MANUEL M.
SERRANO, petitioner, to the Central Bank as collateral for the former’s overdrafts
vs.
CENTRAL BANK OF THE PHILIPPINES; OVERSEAS
BANK OF MANILA; EMERITO M. RAMOS, SUSANA B.
RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS
DELA RAMA, HORACIO DELA RAMA, ANTONIO B.
RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO
LEDESMA, VICTORIA RAMOS TANJUATCO, and
TEOFILO TANJUATCO, respondents.
FACTS: This is a petition for mandamus and prohibition,
with preliminary injunction, that seeks the establishment of
joint and solidary liability to the amount of Three Hundred
Fifty Thousand Pesos, with interest, against respondent
Central Bank of the Philippines and Overseas Bank of
Manila and its stockholders, on the alleged failure of the
Overseas Bank of Manila to return the time deposits made
by petitioner and assigned to him, on the ground that
respondent Central Bank failed in its duty to exercise strict
supervision over respondent Overseas Bank of Manila to
protect depositors and the general public. Sometime in
October and December 1966, the petitioner made a time
deposit for one year amounting to P150,000.00 with 6%
interest with the respondent bank, the Overseas Bank of
Manila. Concepcion Maneja also made the same for one
year with 61/2% interest amounting to P200,000.00. On
August 31,1968, Maneja got married to Felixberto Serrano.
She assigned and conveyed her time deposit of
P200,000.00 with the respondent bank to Manuel Serrano.
The petitioner made series of demands for encashment of
the said time deposit but the respondent bank did not
honor the request. The Overseas Bank of Manila was
dissolved and liquidated by the Central Bank of the
Philippines. Central Bank admits that it is in charge of the
administration of the banking system of the Republic.
However, it denied that it is the guarantor of the permanent
insolvency of any banking institution as claimed by the
petitioner. It also avers no knowledge of the petitioner’s
claim that properties given by the Overseas Bank of Manila
and emergency loans were acquired at the expense of
depositor’s money including those of the petitioner and
Maneja.
ISSUE: Whether or not the respondent bank’s failure to
honor the petitioner’s request for the encashment of the
time deposit constitutes breach of trust
HELD: No. Bank deposits are in the nature of irregular
deposits. They are actually loans because they earn
interest. All kinds of bank deposits, whether fixed, savings
or current are to be treated as loans to a bank because it
can use the same. The petitioner here in making time
deposits that earn interests with respondent Overseas Bank
of Manila was in reality a creditor of the respondent bank
and not a depositor. The respondent bank was in turn a
debtor of petitioner. Failure of the respondent bank to
honor the encashment of the time deposit is failure to pay
as a debtor and not a breach of trust arising from
depository’s failure to return the subject matter of the
deposit.
BPI vs CA Case Digest BANK OF THE PHILIPPINE
ISLANDS VS. COURT OF APPEALS
FACTS: Private respondents Eastern Plywood Corporation
and Benigno Lim as officer of the corporation, had an
“AND/OR” joint account with Commercial Bank and Trust
Co (CBTC), the predecessor-in-interest of petitioner Bank of
the Philippine Islands. Lim withdraw funds from such
account and used it to open a joint checking account (an
“AND” account) with Mariano Velasco. When Velasco died
in 1977, said joint checking account had P662,522.87. By
virtue of an Indemnity Undertaking executed by Lim and as
President and General Manager of Eastern withdrew one
half of this amount and deposited it to one of the accounts
of Eastern with CBTC.
Eastern obtained a loan of P73,000.00 from CBTC which
was not secured. However, Eastern and CBTC executed a
Holdout Agreement providing that the loan was secured by
the “Holdout of the C/A No. 2310-001-42” referring to the
joint checking account of Velasco and Lim.
Meanwhile, a judicial settlement of the estate of Velasco
ordered the withdrawal of the balance of the account of
Velasco and Lim.
Asserting that the Holdout Agreement provides for the
security of the loan obtained by Eastern and that it is the
duty of CBTC to debit the account of respondents to set off
the amount of P73,000 covered by the promissory note, BPI
filed the instant petition for recovery. Private respondents
Eastern and Lim, however, assert that the amount
deposited in the joint account of Velasco and Lim came
from Eastern and therefore rightfully belong to Eastern
and/or Lim. Since the Holdout Agreement covers the loan
of P73,000, then petitioner can only hold that amount
against the joint checking account and must return the
rest.
ISSUE: Whether BPI can demand the payment of the loan
despite the existence of the Holdout Agreement and
whether BPI is still liable to the private respondents on the
account subject of the withdrawal by the heirs of Velasco.
RULING: Yes, for both issues. Regarding the first, the
Holdout Agreement conferred on CBTC the power, not the
duty, to set off the loan from the account subject of the
Agreement. When BPI demanded payment of the loan from
Eastern, it exercised its right to collect payment based on
the promissory note, and disregarded its option under the
Holdout Agreement. Therefore, its demand was in the
correct order.
Regarding the second issue, BPI was the debtor and
Eastern was the creditor with respect to the joint checking
account. Therefore, BPI was obliged to return the amount
of the said account only to the creditor. When it allowed the
withdrawal of the balance of the account by the heirs of
Velasco, it made the payment to the wrong party. The law
provides that payment made by the debtor to the wrong
party does not extinguish its obligation to the creditor who
is without fault or negligence. Therefore, BPI was still liable
to the true creditor, Eastern.
Phil. Banking Corp. vs CA GR. No. 127469
Facts: Leonilo Marcos filed in court a complaint for sum of
money with damages against Phil. Banking Corporation
(PBC). Marcos allegedly made a time deposit in 2 occasions
the amt. of P664,897.67 and P764,897.67 through the
persuasion of his friend Pagsaligan, one of the bank’s
officials. The bank issued receipt for the first deposit while
a letter-certification was issued for his second deposit by
Pagsaligan. Pagsaligan kept the various time deposit
certificates. When Marcos wanted to withdraw his time
deposit and its accumulated interest Pagsaligan
encouraged him to open a letter of credit to the bank by
executing 3 trust receipts agreement. He signed blank
forms for domestic letter of credits, trust receipts
agreements and promissory notes. He was required to
deposit 30% of the total amount of credit and his time
deposit will secure the remaining 70% of the letters of
credit.
He is now accusing the bank for unjustly collecting
payment without deducting the 30% of his down payment
and charging him with accumulating interests since his
time deposit serves as collateral for his remaining
obligation. He further denied making a loan of P500,000
with 25% interest per annum covered by a promissory note
produced by the bank. The bank explained that the
promissory notes he executed are distinct from the trust
receipt agreement and denied falsifying the promissory
note covering for the loan of P500,000. The evidence
presented on the promissory note however is merely a
machine copy of the document. The said loan was already
paid by offsetting it from his time deposit.
Issue:
Whether or not the bank failed to take a proper account on
Marcos’ deposits and payment of his loans?
Ruling: The court held that the bank is liable for offsetting
the time deposit of Marcos to the fictitious promissory note
for the 500,000 loan. The court upheld the findings of the
lower court on the discrepancies shown by the machine
copy of the duplicate of the promissory note and the
suspicious claim of the bank that it could not produce the
original copy thereof. The mere machine copy of the
document has no evidentiary value before the court. The
court held that the bank did not forge the promissory note.
Pagsaligan did to cover up his failure to give the proper
account of Marcos’ time deposits. This however does not
excuse the bank to return to Marcos the correct amount of
his time deposit with interest. Bank has the fiduciary duty
before its clients. Its duty is to observe the highest
standards of integrity and performance. Assuming
Pagsaligan is responsible for the spurious promissory note
the court held that a bank is liable for the wrongful acts of
its officers. The court made the proper account of the total
amount due to Marcos ordering the bank to give to him the
same plus moral and exemplary damages.
ARMANDO V. ALANO [Deceased], Substituted by
Elena Alano-Torres v. PLANTER’S DEVELOPMENT
BANK, as Successor-in-Interest of MAUNLAD
SAVINGS and LOAN ASSOCIATION, INC.
(G.R. No. 171628)
Facts:
Petitioner Armando V. Alano and his brother, the late
Agapito V. Alano Jr., inherited from their father a parcel of
land located at Gov. Forbes St., Sampaloc, Manila. The
petitioner executed a SPA authorizing his brother to sell
their property in Manila. The brothers then bought a
residential house located at No. 60 Encarnacion St., BF
Homes, Quezon City from the proceeds of the sale of their
property. The title of the property was not immediately
transferred because a fire gutted the Quezon City Hall
Building.
Agapito V. Alano died leaving behind his wife, Lydia
J. Alano and four legitimate children. Consequently, the title
to the said property was reconstituted as TCT No. 18990
and registered solely in the namesof Lydia and her four
children.This prompted the petitioner to execute an
Affidavit of Adverse Claim.
Meanwhile, Lydia filed with the Register of Deeds an
Affidavit of Cancellation of Adverse Claim. Thereafter, by
virtue of a Deed of Absolute Sale allegedly executed by her
children in her favor, TCT No. 18990 were cancelled and a
new one was issued solely in her name.
Later on, Slumberworld, Inc., represented by its
President, Melecio A. Javier, and Treasurer, Lydia, obtained
from Maunlad Savings and Loan Association, Inc. a loan of
P2.3 million, secured by a Real Estate Mortgage over the
subject property.
The petitioner filed a Complaintagainst Lydia,
Melecio A. Javier, Maunlad Savings and Loan Association,
Inc. and the Register of Deeds of Quezon City before the
RTC. Petitioner sought the cancellation of the new TCT, the
issuance of a new title in his name for his one-half share of
the property, and the nullification of real estate mortgage
insofar as his one-half share is concerned. Lydia and
Melecio A. Javier, however, failed to file their respective
Answers. Thus, the RTC declared them in default.
 The RTC declared the petitioner the owner of the
one-half of the subject property because of the implied trust
between him and the heirs of his brother. At the same time,
RTC sustained the validity of the estate mortgage
becauseof the Torrens title.
On appeal, the court found that Maunland Savings
and Loan Association, Inc. to be a mortgagee in good faith
for it took the necessary precautions to ascertain the status
of the property sought to be mortgaged.
Issues: Whether the Real Estate Mortgage executed by
Respondent valid and binding with respect to petitioner’s
co-owner’s share in the subject property.
Whether Respondent Maunlad Savings and Loan
Association, Inc. was a mortgagee in good faith.
Held: The general rule that a mortgagee need not look
beyond the title does not apply to banks and other financial
institutions as greater care and due diligence is required of
them.Imbued with public interest, they "are expected to be
more cautious than ordinary individuals."Failure to do so
makes them mortgagees in bad faith. In this case, Maunlad
Savings and Loan Association, Inc. failed to exercise due
diligence in inspecting and ascertaining the status of the
mortgaged property. During the ocular inspection, the
credit investigator failed to ascertain the actual occupants
of the property and to discover the petitioner’s apartment
at the back portion of the property.
Consequently, the real estate mortgage executed in
its favor is valid only insofar as the share of the mortgagor
Lydia in the subject property. We need not belabor that
under Article 493of the Civil Code; a co-owner can alienate
only his pro indiviso share in the co-owned property, and
not the share of his co-owners.
UNITED COCONUT PLANTERS BANK vs. TEOFIL
RAMOS GR NO. 147800. November 11, 2003
CALLEJO, SR., J:
FACTS: United Coconut Planters Bank (UCPB) granted a
loan amounting to Zamboanga Development Corporation
(ZDC) with Venicio Ramos, and the Spouses Teofilo Sr. and
Amelita Ramos as sureties. Teofilo Ramos, Sr. was the
Executive Officer of the Iglesia ni Cristo. UPCB granted an
additional loan to ZDC with the same sureties. However,
ZDC failed to pay its account to the petitioner despite
demands. Thus, a complaint was filed against ZDC and the
said sureties. Judgment was rendered in favor of the
petitioner. A Writ of execution to enforce such decision was
issued and Deputy Sheriff Pioquinto P. Villapana was
ordered to levy and attach all the real and personal
properties of the defendants to satisfy the judgment.
Eduardo C. Reniva the head of the Litigation and
Enforcement Division was requested to investigate on the
properties of the defendants. Reniva went to one of the
properties covered by TCT No. 275167 (PR-13108) and
inspected it. Per information gathered from the
neighborhood, Reniva confirmed that the owners of such
property were Spouses Teofilo and Rebecca Ramos. The
Sheriff prepared a notice of levy. On the other hand,
Ramdustrial Corporation applied for a loan with UPCB
using the property covered by the same TCT as collateral.
Upon verification of the said property, it was found that the
same property was subjected to a notice of levy on a civil
case. The respondent was shocked and he alleged that he
was not a party in the said case and he was also not aware
that his property had been levied by the sheriff. An affidavit
of denial was executed by the respondent stating that he is
not one of the judgment debtors in the previous case and
that Teofilo Ramos, Sr., one of the judgment debtors, were
not one and the same person. The responded also wrote to
the Sheriff alleging that the notice of levy on the property
was unlawful considering that the respondent was not
Teofilo Ramos, Sr. and cause the cancellation of the said
annotation five days from notice thereof, otherwise, the
respondent would take the appropriate civil, criminal or
administrative action against him. The respondent was
informed by the UCPB that Ramdustrial Corporation’s
credit line application had been approved. Subsequently,
the respondent executed a promissory note for the said
amount payable to UCPB. The business did not go well,
Ramdustrial Corporation found it difficult to pay the loan.
The company again applied for another loan with UCPB
which was however denied. The corporation then applied
for a loan with the Planters Development Bank (PDB), the
proceeds of which would be utilized to pay its account to
the UCPB. The respondent offered his property covered by
TCT No. 275167 as collateral with the loan obtained from
PDB. It was then discovered that the notice of levy had not
yet been cancelled so PDB withheld the release of the loan
pending the cancellation of the notice of levy. An order was
issued ordering the Register of Deeds to cancel the levy.
ISSUE: Whether or not the petitioner acted negligently in
causing the annotation of levy on the title of the respondent
HELD: The CA ruled that the petitioner was negligent in
causing the annotation of notice of levy on the title of the
petitioner for its failure to determine with certainty
whether the defendant Teofilo Ramos, Sr. in Civil Case No.
16453 was the registered owner of the property covered by
TCT No. 275167. It was held that the petitioner acted
negligently when it caused the annotation of the notice of
levy in TCT No. 275167. It bears stressing that the
petitioner is a banking corporation, a financial institution
with power to issue its promissory notes intended to
circulate as money (known as bank notes); or to receive the
money of others on general deposit, to form a joint fund
that shall be used by the institution for its own benefit, for
one or more of the purposes of making temporary loans and
discounts, of dealing in notes, foreign and domestic bills of
exchange, coin bullion, credits, and the remission of money;
or with both these powers, and with the privileges, in
addition to these basic powers, of receiving special
deposits, and making collection for the holders of
negotiable paper, if the institution sees fit to engage in such
business. In funding these businesses, the bank invests the
money that it holds in trust of its depositors. For this
reason, we have held that the business of a bank is one
affected with public interest, for which reason the bank
should guard against loss due to negligence or bad faith.In
approving the loan of an applicant, the bank concerns itself
with proper informations regarding its debtors. The
petitioner, as a bank and a financial institution engaged in
the grant of loans, is expected to ascertain and verify the
identities of the persons it transacts business with In
determining whether or not the petitioner acted
negligently, the c onstant test is: “Did the defendant in
doing the negligent act use that reasonable care and
caution which an ordinarily prudent person would have
used in the same situation? If not, then he is guilty of
negligence.” It should have acted more cautiously,
especially since some uncertainty had been reported by the
appraiser whom the petitioner had tasked to make
verifications.
BPI Family Savings Bank vs First Metro Investment
Corporation G.R. No. 132390, May 21, 2004 Justice
Sandoval-Gutierrez, J.
FACTS: Antonio Ong, acting as Executive Vice President of
FMIC, opened a current account with BPI Family Bank and
deposited P100M METROBANK check. Jaime Sebastian,
the branch manager of petitioner bank guaranteed the
payment of P14,667,687.01 representing 17% per annum
interest of P100M deposited by the respondent. FMIC
assured petitioner-bank that the deposit will be maintained
for one year on the condition that the interest stipulated is
paid in advance. Subsequently, a signed Authority to Debit
authorized BPI FB to transfer P80M from FMIC’s current
account to the savings account of Tevesteco Arrastre-
Stevedoring, Inc. (Tevesteco). FMIC denied such authority
alleging that the signatures of Ma Theresa David and Ong
were falsified in the said signed Authority to Debit. To
recover the deposit, FMIC issued a check for P86, 057,
646.72 payable itself and drawn on its deposit with BPI FB
SFDM branch. Upon presentation, the same was
dishonored for it was allegedly “drawn against insufficient
funds”. Consequently, FMIC filed with the Regional Trial
Court, Branch 146, Makati City Civil Case No. 89-5280
against BPI FB. FMIC likewise caused the filing by the
Office of the State Prosecutors of an Information for estafa
against Ong, de Asis, Sebastian and four others. However,
the Information was dismissed on the basis of a demurrer
to evidence filed by the accused. On appeal by both parties,
the CA rendered a decision affirming the assailed decision
and modifies the decision of the trial court, rendering the
petitioners of the case at bar liable to damages.
ISSUE: Whether or not the branch manager of the
petitioner bank has the authority to represent the
petitioner bank in its transactions even if deemed to be
fraudulent, whether or not the banking authority may be
rendered liable in case of fraudulent transactions entered
into by their employees and managers
HELD: We have held that if a corporation knowingly
permits its officer, or any other agent, to perform acts
within the scope of an apparent authority, holding him out
to the public as possessing power to do those acts, the
corporation will, as against any person who has dealt in
good faith with the corporation through such agent, be
estopped from denying such authority. "A bank holding out
its officers and agent as worthy of confidence will not be
permitted to profit by the frauds they may thus be enabled
to perpetrate in the apparent scope of their employment;
nor will it be permitted to shirk its responsibility for such
frauds, even though no benefit may accrue to the bank
therefrom. Accordingly, a banking corporation is liable to
innocent third persons where the representation is made in
the course of its business by an agent acting within the
general scope of his authority even though the agent is
secretly abusing his authority and attempting to perpetrate
a fraud upon his principal or some other person for his own
ultimate benefit.
Moran vs Court of Appeals G.R. No. 105836, March 7,
1994 Ponente: Justice Regalado, J.
FACTS: Petitioner spouses George and Librada Moran are
the owners of the Wack-Wack Petron gasoline station.
Payments of their purchases from Petrophil Corporation are
made in checks which are handed upon delivery. They
maintained three joint accounts: one current account (No.
37-00066-7) and two savings accounts, (Nos. 1037002387
and 1037001372). Spouses Moran gave authorized
CityTrust to automatically transfer funds from their Savings
Account No. 1037001372 to their current account at any
time whenever the funds from the latter were insufficient to
meet withdrawals from the same as part of their pre-
authorized transfer (PAT) agreement. The petitioners drew
two checks in favor of Petrophil. The latter deposited the
two checks to its account with PNB. PNB in turn presented
them for clearing and it was discovered that both accounts
had insufficient balances. Petitioners filed a complaint for
damages with the Regional Trial Court because as a result
of the issuing of checks with insufficient funds, Petrophil
refused to deliver their orders on a credit basis and that the
non-delivery of gasoline forced petitioners to temporarily
stop business operations. Citytrust filed a counterclaim for
damages, alleging that the case filed against it was
unfounded and unjust. After trial, a decision was rendered
by the trial court dismissing both the complaint and the
counterclaim.
ISSUE: Whether or not the bank can be held accountable
for the petitioners’ issuance of checks with insufficient
funds
HELD: The relationship between the bank and the
depositor is that of a debtor and creditor. By virtue of the
contract of deposit between the banker and its depositor,
the banker agrees to pay checks drawn by the depositor
provided that said depositor has money in the hands of the
bank. A bank is not liable for its refusal to pay a check on
account of insufficient funds. Petitioner had no reason to
complain, for they alone were at fault. A drawer must
remember his responsibilities every time he issues a check.
He must personally keep track of his available balance in
the bank and not rely on the bank to notify him of the
necessity to fund certain check she previously issued. The
bank cannot, therefore, be held liable to the payee and
holder of the check for not protesting it upon the day when
it was received. In fact, the court added that the bank did
more that it was required to do by making an effort to
induce the drawer to deposit sufficient money to make the
check good, and by notifying its correspondent of the
dishonor of the check by telegram. A bank is under no
obligation to make part payment on a check, up to only the
amount of the drawer's funds, where the check is drawn for
an amount larger than what the drawer has on deposit.
BANK OF COMMERCE vs. SPS. PRUDENCIO SAN
PABLO, JR. and NATIVIDAD O. SAN PABLO GR NO.
167848. April 27, 2007 Chico-Nazario, J.
FACTS: Santos obtained a loan from Direct Funders
Management and Consultancy Inc. (Direct Funders) in the
amount of P1,064,000.40. As a security for the loan
obligation, Natividad executed a SPA in favor of Santos,
authorizing the latter to mortgage to Direct Funders a
paraphernal real property registered under her name and
covered by Transfer Certificate of Title (TCT) No. (26469)-
7561. In the Deed of Real Estate Mortgage executed in
favor of Direct Funders, Natividad and her husband,
Prudencio, signed as the co-mortgagors of Santos. It was
however agreed that the loan obligation was for the sole
benefit of Santos and the spouses San Pablo merely signed
the deed in order to accommodate the former. The spouses
of San Pablo received a letter from Direct Funders
informing them that Santos failed to pay his loan obligation.
After being confronted, Santos promised to promptly settle
his obligation with Direct Funders, which he actually did.
Upon learning that the debt had been fully settled, the
spouses San Pablo then demanded from Santos to turn over
to them the TCT of the property but the latter failed to do
so despite of repeated demands. Such refusal prompted the
spouses San Pablo to inquire as to the status of the TCT
with the Register of Deeds and to their surprise, they
discovered that the property was again used by Santos as
collateral for another loan obligation he secured from the
Bank of Commerce. As shown in the annotation stamped at
the back of the title, the spouses San Pablo purportedly
authorized Santos to mortgage the subject property to the
Bank of Commerce, as evidenced by the SPA allegedly
signed by Natividad. It was further shown from the
annotation at the back of the title that the spouses San
Pablo signed a Deed of Real Estate Mortgage over the
subject property in favor of Bank of Commerce, which they
never did. The spouses San Pablo filed a Complaint seeking
for the Quieting of Title and Nullification of the SPA and the
deed of real estate mortgage with the prayer for damages
against Santos and the Bank of Commerce before the MTC
of Mandaue. The spouses San Pablo claimed that their
signatures on the SPA and the Deed of Real Estate
Mortgage allegedly executed to secure a loan with the Bank
of Commerce were forged. They claimed that while the loan
with the Direct Funders was obtained with their consent
and direct participation, they never authorized the
subsequent loan obligation with the Bank of Commerce.
During the pendency of the case, the Bank of Commerce,
for non-payment of the loan, initiated the foreclosure
proceedings on the strength of the contested Deed of Real
Estate Mortgage. During the auction sale, the Bank of
Commerce emerged as the highest bidder and thus a
Certificate of Sale was issued under its name. Accordingly,
the spouses San Pablo amended their complaint to include
the prayer for annulment of the foreclosure sale. Santos
countered that the loan with the Bank of Commerce was
deliberately resorted to with the consent, knowledge and
direct participation of the spouses San Pablo in order to pay
off the obligation with Direct Funders. In fact, it was
Prudencio who caused the preparation of the SPA and
together with Santos, they went to the Bank of Commerce,
Cebu City Branch to apply for the loan. Bank of Commerce
filed an Answer with Compulsory Counterclaim, alleging
that the spouses San Pablo, represented by their attorney-
in-fact, Santos, together with Intergems, obtained a loan
and denied the allegation advanced by the spouses San
Pablo that the SPA and the Deed of Real Estate Mortgage
were spurious. Since the loan already became due and
demandable, the Bank of Commerce sought the foreclosure
of the subject property. During the trial, Anastacio
Barbarona, Jr., the Manager of the Bank of Commerce,
Cebu City Branch, testified that the spouses San Pablo
personally signed the Deed of Real Estate Mortgage in his
presence. The testimony of a document examiner and a
handwriting expert, however, belied this claim. The expert
witness, after carefully examining the loan documents with
the Bank of Commerce, attested that the signatures of the
spouses San Pablo on the SPA and the Deed of Real Estate
Mortgage were forged. The MTC rendered a Decision,
dismissing the complaint for lack of merit. The MTC
declared that while it was proven that the signatures of the
spouses San Pablo on the loan documents were forged, the
Bank of Commerce was nevertheless in good faith.
Aggrieved, the spouses San Pablo appealed the adverse
decision to the RTC of Mandaue City, which, in turn,
affirmed the unfavorable ruling of the MTC. A Motion for
Reconsideration filed also by the spouses San Pablo which
was denied by the RTC for lack of merit. The spouses San
Pablo elevated the matter before the Court of Appeals
assailing the adverse decisions of the MTC and RTC. The
appellate court granted the petition filed by the spouses
San Pablo and reversed the decisions of the MTC and RTC.
The appellate court ruled that since it was duly proven that
the signatures of the spouses San Pablo on the loan
documents were forged, then such spurious documents
could never become a valid source of title. The mortgage
contract executed by Santos over the subject property in
favor of Bank of Commerce, without the authority of the
Spouses San Pablo, was therefore unenforceable, unless
ratified. ISSUES: Whether or not the forged SPA and
Special Power of Attorney could be a valid source of a right
to foreclosure a property Whether or not the awards of
Damages, Attorney’s Fees and Litigation Expenses are
proper in the case at bar HELD: A mortgagee has a right to
rely in good faith on the certificate of title of the mortgagor
of the property given as security, and in the absence of any
sign that might arouse suspicion, the mortgagee has no
obligation to undertake further investigation. This doctrine
pre-supposes, however, that the mortgagor who is not the
rightful owner of the property, has already succeeded in
obtaining Torrents title over the property in his name and
that after obtaining the said title, he succeeds in
mortgaging the property to another who relies on what
appears on the title. This, however, is not the situation in
the case at bar since Santos was not the registered owner
for he merely represented himself to be the attorney-in-fact
of the spouses San Pablo. In cases where the mortgagee
does not directly deal with the registered owner of the real
property, the law requires that a higher degree of prudence
be exercised by the mortgagee. The respondent, however,
is not an ordinary mortgagee. It is a mortgagee-bank and
unlike private individuals, it is expected to exercise greater
care and prudence in its dealings, including those involving
registered lands. A banking institution is expected to
exercise due diligence before entering into a mortgage
contract. The Bank of Commerce clearly failed to observe
the required degree of caution in ascertaining the
genuineness and extent of the authority of Santos mortgage
the subject property. It should not have simply relied on the
face of the documents submitted. Therefore, the same is
not a valid source of the right for the foreclosure of the
property. 2. The Court finds that the award for moral
damages is proper is proper. The carelessness of the Bank
of Commerce caused injury to the spouses which calls for
the imposition of moral damages. The award of exemplary
damages is deemed to be proper by the Court for the Bank
of Commerce was remiss in this obligation to inquire into
the veracity of Santos’ authority to mortgage the subject
property, causing damage to the Spouses. The award of
attorney’s fees and litigation expenses are likewise valid
since the spouses were compelled to litigate and thus incur
expenses in order to protect its rights over the subject
property.
BANK OF THE PHILIPPINE ISLANDS VS THE
INTERMEDIATE APPEALLATE COURT GR NO. 69162.
February 21, 1992 Grino-Aquino, J.
FACTS: The respondent spouses, Arthur and Vivienne
Canlas, opened a joint current account in the Quezon City
branch of the Commercial Bank and Trust Company of the
Philippines (CBTC) with an initial deposit of P2,250. Prior
thereto, Arthur Canlas had an existing separate personal
checking account in the same branch. When the respondent
spouses opened their joint current account, the “new
accounts” teller pulled out from the bank’s files the old and
existing signature card of Arthur Canlas from his separate
personal checking account for use as ID and reference. By
mistake, the teller placed the old personal account number
of Arthur Canlas on the deposit slip for the new joint
checking account of the spouses so that the initial deposit
of P2,250 for the joint checking account was miscredited to
Arthur’s personal account. The spouses subsequently
deposit other amounts in their account. However, when
respondent Vivienne Canlas issued a check in April 1977
and another on June 1, 1977, one of the checks was
dishonored by the bank for insufficient funds and a penalty
of P20 was deducted from the account in both instances. In
view thereof, the bank tried to call up the spouses at the
telephone number which they had given in their application
form, but the bank could not contact them because they
actually reside in Porac, Pampanga. The city address and
telephone number which they gave to the bank belonged to
Mrs. Canlas ’ parents. The private respondents then filed a
complaint for damages against CBTC in the Court of First
Instance of Pampanga. The bank filed a motion to dismiss
the complaint for improper venue but it was likewise
denied. During the pendency of the case, the Bank of the
Philippine Islands (BPI) and CBTC were merged. As the
surviving corporation, BPI took over the prosecution and
defense of any pending claims, actions or proceedings by
and against CBTC. The Regional Trial Court of Pampanga
rendered a decision against BPI. On appeal, the
Intermediate Appellate Court deleted the actual damages
and reduced the other awards. Hence, this petition.
ISSUES: Whether or not the venue of the case had been
properly laid at Pampanga in the light of private’s
respondents’ earlier declaration that Quezon City is their
true residence
Whether or not the petitioner was guilty of gross
negligence in handling the private respondent’s bank
account Whether or not private respondents are entitled to
the moral and exemplary damages and attorney’s fees
adjudged by the respondent appellate court
HELD: Pursuant to the Rules of Court, personal actions
may be instituted in the Court of First Instance (now
Regional Trial Court) of the province where the defendant
or any of the defendants resides or may be found, or where
the plaintiff or any of the plaintiffs resides, at the election
of the plaintiff. In the case at bar, there was ample proof of
the residence of the plaintiffs at Pampanga. The city
address of Mrs. Canlas’ parents was placed by the private
respondent as per suggestion of the new accounts teller,
presumably to facilitate mailing of the bank statements and
communicating with the private respondents in case any
problems should arise involving the account. No waiver of
their provincial residence for purposes of determining the
venue of an action against the bank may be inferred from
the so-called “misrepresentation” of their true residence.
There is no merit in petitioner’s argument that it should not
be considered negligent, much less liable for damages on
account of the inadvertence of its bank employee for Article
1173 of the Civil Code only requires it to exercise the
diligent of a good father of the family. In this case, the bank
must take the blame for not discovering the mistake of its
teller despite the established procedure requiring the
papers and bank books to pass through a battery of bank
personnel whose duty is to check and countercheck them
for possible errors. Apparently, the officials and employees
tasked to do that did not perform their duties in due care
for as discovered in trial, they considered such procedure
as a “petty” thing. Unfortunately, such “petty thing”
sparked the half-a-million-peso damage suit against the
bank. Although the bank’s negligence may not have been
attended with malice and bad faith, it still caused serious
anxiety, embarrassment and humiliation to the private
respondents for which they are entitled to recover
reasonable moral the damages. The award for reasonable
attorney’s fees is proper for the private respondents were
compelled to litigate to protect their interest. However, the
absence of malice and bad faith renders the award of
exemplary damages improper. The court deleted the award
for exemplary damages to the private respondents.
Medel vs Court of Appeals, 299 SCRA 481; GR No.
131622, November 27, 1998, digested
(Credit Transactions – Loans, Usury Law, Interest Rates)
Facts: Defendants obtained a loan from Plaintiff in the
amount P50, 000.00, payable in 2 months and executed a
promissory note. Plaintiff gave only the amount of P47,
000.00 to the borrowers and retained P3, 000.00 as
advance interest for 1 month at 6% per month.
Defendants obtained another loan from Defendant in the
amount of P90, 000.00, payable in 2 months, at 6% interest
per month. They executed a promissory note to evidence
the loan and received only P84, 000.00 out of the proceeds
of the loan.
For the third time, Defendants secured from Plaintiff
another loan in the amount of P300, 000.00, maturing in 1
month, and secured by a real estate mortgage. They
executed a promissory note in favor of the Plaintiff.
However, only the sum of P275, 000.00, was given to them
out of the proceeds of the loan.
Upon maturity of the three promissory notes, Defendants
failed to pay the indebtedness.
Defendants consolidated all their previous unpaid loans
totalling P440, 000.00, and sought from Plaintiff another
loan in the amount of P60, 000.00, bringing their
indebtedness to a total of P50,000.00. They executed
another promissory note in favor of Plaintiff to pay the sum
of P500, 000.00 with a 5.5% interest per month plus 2%
service charge per annum, with an additional amount of 1%
per month as penalty charges.
On maturity of the loan, the Defendants failed to pay the
indebtedness which prompt the Plaintiffs to file with the
RTC a complaint for collection of the full amount of the loan
including interests and other charges.
Declaring that the due execution and genuineness of the
four promissory notes has been duly proved, the RTC ruled
that although the Usury Law had been repealed, the
interest charged on the loans was unconscionable and
“revolting to the conscience” and ordered the payment of
the amount of the first 3 loans with a 12% interest per
annum and 1% per month as penalty.
On appeal, Plaintiff-appellants argued that the promissory
note, which consolidated all the unpaid loans of the
defendants, is the law that governs the parties.
The Court of Appeals ruled in favor of the Plaintiff-
appellants on the ground that the Usury Law has become
legally inexistent with the promulgation by the Central
Bank in 1982 of Circular No. 905, the lender and the
borrower could agree on any interest that may be charged
on the loan, and ordered the Defendants to pay the
Plaintiffs the sum of P500,000, plus 5.5% per month
interest and 2& service charge per annum , and 1% per
month as penalty charges.
Defendants filed the present case via petition for review on
certiorari.
Issue: WON the stipulated 5.5% interest rate per month on
the loan in the sum of P500, 000.00 is usurious.
Held: No.
A stipulated rate of interest at 5.5% per month on the P500,
000.00 loan is excessive, iniquitous, unconscionable and
exorbitant, but it cannot be considered “usurious” because
Central Bank Circular No. 905 has expressly removed the
interest ceilings prescribed by the Usury Law and that the
Usury Law is now “legally inexistent.”
Doctrine: A CB Circular cannot repeal a law. Only a
law can repeal another law.
Jurisprudence provides that CB Circular did not repeal nor
in a way amend the Usury Law but simply suspended the
latter’s effectivity (Security Bank and Trust Co vs RTC).
Usury has been legally non-existent in our jurisdiction.
Interest can now be charged as lender and borrower may
agree upon.
Law: Article 2227, Civil Code
The courts shall reduce equitably liquidated damages,
whether intended as an indemnity or a penalty if they are
iniquitous or unconscionable.
Note: While the Usury Law ceiling on interest rates was
lifted by the CB Circular 905, nothing in the said circular
could possibly be read as granting carte blanche authority
to lenders to raise interest rates to levels which would
either enslave their borrowers or lead to a haemorrhaging
of their assets (Almeda vs. CA, 256 SCRA 292 [1996]).
SPOUSES BACOLORvs.BANCO FILIPINO SAVINGS
AND MORTGAGE BANK, DAGUPAN CITY BRANCH
(GR No. 148491; Feb. 8, 2007)
FACTS: On February 1982, spouses Zacarias and Catherine
Bacolor obtained a loan of P244,000.00 from Banco Filipino
Savings and Mortgage Bank. They executed a promissory
note providing that the amount shall be payable within a
period of ten 10 years with a monthly amortization of
P5,380.00 beginning March 11, 1982 and every 11th day of
the month thereafter; that the interest rate shall be 24%
per annum, with a penalty of 3% on any unpaid monthly
amortization; that there shall be a service charge of 3% per
annum on the loan; and that in case bank seeks the
assistance of counsel to enforce the collection of the loan,
petitioners shall be liable for 10% of the amount due as
attorney’s fees and 15% of the amount due as liquidated
damages.
As security for the loan, petitioners mortgaged with
respondent bank their parcel of land located in Dagupan
City, Pangasinan.
From March 1982 to July 1991, petitioners paid respondent
bank P412,199.36. Thereafter, they failed to pay the
remaining balance of the loan. On August 1992, petitioners
received from respondent bank a statement of account
stating that their indebtedness as of July 1992 amounts to
P840,845.61. In its letter dated January 1993, respondent
informed petitioners that should they fail to pay their loan
within 15 days from notice, appropriate action shall be
taken against them.Due to petitioners’ failure to settle their
obligation, respondent instituted, on March 1993, an action
for extra-judicial foreclosure of mortgage.
Prior thereto, or on February 1993, petitioners filed with
RTC, a complaint for violation of the Usury Law against
respondent. They alleged that the provisions of the
promissory note constitute a usurious transaction
considering the (1) rate of interest, (2) the rate of penalties,
service charge, attorney’s fees and liquidated damages, and
(3) deductions for surcharges and insurance premium. In
their amended complaint, petitioners further alleged that,
during the closure of respondent bank, it ceased to be a
banking institution and, therefore, could not charge
interests and institute foreclosure proceeding.
RTC rendered its decision dismissing petitioners’ complaint
and the interest rate of 24% per annum is not usurious. CA
rendered its Decision affirming the Decision of the trial
court.
ISSUE: WON the interest rate is "excessive and
unconscionable."
WON the bank lost its function as a banking institution
during its closure and therefore could no longer charge
interest and institute foreclosure proceedings.
HELD:
The petition lacks merit.
Article 1956 of the Civil Code provides that no interest
shall be due unless it has been expressly stipulated in
writing. Here, the parties agreed in writing on February
11, 1982 that the rate of interest on the petitioners’ loan
shall be 24% per annum.
With the suspension of the Usury Law and the removal of
interest ceiling, the parties are free to stipulate the interest
to be imposed on monetary obligations. Absent any
evidence of fraud, undue influence, or any vice of consent
exercised by one party against the other, the interest rate
agreed upon is binding upon them.
Petitioners cannot now renege on their obligation to comply
with what is incumbent upon them under the loan
agreement. A contract is the law between the parties and
they are bound by its stipulations.
Petitioners further contend that during the closure of
respondent bank (from January 1985 to July 1994), it lost
its function as a banking institution and, therefore, could no
longer charge interests and institute foreclosure
proceedings.
In the case of Banco Filipino Savings & Mortgage Bank vs.
Monetary Board, Central Bank of the Philippines, this Court
ruled that the bank’s closure did not diminish the authority
and powers of the designated liquidator to effectuate and
carry on the administration of the bank, thus:
x xx. We did not prohibit however acts such as receiving
collectibles and receivables or paying off creditors’ claims
and other transactions pertaining to the normal operations
of a bank. There is no doubt that that the prosecution of
suits for collection and the foreclosure of mortgages
against debtors of the bank by the liquidator are among the
usual and ordinary transactions pertaining to the
administration of a bank. x xx.
Likewise, in Banco Filipino Savings and Mortgage Bank vs.
Ybañez, where one of the issues was whether respondent
bank can collect interest on its loans during its period of
liquidation and closure, this Court held:
In Banco Filipino Savings and Mortgage Bank v. Monetary
Board, the validity of the closure and receivership of Banco
Filipino was put in issue. But the pendency of the case did
not diminish the authority of the designated liquidator to
administer and continue the bank’s transactions. The Court
allowed the bank liquidator to continue receiving
collectibles and receivables or paying off creditor’s claims
and other transactions pertaining to normal operations of a
bank. Among these transactions were the prosecution of
suits against debtors for collection and for foreclosure of
mortgages. The bank was allowed to collect interests on its
loans while under liquidation, provided that the interests
were legal.
In fine, we hold that the interest rate on the loan agreed
upon between the parties is not excessive or
unconscionable; and that during the closure of respondent
bank, it could still function as a bonding institution, hence,
could continue collecting interests from petitioners.
What is the rule as to the redemption price in case
the mortgagee is a banking institution?
Where the mortgagee is a banking institution,
redemption price is the amount fixed by the court in the
order of execution or the amount due under the mortgaged
deed. (Tolentino v. CA, G.R. No. 171354, Mar. 7, 2007)
Consolidated Bank and Trust Corporation vs. Court of
Appeals G.R. No. 138569, September 11, 2003
MARCH 16, 2014LEAVE A COMMENT
Solidbank’s tellers must exercise a high degree of
diligence in insuring that they return the passbook
only to the depositor or his authorized representative.
The tellers know, or should know, that the rules on
savings account provide that any person in possession
of the passbook is presumptively its owner.
Facts: Solidbank is a domestic banking corporation while
private respondent L.C. Diaz and Company, CPA’s (“L.C.
Diaz”), is a professional partnership engaged in the
practice of accounting and which opened a savings account
with Solidbank. Diaz through its cashier, Mercedes
Macaraya , filled up a savings cash deposit slip and a
savings checks deposit slip. Macaraya instructed the
messenger of L.C. Diaz, Ismael Calapre, to deposit the
money with Solidbank and give him the Solidbank
passbook. Calapre went to Solidbank and presented to
Teller No. 6 the two deposit slips and the passbook. The
teller acknowledged receipt of the deposit by returning to
Calapre the duplicate copies of the two deposit slips. Since
the transaction took time and Calapre had to make another
deposit for L.C. Diaz with Allied Bank, he left the passbook
with Solidbank. When Calapre returned to Solidbank to
retrieve the passbook, Teller No. 6 informed him that
somebody got the passbook. Calapre went back to L.C. Diaz
and reported the incident to Macaraya. The following day,,
L.C. Diaz through its Chief Executive Officer, Luis C. Diaz,
called up Solidbank to stop any transaction using the same
passbook until L.C. Diaz could open a new account followed
the by a formal written request later that day. It was also on the
same day that L.C. Diaz learned of the unauthorized
withdrawal the day before of P300,000 from its savings
account. The withdrawal slip bore the signatures of the
authorized signatories of L.C. Diaz, namely Diaz and
Rustico L. Murillo. The signatories, however, denied signing
the withdrawal slip. A certain Noel Tamayo received
the P300,000.
L.C. Diaz demanded from Solidbank the return of its money
but to no avail. Hence, L.C. Diaz filed a Complaint for
Recovery of a Sum of Money against Solidbank with the
Regional Trial Court. After trial, the trial court rendered a
decision absolving Solidbank and dismissing the complaint.
Court of Appeals reversed the decision of the trial court.
Issue: Whether or not Solidbank must be held liable for
the fraudulent withdrawal on private respondent’s account.
Held: Solidbank’s tellers must exercise a high degree of
diligence in insuring that they return the passbook only to
the depositor or his authorized representative. The tellers
know, or should know, that the rules on savings account
provide that any person in possession of the passbook is
presumptively its owner. If the tellers give the passbook to
the wrong person, they would be clothing that person
presumptive ownership of the passbook, facilitating
unauthorized withdrawals by that person. For failing to
return the passbook to Calapre, the authorized
representative of L.C. Diaz, Solidbank and Teller No. 6
presumptively failed to observe such high degree of
diligence in safeguarding the passbook, and in insuring its
return to the party authorized to receive the same.
However, L.C. Diaz was guilty of contributory negligence in
allowing a withdrawal slip signed by its authorized
signatories to fall into the hands of an impostor. Thus, the
liability of Solidbank should be reduced. Hence, the liability
of Solidbank for actual damages was reduced to only 60%,
the remaining 40% was borne by private respondent.
The contract between the bank and its depositor is
governed by the provisions of the Civil Code on simple loan.
There is a debtor-creditor relationship between the bank
and its depositor. The bank is the debtor and the depositor
is the creditor. The law imposes on banks high standards in
view of the fiduciary nature of banking. RA 8791 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 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.”
BANK OF COMMERCE vs. SPS.PRUDENCIO SAN PABLO, JR.
and NATIVIDAD O. SAN PABLOGR NO. 167848.
FACTS: Santos obtained a loan from Direct Funders
Management and Consultancy Inc. (Direct Funders) in
theamount of P1,064,000.40. As a security for the loan
obligation, Natividad executed a SPA in favor of
Santos,authorizing the latter to mortgage to Direct Funders
a paraphernal real property registered under her name
andcovered by Transfer Certificate of Title (TCT) No. (26469)-
7561.In the Deed of Real Estate Mortgage executed in favor
of Direct Funders, Natividad and her husband,Prudencio,
signed as the co-mortgagors of Santos. It was however
agreed that the loan obligation was for the solebenefit of
Santos and the spouses San Pablo merely signed the deed in order to
accommodate the former.The spouses of San Pablo received a
letter from Direct Funders informing them that Santos
failed to pay hisloan obligation. After being confronted,
Santos promised to promptly settle his obligation with
Direct Funders,which he actually did. Upon learning that
the debt had been fully settled, the spouses San Pablo then
demandedfrom Santos to turn over to them the TCT of the
property but the latter failed to do so despite of
repeateddemands. Such refusal prompted the spouses San
Pablo to inquire as to the status of the TCT with the
Register of Deeds and to their surprise, they discovered
that the property was again used by Santos as collateral for
anotherloan obligation he secured from the Bank of Commerce.As
shown in the annotation stamped at the back of the title,
the spouses San Pablo purportedly authorizedSantos to
mortgage the subject property to the Bank of Commerce, as
evidenced by the SPA allegedly signed byNatividad. It was
further shown from the annotation at the back of the title
that the spouses San Pablo signed aDeed of Real Estate
Mortgage over the subject property in favor of Bank of
Commerce, which they never did.The spouses San Pablo
filed a Complaint seeking for the Quieting of Title and
Nullification of the SPA and the deedof real estate
mortgage with the prayer for damages against Santos and
the Bank of Commerce before the MTC of Mandaue. The
spouses San Pablo claimed that their signatures on the SPA
and the Deed of Real Estate Mortgageallegedly executed to
secure a loan with the Bank of Commerce were forged.
They claimed that while the loan withthe Direct Funders
was obtained with their consent and direct participation,
they never authorized the subsequentloan obligation with
the Bank of Commerce.During the pendency of the case,
the Bank of Commerce, for non-payment of the loan,
initiated the foreclosureproceedings on the strength of the
contested Deed of Real Estate Mortgage. During the
auction sale, the Bank of Commerce emerged as the
highest bidder and thus a Certificate of Sale was issued
under its name. Accordingly,the spouses San Pablo amended
their complaint to include the prayer for annulment of the foreclosure
sale.
Santos countered that the loan with the Bank of Commerce
was deliberately resorted to with theconsent, knowledge
and direct participation of the spouses San Pablo in order
to pay off the obligation with DirectFunders. In fact, it was
Prudencio who caused the preparation of the SPA and
together with Santos, they went tothe Bank of Commerce,
Cebu City Branch to apply for the loan.
Bank of Commerce filed an Answer with Compulsory
Counterclaim, alleging that the spouses San
Pablo,represented by their attorney-in-fact, Santos,
together with Intergems, obtained a loan and denied the
allegationadvanced by the spouses San Pablo that the SPA
and the Deed of Real Estate Mortgage were spurious. Since
theloan already became due and demandable, the Bank of
Commerce sought the foreclosure of the subject property.
During the trial, AnastacioBarbarona, Jr., the Manager of the Bank of
Commerce, Cebu City Branch, testified thatthe spouses San Pablo
personally signed the Deed of Real Estate Mortgage in his
presence. The testimony of adocument examiner and a
handwriting expert, however, belied this claim. The expert witness,
after carefully examiningthe loan documents with the Bank of
Commerce, attested that the signatures of the spouses San Pabloon
the SPA and the Deed of Real Estate Mortgage were forged.The
MTC rendered a Decision, dismissing the complaint for lack
of merit. The MTC declared that while it wasproven that
the signatures of the spouses San Pablo on the loan
documents were forged, the Bank of Commercewere
nevertheless in good faith.
Aggrieved, the spouses San Pablo appealed the adverse
decision to the RTC of Mandaue City, which,in turn,
affirmed the unfavorable ruling of the MTC. A Motion for
Reconsideration filed also by the spouses SanPablo which
was denied by the RTC for lack of merit. The spouses San
Pablo elevated the matter before the Courtof Appeals assailing
the adverse decisions of the MTC and RTC.The appellate court
granted the petition filed by the spouses San Pablo and
reversed the decisions of the MTC andRTC. The appellate
court ruled that since it was duly proven that the
signatures of the spouses San Pablo on theloan documents
were forged, then such spurious documents could never
become a valid source of title. Themortgage contract
executed by Santos over the subject property in favor of
Bank of Commerce, without theauthority of the
Spouses San Pablo, was therefore unenforceable, unless
ratified.
ISSUES:
1.Whether or not the forged SPA and Special Power of Attorney
could be a valid source of a right toforeclosure a property
2.Whether or not the awards of Damages, Attorneys Fees and
Litigation Expenses are proper in the case atbar
HELD:
1.
A mortgagee has a right to rely in good faith on the
certificate of title of the mortgagor of the propertygiven as
security, and in the absence of any sign that might arouse
suspicion, the mortgagee has noobligation to undertake
further investigation. This doctrine pre-supposes, however,
that the mortgagorwho is not the rightful owner of the
property, has already succeeded in obtaining Torrents title
over theproperty in his name and that after obtaining the
said title, he succeeds in mortgaging the property
toanother who relies on what appears on the title. This,
however, is not the situation in the case at bar sinceSantos
was not the registered owner for he merely represented
himself to be the attorney-in-fact of thespouses San
Pablo.In cases where the mortgagee does not directly deal
with the registered owner of the real property, thelaw
requires that a higher degree of prudence be exercised by
the mortgagee. The respondent, however,is not an ordinary
mortgagee. It is a mortgagee-bank and unlike private
individuals, it is expected toexercise greater care and
prudence in its dealings, including those involving
registered lands. A bankinginstitution is expected to
exercise due diligence before entering into a mortgage
contract. The Bank of Commerce clearly failed to observe
the required degree of caution in ascertaining the
genuineness andextent of the authority of Santos mortgage
the subject property. It should not have simply relied on
theface of the documents submitted. Therefore, the same is
not a valid source of the right for the foreclosureof the
property.2.

The Court finds that the award for moral damages is proper
is proper. The carelessness of the Bank of Commerce
caused injury to the spouses which calls for the imposition
of moral damages. The award of

exemplary damages is deemed to be proper by the Court

for the Bank of Commerce was remiss in thisobligation to
inquire into the veracity of Santos’authority to mortgage
the subject property, causingdamage to the Spouses. The
award of attorney’s fees and litigation expenses are
likewise valid since the spouses were compelled to litigate
and thus incur expenses in order to protect its rights over
the subject property.