THIRD DIVISION

[G.R. NO. 160843 : July 11, 2006]

CHINA BANKING CORPORATION, Petitioner, v. MARIA G. LAGON, represented by Armando
G. Lagon and/or Jose Lagon, Jr., Respondent.
DECISION
QUISUMBING, J.:
This Petition for Review assails the Decision1 dated August 21, 2003 of the Court of Appeals in
CA-G.R. CV No. 60853, which reversed and set aside the Joint Decision2 dated April 3, 1998 of
the Regional Trial Court of Bayombong, Nueva Vizcaya, Branch 27, in Civil Cases Nos. 5158 and
5192, and the Resolution3 dated November 14, 2003, denying reconsideration.
Representatives of Maria Lagon (the Lagons) in her behalf as the owner of three parcels of land
covered by Transfer Certificates of Title (TCT) Nos. T-56875 and T-11593 and Original
Certificate of Title (OCT) No. P-1228, filed two complaints docketed as Civil Case No. 5158 and
Civil Case No. 5192. Both were filed by the Lagons against Jao Bio Tong, China Banking
Corporation (CBC) and the Acting Provincial Sheriff of Nueva Vizcaya. While Civil Case No. 5158
involved lots covered by TCT Nos. T-56875 and T-11593, Civil Case No. 5192 involves only a lot
covered by OCT No. P-1228, both put in issue the authenticity of the Special Power of Attorney
dated May 13, 1983 purportedly executed by Maria Lagon in favor of Jao and, hence the validity
of the mortgage over the lots covered by the said titles executed by Jao on behalf of Maria and in
favor of CBC. The Lagons prayed for the declaration of nullity of the special power of attorney
allegedly executed by Maria in favor of Jao and the nullity of the real estate mortgage executed
by Jao to CBC. They also asked for the issuance of an injunctive writ and damages. Eventually
the two cases were heard jointly.
For their part, Jao and CBC insist the signature of Maria in the special power of attorney was
authentic. In response, CBC filed a counterclaim for the payment of the loans of Maria and
damages. CBC also filed a cross-claim against Jao.
During trial the following facts were established:
Sometime in 1981, Jao asked for credit accommodation from petitioner for P300,000 to be
secured by a parcel of land under TCT No. T-30817 in Mariveles Street, Quezon City. The land
was in the name of Maria Lagon. Jao represented that he had a special power of attorney, which
he used previously to mortgage the same property to Metropolitan Bank and Trust Company
(Metrobank). He proposed that the proceeds of the loan be used to pay P83,496.21 to
Metrobank. Petitioner paid the Metrobank loan and the mortgage in favor of Metrobank was
cancelled.
Subsequently, petitioner granted Jao a loan line of P1,000,000, secured by a mortgage on the lot
covered by TCT No. T-30817. He first borrowed P300,000. Under the same loan line, Jao availed
of four additional loans, P300,000 on June 22, 1983; P500,000 on June 22, 1983; P50,000 on
September 5, 1983; and P50,000 on December 12, 1983. The proceeds of the loan were applied
to the obligations of respondent Maria with the Rural Bank of Ilagan, Inc. and of Jao with the
Vizcaya Savings and Loan Association, Inc. The latter was secured by mortgages over the lots
covered by TCT Nos. T-56875 and T-11593, both owned by Maria.
On July 28, 1983, the property under TCT No. T-30817 was substituted with three parcels of
land covered by TCT Nos. T-56875 and T-11593 and OCT No. P-1228, the herein contested three
parcels. Jao presented two special powers of attorney to mortgage the three parcels of land.
The loans of Maria and Jao matured but were unpaid. Thus, petitioner CBC prepared petitions
for extra-judicial foreclosure of the mortgaged properties, naming Maria and Jao as defendants.
However, no foreclosure took place because the Regional Trial Court of Bayombong, Nueva
Vizcaya, Branch 27, upon filing of the Lagons, issued a temporary restraining order preventing
the holding of the auction sale.4
Meanwhile, Jao died while the cases were still on trial before Branch 27. Respondent Maria
Lagon died in 1995.
On April 3, 1998, Branch 27 dismissed the complaints finding that there was sufficient evidence
that the signatures were authentic. The trial court ruled as follows:
WHEREFORE, judgment is hereby rendered in favor of defendants China Banking Corporation
(CBC) and Jao Bio Tong ordering:
(1) the dismissal of the complaint against both defendants and the cross-claim of defendant CBC
against Jao;
(2) ordering the plaintiff to pay to the defendant CBC the sum of P19,180,331.14 which is the
total amount of the plaintiff's obligation under all the Promissory Notes (Exhibits "118-CBC",
"119-CBC" and "120-CBC") plus the late payment penalty of 1/10 of 1% of the total amount due
and the interest at 26% per annum until all the said obligation is fully paid, or, if the plaintiff can
not pay this sum, and the penalty for late payment and the interest, ordering the sale of the lots
covered by TCT Nos. T-56875 and 11593 belonging to the plaintiff and the foreclosure of the lot
covered by OCT No. P-1228 also belonging to the plaintiff and the proceeds thereof applied to
the payment of the above-stated obligation in its totality;
(3) if after the sale of the mortgaged property, there is still a deficiency on the above-stated
obligation, ordering the plaintiff to pay such deficiency;
(4) ordering the plaintiff to pay to the defendant bank CBC the sum of P50,000.00 as and for
attorney's fees;
(5) ordering the plaintiff to pay to the defendant bank CBC the sum of P42,073.20 as actual
damages;
(6) ordering the plaintiff to pay the costs of the suit.
SO ORDERED.5
On appeal, the Court of Appeals on August 21, 2003, reversed and set aside the decision of the
trial court and declared the special powers of attorney and the real estate mortgages null and
void. The Court of Appeals held that Jao and petitioner failed to establish the due execution and
authenticity of the special powers of attorney because Jao admitted that these were notarized
without the personal appearance of respondent before the notary public. The Court of Appeals
gave credence to the testimony of respondent's expert witness, NBI Questioned Document
Examiner Bienvenido Albacea over the testimony of petitioner's expert witness, Atty. Desiderio
A. Pagui.
Petitioner's motion for reconsideration was denied. In this petition, petitioner raises the
following issues:
I.
THE TESTIMONY OF PRIVATE PRACTISING DOCUMENT EXAMINER, ATTY. DESIDERIO PAGUI,
AS AGAINST THAT OF THE NBI QUESTIONED EXAMINER BIENVENIDO ALBACEA, OUGHT TO
HAVE BEEN GIVEN SUPERIOR CREDENCE AND GREATER WEIGHT ON APPEAL, BECAUSE:
(a) THE TRIAL COURT IS IN A BETTER POSITION TO EXAMINE THE REAL EVIDENCE, AND
OBSERVE THE DEMEANOR OF THE WITNESSES, AND CAN THEREFORE DISCERN IF THEY ARE
TELLING THE TRUTH OR NOT.
(b) THE CREDIBILITY OF ATTY. DESIDERIO PAGUI AS AN EXPERT ON QUESTIONED
DOCUMENTS WAS NOT EVEN RAISED AS AN ISSUE IN THE APPEAL BRIEF OF RESPONDENT
MARIA LAGON.
(c) IN CONTRAST, THE EXAMINATION CONDUCTED BY NBI DOCUMENT EXAMINER ALBACEA -
i. USED STANDARDS THAT WERE NOT ADEQUATE, APPROPRIATE AND CONTEMPORANEOUS;
ii. DID NOT COMPLY WITH THE FOUR (4) REQUIREMENTS TO THE "PROPER CONDITIONS
UNDER WHICH SCIENTIFIC HANDWRITING IDENTIFICATION MAY LEAD TO AN ACCURATE
FINDING AND UNDER WHICH A HANDWRITING EXPERT MAY BE ABLE TO RENDER AN
ACCURATE OPINION.
(d) NBI DOCUMENT EXAMINER ALBACEA WAS IN FACT TECHNICALLY HIRED BY
RESPONDENT LAGON THROUGH HER ATTORNEY-IN-FACT, ARMANDO LAGON, BY THE
DEFRAYAL OF HIS TRAVELLING, LODGING AND OTHER EXPENSES.
II.
RESPONDENT MARIA LAGON IS ESTOPPED FROM CONTESTING THE VALIDITY OF THE
SPECIAL POWER OF ATTORNEY AND THE REAL ESTATE MORTGAGES, BECAUSE:
(a) THROUGH THE PREVIOUS AUTHORITY (SPECIAL POWER OF ATTORNEY) TO DEFENDANT
JAO BIO TONG TO DEAL WITH "HER" PROPERTIES, RESPONDENT MARIA LAGON HELD OUT
SAID DEFENDANT JAO BIO TONG AS HER DULY AUTHORIZED ATTORNEY-IN-FACT.
(b) THE PROCEEDS OF THE LOANS OBTAINED FROM PETITIONER CBC WERE USED TO PAY
OFF THE MORTGAGE OBLIGATIONS OF RESPONDENT MARIA LAGON AND DEFENDANT JAO
BIO TONG WITH OTHER BANKING INSTITUTION.6
Simply stated, two issues are for resolution now: (1) Are the special powers of attorney (SPAs)
of Jao spurious, given the allegation of forgery? (2) Are the real estate mortgages executed by
Jao valid? Both depend on the threshold issue of credibility of respondent's expert witness,
Bienvenido Albacea vis - Ã  -vis petitioner's expert witness, Desiderio A. Pagui.
Primarily, what petitioner questions is the credibility of Albacea as an expert witness. As
petitioner claims, which the trial court sustained, Atty. Pagui's testimony should be given more
weight since the trial court was in a better position to examine real and testimonial evidence.
Besides, according to petitioner the credibility of Atty. Pagui was never raised as an issue in
respondent's appeal brief.
Moreover, according to petitioner, respondent clothed Jao with apparent authority as her agent,
hence, she cannot now be permitted to deny the authority of Jao to the prejudice of innocent
third parties. In addition, petitioner points out that respondent is estopped from questioning
the validity of the mortgages because the loans were used to pay the obligation of Maria Lagon
with other banks.
Respondent's representatives counter that Atty. Pagui was a biased witness because he was
hired by petitioner as a practicing private document examiner. Significantly, they point out that
respondent Maria was in the United States at the time the SPAs were allegedly signed before the
notary public in Nueva Vizcaya. They conclude that the irregularity in the notarization shows
that the SPAs were spurious and the respondent's signatures were forgeries.
Respondent's representatives also add that contrary to the claim that Maria benefited from the
loan, Maria's estate ended up more heavily burdened since only a small portion of the loan
obtained by Jao were applied to Maria's obligations. Therefore, Maria's representatives should
not be estopped from questioning the mortgages.
To begin with, the issue of whether the SPAs are authentic is a question of fact, that may be
reviewed by this Court only under exceptional circumstances7 like when, as in this case, the
findings of facts of the Court of Appeals are at variance with those of the trial court.8
We have held in prior cases that generally, a notarized instrument is admissible in evidence
without further proof of its due execution and is conclusive as to the truthfulness of its
contents,9 and has in its favor the presumption of regularity.10 However, this presumption is not
absolute and may be rebutted by clear and convincing evidence.11
In his testimony, Jao admitted that the SPAs were not signed in the presence of the notary
public, but pre-signed by respondent in the United States. Likewise, respondent neither
appeared personally before the notary public nor acknowledged to him that the instrument was
her own free and voluntary act and deed, contrary to what appears in the SPAs'
acknowledgement. Patently then, the notarization was irregular and could not be given
probative value.
As the respondent has repudiated the signatures in the SPAs and it was shown that she did not
acknowledge these before the notary public, the burden of proof to show the SPAs' authenticity,
genuineness and due execution lay with petitioner. In our view, petitioner failed in this task. The
contrasting testimony of the experts on the authenticity of the signatures of Maria could not
benefit either side, considering the admission that the notarial requisites had not been adhered
to.
Finally, with respect to the credibility of the handwriting expert, courts are not bound to give
probative value or evidentiary value to the opinions of handwriting experts, as resort to
handwriting experts is not mandatory.12 The courts may place whatever weight they choose
upon such testimonies in accordance with the facts of the case.13
In this case, resort to handwriting experts would not benefit either of the parties, considering
the conflicting testimonies of the expert witnesses and as earlier mentioned the fact that the
notarial requirements had not been met.
We are also not persuaded by petitioner's argument that respondent benefited from the loan.
Assuming that indeed part of the loan was used to pay for Maria's own loan, still the
incontrovertible fact remains that the SPAs were spurious and the mortgage unauthorized.
Moreover, petitioner could not be considered a mortgagee in good faith. It had knowledge that
respondent was in the United States at the time the SPAs were allegedly executed, yet, it did not
question their due execution. Though petitioner is not expected to conduct an exhaustive
investigation on the history of the mortgagor's title, it cannot be excused from the duty of
exercising the due diligence required of a banking institution.14 Banks are expected to exercise
more care and prudence than private individuals in their dealings, even those that involve
registered lands, for their business is affected with public interest.15
WHEREFORE, the petition is DENIED. The Decisiondated August 21, 2003 and the Resolution
dated November 14, 2003 of the Court of Appeals in CA-G.R. CV No. 60853 are
hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.
THIRD DIVISION
November 29, 2017
G.R. No. 205838
JOSEPH HARRY WALTER POOLE-BLUNDEN, Petitioner
vs.
UNION BANK OF THE PHILIPPINES, Respondent
DECISION
LEONEN, J.:
Banks are required to observe a high degree of diligence in their affairs. This encompasses their
dealings concerning properties offered as security for loans. A bank that wrongly advertises the
area of a property acquired through foreclosure because it failed to dutifully ascertain the
property's specifications is grossly negligent as to practically be in bad faith in offering that
property to prospective buyers. Any sale made on this account is voidable for causal fraud. In
actions to void such sales, banks cannot hide under the defense that a sale was made on an as-is-
where-is basis. As-is-where-is stipulations can only encompass physical features that are readily
perceptible by an ordinary person possessing no specialized skills.
This resolves a Petition for Review on Certiorari1 under Rule 45 of the 1997 Rules of Civil
Procedure praying that the assailed November 15, 2012 Decision2 and February 12, 2013
Resolution3 of the Court of Appeals in CA-G.R. CV No. 95369 be reversed and set aside and that
judgment be rendered annulling or rescinding the Contract to Sell between petitioner Joseph
Harry Walter Poole-Blunden (Poole-Blunden) and respondent Union Bank of the Philippines
(UnionBank).
The assailed Court of Appeals Decision affirmed the April 20, 2010 Decision of the Regional
Trial Court, Branch 65, Makati City which dismissed the Complaint for Rescission of Contract
and Damages filed by Poole-Blunden against respondent UnionBank.4 The assailed Court of
Appeals Resolution denied Poole-Blunden's Motion for Reconsideration.5
Sometime in March 2001, Poole-Blunden came across an advertisement placed by Union Bank
in the Manila Bulletin. The ad was for the public auction of certain properties. One of these
properties was a condominium unit, identified as Unit 2-C of T-Tower Condominium (the
"Unit"), located at 5040 P. Burgos corner Calderon Streets, Makati City.6 UnionBank had
acquired the property through foreclosure proceedings "after the developer defaulted in the
payment of its loan from [UnionBank]."7
The Unit was advertised to have an area of 95 square meters. Thinking that it was sufficient and
spacious enough for his residential needs, Poole-Blunden decided to register for the sale and bid
on the unit.8
About a week prior to the auction, Poole-Blunden visited the unit for inspection. He was
accompanied by a representative of UnionBank. The unit had an irregular shape; it was neither
a square nor a rectangle and included a circular terrace. Poole-Blunden did not doubt the unit's
area as advertised. However, he found that the ceiling was in bad condition, that the parquet
floor was damaged, and that the unit was in need of other substantial repairs to be habitable.9
On the day of the auction, Poole-Blunden inspected the Master Title of the project owner to the
condominium in the name of Integrated Network (TCT No. 171433) and the Condominium
Certificate of Title of UnionBank (CCT No. 36151) to verify once again the details as advertised
and the ownership of the unit. Both documents were on display at the auction venue.10
Poole-Blunden placed his bid and won the unit for ₱2,650,000.00.11 On May 7, 2001, Poole-
Blunden entered into a Contract to Sell with UnionBank. This Contract stipulated that Poole-
Blunden would pay 10% of the purchase price as down payment12 and that the balance shall be
paid over a period of 15 years in equal monthly instalments, with interest of 15% per
annum starting July 7, 2001.13
Poole-Blunden started occupying the unit in June 2001. By July 20, 2003, he was able to fully
pay for the Unit, paying a total amount of ₱3,257,142.49.14
In late 2003, Poole-Blunden decided to construct two (2) additional bedrooms in the Unit. Upon
examining it, he noticed apparent problems in its dimensions. He took rough measurements of
the Unit, which indicated that its floor area was just about 70 square meters, not 95 square
meters, as advertised by UnionBank.15
Poole-Blunden got in touch with an officer of UnionBank to raise the matter, but no action was
taken.16 On July 12, 2004, Poole-Blunden wrote to UnionBank, informing it of the discrepancy.
He asked for a rescission of the Contract to Sell, along with a refund of the amounts he had paid,
in the event that it was conclusively established that the area of the unit was less than 95 square
meters.17
In a letter dated December 6, 2004,18 UnionBank informed Poole-Blunden that after inquiring
with the Housing and Land Use Regulatory Board (HLURB), the Homeowners' Association of T-
Tower Condominium, and its appraisers, the Unit was confirmed to be 95 square
meters, inclusive of the terrace and the common areas surrounding it. 19
Poole-Blunden was not satisfied with UnionBank's response as the condominium's Master Title
expressly stated that the "boundary of each unit are the interior surfaces of the perimeter walls,
floors, ceilings, windows and doors thereof."20 Thus, he hired an independent geodetic engineer,
Engr. Gayril P. Tagal (Engr. Tagal) of the Filipinas Dravo Corporation, to survey the Unit and
measure its actual floor area. Engr. Tagal issued a certification stating that the total floor area of
the Unit was only 74.4 square meters.21 Poole-Blunden gave UnionBank a copy of Engr. Tagal's
certification on July 12, 2005.22
In a letter dated February 1, 2006, UnionBank explained:
[T]he total area of the subject unit based on the ratio allocation maintenance cost submitted by
the developer to HLURB is 98 square meters (60 square meters as unit area and 38 square
meters as share on open space). On the other hand, the actual area thereof based on the
measurements made by its surveyor is 74.18 square meters which was much higher than the
unit area of 60 square meters that was approved by HLURB.23
Poole-Blunden's dissatisfaction with UnionBank's answer prompted him to file his Complaint
for Rescission of Contract and Damages with the Regional Trial Court, Makati City.24
On April 20, 2010, the Regional Trial Court dismissed Poole-Blunden's complaint for lack of
merit. The dispositive portion of its Decision read:
WHEREFORE, premises considered, the instant complaint for rescission of contract and
damages is hereby DISMISSED for lack of merit. The counterclaim is likewise DENIED.
SO ORDERED.25
On appeal, the Court of Appeals affirmed the ruling of the Regional Trial Court.26 It noted that
the sale was made on an "as-is-where-is" basis as indicated in Section 12 of the Contract to
Sell.27 Thus, Poole-Blunden supposedly waived any errors in the bounds or description of the
unit.28 The Court of Appeals added that Poole-Blunden failed to show, by clear and convincing
evidence that causal fraud can be attributed to UnionBank.29 It added that the sale was made for
a lump-sum amount and that, in accordance with Article 1542, paragraph 1 of the Civil
Code,30 Poole-Blunden could not demand a reduction in the purchase price.31
Following the denial of his Motion for Reconsideration, Poole-Blunden filed the present Petition
before this Court.32
Poole-Blunden charges UnionBank with fraud in failing to disclose to him that the advertised 95
square meters was inclusive of common areas.33 With the vitiation of his consent as to the object
of the sale, he asserts that the Contract to Sell may be voided. He insists that UnionBank is liable
for breach of warranty despite the "as-is-where-is" clause in the Contract to Sell.34 Finally, he
assails the Court of Appeals' application of Article 1542 of the Civil Code.35
For resolution is the sole issue of whether or not respondent Union Bank of the Philippines
committed such a degree of fraud as would entitle petitioner Joseph Harry Walter Poole-
Blunden to the voiding of the Contract to Sell the condominium unit identified as Unit 2C, T-
Tower Condominium, 5040 P. Burgos corner Calderon Streets, Makati City.
I
No longer in dispute at this juncture is how the Unit's interior area is only 74.4 square meters.
While respondent has maintained that the Unit's total area is in keeping with the advertised 95
square meters, it has conceded that these 95 square meters is inclusive of outside spaces and
common areas.
Even before litigation commenced, in a December 6, 2004 letter,36 respondent informed
petitioner that, following inquiries with the HLURB, the Homeowners' Association of T-Tower
Condominium, and its appraisers, it had confirmed that the Unit's 95 square meters
was inclusive of "the terrace and the common areas surrounding it."37
During trial, respondent's former Assistant Vice President of the Asset and Recovery Group,
Atty. Elna N. Cruz (Atty. Cruz), testified on how there would have been documents (such as an
appraisal report) relating to inspections made by respondent's personnel at the time the unit
was being offered as a collateral to a loan. These would have concerned the unit's area.38 She
affirmed respondent's statements in its December 6, 2004 letter and indicated that, based on an
appraisal report, the declared 95 square meters was not exclusive to the Unit's interiors but
included common areas:
Q: So my impression, Madam Witness, is that before you accepted the property as a collateral,
Union Bank already knew what was the actual area of the unit?
A: Yes, sir.
Q: But you do not know what was the actual area as found by your inspector?
A: It would be 95 square meters as per the record, sir.
Q: That was the actual findings of your inspector, Madam Witness?
A: Yes, sir.
Q: What's your basis for saying that?
A: The appraisal report, sir.
Q: Do you have now with you that appraisal report showing that the actual area of the unit is
indeed 95 square meters?
A: We gathered the appraisal report and in the December 06, 2004 letter that we gave Mr.
Blunden, we consulted the appraiser of the Bank and we were informed that the area was indeed
95 square meters. But that area was brought about by measuring not just the inside of the unit, sir,
but including also the terrace, and the common area. 39 (Emphasis supplied)
Respondent has not disavowed Atty. Cruz's testimony. In its Comment, it merely asserted that
the "[e]xtensive reference to the [transcript of stenographic notes] is unmistakable proof that
the litigated issue is one of fact, not of law" and insisted that this Court should not take
cognizance of the present Petition.40
Respondent's insistence on how common spaces should be included in reckoning the Unit's
total area runs afoul of how Republic Act No. 4726, otherwise known as the Condominium Act,
reckons what forms part of a condominium unit.
Section 3(b) of the Condominium Act defines a condominium unit, as follows:
Section 3. As used in this Act, unless the context otherwise requires:
....
(b) "Unit" means a part of the condominium project intended for any type of independent use or
ownership, including one or more rooms or spaces located .in one or more floors (or part or
parts of floors) in a building or buildings and such accessories as may be appended thereto.
Section 6(a) of the Condominium Act specifies the reckoning of a condominium unit's bounds. It
also specifies that areas of common use "are not part of the unit":
Section 6. Unless otherwise expressly provided in the enabling or master deed or the
declaration of restrictions, the incidents of a condominium grant are as follows:
(a) The boundary of the unit granted are the interior surfaces of the perimeter walls, floors,
ceilings, windows and doors thereof. The following are not part of the unit bearing walls,
columns, floors, roofs, foundations and other common structural elements of the building;
lobbies, stairways, hallways, and other areas of common use, elevator equipment and shafts,
central heating, central refrigeration and central air-conditioning equipment, reservoirs, tanks,
pumps and other central services and facilities, pipes, ducts, flues, chutes, conduits, wires and
other utility installations, wherever located, except the outlets thereof when located within the
unit. (Emphasis supplied.)
Thus, the unit sold to petitioner was deficient in relation to its advertised area. This
advertisement having been made by respondent, it is equally settled there was a falsity in the
declarations made by respondent prior to, and with the intention of enticing buyers to the sale.
What remains in issue is whether or not this falsity amounts to fraud warranting the voiding of
the Contract to Sell.
II
For there to be a valid contract, all the three (3) elements of consent, subject matter, and price
must be present.41 Consent wrongfully obtained is defective. The party to a contract whose
consent was vitiated is entitled to have the contract rescinded. Accordingly, Article 1390 of the
Civil Code42 stipulates that a contract is voidable or annullable even if there is no damage to the
contracting parties where "consent is vitiated by mistake, violence, intimidation, undue
influence or fraud."
Under Article 1338 of the Civil Code "[t]here is fraud when, through insidious words or
machinations of one of the contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to." However, not all instances of fraud enable
the voiding of contracts. Article 1344 clarifies that in order to make a contract voidable, the
fraud "should be serious and should not have been employed by both contracting parties."43
Thus, Tankeh v. Development Bank of the Philippines44 explained, "There are two types of fraud
contemplated in the performance of contracts: dolo incidente or incidental fraud and dolo
causante or fraud serious enough to render a contract voidable."45 The fraud required to annul
or avoid a contract "must be so material that had it not been present, the defrauded party would
not have entered into the contract."46 The fraud must be "the determining cause of the contract,
or must have caused the consent to be given."47
Petitioner's contention on how crucial the dimensions and area of the Unit are to his decision to
proceed with the purchase is well-taken. The significance of space and dimensions to any buyer
of real property is plain to see. This is particularly significant to buyers of condominium units in
urban areas, and even more so in central business districts, where the scarcity of space drives
vertical construction and propels property values. It would be immensely guileless of this Court
to fail to appreciate how the advertised area of the Unit was material or even indispensable to
petitioner's consent. As petitioner emphasized, he opted to register for and participate in the
auction for the Unit only after determining that its advertised area was spacious enough for his
residential needs.48
III
The significance of the Unit's area as a determining cause of the Contract to Sell is readily
discernible. Falsity on its area is attributable to none but to respondent, which, however, pleads
that it should not be considered as having acted fraudulently given that petitioner conceded to a
sale on an as-is-where-is basis, thereby waiving "warranties regarding possible errors in
boundaries or description of property."49
Section 12 of the Contract to Sell spells out the "as-is-where-is" terms of the purchase:
Section 12. The BUYER recognizes that he is buying the property on an "as-is-where-is" basis
including errors in boundaries or description of property, if any etc. and among others, he shall be
responsible for the eviction of the occupants on the property, if any, or for the repair of the
property, if needed. It shall be understood that the SELLER makes no warranty whatsoever on
the authenticity, accuracy, or title over property.50 (Emphasis supplied.)
Reliance on Section 12's as-is-where-is stipulation is misplaced for two (2) reasons. First, a
stipulation absolving a seller of liability for hidden defects can only be invoked by a seller who
has no knowledge of hidden defects. Respondent here knew that the Unit's area, as reckoned in
accordance with the Condominium Act, was not 95 square meters. Second, an as-is-where-is
stipulation can only pertain to the readily perceptible physical state of the object of a sale. It
cannot encompass matters that require specialized scrutiny, as well as features and traits that
are immediately appreciable only by someone with technical competence.
A seller is generally responsible for warranty against hidden defects of the thing sold. As stated
in Article 1561 of the New Civil Code:
Article 1561. The vendor shall be responsible for warranty against the hidden defects which the
thing sold may have, should they render it unfit for the use for which it is intended, or should
they diminish its fitness for such use to such an extent that, had the vendee been aware thereof,
he would not have acquired it or would have given a lower price for it; but said vendor shall not
be answerable for patent defects or those which may be visible, or for those which are not
visible if the vendee is an expert who, by reason of his trade or profession, should have known.
Article 1566, paragraph 2 states the seller's liability for hidden defects shall be inapplicable if
there is a stipulation made to the contrary. However, a mere stipulation does not suffice. To be
fully absolved of liability, Article 1566, paragraph 2 also requires a seller to be unaware of the
hidden defects in the thing sold.
Article 1566. The vendor is responsible to the vendee for any hidden faults or defects in the
thing sold, even though he was not aware thereof.
This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of
the hidden faults or defects in the thing sold. (Emphasis supplied.)
It is clear from the records that respondent fully knew that the Unit's area, reckoned strictly in
accordance with the Condominium Act, did not total 95 square meters. Respondent admits that
the only way the Unit's area could have amounted to 95 square meters was if some areas for
common use were added to its interior space. It acknowledged knowing this fact through the
efforts of its appraisers and even conceded that their findings were documented in their
reports.
In Hian v. Court of Tax Appeals,51 this Court construed an as-is-where-is stipulation as pertaining
to the "physical condition" of the thing sold and "not to [its] legal situation."52 As further
explained in National Development Company v. Madrigal Wan Hai Lines Corporation:53
In Hian vs. Court of Tax Appeals, we had the occasion to construe the phrase "as is, where is"
basis, thus:
"We cannot accept the contention in the Government's Memorandum of March 31, 1976 that
Condition No. 5 in the Notice of Sale to the effect that 'The above-mentioned articles (the
tobacco) are offered for sale 'AS IS' and the Bureau of Customs gives no warranty as to their
condition' relieves the Bureau of Customs of liability for the storage fees in dispute. As we
understand said Condition No. 5, it refers to the physical condition of the tobacco and not to the
legal situation in which it was at the time of the sale, as could be implied from the right of
inspection to prospective bidders under Condition No. 1 [.]" (Emphasis ours)
The phrase "as is, where is" basis pertains solely to the physical condition of the thing sold, not
to its legal situation. In the case at bar, the US tax liabilities constitute a potential lien which
applies to NSCP's legal situation, not to its physical aspect. Thus, respondent as a buyer, has no
obligation to shoulder the same.54
A condominium unit's area is a physical attribute. In Hian's contemplation, it appeared that the
total area of a condominium unit is a valid object of an as-is-where-is clause. However, while as-
is-where-is clauses exclusively apply to the physical attributes of a thing sold, they apply only to
physical features that are readily observable. The significance of this Court's pronouncements
in Hian and National Development Company are in clarifying that legal status, which is a
technical matter perceptible only by lawyers and regulators, cannot be encompassed by an as-
is-where-is stipulation. Hian and National Development Company are not a sweeping
approbation of such stipulations' coverage of every corporeal attribute or tangible trait of
objects being sold. Thus, in Asset Privatization v. T.J. Enterprises,55 the as-is-where-is stipulation
was understood as one which "merely describes the actual state and location of the machinery
and equipment sold,"56 and nothing else. Features that may be physical but which can only be
revealed after examination by persons with technical competence cannot be covered by as-is-
where-is stipulations. A buyer cannot be considered to have agreed "to take possession of the
things sold 'in the condition where they are found and from the place where they are
located'"57 if the critical defect is one which he or she cannot even readily sense.
In inspecting the Unit prior to the auction sale, petitioner took note of its actual state: "he
noticed that the ceilings were down, [that] there was water damage from the leaks coming from
the unit above, and [that] the parquet floor was damaged."58 He also took note of its irregular
shape and the circular terrace outside it. These observations represent the full extent of what
was readily perceptible to petitioner. The precise measurement of the Unit's area, in contrast,
could only be determined by someone with specialized or technical capabilities. While ordinary
persons, such as petitioner, may hold such opinions that the Unit looks small, their perception
could not be ascertained until after an examination by someone equipped with peculiar skills
and training to measure real property. Indeed, petitioner's suspicions were not roused until
years after he had occupied the Unit and confirmed until after a certification was issued by a
surveyor.
Any waiver of warranties under Section 12 of the Contract to Sell could have only been
concerned with the readily apparent subpar condition of the Unit. A person not equipped with
technical knowledge and expertise to survey real property could not reasonably be expected to
recognize deficiencies in measurement at the first instance especially if that property was of
"irregular shape," "neither square nor rectangle," and having a "circular terrace."59
IV
Contrary to the Court of Appeals' assertion, Article 1542 of the Civil Code does not bar the
voiding of the Contract to Sell.
Article 1542 of the Civil Code states:
Article 1542. In the sale of real estate, made for a lump sum and not at the rate of a certain sum
for a unit of measure or number, there shall be no increase or decrease of the price, although there
be a greater or less area or number than that stated in the contract.
The same rule shall be applied when two or more immovables are sold for a single price; but if,
besides mentioning the boundaries, which is indispensable in every conveyance of real estate,
its area or number should be designated in the contract, the vendor shall be bound to deliver all
that is included within said boundaries, even when it exceeds the area or number specified in
the contract; and, should he not be able to do so, he shall suffer a reduction in the price, in
proportion to what is lacking in the area or number, unless the contract is rescinded because
the vendee does not accede to the failure to deliver what has been stipulated. (Emphasis
supplied.)
Article 1542 has nothing to do with annulling fraudulently made sales. What it is concerned
with is the proportionate reduction of the purchase price in relation to the measurable units of
the thing sold. Petitioner does not seek a reduction of the purchase price. He seeks judicial relief
to have the entirety of his purchase annulled, his consent having been fraudulently obtained. By
filing an action under Article 1390 of the Civil Code, petitioner declared that his consent to the
entire subject matter of the contract was vitiated. What suffices as relief is the complete
annulment of the sale, not the partial reimbursement upon which Article 1542 is premised.
Likewise, Article 1542 does not contemplate the seller's delivery to the buyer of things other
than the agreed object of the sale. While it is true that petitioner did not buy the unit on a per-
square-meter basis, it remains that what he bought was a condominium unit. A condominium
unit's bounds are reckoned by "the interior surfaces of [its] perimeter walls, floors, ceilings,
windows and doors."60 It excludes common areas. Thus, when petitioner agreed to purchase the
Unit at a lump-sum price, he never consented to including common areas as part of his
purchase. Article 1542's concern with a ratable reduction of the price delivered by the buyer
assumes that the seller correctly delivered, albeit deficiently, the object of the sale.
In any case, for Article 1542 to operate, "the discrepancy must not be substantial."61 Article
1542 remains anchored on a sense of what is reasonable. An estimate given as a premise for a
sale should be "more or less" the actual area of the thing sold.62 Here, the area advertised and
stipulated in the Contract to Sell was 95 square meters but the actual area of the unit was only
74.4 square meters.63 By no stretch of the imagination can a 21.68% deficiency be discounted as
a mere minor discrepancy.
V
By definition, fraud presupposes bad faith or malicious intent. It transpires when insidious
words or machinations are deliberately employed to induce agreement to a contract. Thus, one
could conceivably claim that respondent could not be guilty of fraud as it does not appear to
have crafted a deceptive strategy directed specifically at petitioner. However, while petitioner
was not a specific target, respondent was so callously remiss of its duties as a bank. It was so
grossly negligent that its recklessness amounts to a wrongful willingness to engender a
situation where any buyer in petitioner's shoes would have been insidiously induced into
buying a unit with an actual area so grossly short of its advertised space.
In Spouses Carbonell v. Metropolitan Bank and Trust Company,64 this Court considered gross
negligence, in relation to the fiduciary nature of banks:
Gross negligence connotes want of care in the performance of one's duties; it is a negligence
characterized by the want of even slight care, acting or omitting to act in a situation where there
is duty to act, not inadvertently but wilfully and intentionally, with a conscious indifference to
consequences insofar as other persons may be affected. It evinces a thoughtless disregard of
consequences without exerting any effort to avoid them.
In order for gross negligence to exist as to warrant holding the respondent liable therefor, the
petitioners must establish that the latter did not exert any effort at all to avoid unpleasant
consequences, or that it wilfully and intentionally disregarded the proper protocols or
procedure . . . and in selecting and supervising its employees.65 (Emphasis supplied)
Banks assume a degree of prudence and diligence higher than that of a good father of a family,
because their business is imbued with public interest66 and is inherently fiduciary.67 Thus, banks
have the obligation to treat the accounts of its clients "meticulously and with the highest degree
of care."68 With respect to its fiduciary duties, this Court explained:
The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of
Republic Act No. 8791 ("RA 8791"), which took effect on 13 June 2000, declares that the State
recognizes the "fiduciary nature of banking that requires high standards of integrity and
performance." This new provision in the general banking law, introduced in 2000, is a statutory
affirmation of Supreme Court decisions, starting with the 1990 case of Simex International v.
Court of Appeals, holding that "the bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature of their
relationship.
This fiduciary relationship means that the bank's obligation to observe "high standards of
integrity and performance" is deemed written into every deposit agreement between a bank
and its depositor. The fiduciary nature of banking requires banks to assume a degree of
diligence higher than that of a good father of a family. Article 1172 of the Civil Code states that
the degree of diligence required of an obligor is that prescribed by law or contract, and absent
such stipulation then the diligence of a good father of a family. Section 2 of RA 8791 prescribes
the statutory diligence required from banks — that banks must observe "high standards of
integrity and performance" in servicing their depositors.69 (Citations omitted)
The high degree of diligence required of banks equally holds true in their dealing with
mortgaged real properties, and subsequently acquired through foreclosure, such as the Unit
purchased by petitioner. In the same way that banks are "presumed to be familiar with the rules
on land registration," given that they are in the business of extending loans secured by real
estate mortgage,70 banks are also expected to exercise the highest degree of diligence. This is
especially true when investigating real properties offered as security, since they are aware that
such property may be passed on to an innocent purchaser in the event of foreclosure. Indeed,
"the ascertainment of the status or condition of a property offered to it as security for a loan
must be a standard and indispensable part of a bank's operations":71
When the purchaser or the mortgagee is a bank, the rule on innocent purchasers or mortgagees
for value is applied more strictly.1âwphi1 Being in the business of extending loans secured by
real estate mortgage, banks are presumed to be familiar with the rules on land registration.
Since the banking business is impressed with public interest, they are expected to be more
cautious, to exercise a higher degree of diligence, care and prudence, than private individuals in
their dealings, even those involving registered lands. Banks may not simply rely on the face of
the certificate of title. Hence, they cannot assume that, simply because the title offered as
security is on its face free of any encumbrances or lien, they are relieved of the responsibility of
taking further steps to verify the title and inspect the properties to be mortgaged. As expected,
the ascertainment of the status or condition of a property offered to it as security for a loan
must be a standard and indispensable part of a bank's operations. It is of judicial notice that the
standard practice for banks before approving a loan is to send its representatives to the
property offered as collateral to assess its actual condition, verify the genuineness of the title,
and investigate who is/are its real owner/s and actual possessors.72 (Citations omitted)
Credit investigations are standard practice for banks before approving loans and admitting
properties offered as security. It entails the assessment of such properties: an appraisal of their
value, an examination of their condition, a verification of the authenticity of their title, and an
investigation into their real owners and actual possessors.73 Whether it was unaware of the
unit's actual interior area; or, knew of it, but wrongly thought that its area should include
common spaces, respondent's predicament demonstrates how it failed to exercise utmost
diligence in investigating the Unit offered as security before accepting it. This negligence is so
inexcusable; it is tantamount to bad faith.
Even the least effort on respondent's part could have very easily confirmed the Unit's true area.
Similarly, the most cursory review of the Condominium Act would have revealed the proper
reckoning of a condominium unit's area. Respondent could have exerted these most elementary
efforts to protect not only clients and innocent purchasers but, most basically, itself.
Respondent's failure to do so indicates how it created a situation that could have led to no other
outcome than petitioner being defrauded.
VI
The Regional Trial Court and the Court of Appeals gravely erred in finding that causal fraud is
not attendant in this case. Quite the contrary, it is evident that respondent orchestrated a
situation rife for defrauding buyers of the advertised unit. Therefore, the assailed Decision and
Resolution must be reversed, the Contract to Sell between petitioner and respondent be
annulled, and petitioner be refunded all the amounts he paid to respondent in respect of the
purchase of the Unit.
Under Article 2232, in relation to Article 2229 of the Civil Code, "[i]n contracts and quasi-
contracts, the court may award exemplary damages if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner," "by way of example or correction for
the public good." By awarding exemplary damages to petitioner, this case shall serve as an
example and warning to banks to observe the requisite care and diligence in all of their affairs.
Consistent with Article 2208 of the Civil Code,74 respondent is equally liable to petitioner for
attorney's fees and the costs of litigation.
WHEREFORE, the Petition is GRANTED. The assailed November 15, 2012 Decision and
February 12, 2013 Resolution of the Court of Appeals in CA-G.R. CV No. 95369 are REVERSED
and SET ASIDE.
The Contract to Sell entered into by petitioner Joseph Harry Walter Poole-Blunden and
respondent Union Bank of the Philippines is declared null and void. Respondent is ordered to
pay petitioner the amount of ₱3,257,142.49 to refund the amounts petitioner has paid to
purchase Unit 2C of T-Tower Condominium located at 5040 P. Burgos corner Calderon Streets,
Makati City. This refund shall earn legal interest at twelve percent (12%) per annum from the
date of the filing of petitioner's Complaint for Rescission of Contract and Damages up to June 30,
2013; and six percent (6%) per annum, reckoned from July 1, 2013 until fully paid.
Respondent is ordered to pay petitioner ₱100,000.00 as exemplary damages, ₱100,000.00 as
attorney's fees, and the costs of litigation.
SO ORDERED.
THIRD DIVISION
G.R. No. 177803, August 03, 2015
SPOUSES EMILIANO L. JALBAY, SR. AND MAMERTA C. JALBAY, Petitioners, v. PHILIPPINE
NATIONAL BANK, Respondent.
DECISION
PERALTA, J.:
This is a Petition for Review under Rule 45 of the Rules of Court which petitioners spouses
Emiliano L. Jalbay, Sr. and Mamerta C. Jalbay (the Spouses Jalbay) filed, seeking the reversal of
the Court of Appeals (CA) Decision1 dated November 29, 2006 and its Resolution2 dated April
27, 2007 in CA-G.R. CV No. 80896.  The CA reversed the Decision3 of the Regional Trial Court
(RTC) of Quezon City, Branch 100, which declared the real estate mortgage in favor of
respondent Philippine National Bank (PNB) null and void.

The facts of the case are as follows:LawlibraryofCRAlaw

The subject property is a 257-square-meter lot at Del-Nacia Ville No. 4, Sauyo Road, Novaliches,
Quezon City registered under the names of the Spouses Jalbay.  On June 11, 1988, the Transfer
Certificate of Title (TCT) covering said property was destroyed when the Office of the Quezon
City Register of Deeds was gutted by fire.  Upon reconstitution, the title was issued in the name
of “Emiliano Jalbay, married to Mamerta C. Jalbay,” and because the Spouses Jalbay were then
working and residing abroad, the title was released to their daughter, Virginia Agus.

Sometime in 1993, Virginia and her husband, Danilo Agus (the Spouses Agus), applied for a loan
with PNB, Ermita Branch, in order to acquire additional funds for their garments business
operating under the name of VJA Garments.  As a security, the Spouses Agus constituted a real
estate mortgage over the subject lot, which they represented as being owned by siblings
Emiliano Jalbay, Jr., and Teresita Jalbay-Cinco.  The aforesaid borrowers, however, failed to
settle their loan obligation.  As a result, PNB foreclosed the mortgage over the property.  It
likewise emerged as the highest bidder at the public auction.

Subsequently, during a short vacation in the country, the Spouses Jalbay learned about the
mortgage and foreclosure of their property.  Contending that the real estate mortgage and the
proceedings for its foreclosure were invalid for lack of consent of the real registered owners, the
Spouses Jalbay filed a complaint against PNB before the Quezon City RTC.  The case was
docketed as Civil Case No. Q-97-30800.  They likewise sought to prevent the bank from
consolidating its ownership over the parcel of land during the pendency of the case.

On April 3, 2003, the RTC declared the assailed real estate mortgage as null and void and the
foreclosure proceedings without force and effect.

Aggrieved, PNB and the Spouses Agus appealed the case before the CA for the reversal of the
RTC ruling.  On November 29, 2006, the appellate court reversed and set aside the decision of
the RTC and ordered the dismissal of the complaint.

The Spouses Jalbay thus filed a Motion for Reconsideration but the same was denied.  Hence, the
instant petition.

The Spouses Jalbay mainly posit that PNB did not act with the requisite diligence when it
approved the loan application of the Spouses Agus, Emiliano, Jr., and Cinco.  They claim that the
RTC was correct in finding that PNB was not a mortgagee in good faith, making the mortgage
constituted on the subject lot null and void.

The petition lacks merit.

In reversing the RTC Decision, the CA held that PNB followed standard banking practices in
allowing the assailed loan.  According to it, PNB cannot be said to have acted with haste in
approving the loan application since the bank caused the subject property to be inspected and
appraised, and even conducted a careful credit investigation on the Spouses Agus, Emiliano, Jr.,
and Cinco.  Victorio Sison, PNB’s Vice-President and Ermita Branch Manager, testified on the
witness stand:LawlibraryofCRAlaw
xxxx
Q. Aside from this loan application, what other document, if any, Mr. Witness, did the
third-party defendants submit to you for your consideration?
A. They also submitted their transfer certificate of title which will serve as collateral to
the loans.
xxxx
Q. x x x Now, after this transfer certificate of title which you identified were submitted to
you, what happened next to the loan application of the third party defendant?
A. We processed the loan and we asked the assistance of the credit department to
appraise the property and conduct investigation on the borrowers and/or mortgagors.
Q. Was such appraisal and inspection done as directed by you?
A. It was requested by the branch headed by me to the credit department, whose
functions are independent from the branch.
Q. Do you have any proof to show that indeed there was appraisal and investigation
conducted as requested by you?
A. I think so because once we requested the credit department they submit their
appraisal report within one or two weeks.
xxxx
Q. After this Inspection and Appraisal Report was submitted to you together with other
loan documents, what happened next to the loan application of third-party
defendants?
A. After the appraisal report and the investigation report were submitted to us, we
processed the loan and accordingly we deliberated the loan. We found nothing wrong
with both appraisal and investigation reports.
Q. And so, after you found nothing wrong in the loan application, what happened next?
A. We approve the application, we required them to submit the original TCT. After which
we prepared the corresponding Credit Agreement, the R.E.M. and we sent that to the
Register of Deeds for registration. After the Register of Deeds registered, then the
parties concerned signed the Credit Agreement. We gave them also the Promissory
 Note for them to sign as evidence that the money or funds will be released to them.4

Verily, PNB exerted the necessary diligence in granting the loan and entering into the assailed
real estate mortgage.  Not only did it require Emiliano, Jr., Cinco, and the Spouses Agus to submit
their biodata, duly accomplished loan application and the TCT covering the mortgaged lot, it
likewise caused the subject property to be inspected and appraised, and conducted a thorough
credit investigation on the persons of the borrowers.

True, banks, in handling real estate transactions, are required to exert a higher degree of
diligence, care, and prudence than individuals.  Unlike private individuals, it is expected to
exercise greater care and prudence in its dealings, including those involving registered lands.  A
banking institution is expected to exercise due diligence before entering into a mortgage
contract.5  Indeed, there is a situation where, despite the fact that the mortgagor is not the
owner of the mortgaged property, his title being fraudulent, the mortgage contract and any
foreclosure sale arising therefrom are given effect by reason of public policy.  This is the
doctrine of "the mortgagee in good faith," wherein buyers or mortgagees dealing with property
covered by a Torrens Certificate of Title are no longer required to go beyond what appears on
the face of the title.6  However, the rule that persons dealing with registered lands can rely
solely on the certificate of title is not applicable to banks.  Thus, before approving a loan
application, it is a standard operating practice for these institutions to conduct an ocular
inspection of the property offered for mortgage and to verify the veracity of the title to
determine its real owners.  An ocular inspection is necessary to protect the true owner of the
property as well as innocent third parties with a right, interest or claim thereon from a usurper
who may have acquired a fraudulent certificate of title.7redarclaw

Here, the Court finds that PNB has complied with the required degree of diligence, prudence,
and care in dealing with the mortgagor.  There was also no sign or circumstance which could
have possibly triggered suspicion on the bank’s part.  Aside from the fact that the certificate of
title to the subject lot is authentic and issued in the name of Emiliano Jalbay, he also appeared to
have been the one occupying said property.  Hence, there is no compelling reason to depart
from the assailed rulings of the appellate court.

WHEREFORE, premises considered, the petition is DENIED.  The Decision of the Court of
Appeals dated November 29, 2006 and its Resolution dated April 27, 2007 in CA-G.R. CV No.
80896 are AFFIRMED.

SO ORDERED.
SECOND DIVISION
G.R. No. 173134, September 02, 2015
BANK OF THE PHILIPPINE ISLANDS, Petitioner, v. TARCILA FERNANDEZ, Respondent.;
DALMIRO SIAN, THIRD PARTY, Respondent.
DECISION
BRION, J.:
We resolve the Petition for Review on Certiorari filed by the petitioner Bank of the Philippine
Islands (BPI) under Rule 45 of the Rules of Court, assailing the Court of Appeals (CA) July 14,
2005 Decision1 and the June 14, 2006 Resolution2 in CA-G.R. CV No. 61764.
The Factual Antecedents

The present case arose from respondent Tarcila "Baby" Fernandez's (Tarcila) claim to her
proportionate share in the proceeds of four joint AND/OR accounts that the petitioner BPI
released to her estranged husband Manuel G. Fernandez (Manuel) without the presentation of
the requisite certificates of deposit. The facts leading to this dispute are outlined below.

In 1991, Tarcila together with her husband, Manuel and their children Monique Fernandez and
Marco Fernandez, opened the following AND/OR deposit accounts with the petitioner BPI,
Shaw Blvd. Branch:chanRoblesvirtualLawlibrary
1) Peso Time Certificate of Deposit No. 2425545 issued on June 27, 1991 in the name(s)
of Manuel G. Fernandez Sr. or Baby Fernandez or Monique Fernandez in the amount of
P1,684,661.40, with a term of 90 days and a corresponding interest at 17.5% per annum;3
2) Peso Time Certificate of Deposit No. 2425556 issued on July 1, 1991 in the name(s)
of Manuel G. Fernandez Sr. or Marco Fernandez or Tarcila Fernandez, in the amount of
P1,534,335.10, with a term of 92 days and interest at 17.5% per annum;4
3) FCDU Time Certificate of Deposit No. 449059 issued on August 27, 1991 in the name(s)
of Manuel or Tarcila Fernandez in the amount of US$36,219.53, with a term of 30 days
and interest at 5.3125% per annum;
4) Deposit under SA No. 3301-0145-61 issued on September 10, 1991 in the name(s)
of Manuel Fernandez or Baby Fernandez or Monique Fernandez in the amount of
P11,369,800.78 with interest at 5% per annum.5

The deposits were subject to the following conditions:

"x x x
2. Pre-termination of deposits prior to maturity shall be subject to discretion of [BPI] and if
pre-termination is allowed, it is subject to an interest penalty to be determined on the
date of pre-termination;ChanRoblesVirtualawlibrary
3. Endorsement and presentation of the Certificate of Deposit is necessary for the
renewal or termination of the deposit"
On September 24, 1991, Tarcila went to the BPI Shaw Blvd. Branch to pre-terminate these joint
AND/OR accounts. She brought with her the certificates of time deposit and the passbook, and
presented them to the bank. BPI, however, refused the requested pre-termination despite
Tarcila's presentation of the covering certificates. Instead, BPI, through its branch
manager, Mrs. Elma San Pedro Capistrano (Capistrano), insisted on contacting Manuel,
alleging in this regard that this is an integral part of its standard operating procedure.6

Shortly after Tarcila left the branch, Manuel arrived and likewise requested the pre-termination
of the joint AND/OR accounts.7 Manuel claimed that he had lost the same certificates of deposit
that Tarcila had earlier brought with her.8 BPI, through Capistrano, this time acceded to the pre-
termination requests, blindly believed Manuel's claim,9 and requested him to accomplish BPI's
pro-forma affidavit of loss.10

Two days after, Manuel returned to BPI, Shaw Blvd. Branch to pre-terminate the joint AND/OR
accounts. He was accompanied by Atty. Hector Rodriguez, the respondent Dalmiro Sian (Sian),
and two (2) alleged National Bureau of Investigation (NBI) agents.

In place of the actual certificates of deposit, Manuel submitted BPI's pro-forma affidavit of loss
that he previously accomplished and an Indemnity Agreement that he and Sian executed on the
same day. The Indemnity Agreement discharged BPI from any liability in connection with the
pre-termination.11Notably, none of the co-depositors were contacted in carrying out these
transactions.

On the same day, the proceeds released to Manuel were funneled to Sian's newly opened
account with BPI. Immediately thereafter, Capistrano requested Sian to sign blank
withdrawal slips, which Manuel used to withdraw the funds from Sian's newly opened
account.12Sian's account, after its use, was closed on the same day. 13

A few days after these transactions, Tarcila filed a petition for "Declaration of Nullity of
Marriage, etc." against Manuel, with the Regional Trial Court (RTC) of Pasig, docketed as JRDC
No. 2098.14 Based on the records, this civil case has been archived.15

Tarcila never received her proportionate share of the pre-terminated deposits,16 prompting her
to demand from BPI the amounts due her as a co-depositor in the joint AND/OR accounts. When
her demands remained unheeded, Tarcila initiated a complaint for damages with the Regional
Trial Court (RTQ of Makati City, Branch 59, docketed as Civil Case No. 95-671.

In her complaint, Tarcila alleged that BPI's payments to Manuel of the pre-terminated deposits
were invalid with respect to her share.17She argued that BPI was in bad faith for allowing the
pre-termination of the time deposits based on Manuel's affidavit of loss when the bank had
actual knowledge that the certificates of deposit were in her possession.18

In its answer, BPI alleged that the accounts contained conjugal funds that Manuel exclusively
funded.19 BPI further argued that Tarcila could not ask for her share of the pre-terminated
deposits because her share in the conjugal property is considered inchoate until its
dissolution.20 BPI further denied refusing Tarcila's request for pre-termination as it processed
her request but she left the branch before BPI could even contact Manuel.

BPI likewise filed a third-party complaint against Sian and Manuel on the basis of the Indemnity
Agreement they had previously executed. As summons against Manuel remained
unserved,21 only BPI's complaint against Sian proceeded to trial.

During the pre-trial, the parties admitted, among others, the conjugal nature of the
funds deposited with BPI.
After trial on the merits, the RTC of Makati, Branch 59, ruled in favor of Tarcila and awarded her
the following amounts: 1.) 1/2 of US$36,379.87; 2.) 1/3 of P11,3369,800.78; 3.) 1/3 of
Php1,684,661.40; and 1/3 of P1,534,335.10. The RTC likewise ordered BPI to pay Tarcila the
amount of P50,000.00 representing exemplary damages and P500,000.00 as attorney's fees.

In its decision,22 the RTC opined that the AND/OR nature of the accounts indicate an active
solidarity that thus entitled any of the account holders to demand from BPI payment of their
proceeds. Since Tarcila made the first demand upon BPI, payments should have been made to
her23 under Article 1214 of the Civil Code, which provides:
"Art. 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or
extrajudicial, has been made by one of them, payment should be made to him."
The RTC did not find merit either in BPI's third-party complaint against Sian on the ground that
he was merely coerced into signing the Indemnity Agreement.24 BPI appealed the RTC ruling
with the CA.
CA Ruling

On July 14, 2005, the CA denied BPFs appeal through the decision25 that BPI now challenges
before this Court. The CA ruled that as a co-depositor and a solidary creditor of joint "AND/OR"
accounts, BPI did not enjoy the prerogative to determine the source of the deposited funds and
to refuse payment to Tarcila on this basis.

The CA also found that BPI had acted in bad faith in allowing Manuel to pre-terminate the
certificates of deposits and in facilitating the swift funneling of the funds to Sian's account,
which allowed Manuel to withdraw them.26 The CA noted that the transactions were
accomplished in one sitting for the purpose of misleading anyone who would try to trace Manuel's
deposit accounts.27

The CA likewise upheld the RTC's dismissal of BPFs third-party complaint against Sian. It
affirmed the factual finding that intimidation and undue influence vitiated Sian's consent in
signing the Indemnity Agreement.28

BPI moved for the reconsideration of the CA ruling, but the appellate court denied its motion in
its June 14, 2006 Resolution.29 BPI then filed the present petition for review on certiorari under
Rule 45 with this Court.
The Petition and Comment

BPI insists in its present petition30 that the CA and the court a quo erred in applying the
provisions of Article 1214 of the Civil Code to the present case. It believes that the CA should
have relied on the conjugal partnership of gains provision in view of the existing marriage
between the spouses. Accordingly, BPI argues that Tarcila could not have suffered any damage
from its payment of the proceeds to Manuel inasmuch as the proceeds of the pre-terminated
accounts formed part of the conjugal partnership of gains.

BPI likewise claims that it did not breach its obligations under the certificates of deposit; it
processed Tarciia's pre-termination request but she left the branch before her request could be
completed. Moreover, assuming without conceding that BPI indeed declined Tarciia's request, it
posits that it possessed the discretion to do so since the request for pre-termination was done
prior to their maturity dates. Thus, BPI firmly believes that it could not be accused of wanton,
fraudulent, reckless, or malevolent conduct as it was merely exercising its rights.
Finally, BPI insists that Sian's consent was not vitiated when he signed the Indemnity
Agreement. According to BPI, the records are bereft of any proof that Sian was actually
threatened to sign the Indemnity Agreement. Thus, BPI maintains that it may validly invoke the
Agreement to release itself from any liability.

In her Comment,31 Tarcila points out that the petition raised questions of fact that are not
proper issues in a petition for review on certiorari.32 She also argues that BPI's acts were not
mere precautionary steps but were indicia of bias and bad faith. Finally, Tarcila adds that the
issue of who has management, control, and custody of conjugal property cannot be set up to
justify BPI's patent bad faith.

Sian failed to file his Comment on the petition. Nevertheless, he filed a Memorandum33 in
compliance with the Court's September 22, 2008 Resolution.34 He alleged that Manuel forced
and intimidated him to sign the Indemnity Agreement.
THE COURT'S RULING

We deny the petition for lack of merit.

BPI breached its obligation under the certificates of deposit.

A certificate of deposit is defined as a written acknowledgment by a bank or banker of the

receipt of a sum of money on deposit which the bank or banker promises to pay to the
depositor, to the order of the depositor, or to some other person or his order, whereby the
relation of debtor and creditor between the bank and the depositor is created.35 In
particular, the certificates of deposit contain provisions on the amount of interest, period of
maturity, and manner of termination. Specifically, they stressed that endorsement and
presentation of the certificate of deposit is indispensable to their termination. In other words,
the accounts may only be terminated upon endorsement and presentation of the
certificates of deposit. Without the requisite presentation of the certificates of deposit, BPI
may not terminate them.

BPI thus may only terminate the certificates of deposit after it has diligently completed two
steps. First, it must ensure the identity of the account holder. Second, BPI must demand the
surrender of the certificates of deposit.

This is the essence of the contract entered into by the parties which serves as an accountability
measure to other co-depositors. By requiring the presentation of the certificates prior to
termination, the other depositors may rely on the fact that their investments in the
interest-yielding accounts may not be indiscriminately withdrawn by any of their co-
depositors. This protective mechanism likewise benefits the bank, which shields it from
liability upon showing that it released the funds in good faith to an account holder who
possesses the certificates. Without the presentation of the certificates of deposit, BPI may not
validly terminate the certificates of deposit.

With these considerations in mind, we find that BPI substantially breached its obligations to the
prejudice of Tarcila. BPI allowed the termination of the accounts without demanding the
surrender of the certificates of deposits, in the ordinary course of business. Worse, BPI even
had actual knowledge that the certificates of deposit were in Tarcila's possession and yet
it chose to release the proceeds to Manuel on the basis of a falsified affidavit of loss, in
gross violation of the terms of the deposit agreements.
As we have stressed in the case of FEBTC v. Querimit:36
"x x x A bank acts at its peril when it pays deposits evidenced by a certificate of deposit,
without its production and surrender after proper indorsement. As a rule, one who pleads
payment has the burden of proving it. Even where the plaintiff must allege non-payment, the
general rule is that the burden rests on the defendant to prove payment, rather than on the
plaintiff to prove payment. The debtor has the burden of showing with legal certainty that
the obligation has been discharged by payment, x x x Petitioner should not have paid
respondent's husband or any third party without requiring the surrender of the
certificates of deposit."37
BPI tried to muddle the issue by claiming that the funds subject of the deposits were conjugal in
character. This contention, however, is misleading. The principal issue involved in the present
case is BPFs breach of its obligations under the express terms of the certificates of deposit and
the consequent damage that Tarcila suffered as a co-depositor because of BPI's acts.

Notably, BPI effectively deprived Tarcila and the other co-depositors of their share in the
proceeds of the certificates of deposits. As the CA noted in the assailed Decision, the series of
transactions were accomplished in one sitting for the purpose of misleading anyone who
would try to trace the proceeds of [Manuel]'s deposit accounts.38 As the court a quo likewise
observed:
"Aside from the affidavit of loss, the bank required [Manuel] to execute an Indemnity
Agreement. Hence, on September 26, 1991, [Manuel] returned to the bank. This time, Dalmiro
Sian, his son-in-law, Atty. Hector Rodriguez, his lawyer, and two NBI agents were with him.
There, the bank required him and Sian to sign an Indemnity Agreement whereby they
undertook "to hold the bank free and harmless from all liabilities arising from said [pre-
termination]." The agreement was prepared by one of the officers of the bank. At the same time,
Sian was told to open a new account under his name. The opening of a new account N. 3305-
0539-44 in the name of Sian was facilitated. The proceeds of the four deposit accounts
were then transferred or deposited to this new account in the name of Sian. x x x Sian also
signed two blank withdrawal slips. With the use of these withdrawal slips, [Manuel]
Fernandez withdrew all the proceeds deposited under the name of Sian. Shortly thereafter,
account no. 3305-0539-44 was closed."39
It appears that BPI connived with Manuel to allow him to divest his co-depositors of their share
in proceeds. Worse, it cooperated with Manuel in trying to conceal this fraudulent conduct by
making it appear that the funds were withdrawn from another account.

The CA correctly ruled that BPI is guilty of bad faith.

We affirm the CA and the trial court's findings that BPI was guilty of bad faith in these
transactions. Bad faith imports a dishonest purpose and conscious wrongdoing.40 It means a
breach of a known duty through some motive or interest or ill will.41

A review of the records of the case show ample evidence supporting BPI's bad faith, as shown
by the clear bias it had against Tarcila. As the CA observed:
"The bias and bad faith on the part of [BPI]'s officers become readily apparent in the face
of the fact that [BPI]'s officers did not require the presentation of the certificates of
deposit from [Manuel] but even assisted and facilitated the pre-termination transaction
by the latter on the basis of a mere pro-forma and defective affidavit of loss, which the
bank itself supplied, despite the fact that [BPI]'s officers were fully aware that the
certificates were not lost but in the possession of [Tarcila]. Moreover, given the fact that
said affidavit of loss was executed by [Manuel] just a few minutes after [Tarcila] had presented
the certificates of deposit to [BPI], it taxes one's credulity to say that [BPI] believed in good faith
that the certificates were indeed lost."42
Similarly, the trial court observed:
"It is quite alarming to note the eagerness and haste by which the defendant bank
accommodated [Manuel] 's request for the pre-termination of the questioned account deposits
and the subsequent release to him of the full proceeds thereof, to the exclusion of the [Tarcila].
The prejudice of the officers of [BPI] against the [Tarcila] is very apparent. Elma Capistrano,
branch manager, categorically testified that [Tarcila] is a client of the bank only in name; and
that she does not consider [Tarcila] as a primary depositor to the account because the source of
the money being deposited and being transacted was [Manuel]."43
BPI argues that it merely took precautionary steps when it insisted on contacting Manuel as a
form of standard operating procedure. This assertion, however, is belied by BPI's own witness.
During her testimony, Capistrano narrated:
"x x x
Q: Can you tell us why it was necessary for the branch to get in touch with Mr. Manuel
Fernandez?
A: Because he is the one that handles and is in control of all the money deposited in the
branch44
xxx
Q: I heard you mentioned the word "primary depositor" does that mean that Mrs. Tarcila
Fernandez is not a primary depositor?
A: Personally, I do not really consider her as the primary depositor to the
account because the source of the money being deposited and being transacted was Mr.
Manuel Fernandez.45
xxx
Q: Were you the one who recommended that Mr. Manuel Fernandez prepare this affidavit of
loss?
A: That is the usual things that we tell our clients if the original of the certificates of deposits
(sic) or passbook or checkbooks are missing.
Q: But is it not a fact that earlier a few minutes before Mr. Fernandez came, you were
aware that the certificates were not actually missing but were in the possession of
Mrs. [Tarcila] Fernandez, is it not?
A: Yes Sir.
Q: And yet when this affidavit of loss was later prepared and presented to you, did you
give due course to this affidavit of loss? Did you accept the truth of the contents of
this affidavit of loss?
A: Because it is Mr. [Manuel] Fernandez who is in possession of all the certificates, and
if he is missing it, I believed that it is really missing."46
The records thus abound with evidence that BPI clearly favored Manuel. BPI considered Manuel
as the primary depositor despite the clear import of the nature of their AND/OR account, which
permits either or any of the co-depositors to transact with BPI, upon the surrender of the
certificates of deposit. Worse, BPI facilitated the scheme in order to allow Manuel to obtain the
proceeds and conceal any evidence of wrongdoing.
BPI did not only fail to exercise that degree of diligence required by the nature of its
business, it also exercised its functions with bad faith and manifest partiality against
Tarcila. The bank even recognized an affidavit of loss whose allegations, the bank knew,
were false. This aspect of the transactions opens up other issues that we do not here
decide because they are outside the scope of the case before us.

One aspect is criminal in nature because Manuel swore to a falsity and the act was with
the knowing participation of bank officers. The other issue is administrative in character
as these bank officers betrayed the trust reposed in them by the bank. We mention all
these because these are disturbing acts to observe in a banking institution as large as the
BPI.

BPI is sternly reminded that the business of banks is impressed with public interest. The
fiduciary nature of their relationship with their depositors requires it to treat the accounts of its
clients with the highest degree of integrity, care and respect. In the present case, the manner
by which BPI treated Tarcila also transgresses the general banking law47 and Article 19 of the
Civil Code, which directs every person, in the exercise of his rights, "to give everyone his due,
and observe honesty and good faith."

BPI could not invoke the Indemnity Agreement.

BPI assails the CA's declaration voiding the Indemnity Agreement that would allow it to hold
Sian liable for the withdrawn deposits.48 It argues that Sian's allegation of vitiation of consent
should not be recognized as it is based solely on the presence of Manuel's lawyer and two (2)
alleged NBI Agents.49 BPI thus claims that "mere presence" of law enforcement officers cannot
be reasonably equated as imminent threat.50

This particular issue involves a factual determination of vitiated consent, which is a question of
fact and one which is not generally appropriate in a petition for review on certiorari under Rule
45. We, however, are not precluded from again examining the evidence introduced and
considered with respect to this factual issue where the CA's finding of vitiated consent is both
speculative and mistaken.51

We agree with BPFs observation on this point that there is nothing in the records that even
remotely resembles vitiation of consent. In order that intimidation may vitiate consent, it is
essential that the intimidation was the moving cause for giving consent.52 Moreover, the
threatened act must be unjust or unlawful.53 In addition, the threat must be real or serious,
and must produce well-grounded fear from the fact that the person making the threat has the
necessary means or ability to inflict the threat.54

Nothing in the records supports this conclusion. In fact, we find it difficult to believe that the
presence of Manuel, his lawyer, and two (2) NBI agents could amount to intimidation in the
absence of any act or threatened injury on Sian. If he did sign the Indemnity Agreement with
reluctance, vitiation of consent is still negated, as we held in Vales v. Villa:55
"There must, then, be a distinction to be made between a case where a person gives his consent
reluctantly and even against his good sense: and judgment, and where he, in reality, gives no
consent at all, as where he executes a contract or performs an act against his will under a
pressure which he cannot resist. It is clear that one acts as voluntarily and independently in the
eye of the law when he acts reluctantly and with hesitation as when he acts spontaneously and
joyously. Legally speaking he acts as voluntarily and freely when he acts wholly against his
better sense and judgment as when he acts in conformity with them. Between the two acts there
is no difference in law. But when his sense, judgment, and his will rebel and he refuses
absolutely to act as requested, but is nevertheless overcome by force or intimidation to such an
extent that he becomes a mere automation and acts mechanically only, a new element enters,
namely, a disappearance of the personality of the actor. He ceases to exist as an independent
entity with faculties and judgment, and in his place is substituted another — the one exercising
the force or making use of intimidation. While his hand signs, the will which moves it is
another's. While a contract is made, it has, in reality and in law, only one party to it; and, there
being only one party, the one using the force or the intimidation, it is unenforceable for lack of a
second party.

From these considerations it is clear that every case of alleged intimidation must be examined
to determine within which class it falls. If it is within the first class it is not duress in law, if it
falls in the second, it is."
This notwithstanding, we hold that BPI may still not invoke the provisions of the Indemnity
Agreement on the basis of in pari delicto - it was equally at fault. In pari delicto is a legal doctrine
resting on the theory that courts will not aid parties who base their cause of action on their own
immoral or illegal acts.56 When two parties, acting together, commit an illegal or wrongful act,
the party held responsible for the act cannot recover from the other, because both have been
equally culpable and the damage resulted from their joint offense.57

In the present case, equity dictates that BPI should not be allowed to claim from Sian on the
basis of the Indemnity Agreement. The facts unmistakably show that both BPI and Sian
participated in the deceptive scheme to allow Manuel to withdraw the funds. As succinctly
admitted by Capistrano during her testimony:
xxx
Q: I see, in other words, the same certificates of deposit earlier presented by Mrs.
Tarcila were recognized by the bank as having been lost and thereafter transactions
were made in favor of Mr. Manuel Fernandez, that was what happened?
A: Yes Sir, because of the representation of Mr. Manuel Fernandez that he lost it.
Q: You accepted, the bank immediately accepted in face value that representation?
A: Yes Sir.58
BPI knew very well the irregularity in Manuel's transaction for it had actual knowledge
that the certificates of deposit were in Tarcila's possession. Because of this knowledge, it
entertained the possibility of reprisal from the co-depositors. Thus, it took shrewdly
calculated steps and required Manuel and Sian to execute an Indemnity Agreement, hoping
that this instrument would absolve it from liability.

BPI and Sian are in pari delicto, thus, no affirmative relief should be given to one against the
other. BPI came to court with unclean hands; for which reason, it cannot obtain relief and
thereby gain from its indispensable participation in the irregular transaction. One who seeks
equity and justice must come to court with clean hands.59chanroblesvirtuallawlibrary

Award of exemplary damages proper

Exemplary or corrective damages are imposed by way of example or correction for the public
good, in addition to moral, temperate, liquidated, or compensatory damages.60 In quasi-delicts,
exemplary damages may be granted if the defendant acted with gross negligence.61

In the present case, BPI's bias and bad faith unquestionably caused prejudice to Tarcila. The law
allows the grant of exemplary damages in cases such as this to serve as a warning to the public
and as a deterrent against the repetition of this kind of deleterious actions.62 From this
perspective, we find that the CA did not err in affirming the RTC's award of P50,000.00 by way
of exemplary damages.

Attorney's fees in order

In view of the award of exemplary damages, we find that that the CA did not err in confirming
the RTC's award of attorney's fees, in accordance with Article 2208 (1) of the Civil Code. We find
the award of attorney's fees, equivalent to P500,000.00, to be just and reasonable under the
circumstances.

WHEREFORE, premises considered, the petition is hereby DENIED.

Costs against the petitioner.

SO ORDERED.

>THIRD DIVISION
April 26, 2017
G.R. No. 178467
SPS. CRISTINO & EDNA CARBONELL, Petitioners,
vs.
METROPOLITAN BANK AND TRUST COMPANY, Respondent.
DECISION
BERSAMIN, J.:
The petitioners assail the decision promulgated on December 7, 2006, 1 whereby the Court of
Appeals (CA) affirmed with modification the decision rendered on May 22, 19982 by the
Regional Trial Court, Branch 157, in Pasig City (RTC) dismissing the petitioners' complaint in
Civil Case No. 65725 for its lack of merit, and awarded attorney's fees under the respondent's
counterclaim.
Antecedents
The petitioners initiated against the respondent Civil Case No. 65725, an action for damages,
alleging that they had experienced emotional shock, mental anguish, public ridicule, humiliation,
insults and embarrassment during their trip to Thailand because of the respondent's release to
them of five US$ 100 bills that later on turned out to be counterfeit. They claimed that they had
travelled to Bangkok, Thailand after withdrawing US$ l ,000.00 in US$ 100 notes from their
dollar account at the respondent's Pateros branch; that while in Bangkok, they had exchanged
five US$ 100 bills into Baht, but only four of the US$ 100 bills had been accepted by the foreign
exchange dealer because the fifth one was "no good;" that unconvinced by the reason for the
rejection, they had asked a companion to exchange the same bill at Norkthon Bank in Bangkok;
that the bank teller thereat had then informed them and their companion that the dollar bill was
fake; that the teller had then confiscated the US$ 100 bill and had threatened to report them to
the police if they insisted in getting the fake dollar bill back; and that they had to settle for a
Foreign Exchange Note receipt.3
The petitioners claimed that later on, they had bought jewelry from a shop owner by using four
of the remaining US$100 bills as payment; that on the next day, however, they had been
confronted by the shop owner at the hotel lobby because their four US$ 100 bills had turned out
to be counterfeit; that the shop owner had shouted at them: "You Filipinos, you are all
cheaters!;" and that the incident had occurred within the hearing distance of fellow travelers
and several foreigners.
The petitioners continued that upon their return to the Philippines, they had confronted the
manager of the respondent's Pateros branch on the fake dollar bills, but the latter had insisted
that the dollar bills she had released to them were genuine inasmuch as the bills had come from
the head office; that in order to put the issue to rest, the counsel of the petitioners had
submitted the subject US$ 100 bills to the Bangko Sentral ng Pilipinas (BSP) for examination;
that the BSP had certified that the four US$100 bills were near perfect genuine notes;4 and that
their counsel had explained by letter their unfortunate experience caused by the respondent's
release of the fake US dollar bills to them, and had demanded moral damages of ₱10 Million and
exemplary damages.5
The petitioners then sent a written notice to the respondent, attaching the BSP certification and
informing the latter that they were giving it five days within which to comply with their
demand, or face court action.6 In response, the respondent's counsel wrote to the petitioners on
March 1996 expressing sympathy with them on their experience but stressing that the
respondent could not absolutely guarantee the genuineness of each and every foreign currency
note that passed through its system; that it had also been a victim like them; and that it had
exercised the diligence required in dealing with foreign currency notes and in the selection and
supervision of its employees.7
Prior to the filing of the suit in the RTC, the petitioners had two meetings with the respondent's
representatives. In the course of the two meetings, the latter's representatives reiterated their
sympathy and regret over the troublesome experience that the petitioners had encountered,
and offered to reinstate US$500 in their dollar account, and, in addition, to underwrite a round-
trip all-expense-paid trip to Hong Kong, but they were adamant and staged a walk-out.8
In its judgment rendered on May 22, 1998,9 the RTC ruled in favor of the respondent, disposing
as follows:
WHEREFORE, in the light of all the foregoing, judgment is hereby rendered:
1. Dismissing plaintiff’s complaint for lack of merit;
2. On the counterclaim, awarding Metrobank the amount of ₱20,000.00 as attorney's fees.
SO ORDERED.10
The petitioners appealed, but the CA ultimately promulgated its assailed decision on December
7, 2006 affirming the judgment of the RTC with the modification of deleting the award of
attorney's fees, 11 to wit:
As to the award of attorneys fees, we agree with appellants that there is simply no factual and
legal basis thereto.
Unquestionably, appellants filed the present case for the humiliation and embarrassment they
suffered in Bangkok. They instituted the complaint in their honest belief that they were entitled
to damages as a result of appellee's issuance of counterfeit dollar notes. Such being the case,
they should not be made answerable to attorney's fees. It is not good public policy to put a
premium on the right to litigate where such right is exercised in good faith, albeit erroneously.
WHEREFORE, the appealed decision is AFFIRMED with modification that the award of
attorney's fees is deleted.
SO ORDERED.
Issues
Hence, this appeal, with the petitioners contending that the CA gravely erred in affirming the
judgment of the RTC. They insist that inasmuch as the business of banking was imbued with
public interest, the respondent's failure to exercise the degree of diligence required in handling
the affairs of its clients showed that it was liable not just for simple negligence but for
misrepresentation and bad faith amounting to fraud; that the CA erred in giving weight and
relying on the news clippings allegedly showing that the "supernotes" had deceived even the
U.S. Secret Service and Central Intelligence Agency, for such news were not based on facts. 12
Ruling of the Court
The appeal is partly meritorious.
The General Banking Act of 2000 demands of banks the highest standards of integrity and
performance. As such, the banks are under obligation to treat the accounts of their depositors
with meticulous care. 13 However, the banks' compliance with this degree of diligence is to be
determined in accordance with the particular circumstances of each case.
The petitioners argue that the respondent was liable for failing to observe the diligence
required from it by not doing an act from which the material damage had resulted by reason of
inexcusable lack of precaution in the performance of its duties. 14 Hence, the respondent was
guilty of gross negligence, misrepresentation and bad faith amounting to fraud.
The petitioners' argument is unfounded.
Gross negligence connotes want of care in the performance of one's duties; it is a negligence
characterized by the want of even slight care, acting or omitting to act in a situation where there
is duty to act, not inadvertently but wilfully and intentionally, with a conscious indifference to
consequences insofar as other persons may be affected. It evinces a thoughtless disregard of
consequences without exe1iing any effort to avoid them. 15
In order for gross negligence to exist as to warrant holding the respondent liable therefor, the
petitioners must establish that the latter did not exert any effort at all to avoid unpleasant
consequences, or that it wilfully and intentionally disregarded the proper protocols or
procedure in the handling of US dollar notes and in selecting and supervising its employees.
The CA and the RTC both found that the respondent had exercised the diligence required by law
in observing the standard operating procedure, in taking the necessary precautions for handling
the US dollar bills in question, and in selecting and supervising its employees. 16 Such factual
findings by the trial court are entitled to great weight and respect especially after being affirmed
by the appellate court, and could be overturned only upon a showing of a very good reason to
warrant deviating from them.
In this connection, it is significant that the BSP certified that the falsity of the US dollar notes in
question, which were "near perfect genuine notes," could be detected only with extreme
difficulty even with the exercise of due diligence. Ms. Nanette Malabrigo, BSP's Senior Currency
Analyst, testified that the subject dollar notes were "highly deceptive" inasmuch as the paper
used for them were similar to that used in the printing of the genuine notes. She observed that
the security fibers and the printing were perfect except for some microscopic defects, and that
all lines were clear, sharp and well defined. 17
Nonetheless, the petitioners contend that the respondent should be liable for moral and
exemplary damages18 on account of their suffering the unfortunate experience abroad brought
about by their use of the fake US dollar bills withdrawn from the latter.
The contention cannot be upheld.
The relationship existing between the petitioners and the respondent that resulted from a
contract of loan was that of a creditor-debtor. 19 Even if the law imposed a high standard on the
latter as a bank by vi1iue of the fiduciary nature of its banking business, bad faith or gross
negligence amounting to bad faith was absent. Hence, there simply was no legal basis for
holding the respondent liable for moral and exemplary damages. In breach of contract, moral
damages may be awarded only where the defendant acted fraudulently or in bad faith. That was
not true herein because the respondent was not shown to have acted fraudulently or in bad
faith. This is pursuant to Article 2220 of the Civil Code, to wit:
Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the
court should find that, under the circumstances, such damages are justly due. The same rule
applies to breaches of contract where defendant acted fraudulently or in bad faith.
With the respondent having established that the characteristics of the subject dollar notes had
made it difficult even for the BSP itself as the country's own currency note expert to identify the
counterfeiting with ease despite adhering to all the properly laid out standard operating
procedure and precautions in the handling of US dollar bills, holding it liable for damages in
favor of the petitioners would be highly unwarranted in the absence of proof of bad faith, malice
or fraud on its part. That it formally apologized to them and even offered to reinstate the
USD$500.00 in their account as well as to give them the all-expense-paid round trip ticket to
Hong Kong as means to assuage their inconvenience did not necessarily mean it was liable. In
civil cases, an offer of compromise is not an admission of liability, and is inadmissible as
evidence against the offeror. 20
Even without taking into consideration the news clippings to the effect that the US Secret
Service and Central Intelligence Agency had themselves been deceived by the 1990 series of the
US dollar notes infamously known as the "supernotes," the record had enough to show in that
regard, not the least of which was the testimony of Ms. Malabrigo as BSP's Senior Currency
Analyst about the highly deceptive nature of the subject US dollar notes and the possibility for
them to pass undetected.
Also, the petitioners' allegation of misrepresentation on the part of the respondent was factually
unsupported.1âwphi1 They had been satisfied with the services of the respondent for about
three years prior to the incident in question.21 The incident was but an isolated one. Under the
law, moral damages for culpa contractual or breach of contract are recoverable only if the
defendant acted fraudulently or in bad faith, or is found guilty of gross negligence amounting to
bad faith, or in wanton disregard of his contractual obligations.22 The breach must be wanton,
reckless, malicious or in bad faith, oppressive or abusive.23 In order to maintain their action for
damages, the petitioners must establish that their injury resulted from a breach of duty that the
respondent had owed to them, that is, there must be the concurrence of injury caused to them
as the plaintiffs and legal responsibility on the part of the respondent. Underlying the award of
damages is the premise that an individual was injured in contemplation of law. In this regard,
there must first be a breach of some duty and the imposition of liability for that breach before
damages may be awarded; and the breach of such duty should be the proximate cause of the
injury. 24 That was not so in this case.
It is true that the petitioners suffered embarrassment and humiliation in Bangkok. Yet, we
should distinguish between damage and injury. In The Orchard Golf & Country Club, Inc. v.
Yu,  25 the Court has fittingly pointed out the distinction, viz.:
x x x Injury is the illegal invasion of a legal right, damage is the loss, hurt, or harm which results
from the injury; and damages are the recompense or compensation awarded for the damage
suffered. Thus, there can be damage without injury in those instances in which the loss or harm
was not the result of a violation of a legal duty. These situations are often called dmimum absque
injuria.  26
In every situation of damnum absque injuria, therefore, the injured person alone bears the
consequences because the law affords no remedy for damages resulting from an act that does
not amount to a legal injury or wrong. For instance, in BP I Express Card Corporation v. Court of
Appeals ,27 the Court turned down the claim for damages of a cardholder whose credit card had
been cancelled after several defaults in payment, holding therein that there could be
damage without injury where the loss or harm was not the result of a violation of a legal duty
towards the plaintiff. In such situation, the injured person alone should bear the consequences
because the law afforded no remedy for damages resulting from an act that did not
amount to a legal injury or wrong.28 Indeed, the lack of malice in the conduct complained of
precluded the recovery of damages.29
Here, although the petitioners suffered humiliation resulting from their unwitting use of the
counterfeit US dollar bills, the respondent, by virtue of its having observed the proper protocols
and procedure in handling the US dollar bills involved, did not violate any legal duty towards
them. Being neither guilty of negligence nor remiss in its exercise of the degree of diligence
required by law or the nature of its obligation as a banking institution, the latter
was not liable for damages. Given the situation being one of damnum absque injuria, they could
not be compensated for the damage sustained.
WHEREFORE, the Court AFFIRMS the decision promulgated on December 7, 2006;
and ORDERS the petitioners to pay the costs of suit.
SO ORDERED.
THIRD DIVISION
G.R. No. 211176, February 06, 2019
BANGKO SENTRAL NG PILIPINAS AND PHILIPPINE NATIONAL BANK, PETITIONERS, v.
SPOUSES JUANITO AND VICTORIA LEDESMA, RESPONDENTS.

G.R. No. 211583, February 6, 2019

PHILIPPINE NATIONAL BANK, PETITIONER, v. SPOUSES JUANITO AND VICTORIA

LEDESMA, RESPONDENTS.
DECISION
LEONEN, J.:
This case involves the determination of whether the Bangko Sentral ng Pilipinas and the
Philippine National Bank are liable to the sugar producers for the refund of excess payments
under Republic Act No. 7202,1 or the Sugar Restitution Law.
These are two (2) Petitions2 for Review on Certiorari assailing the Court of Appeals May 29,
2013 Decision3 and January 29, 2014 Resolution4 in CA-G.R. CV No. 02904. The Court of Appeals
reversed and set aside the November 17, 2008 Decision5 of the Regional Trial Court in Civil Case
No. 01-11591 for Sum of Money/Refund of Excess Payments. The Court of Appeals ordered the
Bangko Sentral ng Pilipinas and the Philippine National Bank to pay Spouses Juanito and
Victoria Ledesma (the Ledesma Spouses) the amount of P353,529.67, to be taken from the sugar
restitution fund upon its establishment.6
The Ledesma Spouses stated in their Complaint that they were farmers engaged in sugar
farming in Negros Occidental, with sugar productions from crop year 1974 to 1975 to crop year
1984 to 1985. Within this period, they were among those who suffered losses in sugar farming
operations due to the actions of government-owned and controlled agencies. Among these
agencies were the Bangko Sentral ng Pilipinas and the Philippine National Bank.7
The Ledesma Spouses obtained several crop loans from the Philippine National Bank. After full
payment of the loans, there was an excess payment of P353,529.67, as admitted by the
Philippine National Bank and as certified by the Commission on Audit.8 The Ledesma Spouses
argued that under Republic Act No. 7202, the Bangko Sentral ng Pilipinas and the Presidential
Commission on Good Government should compensate them for their losses and refund the
excess payment from the sugar restitution fund.9
After trial, the Regional Trial Court, in its November 17, 2008 Decision, ruled:
WHEREFORE, the Complaint is hereby DISMISSED for reason of prematurity and/or lack of
cause of action against the herein defendants Bangko Sentral ng Pilipinas (BSP) and Philippine
National Bank (PNB). This Judgment is, however, without prejudice to its (Complaint) refiling by
the plaintiffs once the Sugar Restitution Fund under R.A. No. 7202 or any fund for that purpose
is already set up and ready for distribution.
The counterclaims interposed by defendants Bangko Sentral Ng Pilipinas (BSP) and the
Philippine National Bank (PNB) are dismissed for lack of proof and basis.
SO ORDERED.10
On Appeal, the Court of Appeals found the Ledesma Spouses' case meritorious. It held that there
is no dispute as to the Ledesma Spouses' inclusion in the coverage of Republic Act No. 7202,
"which was enacted to restitute the losses suffered by sugar producers due to actions taken by
government agencies in order to revive the economy in the sugar-producing areas of the
country."11
The Court of Appeals found that the Ledesma Spouses filed their claim in accordance with the
law's implementing rules and regulations. Both the Bangko Sentral ng Pilipinas and the
Philippine National Bank recognized the rights of the Ledesma Spouses to the benefits of the
law.12
The Court of Appeals noted that the excess payment of P353,529.67 resulted from the
Philippine National Bank's re-computation, as certified by the Commission on Audit under
Section 3 of Republic Act No. 7202.13
The Court of Appeals held that as the lending bank, the Philippine National Bank could not deny
its obligation to the Ledesma Spouses since Republic Act No. 7202 mandates its obligation to
condone interest in excess of 12% per annum, including all penalties and surcharges, and to
give effect to the condonation.14
Likewise, the Court of Appeals noted that the Bangko Sentral ng Pilipinas was tasked to
promulgate rules and regulations for the law's adequate implementation.15 Section 10 of the
Rules and Regulations Implementing Republic Act No. 7202 provides:
SECTION 10. The BSP shall arrange with the PCGG, its successors-in-interest, or any other
agency which may have recovered ill gotten wealth from whatever sources, or any assets
and/or funds which may have been determined to have been stolen or illegally acquired,
directly or indirectly, from the sugar industry to deliver or transfer such recovered assets,
funds, and/or interest earned or other increments thereto. All further recoveries by
aforementioned agencies, which assets, funds, and/or ill-gotten wealth recovered shall be
delivered by the recovering agency to the BSP as soon as may be possible but not later than
sixty (60) calendar days. The BSP and the PCGG shall work out the details for the transfer of
such funds/recoveries.
The Court of Appeals did acknowledge that the Bangko Sentral ng Pilipinas and the Philippine
National Bank's liability to pay the Ledesma Spouses depends on the establishment of the sugar
restitution fund under Republic Act No. 7202.16 Section 11 of its Implementing Rules and
Regulations provides how the sugar restitution fund shall be established:
SECTION 11. All assets, funds, and/or ill-gotten wealth turned over to the BSP pursuant hereto
shall constitute the Sugar Restitution Fund from which restitution shall be affected by the BSP
pursuant to Section 2 of the Act. Such Fund shall be held in trust by the BSP for the sugar
producers pending distribution thereof. The BSP shall take all necessary steps, consistent with
its responsibility as Trustee to preserve and maintain the value of all such recovered assets,
funds, and/or ill-gotten wealth.
The Court of Appeals held that it was clear that until the sugar restitution fund is established,
payment to the Ledesma Spouses and other sugar producers under Republic Act No. 7202
would "have to be held in abeyance."17
The Court of Appeals noted that based on an April 11, 2002 Certification issued by the then
Deputy Governor of the Bangko Sentral ng Pilipinas and the Ad Hoc Committee Chair on the
Sugar Restitution Law, the Presidential Commission on Good Government, along with all other
government agencies, have not made any funds available for the Bangko Sentral ng Pilipinas to
pay the sugar producers' claims.18
The Presidential Commission on Good Government, in an April 11, 2002 Letter, certified that it
had not made any fund or asset available to the Bangko Sentral ng Pilipinas for the sugar
restitution fund. It stated that all recoveries it had made were remitted to the agrarian reform
fund under the Comprehensive Agrarian Reform Law.19
According to the Court of Appeals, it was indeed lamentable that after more than two (2)
decades after Republic Act No. 7202 was enacted, the Ledesma Spouses and thousands of other
sugar producers still could not reap the law's benefits. Nevertheless, there is no other recourse
but to await the establishment of the sugar restitution fund.20
The dispositive portion of the Court of Appeals Decision read:
WHEREFORE, the appeal is GRANTED. The November 17, 2008 Decision of the RTC Branch 46,
Bacolod City is REVERSED AND SET ASIDE and a new one entered ORDERING defendants-
appellees to pay plaintiffs-appellants the stun of P353,529.67 with interest at the legal rate from
November 26, 2001 to be taken from the Sugar Restitution Fund once duly established.
SO ORDERED.21
The Bangko Sentral ng Pilipinas and the Philippine National Bank separately filed Motions for
Reconsideration, both of which were denied by the Court of Appeals.22
Hence, they filed separate Petitions for Review on Certiorari before this Court.
In its Petition, docketed as G.R. No. 211176, before this Court, petitioner Bangko Sentral ng
Pilipinas argues that the Court of Appeals rendered a conditional judgment, contrary to law and
jurisprudence.23
Petitioner Bangko Sentral ng Pilipinas contends that the Court of Appeals' judgment created a
bad precedent. It opened the floodgate to any party to file cases based on speculation and
conditional facts, not necessarily akin to the case of respondents, the Ledesma Spouses.24
Petitioner Bangko Sentral ng Pilipinas further argues that it is not mandated by Republic Act No.
7202 and the law's Implementing Rules and Regulations to pay the sugar producers' claims with
its own funds. Rather, it is tasked to promulgate the law's implementing rules and regulations.25
The law and its implementing rules and regulations provide that the funds for sugar producers'
compensation shall not come from petitioner Bangko Sentral ng Pilipinas, but from the money
recovered and determined by the government to have been stolen or illegally acquired from the
sugar industry.26
Hence, petitioner Bangko Sentral ng Pilipinas claims that it is merely a trustee of the sugar
restitution fund. Since no funds have been turned over to it for that purpose, its obligation as
trustee could not even be considered to have commenced.27
Petitioner Bangko Sentral ng Pilipinas quotes in its Petition how trust is defined: "a fiduciary
relationship concerning property which obliges the person holding it to deal with the property
for the benefit of another."28 It states that without a trust property, no trust is created.29
Petitioner Bangko Sentral ng Pilipinas argues that the Complaint had no cause of action against
it. Thus, the decision of the trial court, which found the case premature, should be reinstated.30
In its Petition docketed as G.R. No. 211583, petitioner Philippine National Bank argues that
Republic Act No. 7202 does not mandate it to compensate "respondents from a 'fund'
specifically held 'in trust' by another independent entity."31
Petitioner Philippine National Bank asserts that it has no jurisdiction and control over the sugar
restitution fund. It is not the agency mandated by law to implement the restitution and/or
distribution of the sugar producers' compensation.32
Petitioner Philippine National Bank points out that Republic Act No. 7202 and its Implementing
Rules and Regulations provide that all claims shall be filed with the Bangko Sentral ng Pilipinas,
as the government agency exclusively named and directed by the statute to effect the restitution
to sugar producers.33
Petitioner Philippine National Bank argues that lending banks are not mandated to compensate
sugar producers who are qualified for restitution. This duty lies solely with the Bangko Sentral
ng Pilipinas upon the establishment of the sugar restitution fund.34
Petitioner Philippine National Bank asserts that in statutory construction, "when the law is clear
and unambiguous, the court is left with no alternative but to apply the same according to its
clear language."35 Thus, "[w]here a requirement or condition is made in explicit and
unambiguous terms, no discretion is left to the judiciary. It must see to it that its mandate is
obeyed."36
Petitioner Philippine National Bank further argues that respondents have no cause of action
against it, for it has neither committed an act or omission in violation of their rights nor
breached whatever obligation it has toward them.37
Petitioner Philippine National Bank claims that it has complied with its obligation to issue a
statement of excess payment in favor of respondents as a requisite for reimbursement.
Unfortunately, that is the extent of its responsibility. The law does not compel it to demand
respondents' claims from the Bangko Sentral ng Pilipinas, or to even facilitate the process.
Further, it is unauthorized to withdraw any amount from the sugar restitution fund to satisfy
respondents' claims.38
The only issue for this Court's resolution is whether or not the Court of Appeals erred in holding
petitioners Bangko Sentral ng Pilipinas and Philippine National Bank liable for the refund of
excess payments to sugar producers covered by Republic Act No. 7202.
The Petitions are meritorious.
Respondents base their claim on Section 2 of Republic Act No. 7202, which provides:
SECTION 2. Whatever amount recovered by the Government through the Presidential
Commission on Good Government or any other agency or from any other source and whatever
assets or funds that may be recovered, or already recovered, which have been determined to
have been stolen or illegally acquired from the sugar industry shall be used to compensate all
sugar producers from Crop Year 1974-1975 up to and including Crop Year 1984-1985 on a pro
rata basis.
Moreover, Sections 2(r) and 11 of the Rules and Regulations Implementing Republic Act No.
7202 state:
SECTION 2. Definitions of Terms. — As used in these Implementing Rules and Regulations, the
following terms shall have their respective meanings as set forth below:
....

r. SUGAR RESTITUTION FUND shall refer to the ill-gotten wealth recovered by the
Government through the PCGG or any other agency or from any other source within the
Philippines or abroad, and whatever assets or funds that may be recovered, or already
recovered, which have been determined by PCGG or any other competent agency of the
Government to have been stolen or illegally acquired from the sugar industry whether
such recovery be the result of a judicial proceeding or by a compromise agreement.

....
SECTION 11. All assets, funds, and/or ill-gotten wealth turned over to the BSP pursuant hereto
shall constitute the Sugar Restitution Fund from which restitution shall be affected by the BSP
pursuant to Section 2 of the Act. Such Fund shall be held in trust by the BSP for the sugar
producers pending distribution thereof. The BSP shall take all necessary steps, consistent with
its responsibility as Trustee to preserve and maintain the value of all such recovered assets,
funds, and/or ill-gotten wealth. (Emphasis supplied)
The Court of Appeals erred in ruling that petitioner Bangko Sentral ng Pilipinas is mandated to
pay the sugar producers. The money to be used to compensate these sugar producers should
come from the sugar restitution fund. Without the fund, there is no restitution to speak of at all.
Petitioner Bangko Sentral ng Pilipinas cannot effect the restitution since neither the Presidential
Commission on Good Government nor other government agencies have turned over funds to it
for the sugar producers' compensation.
The trial court was correct in ruling, "[t]hat there is no Sugar Restitution Fund even up to this
time is not the fault of the herein defendants. Indeed[,] one cannot give what he does not
have."39
Likewise, petitioner Philippine National Bank is not beholden to respondents.
All claims for restitution shall be filed with the Bangko Sentral ng Pilipinas. Section 12 of the
Rules and Regulations Implementing Republic Act No. 7202 provides:
SECTION 12. The Restitution Fund shall be distributed m accordance with these guidelines:
a. Within one hundred eighty (180) calendar days from the effectivity of these
Implementing Rules sugar producers shall file their claims for restitution of sugar losses
with the BSP. The BSP in the implementation of these rules may request the
assistance/advise from representatives of the GFIs, sugar producers, PCGG and other
government agencies. Claims received during the period shall be the basis for the pro-
rata distribution.
 b. The BSP, shall, upon receipt of the application for reimbursement of excess payments,
request from lending banks (a) statement of excess payments of claimant-sugar
producer duly audited and certified to by the Commission on Audit (COA) indicating the
amount of excess interest, penalties and surcharges due the sugar producer; and (b) a
certification that the sugar producer has no outstanding loans with the bank.
In cases where the loan records which will serve as the basis for computing the excess
payments of the sugar producer are no longer available, the lending bank shall immediately
notify the BSP. The BSP shall then direct the claimant sugar producer to submit documents in
his possession which are acceptable to COA to substantiate his claim. Such documents shall be
submitted by the sugar producer to the lending bank within sixty (60) calendar days from
receipt of notification from the BSP. (Emphasis supplied)
Petitioner Philippine National Bank's role was merely that of a lending bank. Under Republic Act
No. 7202 and its Implementing Rules and Regulations, lending banks are not obligated to
compensate sugar producers for their losses. Restitution falls under the Bangko Sentral ng
Pilipinas, upon the establishment of a sugar restitution fund.
There is no dispute that respondents are covered under Republic Act No. 7202. While this Court
recognizes the plight of the thousands of sugar producers and their right as beneficiaries, there
is, sadly, no fund from where the money should come.
This Court agrees with the trial court that the Complaint states no cause of action against
petitioners. A cause of action is "the delict or wrongful act or omission committed by the
defendant in violation of the primary rights of the plaintiff."40
The elements of a cause of action are:
(1) [T]he existence of a legal right in the plaintiff, (2) a correlative legal duty on the part of the
defendant, and (3) an act or omission of the defendant in violation of plaintiffs right with
consequential injury or damage to the plaintiff for which he may maintain an action for the
recovery of damages or other appropriate relief.41 (Citation omitted)
Here, the second and third elements are lacking. Without the sugar restitution fund, petitioners
have no correlative legal duty to compensate respondents for their losses. They committed
neither a delict nor a wrongful act or omission in violation of respondents' rights.
Petitioner Philippine National Bank has not violated any of its obligations toward respondents
since it was never tasked by the law to refund the claim for excess payments. As a private
banking institution and as a publicly listed company, it has no jurisdiction, control, or relation to
the sugar restitution fund.
Thus, the Court of Appeals Decision and Resolution are contrary to law and jurisprudence. In Cu
Unjieng E Hijos v. Mabalacat Sugar Company, et al.:42
We have once held that orders or judgments of this kind, subject to the performance of a
condition precedent, are not final until the condition is performed. Before the condition is
performed or the contingency has happened, the judgment is not effective and is not capable of
execution In truth, such judgment contains no disposition at all and is a mere anticipated
statement of what the court shall do in the future when a particular event should happen For this
reason, as a general rule, judgments of such kind, conditioned upon a contingency, are held to be
null and void. "A judgment must be definitive. By this is meant that the decision itself must
purport to decide finally the rights of the parties upon the issue submitted, by specifically
denying or granting the remedy sought by the action." And when a definitive judgment cannot
thus be rendered because it depends upon a contingency, the proper procedure is to render no
judgment at all and defer the same until the contingency has passed.43 (Emphasis supplied,
citations omitted)
WHEREFORE, the Petitions for Review on Certiorari are GRANTED. The Court of Appeals May
29, 2013 Decision and January 29, 2014 Resolution in CA-G.R. CV No. 02904 are REVERSED
AND SET ASIDE. The November 17, 2008 Decision of the Regional Trial Court Branch 46,
Bacolod City in Civil Case No. 01-11591 for Sum of Money/Refund of Excess Payments
is AFFIRMED.
SO ORDERED.