’ real estate mortgages which were constituted to secure the payment of certain specific obligations only.8

The spouses Nisce likewise alleged that since they and the Bank were creditors and debtors with respect to each other, their obligations should have been offset by legal compensation to the extent of their account with the Bank.To support their plea for a writ of preliminary and prohibitory injunction, the spouses Nisce alleged that the amount for which their property was being sold at public auction (P34,087,725.76) was grossly excessive; the US dollar deposit of Natividad with PCI Capital Asia Ltd. (Hong Kong), and the obligation covered by the suretyship agreement had not been deducted. They insisted that their property rights would be violated if the sale at public auction would push through. Thus, the spouses Nisce prayed that they be granted the following reliefs:(1) that upon the filing of this Complaint and/or after due notice and summary hearing, the Honorable Court immediately issue a temporary restraining order (TRO) restraining defendants, their representatives and/or deputies, and other persons acting for and on their behalf from proceeding with the extrajudicial foreclosure sale of plaintiffs’ mortgaged properties on 30 January 2003 or on any other dates subsequent thereto;(2) that after due notice and hearing and posting of the appropriate bond, the Honorable Court convert the TRO to a writ of preliminary prohibitory injunction;(3) that after trial on the merits, the Honorable Court render judgment –(a) making the preliminary injunction final and permanent;(b) ordering defendant Bank to set off the present peso value of Mrs. Nisce’s US dollar time deposit, inclusive of stipulated interest, against plaintiffs’ loan obligations with defendant Bank;(c) declaring the Deed of Suretyship dated 25 May 1998 null and valid and without any binding effect as to plaintiff spouses, and ordering defendant Bank to exclude the amounts covered by said suretyship contract from plaintiffs’ obligations with defendant Bank;(d) ordering defendant Bank to pay plaintiffs the following sums:(i) at least P3,000,000.00 as moral damages;(ii) at least P1,500,000.00 as exemplary damages; and(iii) at least P500,000.00 as attorney’s fees and for other expenses of litigation.Plaintiffs further pray for costs of suit and such other reliefs as may be deemed just and equitable.9

On same day, the Bank filed an "Amended Petition" with the Office of the Executive Judge for extrajudicial foreclosure of the Real Estate Mortgage to satisfy the spouses’ loan account of P30,533,552.24, exclusive of interests, penalties and other charges; and the amounts of P16,665,439.77 and US$57,306.59 covered by the suretyship agreement executed by Natividad Nisce.10

In the meantime, the parties agreed to have the sale at public auction reset to January 30, 2003.In its Answer to the complaint, the Bank alleged that the spouses had no cause of action for legal compensation since PCI Capital was a different corporation with a separate and distinct personality; if at all, offsetting may occur only with respect to the spouses’ US$500.00 deposit account in its Paseo de Roxas branch.In the meantime, the Ex-Officio Sheriff set the sale at public auction at 10:00 a.m. on March 5 and 27, 2003.11 The spouses Nisce then filed a Supplemental Complaint with plea for a temporary restraining order to enjoin the sale at public auction.12 Thereafter, the RTC conducted hearings on the plaintiffs’ plea for a temporary restraining order, and the parties adduced testimonial and documentary evidence on their respective arguments.

The Case for the Spouses NisceNatividad frequently traveled abroad and needed a facility with easy access to foreign exchange. She inquired from E.P. Nery, the Bank Manager for PCI Bank

Paseo de Roxas Branch, about opening an account. He assured her that she would be able to access it from anywhere in the world. She and Nery also agreed that any balance of account remaining at maturity date would be rolled over until further instructions, or until she terminated the facility.13 Convinced, Natividad deposited US$20,500.00 on July 19, 1984, and was issued Passbook No. 83-3041.14 Upon her request, the bank transferred the US$20,000.00 to PCI Capital Asia Ltd. in Hong Kong via cable order.15

On July 11, 1996, the spouses Nisce secured a P20,000,000.00 loan from the Bank under Promissory Note No. BD-150369.16 The maturity date of the loan was July 11, 2001, payable in monthly installments at 16.731% interest per annum. To secure the payment of the loan account, they executed an Amendment to the Real Estate Mortgage over the properties17 located in Makati City covered by TCT Nos. S-83466 and S-83467.18 They later secured another loan of P13,089,936.90 on March 1, 2000 (to mature on March 1, 2005) payable quarterly at 13.9869% interest per annum; this loan agreement is evidenced by Promissory Note (PN) No. 104279319 and covered by a Real Estate Mortgage20 executed on February 28, 2000. They made a partial payment of P13,866,666.50 on the principal of their loan account covered by PN No. BD-150369, and P5,348,239.82 on the interests.21 These payments are evidenced by receipts and checks.22 However, there were payments totaling P4,600,000.00 received by the Bank but were not covered by checks or receipts.23 As of September 2000, the balance of their loan account under PN No. BD-150369 was only P4,333,333.46.24 They also made partial payment on their loan account under PN No. 1042793 which, as of May 30, 2001, amounted to P2,218,793.61.25

On July 20, 1984, PCI Capital issued Certificate of Deposit No. CD-01612;26 proof of receipt of the US$20,000.00 transferred to it by PCI Bank Paseo de Roxas Branch as requested by Natividad. The deposit account was to earn interest at the rate of 11.875% per annum, and would mature on October 22, 1984, thereafter to be payable at the office of the depositary in Hong Kong upon presentation of the Certificate of Deposit.In June 1991, two sons of the Nisce spouses were stranded in Hong Kong. Natividad called the Bank and requested for a partial release of her dollar deposit to her sons. However, she was informed that according to its computer records, no such dollar account existed. Sometime in November 1991, she submitted her US dollar passbook with a xerox copy of the Certificate of Deposit for the PCIB to determine the whereabouts of the account.27 She reiterated her request to the Bank on January 27, 199228 and September 11, 2000.29

In the meantime, in 1994, the Equitable Banking Corporation and the PCIB were merged under the corporate name Equitable PCI Bank.In a letter dated December 7, 2000, Natividad confirmed to the Bank, through Ms. Shellane R. Casaysayan, her offer to settle their loan account by offsetting the peso equivalent of her dollar account with PCI Capital under Account No. 090-0104.30 Their son, Atty. Rosanno Nisce, later wrote the Bank, declaring that the estimated balance of the US dollar account with PCI Capital as of December 1991 was US$51,000.42.31 Atty. Nisce corroborated this in his testimony, and stated that Ms. Casaysayan had declared that she would refer the matter to her superiors.32 A certain Rene Esteven also told him that another offer to setoff his parents’ account had been accepted, and he was assured that its implementation was being processed.33 On cross examination, Atty. Nisce declared that there was no response to his request for setoff,34 and that Esteven assured him that the Bank would look for the records of his mother’s US dollar savings deposit.35 He was later told that the Bank had accepted the offer to setoff the account.36

The Case for the BankThe Bank adduced evidence that, as of January 31, 2003, the balance of the spouses’ account under the two promissory notes, including interest and penalties, was P30,533,552.24.37 It had agreed to restructure their loans on March 31, 1998, but they nevertheless failed to pay despite repeated demands.38 The spouses had also been furnished with a statement of their account as of June 2001. Thus, under the terms of the Real Estate Mortgage and Promissory Notes, it had the right to the remedy of foreclosure. It insisted that there is no showing in its records that the spouses had delivered checks amounting to P4,600,000.00.39

According to the Bank, Natividad’s US$20,000.00 deposit with the PCIB Paseo de Roxas branch was transferred to PCI Capital via cable order,40 and that it later issued Certificate of Deposit No. 01612 (Non-transferrable).41 In a letter dated May 9, 2001, it informed Natividad that it had acted merely as a conduit in facilitating the transfer of the funds, and that her deposit was made with PCI Capital and not with PCIB. PCI Capital had a separate and distinct personality from the PCIB, and a claim against the former cannot be made against the latter. It was later advised that PCI Capital had already ceased operations.42

The spouses Nisce presented rebuttal documentary evidence to show that PCI Capital was registered in Hong Kong as a corporation under Registration No. 84555 on February 27, 198943 with an authorized capital stock of 50,000,000 (with par value of HKD1.00); the PCIB subscribed to 29,039,993 issued shares at the par value of HKD1.00 per share;44 on October 25, 2004, the corporate name of PCI Capital was changed to PCI Express Padala (HK) Ltd.;45 and the stockholdings of PCIB remained at 29,039,999 shares.46

On March 24, 2003, the RTC issued an Order47 granting the spouses Nisce’s plea for a writ of preliminary injunction on a bond of P10,000,000.00. The dispositive portion of the Order reads:WHEREFORE, in order not to render the judgment ineffectual, upon filing by the plaintiffs and the approval thereof by the court of a bond in the amount of Php10,000,000.00, which shall answer for any damage should the court finally decide that plaintiffs are not entitled thereto, let a writ of preliminary injunction issue enjoining defendants Equitable-PCI Bank, Atty. Engracio M. Escasinas, Jr., and any person or entity acting for and in their behalf from proceeding with the extrajudicial foreclosure sale of TCT Nos. 437678 and 437679 registered in the names of the plaintiffs.48

After weighing the parties’ arguments along with their documentary evidence, the RTC declared that justice would be best served if a writ of preliminary injunction

would be issued to preserve the status quo. It had yet to resolve the issue of setoff since only Natividad dealt with the Bank regarding her dollar account. It also had to resolve the issue of whether the Bank had failed to credit the amount of P4,600,000.00 to the spouses Nisce’s account under PN No. BD-150369, and their claim that the Bank had effectively accelerated the respective maturity dates of their loan.49 The spouses Nisce posted the requisite bond which was approved by the RTC.1awphi1.netThe Bank opted not to file a motion for reconsideration of the order, and instead assailed the trial court’s order before the CA via petition for certiorari under Rule 65 of the Rules of Court. The Bank alleged that the RTC had acted without or in excess of its jurisdiction, or with grave abuse of its discretion amounting to lack or excess of jurisdiction when it issued the assailed order;50 the spouses Nisce had failed to prove the requisites for the issuance of a writ of preliminary injunction; respondents’ claim that their account with petitioner had been extinguished by legal compensation has no factual and legal basis. It further asserted that according to the evidence, Natividad made the US$20,000.00 deposit with PCI Capital before it merged with Equitable Bank – hence, the Bank was not the debtor of Natividad relative to the dollar account. The Bank cited the ruling of this Court in Escaño v. Heirs of Escaño and Navarro51 to support its arguments. It insisted that the spouses Nisce had failed to establish "irreparable injury" in case of denial of their plea for injunctive relief.The spouses, for their part, pointed out that the Bank failed to file a motion for reconsideration of the trial court’s order, a condition sine qua non to the filing of a petition for certiorari under Rule 65 of the Rules of Court. Moreover, the error committed by the trial court is a mere error of judgment not correctible by certiorari; hence, the petition should have been dismissed outright by the CA. They reiterated their claim that they had made a partial payment of P4,600,000.00 on their loan account which petitioner failed to credit in their favor. The Bank had agreed to debit their US dollar savings deposit in the PCI Capital as payment of their loan account. They insisted that they had never deposited their US dollar account with PCI Capital but with the Bank, and that they had never defaulted on their loan account. Contrary to the Bank’s claim, they would have suffered irreparable injury had the trial court not enjoined the extrajudicial foreclosure of the real estate mortgage.On December 22, 2004, the CA rendered judgment granting the petition and nullifying the assailed Order of the RTC.52 The appellate court declared that a petition for certiorari under Rule 65 of the Rules of Court may be filed despite the failure to file a motion for reconsideration, particularly in instances where the issue raised is one of law; where the error is patent; the assailed order is void, or the questions raised are the same as those already ruled upon by the lower court. According to the appellate court, the issue raised before it was purely one of law: whether the loan account of the spouses was extinguished by legal compensation. Thus, a motion for the reconsideration of the assailed order was not a prerequisite to a petition for certiorari under Rule 65.The appellate court further declared that the trial court committed grave abuse of its discretion in issuing the assailed order, since no plausible reason was given by the spouses Nisce to justify the injunction of the extrajudicial foreclosure of the real estate mortgage. Given their admission that they had not settled the obligations secured by the mortgage, the Bank had a clear right to seek the remedy of foreclosure.The CA further declared as devoid of factual basis the spouses Nisce’s argument that the Bank should have applied, by way of legal compensation, the peso equivalent of their time deposit with PCI Capital as partial settlement of their obligations. It held that for compensation to take place, the requirements set forth in Articles 1278 and 1279 of the Civil Code of the Philippines must be present; in this case, the parties are not mutually creditors and debtors of each other. It pointed out that the time deposit which the spouses Nisce sought to offset against their obligations to the Bank is maintained with PCI Capital. Even if PCI Capital is a subsidiary of the Bank, compensation cannot validly take place because the Bank and PCI Capital are two separate and distinct corporations. It pointed out the settled principle "that a corporation has a personality separate and distinct from its stockholders and from other corporations to which it may be connected."The CA further declared that the alleged P4,600,000.00 payment on PN No. BD-150369 was not pleaded in the spouses’ complaint and supplemental complaint before the court a quo. What they alleged, aside from legal compensation, was that the mortgage is not liable for the obligation of Natividad Nisce as surety for the loans obtained by a trading firm owned and managed by their son. The CA further pointed out that the Bank precisely amended the petition for foreclosure sale by deleting the claim for Natividad’s obligation as surety. The appellate court concluded that the injunctive writ was issued by the RTC without factual and legal basis.

ISSUE: The spouses Nisce moved to have the decision reconsidered, but the appellate court denied the motion. They thus filed the instant petition for review on the following grounds:5.1. THE HONORABLE COURT OF APPEALS ERRED IN TAKING COGNIZANCE OF THE PETITION FOR CERTIORARI DESPITE THE BANK’S FAILURE TO FILE A MOTION FOR RECONSIDERATION WITH THE TRIAL COURT.5.2. THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN IT PREMATURELY RULED ON THE MERITS OF THE MAIN CASE.5.3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT JUDGE HAD COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN ISSUING A TEMPORARY RESTRAINING ORDER AND A WRIT OF PRELIMINARY INJUNCTION IN FAVOR OF THE SPOUSES NISCE.54

Petitioners aver that the CA erred in not dismissing respondent Bank’s petition for certiorari outright because of the absence of a condition precedent: the filing of a

motion for reconsideration of the assailed Order of the RTC before filing the petition for certiorari in the CA. They insist that respondent bank’s failure to file a motion for reconsideration of the assailed Order deprived the RTC of its option to resolve the issue of whether it erred in issuing the writ of preliminary injunction in their favor.Petitioners insist that in resolving whether a petition for a writ of preliminary injunction should be granted, the trial court and the appellate court are not to resolve the merits of the main case. In this case, however, the CA resolved the bone of contention of the parties in the trial court: whether the loan account of petitioners with respondent bank had been extinguished by legal compensation against petitioner Natividad Nisce’s US dollar savings account with PCI Capital in Hong Kong. The CA reversed the assailed order of the trial court by resolving the main issue in the trial court on its merits, and declaring that the US dollar savings deposit of the petitioner Natividad Nisce with the PCI Capital cannot be used to offset the loan account of petitioners with respondent bank. In fine, according to petitioners, the CA preempted the ruling of the RTC on the main issue even before the parties could be given an opportunity to complete the presentation of their respective evidences. Petitioners point out that in the assailed Order, the RTC declared that to determine whether respondent had credited petitioners for the amount of P4,600,000.00 under PN No. BD-150369 and whether respondent as mortgagee-creditor accelerated the maturities of the two (2) promissory notes executed by petitioner, there was a need for a full-blown trial and an exhaustive consideration of the evidence of the parties.Petitioners further insist that a petition for a writ of certiorari is designed solely to correct errors of jurisdiction and not errors of judgment, such as errors in the findings and conclusions of the trial court. Petitioners maintain that the trial court’s erroneous findings and conclusions (according to respondent bank) are not the proper subjects for a petition for certiorari. Contrary to the findings of the CA, they did not admit in the trial court that they were in default in the payment of their loan obligations. They had always maintained that they had no outstanding obligation to respondent bank precisely because their loan account had been offset by the US dollar deposit of petitioner Natividad Nisce, and that they had made check payments of P4,600,000.00 which respondent bank had not credited in their favor. Likewise erroneous is the CA ruling that they would not suffer irreparable damage or injury if their properties would be sold at public auction following the extrajudicial foreclosure of the mortgage. Petitioners point out that their conjugal home stands on the subject properties and would be lost if sold at public auction. Besides, petitioners aver, the injury to respondent bank resulting from the issuance of a writ of preliminary injunction is amply secured by the P10,000,000.00 injunction bond which they had posted.For its part, respondent avers that, as held by the CA, the requirement of the filing of a motion for reconsideration of the assailed Order admits of exceptions, such as where the issue presented in the appellate court is the same issue presented and resolved by the trial court. It insists that petitioners failed to prove a clear legal right to injunctive relief; hence, the trial court committed grave abuse of discretion in issuing a writ of preliminary injunction.Respondent maintains that the sole issue involved in the petition for certiorari of respondent in the CA was whether or not the trial court committed grave abuse of its discretion in issuing the writ of preliminary injunction. Necessarily, the CA would have to delve into the circumstances behind such issuance. In so doing, the CA had to consider and calibrate the testimonial and documentary evidence adduced by the parties. However, the RTC and the CA did not resolve with finality the threshold factual and legal issue of whether the loan account of petitioners had been paid in full before it filed its petition for extrajudicial foreclosure of the real estate mortgage.

HELD: The Petition in theCourt of AppealsNot PrematureThe general rule is that before filing a petition for certiorari under Rule 65 of the Rules of Court, the petitioner is mandated to comply with a condition precedent: the filing of a motion for reconsideration of the assailed order, and the subsequent denial of the court a quo. It must be stressed that a petition for certiorari is an extraordinary remedy and should be filed only as a last resort. The filing of a motion for reconsideration is intended to afford the public respondent an opportunity to correct any actual error attributed to it by way of re-examination of the legal and factual issues.55 However, the rule is subject to the following recognized exceptions:(a) where the order is a patent nullity, as where the court a quo has no jurisdiction; (b) where the questions raised in the certiorari proceeding have been duly raised and passed upon by the lower court, or are the same as those raised and passed upon in the lower court; (c) where there is an urgent necessity for the resolution of the question and any further delay would prejudice the interests of the Government or of the petitioner or the subject matter of the action is perishable; (d) where, under the circumstances, a motion for reconsideration would be useless; (e) where petitioner was deprived of due process and there is extreme urgency for relief; (f) where, in a criminal case, relief from an order of arrest is urgent and the granting of such relief by the trial court is improbable; (g) where the proceedings in the lower court are a nullity for lack of due process; (h) where the proceedings was ex parte or in which the petitioner had no opportunity to object; and (i) where the issue raised is one purely of law or public interest is involved.56

As will be shown later, the March 24, 2003 Order of the trial court granting petitioner’s plea for a writ of preliminary injunction was issued with grave abuse of discretion amounting to excess or lack of jurisdiction and thus a nullity. If the trial court issues a writ of preliminary injunction despite the absence of proof of a legal right and the injury sustained by the plaintiff, the writ is a nullity.57

Petitioners Are NotEntitled to a Writ ofPreliminary ProhibitoryInjunctionSection 3, Rule 58 of the Rules of Court provides that a preliminary injunction may be granted when the following have been established:(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the commission or continuance of the act or acts

complained of, or in requiring the performance of an act or acts, either for a limited period or perpetually;(b) That the commission, continuance or nonperformance of the act or acts complained of during the litigation would probably work injustice to the applicant; or(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and tendering to render the judgment ineffectual.The grant of a preliminary injunction in a case rests on the sound discretion of the court with the caveat that it should be made with great caution. The exercise of sound judicial discretion by the lower court should not be interfered with except in cases of manifest abuse. Injunction is a preservative remedy for the protection of the parties’ substantive rights and interests. The sole aim of a preliminary injunction is to preserve the status quo within the last actual status that preceded the pending controversy until the merits of the case can be heard fully. Moreover, a petition for a preliminary injunction is an equitable remedy, and one who comes to claim for equity must do so with clean hands. It is to be resorted to by a litigant to prevent or preserve a right or interest where there is a pressing necessity to avoid injurious consequences which cannot be remedied under any standard of compensation. A petition for a writ of preliminary injunction rests upon an alleged existence of an emergency or of a special reason for such a writ before the case can be regularly tried. By issuing a writ of preliminary injunction, the court can thereby prevent a threatened or continued irreparable injury to the plaintiff before a judgment can be rendered on the claim.58

The plaintiff praying for a writ of preliminary injunction must further establish that he or she has a present and unmistakable right to be protected; that the facts against which injunction is directed violate such right;59 and there is a special and paramount necessity for the writ to prevent serious damages. In the absence of proof of a legal right and the injury sustained by the plaintiff, an order for the issuance of a writ of preliminary injunction will be nullified. Thus, where the plaintiff’s right is doubtful or disputed, a preliminary injunction is not proper. The possibility of irreparable damage without proof of an actual existing right is not a ground for a preliminary injunction.60

However, to establish the essential requisites for a preliminary injunction, the evidence to be submitted by the plaintiff need not be conclusive and complete.61

The plaintiffs are only required to show that they have an ostensible right to the final relief prayed for in their complaint.62 A writ of preliminary injunction is generally based solely on initial or incomplete evidence.63 Such evidence need only be a sampling intended merely to give the court an evidence of justification for a preliminary injunction pending the decision on the merits of the case, and is not conclusive of the principal action which has yet to be decided.64

It bears stressing that findings of the trial court granting or denying a petition for a writ of preliminary injunction based on the evidence on record are merely provisional until after the trial on the merits of the case shall have been concluded.65

The trial court, in granting or dismissing an application for a writ of preliminary injunction based on the pleadings of the parties and their respective evidence must state in its order the findings and conclusions based on the evidence and the law. This is to enable the appellate court to determine whether the trial court committed grave abuse of its discretion amounting to excess or lack of jurisdiction in resolving, one way or the other, the plea for injunctive relief. The trial court’s exercise of its judicial discretion whether to grant or deny an application for a writ of preliminary injunction involves the assessment and evaluation of the evidence, and its findings of facts are ordinarily binding and conclusive on the appellate court and this Court.66

We agree with respondent’s contention that as creditor-mortgagee, it has the right under the real estate mortgage contract and the amendment thereto to foreclose extrajudicially, the real estate mortgage and sell the property at public auction, considering that petitioners had failed to pay their loans, plus interests and other incremental amounts as provided for in the deeds. Petitioners contend, however, that if respondent bank extrajudicially forecloses the real estate mortgage and has petitioners’ property sold at public auction for an amount in excess of the balance of their loan account, petitioner’s contractual and substantive rights under the real estate mortgage would be violated; in such a case, the extrajudicial foreclosure sale may be enjoined by a writ of preliminary injunction.Respondent bank sought the extrajudicial foreclosure of the real estate mortgage and was to sell the property at public auction for P30,533,552.24. The amount is based on Promissory Notes No. 1042793 and BD-150369, interests, penalty charges, and attorney’s fees, as of January 31, 2003, exclusive of all interests, penalties, other charges, and foreclosure costs accruing thereafter.67 Petitioners asserted before the trial court that respondents sought the extrajudicial foreclosure of the mortgaged deed for an amount far in excess of what they owed, because the latter failed to credit P4,600,000.00 paid in checks but without any receipts having been issued therefor; and the P9,000,000.00 peso equivalent of the US$20,000.00 deposit of petitioner Natividad Nisce with PCIB under Passbook No. 83-3041 and Certificate of Deposit No. CD-01612 issued by PCI Capital on July 23, 1984. Petitioners maintain that the US$20,000.00 dollar deposit should be setoff against their account with respondent against their loan account, on their claim that respondent is their debtor insofar as said deposit is concerned.It was the burden of petitioners, as plaintiffs below, to adduce preponderant evidence to prove their claim that respondent bank was the debtor of petitioner Natividad Nisce relative to her dollar deposit with PCIB, and later transferred to PCI Capital in Hong Kong, a subsidiary of respondent Bank. Petitioners, however, failed to discharge their burden.Under Article 1278 of the New Civil Code, compensation shall take place when two persons, in their own right, are creditors and debtors of each other. In order that compensation may be proper, petitioners were burdened to establish the following:(1) That each one of the obligors be bound principally, and that he be at the same

time a principal creditor of the other;(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;(3) That the two debts be due;(4) That they be liquidated and demandable;(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor.68

Compensation takes effect by operation of law when all the requisites mentioned in Article 1279 of the New Civil Code are present and extinguishes both debts to the concurrent amount even though the creditors and debtors are not aware of the compensation. Legal compensation operates even against the will of the interested parties and even without their consent.69 Such compensation takes place ipso jure; its effects arise on the very day on which all requisites concur.70

As its minimum, compensation presupposes two persons who, in their own right and as principals, are mutually indebted to each other respecting equally demandable and liquidated obligations over any of which no retention or controversy commenced and communicated in due time to the debtor exists. Compensation, be it legal or conventional, requires confluence in the parties of the characters of mutual debtors and creditors, although their rights as such creditors or their obligations as such debtors need not spring from one and the same contract or transaction.71

Article 1980 of the New Civil Code provides that fixed, savings and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loans. Under Article 1953, of the same Code, a person who secures a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay the creditor an equal amount of the same kind and quality. The relationship of the depositors and the Bank or similar institution is that of creditor-debtor. Such deposit may be setoff against the obligation of the depositor with the bank or similar institution.When petitioner Natividad Nisce deposited her US$20,500.00 with the PCIB on July 19, 1984, PCIB became the debtor of petitioner. However, when upon petitioner’s request, the amount of US$20,000.00 was transferred to PCI Capital (which forthwith issued Certificate of Deposit No. 01612), PCI Capital, in turn, became the debtor of Natividad Nisce. Indeed, a certificate of deposit is a written acknowledgment by a bank or borrower of the receipt of a sum of money or deposit which the Bank or borrower promises to pay to the depositor, to the order of the depositor; or to some other person; or to his order whereby the relation of debtor and creditor between the bank and the depositor is created.72 The issuance of a certificate of deposit in exchange for currency creates a debtor-creditor relationship.73

Admittedly, PCI Capital is a subsidiary of respondent Bank. Even then, PCI Capital [PCI Express Padala (HK) Ltd.] has an independent and separate juridical personality from that of the respondent Bank, its parent company; hence, any claim against the subsidiary is not a claim against the parent company and vice versa.74 The evidence on record shows that PCIB, which had been merged with Equitable Bank, owns almost all of the stocks of PCI Capital. However, the fact that a corporation owns all of the stocks of another corporation, taken alone, is not sufficient to justify their being treated as one entity. If used to perform legitimate functions, a subsidiary’s separate existence shall be respected, and the liability of the parent corporation, as well as the subsidiary shall be confined to those arising in their respective business.75 A corporation has a separate personality distinct from its stockholders and from other corporations to which it may be conducted. This separate and distinct personality of a corporation is a fiction created by law for convenience and to prevent injustice.This Court, in Martinez v. Court of Appeals76 held that, being a mere fiction of law, peculiar situations or valid grounds can exist to warrant, albeit sparingly, the disregard of its independent being and the piercing of the corporate veil. The veil of separate corporate personality may be lifted when, inter alia, the corporation is merely an adjunct, a business conduit or an alter ego of another corporation or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation; or when the corporation is used as a cloak or cover for fraud or illegality; or to work injustice; or where necessary to achieve equity or for the protection of the creditors. In those cases where valid grounds exist for piercing the veil of corporate entity, the corporation will be considered as a mere association of persons. The liability will directly attach to them.77

The Court likewise declared in the same case that the test in determining the application of the instrumentality or alter ego doctrine is as follows:1. Control, not mere majority or complete stock control, but complete dominion, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own;2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiff’s legal rights; and3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complaint of.The Court emphasized that the absence of any one of these elements prevents "piercing the corporate veil." In applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendant’s relationship to that operation.78

Petitioners failed to adduce sufficient evidence to justify the piercing of the veil of corporate entity and render respondent Bank liable for the US$20,000.00 deposit of petitioner Natividad Nisce as debtor.On hindsight, petitioners could have spared themselves the expenses and tribulation of a litigation had they just withdrawn their deposit from the PCI Capital and remitted the same to respondent. However, petitioner insisted on their contention of setoff.

On the P4,600,000.00 paid in checks allegedly remitted by petitioners to respondent in partial payment of their loan account, petitioners failed to adduce in evidence the checks to show that, indeed, the checks were drawn by petitioners and delivered to respondent, and that respondent was able to cash the checks. The only evidence adduced by petitioners is a piece of paper listing the serial numbers of the checks and the amount of each check:PAYMENTS MADE & RECEIVED BY EBC BUT W/O RECEIPTS

1. Dec. 29, 1997 - EBC-0000039462 - 2,000,000.00

2. Jan. 22, 1998 - EBC-213016118C - 1,000,000.00

3. Feb. 24, 1998 - UB -0000074619 - 800,000.00

4. Mar. 23, 1998 - EBC-213016121C -

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. The Decision of the Court of Appeals is AFFIRMED. Costs against petitioners.

UNION BANK OF THE PHIL VS CA G.R. No. 134068

FACTS: On March 2, 1990, respondents-spouses Gonzalo and Trinidad Vincoy mortgaged their residence in favor of petitioner to secure the payment of a loan to Delco Industries (Phils.), Incorporated1 in the amount of Two Million Pesos (P2,000,000.00). For failure of the respondents to pay the loan at its date of maturity, petitioner extrajudicially foreclosured the mortgage and scheduled the foreclosure sale on April 10, 1991. The petitioner submitted the highest bid of Three Million Two Hundred Ninety Thousand Pesos (P3,290,000.00) at the foreclosure sale. Accordingly, a certificate of sale was issued to petitioner and duly annotated at the back of the Transfer Certificate of Title covering the property on May 8, 1991.2

Prior to the expiration of the redemption period on May 8, 1992, the respondents filed a complaint for annulment of mortgage with the lower court. In their complaint, respondents alleged that the subject property mortgaged to petitioner had in fact been constituted as a family home as early as October 27, 1989. Among the beneficiaries of the said family home are the sisters of respondent Trinidad Vincoy, namely Apolonia and Luciana De Jesus Gregorio whose consent to the mortgage was not obtained.3 Respondents thus assailed the validity of the mortgage on the ground that Article 158 of the Family Code4 prohibits the execution, forced sale, attachment or any other encumbrance of a family home without the written consent of majority of the beneficiaries thereof of legal age.5 On the hand, petitioner maintained that the mortgaged property of respondents could not be legally constituted as a family home because its actual value exceeded Three Hundred Thousand Pesos (P300,000.00), the maximum value for a family home in urban areas as stipulated in Article 157 of the Family Code.6

The lower court rendered judgment declaring the constitution of the family home void and the mortgage executed in favor of the petitioner valid. It held, among others, that Article 158 of the Family Code was not applicable to respondents' family home as the value of the latter at the time of its alleged constitution exceeded Three Hundred Thousand Pesos (P300,000.00).7 It also ordered respondent Gonzalo Vincoy and/or Delco Industries (Phils.), Inc. to pay petitioner his and/or its outstanding obligation as of February 15, 1993 in the amount of Four Million Eight Hundred Sixteen Thousand One Hundred Ninety-Four Pesos and Forty-Four Centavos (P4,816,194.44) including such sums that may accrue by way of interests and penalties.8

Aggrieved, respondents appealed to the Court of Appeals contending that the lower court erred in finding that their family home was not duly constituted, and that the mortgage in favor of petitioner is valid. Respondents also claimed that the correct amount sufficient for the redemption of their property as of February 15, 1993 is Two Million Seven Hundred Seventy-Three Thousand Seven Hundred Twelve Pesos and Eighty-Seven Centavos (P2,773,712.87)9 and not Four Million Eight Hundred Sixteen Thousand One Hundred Ninety-Four Pesos and forty-four Centavos (P4,816,194.44) as found by the lower court.In a decision promulgated on June 4, 1997, the Court of Appeals sustained the finding of the lower court that the alleged family home of the respondents did not fall within the purview of Article 157 of the Family Code as its value at the time of its constitution was more than the maximum value of Three Hundred Thousand Pesos (P300,000). Hence, the Court of Appeals upheld the validity of the mortgage executed over the said property in favor of the petitioner.10 However, it found that the amount sufficient for the redemption of the foreclosed property is Three Million Two Hundred Ninety Thousand Pesos (P3,290,000.00) equivalent to the purchase price at the foreclosure sale plus one percent (1%) monthly interest from April 19, 1991 up to the date of redemption11 pursuant to Section 30, Rule 39 of the Rules of Court.

ISSUE: Dissatisfied with the ruling of the Court of Appeals, the petitioner filed a petition for review on certiorari with this Court submitting the following issues for resolution:1. The Court of Appeals resolves an issue of redemption which was not even directly raised by the parties and contrary to the evidence on record.2. Assuming without admitting that respondents are entitled to redemption, the price set by the Court of Appeals is not based on law.

HELD: Petitioner contends, first of all, that in allowing the respondents to redeem the subject foreclosed property, the Court of Appeals completely ignored the fact that neither respondents' complaint before the lower court nor their brief filed

before the Court of Appeals prayed for the redemption of the said property. On the contrary, respondents had consistently insisted on the nullity of the mortgage. Thus, to allow them to redeem the property would contradict the very theory of their case.14

Petitioner also contends that the respondents had already lost their right to redeem the foreclosured property when they failed to exercise their right of redemption by paying the redemption price within the period provided for by law.15 In the event, however, that the Court upholds the right of the respondents to redeem the said property, the petitioner claims that it is not Section 30, Rule 39 of the Rules of Court that applies in determining the amount sufficient for redemption but Section 78 of the General Banking Act as amended by Presidential Decree No. 1828 16

which provides:"xxx. In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which is security for any loan granted before the passage of this Act or under the provisions of this Act, the mortgagor or debtor whose real property has been sold at public auction, judicially or extrajudicially, for the full or partial payment of an obligation to any bank, banking or credit institution, within the purview of this Act shall have the right, within one year after the sale of the real estate as a result of the foreclosure of the respective mortgage, to redeem the property by paying the amount fixed by the court in the order of execution, or the amount due under the mortgage deed, as the case may be, with interest thereon at the rate specified in the mortgage, and all the costs, and judicial and other expenses incurred by the bank or institution concerned by reason of the execution and sale and as a result of the custody of the said property less the income received from the property." [Italics supplied].This Court dismissed the petition in a Resolution promulgated on July 12, 1999 on the ground that the Court of Appeals did not commit any reversible error and that the petition raises mere questions of fact already amply passed upon by the appellate court.17 Hence, the instant motion for reconsideration.We are persuaded to reconsider.First of all, it is important to note that the lower court decided this case on the basis only of the pleadings submitted by the parties. No trial was conducted, thus, no evidence other than that submitted with the pleadings could be considered.A careful scrutiny of the pleadings filed by the respondents before the lower court reveals that at no time did the respondents pray that they be allowed to redeem the subject foreclosed property.18 On the other hand, respondents never wavered from the belief that the mortgage over the said property is, in the first place, void for having been executed over a duly constituted family home without the consent of the beneficiaries thereof. After upholding the validity of the mortgage, the lower court ordered respondent Gonzalo Vincoy and/or Delco Industries, Inc. to pay petitioner the amount of Four Million Eight Hundred Sixteen Thousand One Hundred Ninety-Four Pesos and Forty-Four Centavos (P4,816,194.44) plus interest and penalties representing Vincoy's and/or Delco's outstanding obligation to petitioner as of February 15, 1993.19 There is no mention whatsoever of respondents' right to redeem the property.Respondents raised the issue of redemption for the first time only on appeal in contesting the amount ordered by the lower court to be paid by respondents to the petitioner. Thus, the actuation of the Court of Appeals in allowing the respondents to redeem the subject foreclosured property is not legally permissible. In petitioners for review or appeal under Rule 45 of the Rules of Court, the appellate tribunal is limited to the determination for whether the lower court committed reversible error.20

It is settled jurisprudence that an issue which was neither averred in the complaint nor raised during the trial in the court below cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice and due process.21 On this ground alone, the Court of Appeals should have completely ignored the issue of respondents' right to redeem the subject foreclosed property. In addition, a reason just as glaringly obvious exists for declaring the respondents' right of redemption already non-existent one year after May 8, 1991, the date of the registration of the sale at public auction.Pursuant to Section 78 of the General banking Act, a mortgagor whose real property has been sold at a public auction, judicially or extrajudicially, for the full or partial payment of an obligation to any bank, shall have the right, within one year after the sale of the real estate to redeem the property. The one-year period is actually to be reckoned from the date of the registration of the sale.22 Clearly therefore, respondents had only until May 8, 1992 to redeem the subject foreclosed property. Their failure to exercise that right of redemption by paying the redemption price within the period prescribed by law effectively divested them of said right. It bears reiterating that during the one year redemption period, respondents never attempted to redeem the subject property but instead persisted in their theory that the mortgage is null and void. To allow them now to redeem the same property would, as petitioner aptly puts it, e letting them have their cake and eat it too.It cannot also be argued that the action for annulment of the mortgage filed by the respondents tolled the running of the one-year period of redemption. In the case of Sumerariz v. Development Bank of the Philippines,23 petitioners therein contended that the one-year period to redeem the property foreclosed by respondent was suspended by the institution of an action to annul the foreclosure sale filed three (3) days before the expiration of the period. To this we ruled that:"We have not found, however, any statute or decision in support of this pretense. Moreover, up to now plaintiffs have not exercised the right of redemption. Indeed, although they have intimated their wish to redeem the property in question, they have not deposited the amount necessary therefor. It may not be amiss to note that, unlike Section 30 of Rule 39 of the Rules of Court, which permits the extension of the period of redemption of mortgaged properties, Section 3 of Commonwealth Act No. 459, in relation to Section 9 of Republic Act No. 85, which governs the redemption of property mortgaged to the Bank does no contain a similar provision. Again this question has been definitely settled by the previous case declaring that plaintiff's right of redemption has already been extinguished in

view of their failure to exercise it within the statutory period."24

Also, in the more recent case of Vaca v. Court of Appeals,25 we declared that the pendency of an action questioning the validity of a mortgage cannot bar the issuance of the writ of possession after title to the property has been consolidated in the mortgagee.26 The implication is clear: the period of redemption is not interrupted by the filing of an action assailing the validity of the mortgage, so that at the expiration thereof, the mortgagee who acquires the property at the foreclosure sale can proceed to have the title consolidated in his name and a writ of possession issued in his favor.To rule otherwise, and allow the institution of an action questioning the validity of a mortgage to suspend the running of the one year period of redemption would constitute a dangerous precedent. A likely offshoot of such a ruling is the institution of frivolous suits for annulment of mortgage intended merely to give the mortgagor more time to redeem the mortgaged property.As a final word, although the issue pertaining to the correct amount for the redemption of the subject-foreclosed property has been rendered moot by the foregoing, a point of clarification should perhaps be made as to the applicable legal provision. Petitioner's contention that Section 78 of the General Banking Act governs the determination of the redemption price of the subject property is meritorious. In Ponce de Leon v. Rehabilitation Finance Corporation,27 this Court had occasion to rule that Section 78 of the General Banking Act had the effect of amending Section 6 of Act No. 313528 insofar as the redemption price is concerned when the mortgagee is a bank, as in this case, or a banking or credit institution.29

The apparent conflict between the provisions of Act No. 3135 and the General Banking Act was, therefore, resolved in favor of the latter, being a special and subsequent legislation. This pronouncement was reiterated in the case of Sy v. Court of Appeals30 where we held that the amount at which the foreclosed property is redeemable is the amount due under the mortgage deed, or the outstanding obligation of the mortgagor plus interest and expenses in accordance with Section 78 of the General Banking Act.31 It was therefore manifest error on the part of the Court of Appeals to apply in the case at bar the provisions of Section 30 Rule 39 of the Rules of Court in fixing the redemption price of the subject foreclosed property.WHEREFORE, the motion for reconsideration is hereby GRANTED. This Court's Resolution dated July 12, 1999 is MODIFIED insofar as respondents are found to have lost their right to redeem the subject foreclosed property.

MEDEL VS CA G.R. No. 131622

FACTS: On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and Leticia) obtained a loan from Veronica R. Gonzales (hereafter Veronica), who was engaged in the money lending business under the name "Gonzales Credit Enterprises", in the amount of P50,000.00, payable in two months. Veronica gave only the amount of P47,000.00, to the borrowers, as she retained P3,000.00, as advance interest for one month at 6% per month. Servado and Leticia executed a promissory note for P50,000.00, to evidence the loan, payable on January 7, 1986.

On November 19, 1985, Servando and Leticia obtained from Veronica another loan in the amount of P90,000.00, payable in two months, at 6% interest per month. They executed a promissory note to evidence the loan, maturing on January 19, 1986. They received only P84,000.00, out of the proceeds of the loan.

On maturity of the two promissory notes, the borrowers failed to pay the indebtedness.

On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the amount of P300,000.00, maturing in one month, secured by a real estate mortgage over a property belonging to Leticia Makalintal Yaptinchay, who issued a special power of attorney in favor of Leticia Medel, authorizing her to execute the mortgage. Servando and Leticia executed a promissory note in favor of Veronica to pay the sum of P300,000.00, after a month, or on July 11, 1986. However, only the sum of P275,000.00, was given to them out of the proceeds of the loan.

Like the previous loans, Servando and Medel failed to pay the third loan on maturity.

On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel, consolidated all their previous unpaid loans totaling P440,000.00, and sought from Veronica another loan in the amount of P60,000.00, bringing their indebtedness to a total of P500,000.00, payable on August 23, 1986. The executed a promissory note, reading as follows:"Baliwag, Bulacan July 23, 1986"Maturity Date August 23, 1986"P500,000.00"FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the order of VERONICA R. GONZALES doing business in the business style of GONZALES CREDIT ENTERPRISES, Filipino, of legal age, married to Danilo G. Gonzales, Jr., of Baliwag Bulacan, the sum of PESOS ........ FIVE HUNDRED THOUSAND ..... (P500,000.00) Philippine Currency with interest thereon at the rate of 5.5 PER CENT per month plus 2% service charge per annum from date hereof until fully paid according to the amortization schedule contained herein. (Underscoring supplied)"Payment will be made in full at the maturity date."Should I/WE fail to pay any amortization or portion hereof when due, all the other installments together with all interest accrued shall immediately be due and payable and I/WE hereby agree to pay an additional amount equivalent to one per cent (1%) per month of the amount due and demandable as penalty charges in the form of liquidated damages until fully paid; and the further sum of TWENTY FIVE PER CENT (25%) thereon in full, without deductions as Attorney's Fee whether actually incurred or not, of the total amount due and demandable, exclusive of costs and judicial or extra judicial expenses. (Underscoring supplied)"I, WE further agree that in the event the present rate of interest on loan is

increased by law or the Central Bank of the Philippines, the holder shall have the option to apply and collect the increased interest charges without notice although the original interest have already been collected wholly or partially unless the contrary is required by law."It is also a special condition of this contract that the parties herein agree that the amount of peso-obligation under this agreement is based on the present value of peso, and if there be any change in the value thereof, due to extraordinary inflation or deflation, or any other cause or reason, then the peso-obligation herein contracted shall be adjusted in accordance with the value of the peso then prevailing at the time of the complete fulfillment of obligation."Demand and notice of dishonor waived. Holder may accept partial payments and grant renewals of this note or extension of payments, reserving rights against each and all indorsers and all parties to this note.

"IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the debtors waive all his/their rights under the provisions of Section 12, Rule 39, of the Revised Rules of Court."

On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00, plus interests and penalties, evidenced by the above-quoted promissory note.

On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales, filed with the Regional Trial Court of Bulacan, Branch 16, at Malolos, Bulacan, a complaint for collection of the full amount of the loan including interests and other charges.

In his answer to the complaint filed with the trial court on April 5, 1990, defendant Servando alleged that he did not obtain any loan from the plaintiffs; that it was defendants Leticia and Dr. Rafael Medel who borrowed from the plaintiffs the sum of P500,000.00, and actually received the amount and benefited therefrom; that the loan was secured by a real estate mortgage executed in favor of the plaintiffs, and that he (Servando Franco) signed the promissory note only as a witness.

In their separate answer filed on April 10,1990, defendants Leticia and Rafael Medel alleged that the loan was the transaction of Leticia Yaptinchay, who executed a mortgage in favor of the plaintiffs over a parcel of real estate situated in San Juan, Batangas; that the interest rate is excessive at 5.5% per month with additional service charge of 2% per annum, and penalty charge of 1% per month; that the stipulation for attorney's fees of 25% ofthe amount due is unconscionable, illegal and excessive, and that substantial payments made were applied to interest, penalties and other charges.

After due trial, the lower court declared that the due execution and genuineness of the four promissory notes had been duly proved, and ruled that although the Usury Law had been repealed, the interest charged by the plaintiffs on the loans was unconscionable and "revolting to the conscience". Hence, the trial court applied "the provision of the New [Civil] Code" that the "legal rate of interest for loan or forbearance of money, goods or credit is 12% per annum."[7]

Accordingly, on December 9, 1991, the trial court rendered judgment, the dispositive portion of which reads as follows:

"WHEREFORE, premises considered, judgment is hereby rendered, as follows:

"1. Ordering the defendants Servando Franco and Leticia Medel, jointly and severally, to pay plaintiffs the amount of P47,000.00 plus 12% interest per annum from November 7, 1985 and 1% per month as penalty, until the entire amount is paid in full."2. Ordering the defendants Servando Franco and Leticia Y. Medel to plaintiffs, jointly and severally the amount of P84,000.00 with 12% interest per annum and 1% per cent per month as penalty from November 19,1985 until the whole amount is fully paid;"3. Ordering the defendants to pay the plaintiffs, jointly and severally, the amount of P285,000.00 plus 12% interest per annum and 1% per month as penalty from July 11, 1986, until the whole amount is fully paid;"4. Ordering the defendants to pay plaintiffs, jointly and severally, the amount of P50,000.00 as attorney's fees;"5. All counterclaims are hereby dismissed."With costs against the defendants."

ISSUE: In due time, both plaintiffs and defendants appealed to the Court of Appeals.

In their appeal, plaintiffs-appellants argued that the promissory note, which consolidated all the unpaid loans of the defendants, is the law that governs the parties. They further argued that Circular No. 416 of the Central Bank prescribing the rate of interest for loans or forbearance of money, goods or credit at 12% per annum, applies only in the absence of a stipulation on interest rate, but not when the parties agreed thereon.The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled that "the Usury Law having become 'legally inexistent' with the promulgation by the Central Bank in 1982 of Circular No. 905, the lender and borrower could agree on any interest that may be charged on the loan".[9] The Court of Appeals further held that "the imposition of 'an additional amount equivalent to 1% per month of the amount due and demandable as penalty charges in the form of liquidated damages until fully paid' was allowed by law".

HELD: Accordingly, on March 21, 1997, the Court of Appeals promulgated it decision reversing that of the Regional Trial Court, disposing as follows:"WHEREFORE, the appealed judgment is hereby MODIFIED such that defendants are hereby ordered to pay the plaintiffs the sum of P500,000.00, plus 5.5% per month interest and 2% service charge per annum effective July 23, 1986, plus 1% per month of the total amount due and demandable as penalty charges effective August

24, 1986, until the entire amount is fully paid.

"The award to the plaintiffs of P50,000.00 as attorney's fees is affirmed. And so is the imposition of costs against the defendants.

"SO OREDERED."[11]On April 15, 1997, defendants-appellants filed a motion for

reconsideration of the said decision. By resolution dated November 25, 1997, the Court of Appeals denied the motion.[12]

Hence, defendants interposed the present recourse via petition for review on certiorari.[13]

We find the petition meritorious.Basically, the issue revolves on the validity of the interest rate stipulated

upon. Thus, the question presented is whether or not the stipulated rate of interest at 5.5% per month on the loan in the sum of P500,000.00, that plaintiffs extended to the defendants is usurious. In other words, is the Usury Law still effective, or has it been repealed by Central Bank Circular No. 905, adopted on December 22, 1982, pursuant to its powers under P.D. No. 116, as amended by P.D. No. 1684?

We agree with petitioners that the stipulated rate of interest at 5.5% per month on the P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant.13 However, we can not consider the rate "usurious" because this Court has consistently held that Circulr No. 905 of the Central Bank, adopted on December 22, 1982, has expressly removed the interest ceilings prescribed by the Usury Law[14] and that the Usury Law is now "legally inexistent".[15]

In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61[16] the Court held that CB Circular No. 905 "did not repeal nor in anyway amend the Usury Law but simply suspended the latter's effectivity." Indeed, we have held that "a Central Bank Circular can not repeal a law. Only a law can repeal another law."[17] In the recent case of Florendo vs. Court of Appeals[18], the Court reiterated the ruling that "by virtue of CB Circular 905, the Usury Law has been rendered ineffective". "Usury has been legally non-existent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon."[19]

Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties in the promissory note iniquitous or unconscionable, and, hence, contrary to morals ("contra bonos mores"), if not against the law.[20] The stipulation is void.[21] The courts shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable.[22]

Consequently, the Court of Appeals erred in upholding the stipulation of the parties. Rather, we agree with the trial court that, under the circumstances, interest at 12% per annum, and an additional 1% a month penalty charge as liquidated damages may be more reasonable.WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court of Appeals promulgated on March 21, 1997, and its resolution dated November 25, 1997. Instead, we render judgment REVIVING and AFFIRMING the decision dated December 9, 1991, of the Regional Trial Court of Bulacan, Branch 16, Malolos, Bulacan, in Civil Case No. 134-M-90, involving the same parties.

BPI FAMILY BANK VS FRANCO G.R. No. 123498

FACTS: On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc. (Tevesteco) opened a savings and current account with BPI-FB. Soon thereafter, or on August 25, 1989, First Metro Investment Corporation (FMIC) also opened a time deposit account with the same branch of BPI-FB with a deposit of P100,000,000.00, to mature one year thence. Subsequently, on August 31, 1989, Franco opened three accounts, namely, a current,[4] savings,[5] and time deposit,[6] with BPI-FB. The current and savings accounts were respectively funded with an initial deposit of P500,000.00 each, while the time deposit account had P1,000,000.00 with a maturity date of August 31, 1990. The total amount of P2,000,000.00 used to open these accounts is traceable to a check issued by Tevesteco allegedly in consideration of Francos introduction of Eladio Teves,[7] who was looking for a conduit bank to facilitate Tevestecos business transactions, to Jaime Sebastian, who was then BPI-FB SFDMs Branch Manager. In turn, the funding for the P2,000,000.00 check was part of the P80,000,000.00 debited by BPI-FB from FMICs time deposit account and credited to Tevestecos current account pursuant to an Authority to Debit purportedly signed by FMICs officers. It appears, however, that the signatures of FMICs officers on the Authority to Debit were forged.[8] On September 4, 1989, Antonio Ong,[9] upon being shown the Authority to Debit, personally declared his signature therein to be a forgery. Unfortunately, Tevesteco had already effected several withdrawals from its current account (to which had been credited the P80,000,000.00 covered by the forged Authority to Debit) amounting to P37,455,410.54, including the P2,000,000.00 paid to Franco.

 On September 8, 1989, impelled by the need to protect its interests

in light of FMICs forgery claim, BPI-FB, thru its Senior Vice-President, Severino Coronacion, instructed Jesus Arangorin[10] to debit Francos savings and current accounts for the amounts remaining therein.[11] However, Francos time deposit account could not be debited due to the capacity limitations of BPI-FBs computer.[12] In the meantime, two checks[13] drawn by Franco against his BPI-FB current account were dishonored upon presentment for payment, and stamped with a notation account under garnishment. Apparently, Francos current account was garnished by virtue of an Order of Attachment issued by the Regional Trial Court of Makati (Makati RTC) in Civil Case No. 89-4996 (Makati Case), which had been

filed by BPI-FB against Franco et al.,[14] to recover the P37,455,410.54 representing Tevestecos total withdrawals from its account.

 Notably, the dishonored checks were issued by Franco and

presented for payment at BPI-FB prior to Francos receipt of notice that his accounts were under garnishment.[15] In fact, at the time the Notice of Garnishment dated September 27, 1989 was served on BPI-FB, Franco had yet to be impleaded in the Makati case where the writ of attachment was issued. It was only on May 15, 1990, through the service of a copy of the Second Amended Complaint in Civil Case No. 89-4996, that Franco was impleaded in the Makati case.[16] Immediately, upon receipt of such copy, Franco filed a Motion to Discharge Attachment which the Makati RTC granted on May 16, 1990. The Order Lifting the Order of Attachment was served on BPI-FB on even date, with Franco demanding the release to him of the funds in his savings and current accounts. Jesus Arangorin, BPI-FBs new manager, could not forthwith comply with the demand as the funds, as previously stated, had already been debited because of FMICs forgery claim. As such, BPI-FBs computer at the SFDM Branch indicated that the current account record was not on file. With respect to Francos savings account, it appears that Franco agreed to an arrangement, as a favor to Sebastian, whereby P400,000.00 from his savings account was temporarily transferred to Domingo Quiaoits savings account, subject to its immediate return upon issuance of a certificate of deposit which Quiaoit needed in connection with his visa application at the Taiwan Embassy. As part of the arrangement, Sebastian retained custody of Quiaoits savings account passbook to ensure that no withdrawal would be effected therefrom, and to preserve Francos deposits. On May 17, 1990, Franco pre-terminated his time deposit account. BPI-FB deducted the amount of P63,189.00 from the remaining balance of the time deposit account representing advance interest paid to him. These transactions spawned a number of cases, some of which we had already resolved. FMIC filed a complaint against BPI-FB for the recovery of the amount of P80,000,000.00 debited from its account.[17] The case eventually reached this Court, and in BPI Family Savings Bank, Inc. v. First Metro Investment Corporation,[18] we upheld the finding of the courts below that BPI-FB failed to exercise the degree of diligence required by the nature of its obligation to treat the accounts of its depositors with meticulous care. Thus, BPI-FB was found liable to FMIC for the debited amount in its time deposit. It was ordered to pay P65,332,321.99 plus interest at 17% per annum from August 29, 1989 until fully restored. In turn, the 17% shall itself earn interest at 12% from October 4, 1989 until fully paid. 

In a related case, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica (Buenaventura, et al.),[19] recipients of a P500,000.00 check proceeding from the P80,000,000.00 mistakenly credited to Tevesteco, likewise filed suit. Buenaventura et al., as in the case of Franco, were also prevented from effecting withdrawals[20] from their current account with BPI-FB, Bonifacio Market, Edsa, Caloocan City Branch. Likewise, when the case was elevated to this Court docketed as BPI Family Bank v. Buenaventura,[21] we ruled that BPI-FB had no right to freeze Buenaventura, et al.s accounts and adjudged BPI-FB liable therefor, in addition to damages.

 Meanwhile, BPI-FB filed separate civil and criminal cases against those believed to be the perpetrators of the multi-million peso scam.[22] In the criminal case, Franco, along with the other accused, except for Manuel Bienvenida who was still at large, were acquitted of the crime of Estafa as defined and penalized under Article 351, par. 2(a) of the Revised Penal Code.[23] However, the civil case[24] remains under litigation and the respective rights and liabilities of the parties have yet to be adjudicated. Consequently, in light of BPI-FBs refusal to heed Francos demands to unfreeze his accounts and release his deposits therein, the latter filed on June 4, 1990 with the Manila RTC the subject suit. In his complaint, Franco prayed for the following reliefs: (1) the interest on the remaining balance[25] of his current account which was eventually released to him on October 31, 1991; (2) the balance[26] on his savings account, plus interest thereon; (3) the advance interest[27] paid to him which had been deducted when he pre-terminated his time deposit account; and (4) the payment of actual, moral and exemplary damages, as well as attorneys fees. BPI-FB traversed this complaint, insisting that it was correct in freezing the accounts of Franco and refusing to release his deposits, claiming that it had a better right to the amounts which consisted of part of the money allegedly fraudulently withdrawn from it by Tevesteco and ending up in Francos accounts. BPI-FB asseverated that the claimed consideration of P2,000,000.00 for the introduction facilitated by Franco between George Daantos and Eladio Teves, on the one hand, and Jaime Sebastian, on the other, spoke volumes of Francos participation in the fraudulent transaction. On August 4, 1993, the Manila RTC rendered judgment, the dispositive portion of which reads as follows: WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of [Franco] and against [BPI-FB], ordering the latter to pay to the former the following sums:

 1. P76,500.00 representing the legal rate of interest on the amount of P450,000.00 from May 18, 1990 to October 31, 1991;

 2. P498,973.23 representing the balance on [Francos] savings account as of May 18, 1990, together with the interest thereon in accordance with the banks guidelines on the payment therefor;

 3. P30,000.00 by way of attorneys fees; and

 4. P10,000.00 as nominal damages.

 The counterclaim of the defendant is DISMISSED for lack of factual and legal anchor.

 Costs against [BPI-FB].

 SO ORDERED.[28]

  

Unsatisfied with the decision, both parties filed their respective appeals before the CA. Franco confined his appeal to the Manila RTCs denial of his claim for moral and exemplary damages, and the diminutive award of attorneys fees. In affirming with modification the lower courts decision, the appellate court decreed, to wit: WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED with modification ordering [BPI-FB] to pay [Franco] P63,189.00 representing the interest deducted from the time deposit of plaintiff-appellant. P200,000.00 as moral damages and P100,000.00 as exemplary damages, deleting the award of nominal damages (in view of the award of moral and exemplary damages) and increasing the award of attorneys fees from P30,000.00 to P75,000.00.

 Cost against [BPI-FB].

 SO ORDERED.

ISSUE: BPI-FB ascribes error to the CA when it ruled that: (1) Franco had a better right to the deposits in the subject accounts which are part of the proceeds of a forged Authority to Debit; (2) Franco is entitled to interest on his current account; (3) Franco can recover the P400,000.00 deposit in Quiaoits savings account; (4) the dishonor of Francos checks was not legally in order; (5) BPI-FB is liable for interest on Francos time deposit, and for moral and exemplary damages; and (6) BPI-FBs counter-claim has no factual and legal anchor.

HELD: The petition is partly meritorious. We are in full accord with the common ruling of the lower courts that BPI-FB cannot unilaterally freeze Francos accounts and preclude him from withdrawing his deposits. However, contrary to the appellate courts ruling, we hold that Franco is not entitled to unearned interest on the time deposit as well as to moral and exemplary damages. First. On the issue of who has a better right to the deposits in Francos accounts, BPI-FB urges us that the legal consequence of FMICs forgery claim is that the money transferred by BPI-FB to Tevesteco is its own, and considering that it was able to recover possession of the same when the money was redeposited by Franco, it had the right to set up its ownership thereon and freeze Francos accounts. BPI-FB contends that its position is not unlike that of an owner of personal property who regains possession after it is stolen, and to illustrate this point, BPI-FB gives the following example: where Xs television set is stolen by Y who thereafter sells it to Z, and where Z unwittingly entrusts possession of the TV set to X, the latter would have the right to keep possession of the property and preclude Z from recovering possession thereof. To bolster its position, BPI-FB cites Article 559 of the Civil Code, which provides: Article 559. The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may recover it from the person in possession of the same.

 If the possessor of a movable lost or of which the owner has been unlawfully deprived, has acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor.

  

BPI-FBs argument is unsound. To begin with, the movable property mentioned in Article 559 of the Civil Code pertains to a specific or determinate thing.[30] A determinate or specific thing is one that is individualized and can be identified or distinguished from others of the same kind.[31] 

In this case, the deposit in Francos accounts consists of money which, albeit characterized as a movable, is generic and fungible.[32] The quality of being fungible depends upon the possibility of the property, because of its nature or the will of the parties, being substituted by others of the same kind, not

having a distinct individuality.[33] Significantly, while Article 559 permits an owner who has lost or

has been unlawfully deprived of a movable to recover the exact same thing from the current possessor, BPI-FB simply claims ownership of the equivalent amount of money, i.e., the value thereof, which it had mistakenly debited from FMICs account and credited to Tevestecos, and subsequently traced to Francos account. In fact, this is what BPI-FB did in filing the Makati Case against Franco, et al. It staked its claim on the money itself which passed from one account to another, commencing with the forged Authority to Debit.

 It bears emphasizing that money bears no earmarks of peculiar

ownership,[34] and this characteristic is all the more manifest in the instant case which involves money in a banking transaction gone awry. Its primary function is to pass from hand to hand as a medium of exchange, without other evidence of its title.[35] Money, which had passed through various transactions in the general course of banking business, even if of traceable origin, is no exception.

 Thus, inasmuch as what is involved is not a specific or determinate

personal property, BPI-FBs illustrative example, ostensibly based on Article 559, is inapplicable to the instant case.

 There is no doubt that BPI-FB owns the deposited monies in the

accounts of Franco, but not as a legal consequence of its unauthorized transfer of FMICs deposits to Tevestecos account. BPI-FB conveniently forgets that the deposit of money in banks is governed by the Civil Code provisions on simple loan or mutuum.[36] As there is a debtor-creditor relationship between a bank and its depositor, BPI-FB ultimately acquired ownership of Francos deposits, but such ownership is coupled with a corresponding obligation to pay him an equal amount on demand.[37] Although BPI-FB owns the deposits in Francos accounts, it cannot prevent him from demanding payment of BPI-FBs obligation by drawing checks against his current account, or asking for the release of the funds in his savings account. Thus, when Franco issued checks drawn against his current account, he had every right as creditor to expect that those checks would be honored by BPI-FB as debtor.

 More importantly, BPI-FB does not have a unilateral right to freeze

the accounts of Franco based on its mere suspicion that the funds therein were proceeds of the multi-million peso scam Franco was allegedly involved in. To grant BPI-FB, or any bank for that matter, the right to take whatever action it pleases on deposits which it supposes are derived from shady transactions, would open the floodgates of public distrust in the banking industry.

 Our pronouncement in Simex International (Manila), Inc. v. Court of

Appeals[38] continues to resonate, thus: 

The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of every civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce, banks have become an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and, most of all, confidence. Thus, even the humble wage-earner has not hesitated to entrust his lifes savings to the bank of his choice, knowing that they will be safe in its custody and will even earn some interest for him. The ordinary person, with equal faith, usually maintains a modest checking account for security and convenience in the settling of his monthly bills and the payment of ordinary expenses. x x x.

 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 directs. A blunder on the part of the bank, such as the dishonor of the 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. x x x.

  

Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to know the signatures of its customers. Having failed to detect the forgery in the Authority to Debit and in the process inadvertently facilitate the FMIC-Tevesteco transfer, BPI-FB cannot now shift liability thereon to Franco and the other payees of checks issued by Tevesteco, or prevent withdrawals from their respective accounts without the appropriate court writ or a favorable final judgment. 

Further, it boggles the mind why BPI-FB, even without delving into the authenticity of the signature in the Authority to Debit, effected the transfer of P80,000,000.00 from FMICs to Tevestecos account, when FMICs account was a time deposit and it had already paid advance interest to FMIC. Considering that

there is as yet no indubitable evidence establishing Francos participation in the forgery, he remains an innocent party. As between him and BPI-FB, the latter, which made possible the present predicament, must bear the resulting loss or inconvenience.

 Second. With respect to its liability for interest on Francos current

account, BPI-FB argues that its non-compliance with the Makati RTCs Order Lifting the Order of Attachment and the legal consequences thereof, is a matter that ought to be taken up in that court.

 The argument is tenuous. We agree with the succinct holding of

the appellate court in this respect. The Manila RTCs order to pay interests on Francos current account arose from BPI-FBs unjustified refusal to comply with its obligation to pay Franco pursuant to their contract of mutuum. In other words, from the time BPI-FB refused Francos demand for the release of the deposits in his current account, specifically, from May 17, 1990, interest at the rate of 12% began to accrue thereon.[39]

 Undeniably, the Makati RTC is vested with the authority to

determine the legal consequences of BPI-FBs non-compliance with the Order Lifting the Order of Attachment. However, such authority does not preclude the Manila RTC from ruling on BPI-FBs liability to Franco for payment of interest based on its continued and unjustified refusal to perform a contractual obligation upon demand. After all, this was the core issue raised by Franco in his complaint before the Manila RTC.

 Third. As to the award to Franco of the deposits in Quiaoits

account, we find no reason to depart from the factual findings of both the Manila RTC and the CA.

 Noteworthy is the fact that Quiaoit himself testified that the deposits

in his account are actually owned by Franco who simply accommodated Jaime Sebastians request to temporarily transfer P400,000.00 from Francos savings account to Quiaoits account.[40] His testimony cannot be characterized as hearsay as the records reveal that he had personal knowledge of the arrangement made between Franco, Sebastian and himself.[41]

 BPI-FB makes capital of Francos belated allegation relative to this

particular arrangement. It insists that the transaction with Quiaoit was not specifically alleged in Francos complaint before the Manila RTC. However, it appears that BPI-FB had impliedly consented to the trial of this issue given its extensive cross-examination of Quiaoit.

 Section 5, Rule 10 of the Rules of Court provides:

 Amendment to conform to or authorize presentation of evidence. When issues not raised by the pleadings are tried with the express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure to amend does not affect the result of the trial of these issues. If evidence is objected to at the trial on the ground that it is now within the issues made by the pleadings, the court may allow the pleadings to be amended and shall do so with liberality if the presentation of the merits of the action and the ends of substantial justice will be subserved thereby. The court may grant a continuance to enable the amendment to be made. (Emphasis supplied)

  

In all, BPI-FBs argument that this case is not the right forum for Franco to recover the P400,000.00 begs the issue. To reiterate, Quiaoit, testifying during the trial, unequivocally disclaimed ownership of the funds in his account, and pointed to Franco as the actual owner thereof. Clearly, Francos action for the recovery of his deposits appropriately covers the deposits in Quiaoits account. Fourth. Notwithstanding all the foregoing, BPI-FB continues to insist that the dishonor of Francos checks respectively dated September 11 and 18, 1989 was legally in order in view of the Makati RTCs supplemental writ of attachment issued on September 14, 1989. It posits that as the party that applied for the writ of attachment before the Makati RTC, it need not be served with the Notice of Garnishment before it could place Francos accounts under garnishment. The argument is specious. In this argument, we perceive BPI-FBs clever but transparent ploy to circumvent Section 4,[42] Rule 13 of the Rules of Court. It should be noted that the strict requirement on service of court papers upon the parties affected is designed to comply with the elementary requisites of due process. Franco was entitled, as a matter of right, to notice, if the requirements of due process are to be observed. Yet, he received a copy of the Notice of Garnishment only on September 27, 1989, several days after the two checks he issued were dishonored by BPI-FB on September 20 and 21, 1989. Verily, it was premature for BPI-FB to freeze Francos accounts without even awaiting service of the Makati RTCs Notice of Garnishment on Franco. Additionally, it should be remembered that the enforcement of a writ of attachment cannot be made without including in the main suit the owner of the property attached by virtue thereof. Section 5, Rule 13 of the Rules of Court specifically

provides that no levy or attachment pursuant to the writ issued x x x shall be enforced unless it is preceded, or contemporaneously accompanied, by service of summons, together with a copy of the complaint, the application for attachment, on the defendant within the Philippines. Franco was impleaded as party-defendant only on May 15, 1990. The Makati RTC had yet to acquire jurisdiction over the person of Franco when BPI-FB garnished his accounts.[43] Effectively, therefore, the Makati RTC had no authority yet to bind the deposits of Franco through the writ of attachment, and consequently, there was no legal basis for BPI-FB to dishonor the checks issued by Franco. Fifth. Anent the CAs finding that BPI-FB was in bad faith and as such liable for the advance interest it deducted from Francos time deposit account, and for moral as well as exemplary damages, we find it proper to reinstate the ruling of the trial court, and allow only the recovery of nominal damages in the amount of P10,000.00. However, we retain the CAs award of P75,000.00 as attorneys fees.

In granting Francos prayer for interest on his time deposit account and for moral and exemplary damages, the CA attributed bad faith to BPI-FB because it (1) completely disregarded its obligation to Franco; (2) misleadingly claimed that Francos deposits were under garnishment; (3) misrepresented that Francos current account was not on file; and (4) refused to return the P400,000.00 despite the fact that the ostensible owner, Quiaoit, wanted the amount returned to Franco. In this regard, we are guided by Article 2201 of the Civil Code which provides: Article 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonable foreseen at the time the obligation was constituted.

 In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation. (Emphasis supplied.)

  

We find, as the trial court did, that BPI-FB acted out of the impetus of self-protection and not out of malevolence or ill will. BPI-FB was not in the corrupt state of mind contemplated in Article 2201 and should not be held liable for all damages now being imputed to it for its breach of obligation. For the same reason, it is not liable for the unearned interest on the time deposit. Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of wrong; it partakes of the nature of fraud.[44] We have held that it is a breach of a known duty through some motive of interest or ill will.[45] In the instant case, we cannot attribute to BPI-FB fraud or even a motive of self-enrichment. As the trial court found, there was no denial whatsoever by BPI-FB of the existence of the accounts. The computer-generated document which indicated that the current account was not on file resulted from the prior debit by BPI-FB of the deposits. The remedy of freezing the account, or the garnishment, or even the outright refusal to honor any transaction thereon was resorted to solely for the purpose of holding on to the funds as a security for its intended court action,[46] and with no other goal but to ensure the integrity of the accounts. We have had occasion to hold that in the absence of fraud or bad faith,[47] moral damages cannot be awarded; and that the adverse result of an action does not per se make the action wrongful, or the party liable for it. One may err, but error alone is not a ground for granting such damages.[48]

An award of moral damages contemplates the existence of the following requisites: (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.[49] Franco could not point to, or identify any particular circumstance in Article 2219 of the Civil Code,[50] upon which to base his claim for moral damages. Thus, not having acted in bad faith, BPI-FB cannot be held liable for moral damages under Article 2220 of the Civil Code for breach of contract.[51] We also deny the claim for exemplary damages. Franco should show that he is entitled to moral, temperate, or compensatory damages before the court may even consider the question of whether exemplary damages should be awarded to him.[52] As there is no basis for the award of moral damages, neither can exemplary damages be granted. While it is a sound policy not to set a premium on the right to litigate,[53] we, however, find that Franco is entitled to reasonable attorneys fees for having been compelled to go to court in order to assert his right. Thus, we affirm the CAs grant of P75,000.00 as attorneys fees. Attorneys fees may be awarded when a party is compelled to litigate or incur expenses to protect his interest,[54] or when the court deems it just and equitable.

[55] In the case at bench, BPI-FB refused to unfreeze the deposits of Franco despite the Makati RTCs Order Lifting the Order of Attachment and Quiaoits unwavering assertion that the P400,000.00 was part of Francos savings account. This refusal constrained Franco to incur expenses and litigate for almost two (2) decades in order to protect his interests and recover his deposits. Therefore, this Court deems it just and equitable to grant Franco P75,000.00 as attorneys fees. The award is reasonable in view of the complexity of the issues and the time it has taken for this case to be resolved.[56] Sixth. As for the dismissal of BPI-FBs counter-claim, we uphold the Manila RTCs ruling, as affirmed by the CA, that BPI-FB is not entitled to recover P3,800,000.00 as actual damages. BPI-FBs alleged loss of profit as a result of Francos suit is, as already pointed out, of its own making. Accordingly, the denial of its counter-claim is in order. WHEREFORE, the petition is PARTIALLY GRANTED. The Court of Appeals Decision dated November 29, 1995 is AFFIRMED with the MODIFICATION that the award of unearned interest on the time deposit and of moral and exemplary damages is DELETED.

INSULAR BANK VS CA G.R. No. L-61011

FACTS: Petitioner Insular Bank of Asia and America (IBAA) made a money market placement with respondent Commercial Credit Corporation (CCC) on 12 December 1980 in the amount of P1,877,053.03. In consideration of such placement, Commercial Credit Corporation executed a Non Negotiable Repurchase Agreement whereby it conveyed to IBAA securities issued by International Corporate Bank (Interbank) with a face value of P2,000,000.00 and with a maturity date of 22 April 1981. The parties (IBAA and CCC) also executed a resale agreement which bound IBAA to re-sell to CCC the Interbank securities for P2,000,000.00 on 22 April 1981. On due date (22 April 1981), CCC caused to be issued to IBAA a Commercial Bank and Trust Co. (CBTC) cashier's check for P2,000,000.00 which was, however, dishonored upon presentment for being drawn against uncollected deposits.On 18 May 1981, IBAA advised CCC of the dishonor and demanded cash payment. In its reply, CCC admitted difficulty in replacing the dishonored check and proposed payment on a staggered basis, attaching to the proposal a copy of a Central Bank letter approving its (CCC's) request for additional standby credit facility to meet its maturing money market placements.Due to CCC's failure to meet its obligation despite demands, on 24 August 1981, IBAA filed an action for recovery of sum of money with a prayer for the issuance of a writ of preliminary attachment before the CFI of Rizal, Pasig, Branch X (docketed as Civil Case No. L-42585), claiming that:14. This is an action for money or property embezzled or fraudulently misapplied or converted to his own use by defendant in a fiduciary capacity, or for a willful violation of duty; this is an action against defendant who has been guilty of fraud in contracting the debt or incurring the obligation upon which the action is brought, or in concealing or disposing of the property for the taking, detention or conversion of which the action is brought; this is an action against defendant who has removed or disposed of his property, or is about to do so, with intent to defraud his creditors. 1

On 20 October 1981, the CFI of Rizal issued an order granting the preliminary attachment against real and personal properties of CCC. On 19 November 1981, CCC filed a petition for certiorari with the Court of Appeals, docketed as CA-G.R. No. SP-13376-SCA, alleging grave abuse of discretion amounting to lack of jurisdiction on the part of the RTC of Rizal in the issuance of the attachment order.Despite the issuance of a status quo order from the Court of Appeals, deposits of CCC with Bank of the Philippine Islands and Far East Bank and Trust Co. were garnished. Heavy equipment used in the construction of CCC's building in Makati and its office equipment were attached. Two (2) urgent motions and a supplemental pleading were filed by CCC with the Court of Appeals praying for release of the garnished funds and attached equipment. IBAA reiterated its apprehension over CCC's financial viability and ability to pay 2 besides, IBAA claimed, it (CCC) never had any serious intention to pay at the inception of the money market placement transaction such that the intention to defraud the bank (IBAA) was very apparent. The circumstances in the case at bar fall, according to IBAA, under Rule 57, Section 1 (d), 3 of the Rules of Court.In setting aside the RTC order of attachment, the Court of Appeals, in its decision, * held:Petitioner (meaning, CCC) operates as an on-going concern. While it is apparent that it is in a financial crisis with the Central Bank's grant of an additional standby credit facility of P20 million in favor of the latter, the attachment of its property will unduly hinder any transaction where it can regain its financial solvency to meet its obligations. ...xxx xxx xxxIt is true that petitioner failed to pay the private respondent the sum of P2,000,000.00 due to its financial difficulty at the time of the maturity date for the payment of P2,000,000.00 but We find no reason to uphold the order of attachment issued by the respondent judge on October 20, 1981 where there is no showing that the petitioner was performing acts to defraud its creditors or by disposing its assets to the prejudice of its creditors or persons who may have a claim to its assets. On the other hand, the withdrawal of petitioner's bank deposits in the Far East Bank and Trust Company (which were then subject to the garnishment proceedings by the respondent Deputy Sheriff) was intended to finance the operations of the petitioner as an on-going concern, in payment of wages of its employees.

ISSUE: whether or not the questioned Court of Appeals decision setting aside the order of the CFI of Rizal, Branch X, Pasig granting a writ of preliminary attachment

upon a complaint for collection of a sum of money which the respondent CCC allegedly fraudulently contracted and now has difficulty paying, is in accordance with law or a reversible error.

HELD: The purpose of attachment is to secure a contingent lien on defendant's property until plaintiff can obtain a judgment and have such property applied to its satisfaction or to make provision for unsecured debts in such cases where the means of satisfaction thereof are liable to be removed beyond the jurisdiction or improperly disposed of (by fraud or otherwise) or concealed or placed beyond the reach of creditors . 4

Petitioner claims that at the time the obligation was incurred by respondent CCC the latter already had the fraudulent intent not to pay the obligation or indebtedness. This contention is not borne out by the records. Upon the other hand, respondent CCC has not denied that it was undergoing financial difficulties and had in fact called a creditor's meeting 5 to make full disclosure of its business condition and negotiate for payment of its outstanding obligations. Petitioner also claims there was an incipient misrepresentation regarding respondent's capacity to pay. The Court of Appeals found, on the other hand, that there was no dissipation of assets, in fact, respondent's withdrawal of money from Far East Bank and Trust Co. was intended to finance its operations. Inability to pay, we rule, is not necessarily synonymous with fraudulent intent not to honor an admitted obligation.There is thus no reversible error in the questioned Court of Appeals decision which we find to be in accordance with law.WHEREFORE, the petition is DENIED. The Court of Appeals decision in CA-G.R. No. SP-13376-SCA is AFFIRMED in toto.