Republic of the Philippines
, and from
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-50911 March 12, 1986
MIGUEL PEREZ RUBIO, petitioner,
vs.
COURT OF APPEALS, ROBERT O. PHILLIPS & SONS, INC., MAGDALENA
YSMAEL PHILLIPS, MANUFACTURERS BANK & TRUST COMPANY, INC.,
HACIENDA BENITO, INC., VICTORIA VALLEY DEVELOPMENT CORPORATION
and ROBERT O. PHILLIPS, respondents.
GUTIERREZ, JR., J.:
This is a petition to review the decision of the Court of Appeals, now the Intermediate
Appellate Court, in CA-G.R. No. 60896-R, which affirmed the trial court's decision
ordering Robert O. Phillips & Sons, Inc., and the plaintiff-spouses to pay Miguel
Perez Rubio the sum of P4,250,000.00 but ordered Perez Rubio to pay Robert O.
Phillips & Sons, Inc. and the other plaintiffs damages in the amount of P4,404,510.76.
The appellate court, however, modified the lower court's order to pay P4,250,000.00
by removing the eight (8%) percent per annum interests on that amount, dispensing
with the ten (10%) percent attomey's fees and limiting the liability to Robert O.
Phillips and Sons, Inc., only. Also affirmed was the order directing Perez Rubio, as
third party plaintiff, to pay Hacienda Benito, Inc. the sum of P7,051,496.23 as actual
damages and P150,000.00 attorney's fees and to pay Manufacturer's Bank and Trust
Co. P895,085.16 actual damages, plus ten (10%) percent of that amount as
attorney's fees.
The decision of the trial court in Civil Case No. 8632 has actually been the subject
matter of two earlier petitions for certiorari filed by the petitioner against the same
respondents. These are G.R. No. L-24581 entitled Miguel Perez Rubio v.
The Honorable Samuel Reyes Roberto O. Phillips and Magdalena Ysmael Phillips,
Manufacturer's Bank and Trust Company, Victoria Valley Development Corporation
and Hacienda Benito, Inc. and G.R. No. L-30404 entitled Miguel Perez Rubio v.
Honorable Judge Herminio Mariano in his capacity as Presiding Judge of Branch X of
the Court of First Instance of Rizal Robert O. Phillips and Sons, Inc. Robert O.
Phillips, Magdalena Ysmael Phillips, Victoria Valley Development Corporation
Manufacturers Bank and Trust Company and Hacienda Benito, Inc.
This petition arose from the same facts and events which triggered off the filing of the
earlier petitions. These facts and events are cited in our Resolution dated January 31,
1966 issued in G.R. No, L-24581, as follows:
Upon the facts alleged in the complaint filed in Civil Case No, 8632 of the Court of
First Instance of Rizal by Robert O. Phillips and Sons, Inc., et al. v. Miguel Perez
Rubio, said plaintiffs prayed for judgment as follows:
1. That a Temporary restraining order and/or exparte writ of preliminary injunction be
issued against the defendant to prevent and restrain them from further unlawfull and
willful interference with the transaction between the plaintiff corporation with Alfonso
T. Yuchengco on the sale of the shares of stock of Hacienda Benito, Inc.
enforcing whatever amount he may claim to be due to them from the plaintiffs under
the Agreements (Annexes "A", "A-1" and "A- 2"), after the approval of the injunction
bond;
2. That, after the hearing, judgment be rendered in favor of the plaintiffs against the
defendant:
a) Restraining him from willfully and unlawfully interfering with the transaction of the
plaintiffs with Alfonso T. Yuchengco on the sale of the shares of stock of Hacienda
Benito, Inc.;
b) Declaring that the defendant has no right to rescind the Agreements as referred to
in Annexes "A", "A.1" and "A.2";
c) Declaring that the defendant has no vendors' lien over the shares of stock of
Hacienda Benito, Inc., sold by them to the plaintiff corporation;
d) Restraining the defendant from enforcing any collection action against the plaintiff
until the obligation, if any, mature;
e) Making the writ of preliminary injunction permanent;
f) Sentencing the defendant to pay the plaintiffs;
(1) P 2,500,000.00, more or less, as actual damages;
(2) Moral damages which this Honorable Court may deem just and reasonable;
(3) Exemplary damages, which this Honorable Court may deem just and reasonable;
(4) P50,000.00, as attorney's fees; and
(5) Costs of suit; and
3. That the plaintiffs be granted such further and other reliefs to which they may be
entitled in law and in equity'
Upon an ex-parte petition filed by the plaintiffs, the respondent judge issued on April
1, 1965 a writ of preliminary injunction to be mentioned again later. Subsequently, the
respondent judge also denied Perez Rubio's motion to dissolve the preliminary
injunction.
It appears that the Perez Rubio spouses owned shares of stock in Hacienda Benito,
Inc. registered in their names and in the names of Joaquin Ramirez and Joaquin
Ramirez, Jr. On August 13, 1963 the Perez Rubios, with the conformity of the
Ramirezes, sold said shares to Robert O. Phillips and Sons, Inc. for P5,500,000.00
payable in installments and other conditions agreed upon as follows:
xxx xxx xxx
3. That for and in consideration of the mutual agreements and promises, MIGUEL
and MARIA LUISA hereby sell to PHILLIPS all the shares of stock of Hacienda
Benito, Inc. registered in their names and in the names of Joaquin Ramirez and
Joaquin, Jr. for the total price of FIVE MILLION FIVE HUNDRED THOUSAND
PESOS (P5,500,000.00), Philippine Currency, payable as follows:
a FIFTY THOUSAND PESOS (P50,000.00) upon execution of this agreement,
b. ONE MILLION TWO HUNDRED THOUSAND PESOS (P l,200,000.00) within sixty
(60) days from this date.
c ONE MILLION TWO HUNDRED AND FIFTY THOUSAND PESOS (P1,250,000.00)
on April 30, 1964 less than the amount of P 96,830.56 due the Hacienda Benito, Inc.
from MARIA LUISA and the amount of P127,096.09 from MIGUEL; hereby
authorized PHILLIPS to deduct said amounts and to pay the same to Hacienda
Benito, Inc.
d ONE MILLION TWO HUNDRED AND FIFTY THOUSAND PESOS (P1,250,000.00)
on or before April 30, 1965.
e ONE MILLION TWO HUNDRED AND FIFTY THOUSAND PESOS (P1,250,000.00)
on or before April 30, 1965.
f FIVE HUNDRED THOUSAND PESOS (P500,000.00) on or before April 30, 1967.
4. That should PHILLIPS fail to pay the amount of ONE MILLION TWO HUNDRED
THOUSAND PESOS (P1,200,000.00) due sixty days from this date and to execute
the letter of credit and/or bond or both to secure the payment of the remaining
installments, as agreed upon, then the Seller shall have the right, at their own
discretion, either to rescind this agreement or to enforce the same, provided that any
number of days used by the Sellers to consider the acceptability of the bank or
bonding company proposed by PHILLIPS shall be added to the period of sixty (60)
days herein mentioned;
5. That in case of default, PHILLIPS shall pay interest at the rate of eight percent (8%)
per annum on all amounts in arrears until paid in full either by the guaranteeing bank,
bonding company or PHILLIPS;
6. That all the installments due during the years 1964, 1965, 1966, and 1967 with all
the conditions above mentioned, shall be jointly and severally guaranteed by means
of Irrevocable Standby letter of Credit from a bank in favor of MIGUEL and MARIA
LUISA, in the proportion they may agree, which shall be communicated to the bank
and to PHILLIPS before final contract is entered into with the bank, or by a bond from
a bonding company duly approved by MIGUEL and MARIA LUISA;
7. That the stock certificates corresponding to the shares sold, including those in the
names of Joaquin Ramirez and Joaquin Ramirez, Jr. shall not be transferred to
PHILLIPS until the installments due within sixty (60) days from this date is paid in full.'
On June 23, 1964 Robert O. Phillips and Sons, Inc., and Robert O. Phillips himself
and his wife, entered into an agreement with the Perez Rubios deferring payment of
the April 31, 1964 under the following conditions;
(a) The deferred installment would bear an interest of eight (8%) percent per annum
from April 30, 1964 although partial payment, on the principal and on the interest due
may be paid during the period granted, in such amounts and at such times as funds
are available to Robert O. Phillips & Sons, Inc.;
(b) Should Robert O. Phillips & Sons, lnc. fail to pay the particular installment now
due on August 31, 1964 or any of the subsequent installments on the exact date due,
the whole obligation would become immediately demandable without notice;
(c) In consideration of this extension granted to Robert O. Phillips & Sons, Inc.,
Robert O. Phillips himself and his wife, Magdalena Ysmael Phillips, jointly and
severally guaranteed all the installments and other obligations of Robert O. Phillips &
Sons, Inc. under the original contract of sale dated April 13, 1963.'
In the meantime, Robert O. Phillips, in his behalf and in that of his wife and Robert O.
Phillips and Sons, Inc., entered into negotiations for the sale of their shares of stock
in Hacienda Benito, Inc. to Alfonso Yuchengco. Upon being informed of this, the
Perez Rubios, through their attorney-in-fact, Joaquin Ramirez, reminded the Phillips
spouses and the Phillips corporation in writing of their obligations under the contract
of sale of April 13, 1963 and reminded them in particular that the shares subject
matter thereof were still subject to the payment of the unpaid balance of the sale
price. They gave a similar notice to Alfonso Yuchengco, but expressed no objection
to the sale provided the obligations in their favor were satisfied.
On March 26, 1965, the Phillips (individuals and corporation), through their attorney,
Juan T. David, sent a letter to the Perez Rubios telling them, in substance, that the
only obstacle to the consummation of the Phillips-Yuchengco sale of the shares of
stock of Hacienda Benito, Inc. was their letter of November 24, 1964 and warned that
unless the same was withdrawn by March 29, they would seek redress elsewhere.
On March 27, 1965, the Perez Rubios, for their part, wrote the Phillips that due to the
latter's inability to comply with the former's conditions, the negotiations going on
between them were cancelled, and should the full amount due to them remained
unpaid by noon of March 31, 1965, they would file action in court in the afternoon
thereof. However, on March 30, 1965, stealing a march on the Perez Rubios, the
Phillips individuals and corporations filed Civil Case No. 8632 mentioned heretofore
where they obtained, ex-parte, a preliminary injunction to this effect:
IT IS HEREBY ORDERED by the undersigned Judge of the Court of First Instance
that, until further orders, you, all your attorneys, representatives, agents, and any
other person assisting you, REFRAIN from interfering with the transaction between
the plaintiff-corporation with Alfonso T. Yuchengco on the sale of the shares of stock
of Hacienda Benito, Inc., and from enforcing whatever amount he may claim to be
due to them from the plaintiffs under the Agreements (Annexes 'A', 'A-l', and 'A.2')
mentioned in the complaint.'
On April 8, 1965 the Perez Rubios filed a motion to dissolve the above reproduced
writ of preliminary injunction, which the respondent judge denied on May 6, 1964. But
even before the motion aforesaid could be acted upon, they also filed their answer to
the combatting plaint with a counterclaim of P4,500,000.00 representing the unpaid
balance of the sale price of their shares. Because of this the Perez Rubios were
charged with contempt. " (16 SCRA 168, 172).
xxx xxx xxx
Because of the above incidents and orders, Perez Rubio filed a petition for certiorari
against Robert O. Phillips in G.R. No. L- 24581 alleging that in taking cognizance of
Civil Case No. 8632 and in issuing the writ of preliminary injunction ex parte, the
respondent court committed a grave abuse of discretion The petitioner prayed that
the respondent court be restrained from in any way proceeding with the case, and
that, respondent Phillips be enjoined from proceeding with the sale of the shares of
stock of Hacienda Benito, Inc. or any of its assets to Alfonso Yuchengco or to any
other person, or from performing any act which would diminish the value of said
shares of stock or deplete the assets of the company.
Upon the filing of the original Perez Rubio petition, we issued on July 26, 1965 a writ
of preliminary injunction restraining all the respondents named in the original petition
(l) from taking further proceedings in Civil Case No. 8632; (2) from proceeding with
the sale of shares of stock of Hacienda Benito, Inc. or any of its assets to Alfonso T.
Yuchengco or to any other person, and (3) from performing any act which would
either diminish the value of said shares of stock or deplete the assets of the
Hacienda subject matter of Civil Case No. 8632.
On June 10, 1965, the Manufacturers Bank and Trust Company filed a complaint
against Phillips and Sons and Hacienda Benito, Inc. as well as the other corporations
controlled by Robert O. Phillips for the foreclosure of a real estate mortgage
constituted on the properties of the Hacienda. The case was filed in another branch
of the Court of First Instance of Rizal and was docketed as Civil Case No. 8766. On
the premise that the foreclosure by the bank of the mortgage constituted on the
properties of Hacienda Benito, Inc., was intended simply to remove properties and
the assets of the Hacienda pertaining to the Phillips spouses beyond Perez Rubios'
reach and thus make it impossible for him to collect the sum of P4,250,000.00, Perez
Rubio filed a motion for the admission of a supplemental petition, to include
Manufacturer's Bank and Victoria Valley Development Corporation as additional
respondents. Victoria Valley was a newly formed corporation which Perez Rubio
alleged had been hurriedly organized and to which Manufacturer's Bank would
transfer all the foreclosed properties thus making it difficult for him to enforce his
vendor's lien. Before the first amended supplemental petition could be acted upon,
Perez Rubio filed a second amended supplemental petition to implead Hacienda
Benito, Inc. as additional party respondent with a specific plea that pending the
issuance of a writ of preliminary injunction, Hacienda Benito be restrained from
disposing of its properties or assets in any way save in the ordinary course of its
business of selling lots of the subdivision. Both supplemental amended petitions
were admitted.
After all the respondents had filed their answers to the amended petition and after the
petitioner filed an answer to the counterclaim interposed by respondents Phillips and
Sons, Inc. and the Hacienda, this Court promulgated a decision dated May 27, 1968
wherein, among others, we ruled:
(1) In connection with the writ of preliminary injunction issued by the respondent
judge in Civil Case 8632 on April 1, 1965 mentioned heretofore, the same is hereby
declared null and void and is, consequently, set aside with the result that the writ of
preliminary injunction issued by Us in this case enjoining its enforcement is hereby
made final. The order of the respondent judge of May 6, 1965 denying petitioner's
motion to set aside the aforesaid writ of preliminary injunction of April 1 of the same
year is hereby reversed;
(2) The writ of certiorari prayed for by petitioner is hereby denied insofar as it seeks to
annul the judicial proceedings had in Civil Case 8766 of the Court of First Instance of
Rizal, instituted by the Bank against Hacienda and other parties for the foreclosure of
the mortgage constituted in its favor upon the properties of Hacienda; without
prejudice, however, to the right of petitioner to seek such relief and any other relief
that he might be lawfully entitled to against the herein respondents, singly or
collectively, in the aforesaid Civil Case 8766 of the Court of First Instance of Rizal or
in a separate action. In this connection, it is our judgment that the writ of preliminary
injunction issued in this case shall remain subsisting and binding for a period of thirty
days from the date of finality of this decision, upon the expiration of which period the
same shall be deemed automatically lifted or dissolved, irrespective of whether
petitioner had or had not taken steps required for the enforcement and protection of
his rights as already indicated; (23 SCRA 773, 789 & 790)
In the belief that the forum for the "separate action" referred to in our decision meant
Civil Case No. 8632, petitioner Perez Rubio filed in the said case on July 9, 1968 an
"Urgent Motion to Admit Amended and Supplemental Answer and Third-Party
complaint," the third-party complaint being directed against Manufacturer's Bank,
Victoria Valley and hacienda Benito.
The motion was denied by the lower court. Hence, the petitioner filed another petition
for certiorari to review and set aside the lower court's order dated September 13,
1968 with the additional prayer that pending determination of the issues raised in the
petition, the respondent court be restrained from proceeding with the hearing of the
case below and the other respondents from transferring or proceeding with the
agreement to transfer any of the assets of Hacienda Benito, Inc. to any third person
except in the ordinary course of selling subdivision lots. The case was docketed as
G.R. No. 30904. On April 16, 1969, we issued a prayed for temporary restraining
order. The petition was later granted. In our decision dated January 31, 1973, we
ruled:
WHEREFORE, the orders complained of are set aside and respondent Judge or
whosoever is assigned to try the case below is instructed to admit the amended and
supplemental answer and third-party complaint filed by Miguel Perez Rubio.
Thereafter, these cases shall proceed accordingly. The restraining order
hereinbefore issued by this Court is hereby lifted insofar as it restrains respondent
Judge from proceeding with the hearing of Civil Case No. 8632 of the Court of First
Instance of Rizal Branch X (Pasig, Rizal), and maintained insofar as it restrains (the
other respondents) 'from proceeding with the transfer of the shares and/or of the
assets of Hacienda Benito, Inc. to each other or to any other person, except in the
ordinary course of selling subdivision lots without prejudice to the judgment that may
be rendered by the court a quo in the case. Costs against the respondents. (49
SCRA 319, 337).
The third-party complaint sought to secure the return by Manufacturer's Bank and/or
Victoria Valley of the properties it and/or they bought as a consequence of the judicial
foreclosure of mortgage case, Civil Case No. 8766, with a further plea that in the
event the Phillips spouses are ordered to pay Miguel Perez Rubio the judgment on
his counterclaim said properties and funds foreclosed by the defendant Bank be held
to answer for such judgment or any part thereof unpaid by the Phillips spouses
together with damages.
The third-party defendants, respondents herein, filed their separate answers. In
addition to their answer, Manufacturer's Bank and Hacienda Benito filed separate
counterclaims for actual damages for malicious prosecution plus attorney's fees.
After trial on the merits, the lower court rendered a decision the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered:
(1) Sentencing the plaintiffs to pay jointly and severally the amount of P4,250,000 to
defendant Miguel Perez-Rubio, with interest of 8% per annum from April 30, 1964
and attorney's fees equivalent to 10% of the said amount. The plaintiffs however,
may offset the foregoing amount by the damages which Perez-Rubio should pay to
them for having unlawfully interferred in the transaction with Alfonso Yuchengco
which is merely assess at P4,404,510.76.
(2) Sentencing the defendant Perez-Rubio to pay to HBI the sum of P 7,051,496.23;
attorney's fees of P150,000.00, and to MBTC the sum of P 895,085.16 as actual
damages and the sum of 10% thereof as attorney's fees.
(3) Dismissing all other causes of action of the parties in this case without
pronouncement as to costs.
Plaintiffs Phillips and Sons and the Phillips spouses as well as defendant and
third-party plaintiff Perez Rubio appealed the decision to the Court of Appeals.
As earlier stated, the appealed decision was amended by the appellate court in so far
as it related ' to the liability of the plaintiffs on their P4,250,000.00 debt. The appellate
court ruled that only plaintiff Phillips and Sons was liable to pay the amount of
P4,250,000.00 to defendant Perez Rubio without interest and without attorney's fees.
The rest of the trial court's decision was affirmed in full.
A motion for reconsideration filed by Perez Rubio was denied by the appellate court.
Hence the instant petition was filed.
Petitioner Perez Rubio raises the following assignments of errors:
I THE FACT THEY WERE EXPRESSLY PROVIDED IN THE AGREEMENTS
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT YOUR
PETITIONER UNLAWFULLY AND INOFFICIOUSLY INTERFERRED IN THE
TRANSACTION BETWEEN RESPONDENTS ROBERT O. PHILLIPS & SONS, INC.,
ROBERT O. PHILLIPS & SONS AND HIS WIFE MAGDALENA WHEN THE
SUPREME COURT ITSELF DESCRIBED THE ACTS TAKEN BY YOUR
PETITIONER AS A VALID ENFORCEMENT OF ONE'S RIGHT AS A CREDITOR.
II
THE COURT OF APPEALS GRAVELY ERRED IN AWARDING DAMAGES TO
RESPONDENTS ROBERT 0. PHILLIPS, HIS WIFE, AND ROBERT O. PHILLIPS &
SONS, INC., ON THE ALLEGED GROUND OF UNLAWFUL INTERFERENCE
WITHOUT BASIS IN FACT AS TO WHAT THE DAMAGE CONSISTED OF NOR OF
THE MEASURE FOR SAID DAMAGES.
III
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT YOUR
PETITIONER WAS LIABLE FOR DAMAGES TO THE MANUFACTURERS BANK
AND TRUST COMPANY, INC. BY REASON OF THE TWO INJUNCTIONS ISSUED
BY THIS HONORABLE COURT IN L-24581 (MIGUEL PEREZ RUBIO, ET AL.) AND
L-30404 (MIGUEL PEREZ RUBIO VERSUS THE HON. HERMINIO MARIANO, ET
AL.), DESPITE THE FACT THAT THERE WAS ACTUALLY ONE RESTRAINING
ORDER ISSUED BY THIS HONORABLE COURT INSOFAR AS RESPONDENT
MBTC IS CONCERNED AND DESPITE THE FACT THAT NO VALID PROOF OF
DAMAGES WAS PRESENTED.
IV
THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THAT YOUR
PETITIONER PEREZ RUBIO WAS LIABLE TO HACIENDA BENITO, INC.,
WITHOUT MAKING SO MUCH AS A COMMENT OF FINDING THEREOF, BUT BY
THE MERE EXPEDIENT OF AFFIRMING THE DECISION OF THE TRIAL COURT.
V
THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE DECISION OF
THE TRIAL COURT IN FINDING YOUR PETITIONER LIABLE TO RESPONDENT
HACIENDA BENITO, INC. FOR THE ALLEGED DAMAGES IT SUFFERED BY
REASON OF THE INJUNCTION ALLEGEDLY ISSUED BY THE SUPREME COURT
AGAINST HACIENDA BENITO, DESPITE THE FACT THAT THE SUPREME
COURT AFFIRMED THE PROPRIETY OF THE INJUNCTION ISSUED BY IT.
VI
THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE AWARD OF
DAMAGES IN FAVOR OF RESPONDENT HACIENDA BENITO, INC. DESPITE
THE FACT THAT THERE WAS NO BASIS IN THE EVIDENCE FOR THE AWARD.
VII
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN DISCHARGING
THE RESPONDENT SPOUSES PHILLIPS FROM THEIR JOINT AND SEVERAL
GUARANTEE OF YOUR PETITIONERS' CREDIT AND IN DISALLOWING
INTEREST TO RUN THEREON WITHOUT ANY BASIS OR REASON DESPITE
ENTERED INTO BETWEEN YOUR PETITIONER, THE RESPONDENTS ROBERT
O. PHILLIPS HIS WIFE MAGDALENA AND ROBERT . PHILLIPS & SONS, INC.
VIII
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN DISALLOWING
ATTORNEY'S FEES AND MORAL AS WELL AS EXEMPLARY DAMAGES IN
FAVOR OF YOUR PETITIONER PEREZ RUBIO DESPITE THE FACT THAT THIS
HONORABLE COURT HAD CLEARLY SHOWN THAT YOUR PETITIONER HAD
BEEN IMPROPERLY SUED AND DESPITE THE FACT THAT THIS HONORABLE
COURT HAD ALREADY RULED THAT THE IMPLEADING OF OTHER PARTIES
WAS PROPER AND NECESSARY FOR THE PROTECTION OF HIS RIGHTS.
IX
THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN DISCHARGING
RESPONDENTS MANUFACTURERS BANK AND TRUST CO., INC., (MBTC) AND
VICTORIA VALLEY DEVELOPMENT CORPORATION FROM ANY LIABILITY TO
YOUR PETITIONER DESPITE THEIR VERY ACTIVE PARTICIPATION IN
ATTEMPTING TO AND IN ACTUALLY COMMENCING TO REMOVE ALL OF THE
ASSETS OF HACIENDA BENITO, INC., AND TRANSFERRING THEM TO
RESPONDENT VVDC.
The first two assigned errors are in relation to the original complaint in Civil Case No.
8632 filed by Phillips and Sons, Inc., and the Phillips spouses against petitioner
Perez Rubio for alleged unlawful interference in the transaction between the
respondents on one hand and Alfonso Yuchengco on the other hand.
As earlier stated, because of the issuance of a preliminary injunction ex parte which
restrained petitioner Perez Rubio from interfering with the Yuchengco transaction
and the denial of a motion to dissolve the injunction in Civil Case No. 8632, petitioner
Perez Rubio was constrained to file a petition for certiorari with this Court in G.R. No.
24581 alleging that the lower court committed a grave abuse of discretion in issuing
the preliminary injunction.
Resolving the matter on the propriety of the preliminary injunction, we ruled:
It is obvious that what the plaintiffs in Civil Case No. 8632 considered as interference,
on the part of the therein defendant (petitioner herein) with the negotiations or
transaction at that time being carried on between said plaintiffs, on one hand, and
Alfonso T. Yuchengco, on the other, regarding the sale of the shares of stock of
Hacienda was said defendant's intention to enforce his right to collect from Robert O.
Phillips and Sons, Inc. and its guarantors, the Phillips spouses, the unpaid balance-
P4,250,000.00-due to him from the latter of the purchase price of their shares in
Hacienda mentioned at the beginning hereof. As a matter of fact, when said
defendant filed his answer in Civil Case No. 8632 interposing therein a counterclaim
for the collection of said unpaid balance, the plaintiffs therein charged him with
having violated the terms of the writ of preliminary injunction issued by the
respondent judge. Proceedings in connection with this charge, however, were held in
abeyance by reason of the writ of preliminary injunction ion We issued in the present
case.
After a careful consideration of the material facts and the law applicable to them, We
are of the opinion and so hold, that the writ of preliminary injunction issued ex parte
by the respondent judge was unjust and improvident. Without hearing the party
concerned, and without any legal justification, it restrained a creditor (Perez Rubio)
from enforcing his undenied right to collect from his debtor and the latter's guarantors
the sum of P4,250,000.00 representing the unpaid balance of the purchase price of
his shares in Hacienda. It is a fact that the debtor Corporation (Robert O. Phillips and
Sons, Inc.) and its guarantors, the Phillips spouses, do not deny the indebtedness,
and yet, notwithstanding its extraordinary amount, they attempted to sell all the
shares of stock of Hacienda without making any reasonable provision for the
payment thereof. For them to prevent their creditor from enforcing his right to collect,
and for the Court to enjoin said creditor from enforcing that right in any lawful manner
is, in any language, rank injustice. (23 SCRA 773, 780).
The petitioner assumes that the foregoing pronouncement categorically ruled that he
did not unlawfully and inofficiously interfere in the transaction between respondents
Phillips and Sons and the Phillips spouses on one hand and Alfonso Yuchengco on
the other hand and that his acts were a valid enforcement of his rights as a creditor.
This assumption is incorrect. It is very clear from the decision that we ruled on the
impropriety of the manner in which the preliminary injunction was issued. We stated
that without hearing the party concerned and without any legal justification, the trial
court restrained creditor Perez Rubio from enforcing his undenied right. We could not
have possibly ruled as suggested because the case before us was a petition for
certiorari alleging that the trial court committed a grave abuse of discretion in issuing
the preliminary injunction ex parte. The issue to be resolved was a pure question of
law based on the circumstances surrounding the issuance of the questioned
preliminary injunction ex parte. Whether or not the petitioner unlawfully and
inofficiously interfered with the aforementioned transaction was a question of fact and
any grave abuse of discretion could not, at that time, be resolved by this Court. A trial
on the merits was necessary, Our decision in the second petition for certiorari, filed
by the petitioner in connection with Civil Case No. 8632 lifted the temporary
restraining order in so far as it restrained the trial court from proceeding with the
hearing and ordered the cases including the third party complaint to proceed
accordingly.
Trial on the merits accordingly proceeded after which the trial court concluded that
the petitioner unlawfully and inofficiously interfered with the subject transaction as a
result of which Phillips and Sons and the Phillips spouses suffered damages. This
conclusion was upheld by the Court of Appeals. The appellate court justified its ruling
as follows:
It is a fact, which defendant Perez Rubio does not and can not deny. that he had
informed Alfonso Yuchengco of his vendor's lien over the unpaid shares of stock in
the Hacienda Benito, Inc., and that he still had the right to rescind the sale of his
stocks to ROPSI (t.s.n., August 7, 1974, pp. 31-35; Exhibit D-1-A-Plaintiffs, I Folder
of Exhibits, p. 2). As stated before, Alfonso Yuchengco cooled off, as it were, and
withdrew from the transaction (t.s.n., October 30, 1974, pp. 94-95) to which he had
previously given his conformity (Exhibits 18-, 21 -Rubio-II Folder of Exhibits, pp. 37,
43) because of Perez Rubio's refusal to withdraw his letter to Yuchengco containing
his threat to rescind the sale of his stocks to ROPSI. If this Court has said it before it
is repeated here for emphasis that Alfonso Yuchengco had no intention to holding an
empty bag, and for defendant Perez Rubio to block the plaintiffs from consummating
a transaction the terms of which have already been approved in principle providing
for the payment of Perez Rubio's credit is unlawful and inofficious interference.
It should be noted that defendant Perez Rubio had already delivered completely the
shares of stock of hacienda Benito, Inc. which he had sold to plaintiff ROPSI and that
these shares were transferred in the books of the Hacienda in the name of ROPSI
(t.s.n., August 5, 1974, pp. 129-130, 131-132, 133-134; August 7, 1974, p. 62; May
14, 1975, p. 32). The plaintiffs therefore had all the right to dispose of the shares of
stock. Defendant Perez Rubio also admitted that there was no agreement or
document prohibiting plaintiff ROPSI from selling the said shares of stock to any
person (t.s.n., August 3, 1974, pp. 12-13) nor any agreement or document requiring
his prior permission before ROPSI could sell or otherwise dispose of the said shares
of stock (lbid., p. 14). There was also no vendor's lien annotated in the books of
Hacienda Benito, Inc. over the said shares of stock (t.s.n., August 7, 1974, pp. 14-16,
63, 66-67), What is more, the plaintiffs have made reasonable provisions for the
payment of the unpaid balance due the defendant in their transaction with Alfonso
Yuchengco (Exhibit 18-Rubio, paragraph 19, II Folder of Exhibits, pp. 36-37, Exhibit
20-Rubio, paragraphs 8 and 12, lbid., pp. 41-42, Exhibit 22-Rubio, paragraph 5, lbid.,
p. 46; t.s.n., May 14, 1975, pp. 46, 119-120). Clearly, there appears no valid reason
why defendant Perez Rubio had to block the plaintiffs' transaction with Alfonso
Yuchengco, except 'to destroy' and 'ruin' the plaintiffs (t.s.n., May 14, 1975, pp. 129-
130), which defendant Perez Rubio himself vowed he would do (t.s.n., May 14, 1975,
p. 136).
A thorough examination of the record reveals that the factual findings of the appellate
court are incomplete and do not reflect the actual events that transpired concerning
the sale of shares of stock of Hacienda Benito to Alfonso Yuchengco. The important
point left out by the appellate court refers to the controversial November 24, 1964
letter of the petitioner to Phillips and Sons and to the Phillips spouses wherein the
petition stated that he has a vendor's lien over the shares of stock of Hacienda Benito
and that he still has the option to rescind the contract as regards his sale of stock of
the Hacienda. A copy of the letter was sent to Alfonso Yuchengeo, the prospective
buyer of the shares of stock of Hacienda Benito, but even after receipt of the letter,
the negotiations on the sale of the shares of stock of Hacienda Benito to Alfonso
Yuchengco continued. This is shown by the following events:
1. In a letter dated December 17, 1964, Hacienda Benito through Robert O. Phillips
as president, Phillips and Sons, through Robert Phillips as president and Robert
Phillips in his own behalf offered to Alfonso Yuchengco an option to buy 100% of the
shares of stock of Hacienda Benito. It is to be noted that the first option contained in
the letter of November 17, 1964 offered to Alfonso Yuchengco was the sale of 80% of
the shares of stock of Hacienda Benito. In reply Alfonso Yuchengco in his letter to the
Phillips spouses and Phillips and Sons dated January 6, 1965 accepted the option
but with modifications as to the terms of the sale, Included in the terms of the sale
were provisions for the payment of the seller's debts.
2. In a letter dated February 12, 1965 from the law firm of Ramirez and Ortigas,
counsel of the petitioner to Phillips and Sons and the Phillips spouses in relation to
the ongoing negotiations for the settlement of the P3,800,000.00, it was stated that
the petitioner was not willing to extend the manner of payment of the credit further
than April 30, 1967. Contained in the same letter of the law firm was an offer of a
compromise as to the manner of payment.
3. In reply to the aforementioned letter, Phillips and Sons and the Phillips spouses
wrote a letter dated February 16, 1965 stating their final proposal as to the manner of
payment. ln accordance with the final proposal, the last payment of the debt would be
on April 30, 1968. On the basis of the terms and conditions of the final proposal,
Phillips and Sons and the Phillips spouses requested a "waiver for the consummation
of the proposed sale to Mr. Alfonso Yuchengco" (Exhibit 22-Perez Rubio, Exhibits 11,
p. 46).
4. In a letter dated February, 22, 1965, the law firm of Ramirez and Ortigas informed
Phillips and Sons that their client, the petitioner, rejected the plan to modify in any
way the original agreements for payment and that the letter was a formal notice that
the complaint for the enforcement of the original contracts would be filed on March 8,
1965 unless the case is settled in a satisfactory manner. (Exhibit 23-Perez Rubio,
Exhibit 11, p. 80).
As a consequence of the February 22, 1965 letter of the petitioner, Juan T. David,
counsel for Phillips and Sons wrote the petitioner himself. In this letter dated March
12, 1965, Atty. David requested that the petitioner withdraw his controversial
November 24, 1964 letter. According to David the said letter was the "only obstacle
to the conclusion of the transaction between my client, Robert O. Phillips and Sons,
Inc. and Mr. Yuchengco involving the shares of stock of Hacienda Benito, Inc." A
copy of the letter was attached to a letter sent to Yuchengco also dated March 12,
1965 informing him about the failure to obtain the desired waiver and expressing the
view that "waiver is unnecessary."
In another letter dated March 26, 1965 addressed to the petitioner, Atty. David gave
the petitioner until March 29, 1965 to withdraw unconditionally the controversial letter.
The petitioner was informed that Yuchengco had given an ultimatum that if waiver
was not obtained by March 31, 1965, the transaction would have to be cancelled.
In reply to the March 26, 1965 letter, the petitioner sent a letter addressed to Phillips
and Sons and the Phillips spouses informing them that the letter served as notice that
all negotiations had been cancelled. Perez Rubio gave them until March 31, 1965 to
pay the balance of the payment for his shares of stock plus interests and attorney's
fees.
The letter served as the last communications between the petitioner and Phillips and
Sons and the Phillips spouses before March 31, 1965 when Civil Case No. 8632 was
filed.
Taking into consideration, all the details of the negotiations in the sale of the shares
of stock of Hacienda Benito, Inc. from Phillips and Sons to Mr. Yuchengco, there is
no factual or legal basis for the appellate court's conclusion that the petitioner
unlawfully and inofficiously interfered with the negotiations.
We fail to see any reason why the petitioner should be accused of unlawful
interference in maintaining his stand regarding the sale of shares of stock of
Hacienda Benito, Inc. that he still had the option to rescind the contract between him
and Phillips and Sons and stating the existence of his vendor's hen over said shares
of stock.
The petitioner never pretended that he still had full control of the shares of stock
which he sold to Phillips and Sons. He in fact admitted that the shares of stock were
already transferred to the corporation and that he did not have a recorded lien therein.
He merely made of record his right to rescind under the original contract of sale. The
details pertaining to the earlier transaction governing the sale of the shares of stock
between the petitioner and Phillips and Sons were in fact, all known to Yuchengco.
And, more important, it is obvious from the records that the petitioner's interest was
only in the payment of the P4,250,000.00 balance due him from Phillips and Sons.
Thus, in a meeting called by Yuchengco where the negotiations for the sale of the
shares of stock of Hacienda Benito were discussed, the petitioner made it clear that
he was amenable to his waiving or withdrawing the controversial November 24, 1964
letter provided his interests would be taken care of and protected. (Testimony of
Perez Rubio, TSN., August 5, 1970, pp. 44-50). Obviously, the petitioner felt that the
payment of his P4,250,000.00 was not secured under the terms of payment
proposed by Yuchengco. He had the right to refuse to withdraw the November 24,
1964 letter. We see nothing illegal or inofficious about the letter or the refusal to
withdraw it.
Whether or not Yuchengco, the prospective buyer, believed that Perez Rubio had a
good ground to rescind and whether or not the buyer's interest would be prejudiced
were matters of decision-making dependent solely on hint In fact the March 12, 1965
letter of Atty. Juan T. David to the petitioner is quite revealing. Phillips and Sons
admitted that under the circumstances, the petitioner's waiver of the controversial
November 24, 1964 letter was unnecessary. The letter disclosed the fact that the
waiver issue was extensively discussed by the parties including their counsel's
maintaining the view that waiver was unnecessary. Thus:
March 12, 1965
MR. MIGUEL PEREZ RUBIO
c/o Ramirez and Ortigas Law Office
1515 Roxas Boulevard
Manila
Sir:
xxx xxx xxx
Taking advantage of the permission given to us by Mr. Yuchengco, to take up the
aforementioned legal aspect of the 'waiver', with his counsel, Atty. Alberto M. Meer,
we conferred with the latter and expressed our understanding of a 'waiver', and the
conclusion that it has no place in the present case, considering the fact that a 'waiver'
is only appropriate where the person from whom it is sought has a direct recorded
lien on the subject thereof, particularly when the subject is a negotiable instrument;
that, at best, a withdrawal of your aforementioned letter should be sufficient to allay
the fear of Mr. Yuchengco on the possibility of a suit which might involve him after the
sale, if the 'waiver' is not obtained from you.
We also called the attention of Mr. Yuchengco that the shares of stock subject of the
transaction are clean and un-encumbered, therefore, there is nothing to waive on the
part of any person; that the negotiability of the said shares of stock is not impaired by
the fact that the owner thereof is indebted to another, especially considering the fact
that, instead of securing your credit against my client with the encumbrance of its
shares of stock, you preferred the personal guaranty of Mr. and Mrs. Robert O.
Phillips, as recorded in the corresponding instruments.
Atty. Meer told us that, if we could obtain from you the letter of withdrawal and the
phraseology thereof is adequate, the only obstacle to the consummation of the
transaction will have been removed and he is disposed to advise his client, Mr.
Yuchengco, to go through with the purchase of the shares of stocks of the Hacienda
Benito, Inc., therefore, we reiterate our request for the withdrawal of your
aforementioned letter.
xxx xxx xxx
Very truly yours,
(SGD.)
JUAN T. DAVID
Counsel
for ROBERTO. PHILLIPS
& SONS, INC.
A carbon copy of a March 12, 1965 letter from Atty. David to Mr. Alfonso Yuchengco
was attached to the letter addressed to Mr. Perez Rubio. In the letter to Mr.
Yuchengco, the counsel for Phillips and Sons stressed the View that the waiver or
withdrawal of the Perez Rubio letter was unnecessary.
The conclusion to be drawn from these facts is that the petitioner is not liable for any
form of damages in favor of Phillips and Sons and the Phillips spouses.
Consequently, we come to the issue of whether or not the Phillips spouses are
solidarily liable for the debt of Phillips and Sons. This is the issue raised in the
seventh assignment of error.
It should be remembered that on June 23, 1964, Philipps and Sons and the Phillips
spouses entered into an agreement wherein, in consideration of the extension
granted to Phillips and Sons in the payment of the latter's outstanding debt to the
petitioner, the Phillips spouses ". . . jointly and severally guaranteed all the
installments and other obligations of Robert O. Phillips & Sons, Inc. under the signed
contract of sale dated April 13, 1963. " Phillips and Sons was not able to pay the
petitioner as covenanted in the agreement.
The agreement was not assailed in any of the cases involving the petitioner Phillips
and Sons and the Phillips spouses. Both parties admit the veracity of the agreement.
The agreement serves as the law between the parties. The full enforcement of the
agreement's provisions necessarily is in order. We rule that per agreement, the
Phillips spouses are jointly and severally liable to the petitioner for the outstanding
debt of Phillips and Sons with interest therein from April 30, 1964 until fully paid.
The third, fourth, fifth and sixth assignments of errors refer to the actual damages
awarded to Manufacturers Bank and Hacienda Benito by the appellate court.
Both awards were premised on the appellate court's finding that Manufacturers Bank
and Hacienda Benito were wrongfully impleaded as parties by the petitioner in his
two petitions earlier filed wherein two injunctions were issued by this Court. As a
result, the parties allegedly suffered damages. The appellate court premises its
findings on the following justifications:
(a) Even before the aborted transaction between ROPSI and Alfonso Yuchengco,
Hacienda Benito, Inc. was already indebted to the Manufacturers Bank the year
before. Appellant ROPSI had also executed real estate mortgages on 78 hectares
out of the 135-hectare holding of Hacienda Benito, Inc. in favor of the Manufacturers
Bank. Subsequently, the Hacienda executed a Memorandum Agreement on June 5,
1965 with Victoria Valley Development Corporation, with the conformity of the
Manufacturers Bank as mortgage creditor, where the financial obligations of the
Hacienda and its other affiliate corporations were restructured thus freeing them from
their financial obligations to the Manufacturers Bank in exchange for 78 hectares of
land which were then mortgaged with the Manufacturers Bank, let alone the payment
of a huge amount of interest on the principal. As of May 21, 1965, the Hacienda and
its affiliates have not paid the Manufacturers Bank P 7,459,042.98 which was already
due and demandable forcing the Manufacturers Bank to file Civil Case No. 8766
against the Hacienda for the foreclosure of the mortgages which resulted in a
compromise agreement between the parties, which the court below approved.
(Defendant's Record on Appeal, pp. 498-499).
(b) As early as October 8, 1965, Miguel Perez Rubio knew that no assets have been
transferred under the Memorandum Agreement of June 5, 1965 and that Victoria
Valley Development Corporation has considered said Agreement without force and
effect making it moot and academic for purposes of rescission (Ibid, p. 501),
(c) There is nothing in the promissory notes and the real estate mortgages forming
part of the records of Civil Case No. 8766 to show that they have been executed in
bad faith or to defeat the credit of Miguel Perez Rubio against ROPSI since they were
executed in 1963 over 78 hectares out of the 135- hectare holding of Hacienda
Benito, Inc. in the Victoria Valley Subdivision so that prior to the default of ROPSI in
the payment of the third installment on August 31, 1964 in favor of Perez Rubio, there
were already prior and existing mortgages over the 78 hectares owned by the
Hacienda in favor of the Manufacturers Bank (Ibid., pp. 501- 502).
(d) The existence of sufficient assets for the payment of the credit of Perez Rubio
failed to contradict the evidence showing the existence of unencumbered properties
of Hacienda Benito, Inc. which were more than sufficient to meet his credit against
ROPSI in the amount of P4,250,000.00 as well as the evidence showing the good
financial position of the Hacienda as shown by Exhibit II -Benito, also marked as
Exhibit 9-MBTC, III Folder of Exhibits, p. 129 (Ibid., pp. 502- 503).
(e) The admission of Perez Rubio that he did not investigate with the corresponding
registers of deeds and other entities the status of the unencumbered properties of
Hacienda Benito, Inc., ROPSI, Robert O. Phillips and his wife, and the other
corporations owned by the Phillips spouses before filing the third-party complaints
against the Manufacturers Bank & Trust Company, Hacienda Benito, Inc. and
Victoria Valley Development Corporation (t.s.n., August 21, 1974, pp. 133- 138). . . .
xxx xxx xxx
These findings do not justify the appellate court's conclusion that Manufacturers
Bank and Hacienda Benito were wrongfully impleaded and that Perez Rubio owes
them millions of pesos in damages as a result.
In the welter of cases filed by the contending parties over the same properties and
the confusion spawned by the many incidents which gave rise to separate petitions,
one basic fact tends to be forgotten. It is this. The Perez Rubio spouses sold
Hacienda Benito, Inc. to Phillips and Sons for P5,500,000.00 in 1963 or more than 22
years ago. P50,000.00 was paid immediately; P1,2000,000.00 was due in 60 days; in
another 6 months, a third payment of P1,250,000.00 was to be paid. The full amount
should have been paid by April 30, 1967. Up to now, P4.25 million of the basic
indebtedness has not been paid.
The Perez Rubio spouses were not paid as agreed in the contract. When the buyers
could not comply with their commitments, the Perez Rubios graciously acceded to a
deferment of overdue accounts under a new agreement. Still the payments could not
be effected under the extension.
All the transactions which led to the litigations by, against, or among Manufacturers
Bank, Hacienda Benito, Phillips and Sons, and the Phillips spouses were entered into
at the time when payments on the petitioner's shares of stock were overdue, A
person who has not been paid a balance of P4,250,000.00 on a sale of
P5,500,000.00 will naturally be extremely disturbed to see the buyers and other
parties dealing with the properties in a manner which could be reasonably construed
as calculated to bring them beyond his reach and making full payment of the debt
extremely difficult, if not impossible. It was a normal reaction and to be expected for
the original owner to inform third persons trying to buy the still unpaid properties
about that fact of non- payment and to emphasize to them his right and options under
the original contract of sale. It was also normal to include the third party
would-be-buyers who had taken sides with the defaulting original buyer in the
litigations brought against Perez Rubio, the man seeking to protect his endangered
interests.
The inclusion of Manufacturers Bank and Hacienda Benito was part and parcel of the
efforts to protect Perez Rubio's interests. It should be noted that petitions wherein
they were impleaded had for their subject matter the same unpaid obligation of
P4,250,000.00 from Phillips and Sons. The properties to be foreclosed by the Bank
represented properties of Perez Rubio for which he had not yet been paid.
There is nothing in the records to show that, far from protecting his P4.25 million,
Perez Rubio filed the third party complaint to vex and humiliate Manufacturers Bank
and Hacienda Benito. As we ruled in the case of R & B Surety and Insurance
Company Inc, v. Intermediate Appellate Court (129 SCRA 736):
xxx xxx xxx
While petitioner might have been negligent in not verifying the authenticity of the
signatures in the indemnity agreement, still the same does not amount to bad faith as
to justify the award of damages and the conclusion that the act of filing the complaint
against respondent Uson amounts to malicious prosecution. In filing the action, the
petitioner was only protecting its business interests by trying to recover the amount it
had already paid to the Philippine National Bank.
In a long line of cases, we have consistently ruled that in the absence of a wrongful
act or ommission or of fraud or bad faith, moral damages cannot be awarded and that
the adverse result of an action does not per se make the action wrongful and subject
the actor to the payment of damages, for the law could not have meant to impose a
penalty on the right to litigate. . . .
The actual damages awarded to both the Manufacturers Bank and Hacienda Benito
apart from having no legal basis were also not duly proven. In fact, the appellate
court made no findings of fact on how it arrived at the total amount of P895,085.14
awarded to Manufacturers Bank much less did the court discuss the damages
awarded to Hacienda Benito. The damages awarded to Hacienda Benito were
only impliedly affirmed by the dispositive portion of the decision wherein it declared
that the decision of the lower court was affirmed in toto.
This can not be done. As we ruled in Perfecto v. Gonzales (128 SCRA 635):
xxx xxx xxx
. . . [A]ctual or compensatory damages are those recoverable because of pecuniary
loss in business, trade, property, profession, job, or occupation, and the same must
be proved; otherwise, if the proof is flimsy and non- substantial, no damages will be
given. In the case of Malonzo v. Galang, log Phil. 16, the Court, speaking through
Justice J.B.L. Reyes, held that with respect to compensatory damages assuming that
they are recoverable under the theory that petitioner had filed a clearly unfounded
suit against respondent, the same constitutes a tort against the latter that makes the
former liable for all damages which are the natural and probable consequences of
the act or omissions complained of. These damages, cannot, however, be presumed
and must be duly proved (Article 2199, New Civil Code). Well settled is the rule that
even if the complaint filed by one against the other is clearly unfounded this does not
necessarily mean, in the absence of specific facts proving damages, that said
defendant reany suffered actual damage over and above attorney's fees and costs.
The Court cannot rely on its relations as to the fact and amount of damages. It must
depend on actual proof of the damages alleged to have been suffered.
Considering these conclusions, the final question to be resolved is whether or not the
petitioner is entitled to moral and exemplary damages? This is the subject matter of
the eighth and ninth assigned errors.
We have stated that the petitioner had valid reasons to implead Manufacturers Bank
and Hacienda Benito in his cases against Phillips and Sons and the Phillips spouses.
An assessment of the evidence in record shows that the filing of the complaint may
likewise be characterized as a sincere attempt on the part of Phillips and Sons and
the Phillips spouses to find means or to buy time to pay their debt to the petitioner. In
the case of Manufacturers Bank, the record shows that its active participation in the
transaction involving the properties of Hacienda was legitimate. While no damages
are due the Bank, neither is it liable for damages. As far as Victoria Valley is
concerned, we find no reason to conclude that it was really organized or actively
participated to prejudice the interests of the petitioner. The record shows that Victoria
Valley withdrew from the transaction involving the properties of Hacienda Benito
even before the filing of the third party complaint. The eighth and ninth assignments
of errors under consideration are, therefore, without merit.
WHEREFORE, the petition is GRANTED. The decision of the former Court of
Appeals is hereby REVERSED and SET ASIDE. The respondents Robert O. Phillips
and Sons and the Phillips spouses are declared to be jointly and severally liable to
the petitioner for the outstanding debt of Phillips and Sons in the amount of FOUR
MILLION, TWO HUNDRED FIFTY THOUSAND PESOS (P4,250,000.00) with
interest at the rate of eight (8%) percent per annum from April 30, 1964 until fully paid
as provided for in the parties' agreement dated August 13, 1963. Costs against the
respondents.
SO ORDERED.
 CHIANG KAI SHEK SCHOOL, petitioner,
vs.
COURT OF APPEALS and FAUSTINA FRANCO OH, respondents.

CRUZ, J.:

An unpleasant surprise awaited Fausta F. Oh when she reported for work at the
Chiang Kai Shek School in Sorsogon on the first week of July, 1968. She was told
she had no assignment for the next semester. Oh was shocked. She had been
teaching in the school since 1932 for a continuous period of almost 33 years. And
now, out of the blue, and for no apparent or given reason, this abrupt dismissal.

Oh sued. She demanded separation pay, social security benefits, salary differentials,
maternity benefits and moral and exemplary damages. 1 The original defendant was
the Chiang Kai Shek School but when it filed a motion to dismiss on the ground that it
could not be sued, the complaint was amended. 2 Certain officials of the school were
also impleaded to make them solidarily liable with the school.

The Court of First Instance of Sorsogon dismissed the complaint. 3 On appeal, its
decision was set aside by the respondent court, which held the school suable and
liable while absolving the other defendants. 4 The motion for reconsideration having
been denied, 5 the school then came to this Court in this petition for review
on certiorari.

The issues raised in the petition are:

1. Whether or not a school that has not been incorporated may be sued by reason
alone of its long continued existence and recognition by the government,

2. Whether or not a complaint filed against persons associated under a common

name will justify a judgment against the association itself and not its individual
Republic of the Philippines
members.
SUPREME COURT
Manila
3. Whether or not the collection of tuition fees and book rentals will make a school
profit-making and not charitable.
FIRST DIVISION

4. Whether or not the Termination Pay Law then in force was available to the private
G.R. No. L-58028 April 18, 1989
respondent who was employed on a year-to-year basis.
5. Whether or not the awards made by the respondent court were warranted.
We hold against the petitioner on the first question. It is true that Rule 3, Section 1, of
the Rules of Court clearly provides that "only natural or juridical persons may be
parties in a civil action." It is also not denied that the school has not been
incorporated. However, this omission should not prejudice the private respondent in
the assertion of her claims against the school.
As a school, the petitioner was governed by Act No. 2706 as amended by C.A. No.
180, which provided as follows:
Unless exempted for special reasons by the Secretary of Public Instruction, any
private school or college recognized by the government shall be incorporated under
the provisions of Act No. 1459 known as the Corporation Law, within 90 days after
the date of recognition, and shall file with the Secretary of Public Instruction a copy of
its incorporation papers and by-laws.
Having been recognized by the government, it was under obligation to incorporate
under the Corporation Law within 90 days from such recognition. It appears that it
had not done so at the time the complaint was filed notwithstanding that it had been
in existence even earlier than 1932. The petitioner cannot now invoke its own
non-compliance with the law to immunize it from the private respondent's complaint.
There should also be no question that having contracted with the private respondent
every year for thirty two years and thus represented itself as possessed of juridical
personality to do so, the petitioner is now estopped from denying such personality to
defeat her claim against it. According to Article 1431 of the Civil Code, "through
estoppel an admission or representation is rendered conclusive upon the person
making it and cannot be denied or disproved as against the person relying on it."
As the school itself may be sued in its own name, there is no need to apply Rule 3,
Section 15, under which the persons joined in an association without any juridical
personality may be sued with such association. Besides, it has been shown that the
individual members of the board of trustees are not liable, having been appointed
only after the private respondent's dismissal. 6
It is clear now that a charitable institution is covered by the labor laws 7 although the
question was still unsettled when this case arose in 1968. At any rate, there was no
law even then exempting such institutions from the operation of the labor laws
(although they were exempted by the Constitution from ad valorem taxes). Hence,
even assuming that the petitioner was a charitable institution as it claims, the private
respondent was nonetheless still entitled to the protection of the Termination Pay
Law, which was then in force.
While it may be that the petitioner was engaged in charitable works, it would not
necessarily follow that those in its employ were as generously motivated. Obviously,
most of them would not have the means for such charity. The private respondent
herself was only a humble school teacher receiving a meager salary of Pl80. 00 per
month.
At that, it has not been established that the petitioner is a charitable institution,
considering especially that it charges tuition fees and collects book rentals from its
students. 8 While this alone may not indicate that it is profit-making, it does weaken
its claim that it is a non-profit entity.
The petitioner says the private respondent had not been illegally dismissed because
her teaching contract was on a yearly basis and the school was not required to rehire
her in 1968. The argument is that her services were terminable at the end of each
year at the discretion of the school. Significantly, no explanation was given by the
petitioner, and no advance notice either, of her relief after teaching year in and year
out for all of thirty-two years, the private respondent was simply told she could not
teach any more.
The Court holds, after considering the particular circumstance of Oh's employment,
that she had become a permanent employee of the school and entitled to security of
tenure at the time of her dismissal. Since no cause was shown and established at an
appropriate hearing, and the notice then required by law had not been given, such
dismissal was invalid.
The private respondent's position is no different from that of the rank-and-file
employees involved in Gregorio Araneta University Foundation v. NLRC, 9 of whom
the Court had the following to say:
Undoubtedly, the private respondents' positions as deans and department heads of
the petitioner university are necessary in its usual business. Moreover, all the private
respondents have been serving the university from 18 to 28 years. All of them rose
from the ranks starting as instructors until they became deans and department heads
of the university. A person who has served the University for 28 years and who
occupies a high administrative position in addition to teaching duties could not
possibly be a temporary employee or a casual.
The applicable law is the Termination Pay Law, which provided:
SECTION 1. In cases of employment, without a definite period, in a commercial,
industrial, or agricultural establishment or enterprise, the employer or the employee
may terminate at any time the employment with just cause; or without just cause in
the case of an employee by serving written notice on the employer at least one
month in advance, or in the case of an employer, by serving such notice to the
employee at least one month in advance or one-half month for every year of service
of the employee, whichever, is longer, a fraction of at least six months being
considered as one whole year.
The employer, upon whom no such notice was served in case of termination of
employment without just cause may hold the employee liable for damages.
The employee, upon whom no such notice was served in case of termination of
employment without just cause shall be entitled to compensation from the date of
termination of his employment in an I amount equivalent to his salaries or wages
correspond to the required period of notice. ... .
The respondent court erred, however, in awarding her one month pay instead of only
one-half month salary for every year of service. The law is quite clear on this matter.
Accordingly, the separation pay should be computed at P90.00 times 32 months, for
a total of P2,880.00.
Parenthetically, R.A. No. 4670, otherwise known as the Magna Carta for Public
School Teachers, confers security of tenure on the teacher upon appointment as long
as he possesses the required qualification. 10 And under the present policy of the
Department of Education, Culture and Sports, a teacher becomes permanent and
automatically acquires security of tenure upon completion of three years in the
service. 11
It is easy to imagine the astonishment and hurt she felt when she was flatly and
without warning told she was dismissed. There was not even the amenity of a formal
notice of her replacement, with perhaps a graceful expression of thanks for her past
services. She was simply informed she was no longer in the teaching staff. To put it
bluntly, she was fired.
For the wrongful act of the petitioner, the private respondent is entitled to moral
damages. 14 As a proximate result of her illegal dismissal, she suffered mental
anguish, serious anxiety, wounded feelings and even besmirched reputation as an
experienced teacher for more than three decades. We also find that the respondent
court did not err in awarding her exemplary damages because the petitioner acted in
a wanton and oppressive manner when it dismissed her. 15
The Court takes this opportunity to pay a sincere tribute to the grade school teachers,
who are always at the forefront in the battle against illiteracy and ignorance. If only
because it is they who open the minds of their pupils to an unexplored world awash
with the magic of letters and numbers, which is an extraordinary feat indeed, these
humble mentors deserve all our respect and appreciation.
WHEREFORE, the petition is DENIED. The appealed decision is AFFIRMED except
for the award of separation pay, which is reduced to P2,880.00. All the other awards
are approved. Costs against the petitioner.
This decision is immediately executory.
SO ORDERED.

While admittedly not applicable to the case at bar, these I rules nevertheless reflect
the attitude of the government on the protection of the worker's security of tenure,
which is now guaranteed by no less than the Constitution itself. 12

We find that the private respondent was arbitrarily treated by the petitioner, which
has shown no cause for her removal nor had it given her the notice required by the
Termination Pay Law. As the respondent court said, the contention that she could not
report one week before the start of classes is a flimsy justification for replacing
her. 13 She had been in its employ for all of thirty-two years. Her record was
apparently unblemished. There is no showing of any previous strained relations
between her and the petitioner. Oh had every reason to assume, as she had done in
previous years, that she would continue teaching as usual.
 SECOND DIVISION

[G.R. No. 79552. November 29, 1988.]

 EVELYN J. SANGRADOR, joined by her husband RODRIGO SANGRADOR,
SR., Petitioners, v. SPOUSES FRANCISCO VALDERRAMA and TERESITA M.
VALDERRAMA, Respondents.
Enrique G. Arguelles, for Petitioners.
Rex Suiza Castillon for Respondents.
SYLLABUS
1. CIVIL LAW; SPECIAL CONTRACTS; LOAN; NO CEILING ON INTEREST OR
INTEREST RATES ON LOANS. — In line with this Court’s decision in Liam Law v.
Oriental Sawmill Co., Et Al., there is no longer any ceiling on interest or interest rates
on loans. This may be so in a situation where the parties openly and expressly agree
on a specific rate of interest to accrue on the loan but, as the Court of Appeals in its
decision under review correctly pointed out, in the case at bar, no interest rate is
expressly stipulated in the promissory note and deed of real estate mortgage.
2. ID.; ID.; ID.; IN THE ABSENCE OF CONTRACT, RATE OF INTEREST FOR
LOANS IS TWELVE PER CENT PER ANNUM. — The rate of interest for the loan or
forbearance of any money, goods or credits and the rate allowed in judgments, in the
absence of express contract as to such rate of interest, shall continue to be twelve
per cent (12%) per annum.
3. ID.; OBLIGATIONS AND CONTRACTS; EXTINGUISHMENT OF OBLIGATIONS;
EXTRAORDINARY INFLATION; CIRCUMSTANCES WHERE SUCH EXISTS,
EXPLAINED. — In Filipino Pipe and Foundry Corporation v. National Waterworks
and Sewerage Authority, this Court held: "Extraordinary inflation exists when ‘there is
a decrease or increase in the purchasing power of the Philippine currency which is
unusual or beyond the common fluctuation in the value of said currency, and such
decrease or increase could not have been reasonably foreseen or was manifestly
beyond the contemplation of the parties at the time of the establishment of the
obligation. (Tolentino Commentaries and Jurisprudence on the Civil Code Vol. IV, p.
284.)
4. ID.; ID.; ID.; ID.; CANNOT BE ASSURED. — Since petitioners failed to prove the
supervening of extraordinary inflation between 6 April 1984 and 7 December 1984 —
no proofs were presented on how much, for instance, the price index of goods and
services had risen during the intervening period — an extraordinary inflation cannot
be assumed; consequently, there is no reason or basis, legal or factual, for adjusting
the value of the Philippine Peso in the settlement of respondents’ obligation.
5. LEGAL ETHICS; ATTORNEY AND CLIENT; ATTORNEY’S FEES;
CONTRACTUAL PROVISION THEREFOR MAY BE MODIFIED BY COURTS IN
EXERCISE OF THEIR SOUND JUDICIAL DISCRETION. — The Court of Appeals
did not commit any error in reducing the award of attorney’s fees to P50,000.00. The
contractual provision for attorney’s fees may be modified by the courts in the exercise
of their sound judicial discretion.
DECISION
PADILLA, J.:
This is a petition for review on certiorari of the decision 1 of the Court of Appeals in
CA-G.R. CV No. 08813, dated 13 August 1987, which modified the decision 2 of the
Regional Trial Court of Iloilo City, Branch XXIII, in Civil Case No. 16210, entitled
"Evelyn J. Sangrador, joined by her husband, Rodrigo Sangrador, Plaintiffs, versus
Spouses Francisco Valderrama and Teresita Valderrama, Defendants."cralaw
virtua1aw library
The factual background of the case is narrated in the decision of the Court of Appeals
as follows:jgc:chanrobles.com.ph
"On April 11, 1983 the defendants-spouses Francisco and Teresita Valderrama
obtained a P500,000 loan from Manuel Asencio payable on or before April 12, 1984,
and secured by a real estate mortgage on their house and lot (actually 3 lots) in front
of the Jaro Plaza in Iloilo City (Exh. 9).
"Foreseeing that they would not be able to pay the loan and redeem their property
upon maturity of the loan, the defendants scouted around for money-lenders who
would be willing to lend them money with which to pay off their mortgage to Asencio.
"Through the help of a loan broker, Wilson Jesena, they were able to obtain on April
6, 1984 a P1,000,000 loan from the plaintiff Teresita Sangrador, who is an aunt of
Jesena, on the security of the same property which they redeemed from Asencio.
The loan is evidenced by the following promissory note (Exh. B) dated April 6, 1984
providing for the payment of P1,400,000 to the creditor ‘eight months after date’.
‘FOR VALUE RECEIVED, we jointly and severally promise to pay EVELYN J.
SANGRADOR, or order, at her address at No. 2 Locsin Street, Molo, Iloilo City,
Philippines, the sum of ONE MILLION FOUR HUNDRED THOUSAND PESOS
(P1,400,000.00) Philippine Currency, EIGHT (8) MONTHS after date without need of
demand.
‘Should we default in the payment of the obligation or in the manner of performance
thereof and it shall become necessary to enforce and collect on this note by or
through an attorney, the makers shall jointly and severally pay TWENTY (20) PER
CENTUM of the amount due, principal and interest and charges then unpaid, which
in no case shall be less than P1,000.00.
‘The makers hereby submit to the jurisdiction of the Municipal Trial Court of Iloilo or
the Regional Trial Court of Iloilo, Sixth Judicial Region, Iloilo City, as the case may be,
in the event of litigation arising from this note.
(illegible) (illegible)
(Exh. B)
"The debtors allege that the amount actually received by them was only P1,000,000
the disposition of which was itemized by the broker, Wilson Jesena, on a memo pad
of ‘Jesena Realty’ as follows:chanrob1es virtual 1aw library
‘From the desk of:chanrob1es virtual 1aw library

‘The makers of this note, jointly and severally undertake that in the event that an REALTOR WILSON G. Jesena, Jr.
extraordinary inflation of the Philippine Peso should supervene between now and
eight (8) months after date, then the value of the Philippine Peso at the time of the President & Gen. Manager.
establishment of this obligation, shall be the basis of payment pursuant to Art. 1250
of the Civil Code of the Philippines, and for this purpose, we hereby acknowledge the EXPENSES
official exchange rate of the Philippine Peso to the US Dollar at P14.002 to $1. The
corresponding adjustment in the value of the Philippine Peso shall be made in the P 625,000.00 — Manuel Asencio
event that at the time of the maturity of this obligation, the rate of exchange will have
changed as a result of the supervening inflation. We further agree that the official rate 50,000.00 — Commission Boy
of exchange as set by the Central Bank of the Philippines for private transactions,
shall be the basis of this adjustment. 4,000.00 — Atty. Arguelles

‘This note is secured by a Real Estate Mortgage over three (3) parcels of residential 13,398.69 — Transfer fees —
land, Lots 700, 701 and 750, of the Cadastral Survey of Jaro, covered by TCT Nos.
T-41719, T-41721 and T-41720, respectively, of the Registry of Deeds for the City of Register of Deeds and B.I.R.
Iloilo, together with the improvements thereon.
__________
‘In case of judicial execution of this obligation or any part thereof, the debtors waive
all their rights under the provisions of Rule 39, Sec. 12, of the Rules of Court. P 692,398.69

‘EXECUTED in the City of Iloilo, Philippines, on this 6th day of April 1984. P1,000,000.00

(SGD) TERESITA MONTINOLA-VALDERRAMA — 692,398.69

Maker ——————

(SGD) FRANCISCO VALDERRAMA P 307,601.40 — Balance’ (Exh. 1).

Maker Accordingly, a Prudential Bank Cashier’s check for P625,000 was issued by
Sangrador to Asencio to redeem the defendants’ property from him. A receipt for that
Signed in the presence of:chanrob1es virtual 1aw library check was issued by the Valderramas to the plaintiff as follows:chanrob1es virtual
1aw library

‘RECEIPT
‘Date April 6, 1984
‘Received from EVELYN JESENA SANGRADOR the amount of SIX HUNDRED
TWENTY FIVE THOUSAND PESOS (625,000.00) Bank Prudential Bank Cashier’s
Check No. 14937. The balance of THREE HUNDRED SEVENTY FIVE THOUSAND
PESOS (P375,000.00) is to be paid to the undersigned after deducting all expenses
incurred in payment of real estate taxes, attorney’s fees, commission, Bureau of
Internal Revenue fees and Register of Deeds fees. All expenses are to be supported
by receipts.
(SGD) FRANCISCO (SGD)TERESITA MONTINOLA- VALDERRAMA
VALDERRAMA.
(Exh. 2)
"Plaintiff Evelyn Sangrador made a list of the expenses chargeable to the debtors
(Exh. 5) and submitted it to them (22 t.s.n., May 7, 1985). Payment of Atty. Arguelles’
attorney’s fees was duly acknowledged by him (Exh. 8). Jesena issued the following
receipt to the defendants for his 5% commission in procuring the loan for them;
‘RECEIPT
‘Received from Spouses Francisco Valderrama and Teresita Montinola Valderrama
the amount of FIFTY THOUSAND PESOS (P50,000.00) representing commission
for my efforts and expertise in effecting the procurement of a loan from a financier for
the amount of ONE MILLION PESOS (P1,000,000.00).
‘(SGD) REALTOR WILSON JESENA, JR.
REB License No. 3441-R’.
(Exh. 3)
"The balance of P307,601.40 was paid to the defendants by means of another
Prudential Bank check for which the corresponding receipt (Exh. 4) was also signed
by the mortgagors:chanrob1es virtual 1aw library
‘RECEIPT
‘April 7, 1984
‘Received from EVELYN J. SANGRADOR the amount of THREE HUNDRED SEVEN
THOUSAND SIX HUNDRED ONE PESOS AND FORTY CENTAVOS (P307,601.40)
representing full payment per Promissory Note dated April 6, 1984.
‘(SGD) FRANCISCO ‘(SGD) TERESITA MONTINOLA- VALDERRAMA
VALDERRAMA.
‘Paid by — Prudential Bank Chk.
#144358-2 — April 7, 1984 P307,601.40
c/o #0033-00022-0 paid by — Evelyn J. Sangrador’
(Exh. 4)
"Evelyn Sangrador admitted that the receipts (Exhs. 2 and 4) were issued to her by
the defendants (14, 21 t.s.n., May 7, 1985).
"When the defendants failed to pay the sum of P1,400,000 stated in the promissory
note on December 6, 1984 despite the plaintiffs’ written demands (Exhs. C and D) a
complaint for judicial foreclosure of the real estate mortgage was filed against them
on December 21, 1984.
(Exh. G)
"The defendants in their answer denied that the loan was P1,400,000. They alleged
that it was only P1,000,000.00 and that the additional P400,000 represented
usurious interest.
"At the trial, the plaintiff testified that the sum of P1,400,000 was received by the
defendants. She alleged that besides the expenses of P67,398.69 itemized in
Jesena’s and her lists (Exhs. 1 and 5), the check of P625,000 for Asencio and the
check of P307,601.40 which she issued to the defendants for the balance of the loan,
she gave to the defendants the amount of P400,000 in cash for which no receipt was
issued by them.
"On the other hand Francisco Valderrama testified that he thought all along that the
promissory note (Exh. B) and deed of real estate mortgage (Exh. A) provided for a
loan of only P1 million since that was the amount which they borrowed and received
from the plaintiffs. He allegedly did not notice that both documents provided for a loan
of P1,400,000.
"After the trial, the court rendered judgment on November 7, 1985 binding the
debtors to the terms of the promissory note and mortgage deed." 3
The dispositive part of the trial court’s judgment reads as
follows:jgc:chanrobles.com.ph
"WHEREFORE, in the light of the foregoing, considerations and findings of this Court,
judgment is hereby rendered:chanrob1es virtual 1aw library
1) Directing the foreclosure of the Deeds of Real Estate Mortgage (Exh.’A’);
2) Ordering the defendants to pay the mortgage obligation in the amount of
P1,400,000.00 plus the sum of P569,718.61 pursuant to the escalation clause
contained in paragraph 14 of the Deed of Real Estate Mortgage; to pay attorney’s
fees equivalent to twenty (20%) percentum of the total indebtedness including costs,
plus 12% interest per annum from December 18, 1984 until fully paid, all of which
shall be paid into Court within 90 days from date of the service of the order;
3) In default of such payment, ordering the mortgaged properties to be sold at public
auction to realize the mortgage debt and costs.
"SO ORDERED." 4
Private respondents, defendants in the trial court, appealed to the Court of Appeals,
where the appeal was docketed as CA-G.R. CV No. 08813. On 12 August 1987,
respondent Court of Appeals promulgated its decision 5 modifying the decision of the
trial court, the dispositive part of which reads, as follows:jgc:chanrobles.com.ph
"WHEREFORE, the appealed decision is hereby modified by ordering the
defendants, within (90) days from date of service of this decision, to pay to the
plaintiffs the principal loan of P1,000,000 with 12% interest per annum from April 6,
1984 until fully paid, P50,000 as attorney’s fees, and the costs of this suit. In default
of such payment, the mortgaged property shall be sold at public auction to realize the
sums due to plaintiffs under this judgment.
"SO ORDERED." 6
Hence, the present petition for review on certiorari of the decision of the Court of
Appeals. Petitioners present the following —
"ASSIGNMENT OF ERRORS
"1. FIRST ASSIGNED ERROR:chanrob1es virtual 1aw library
THE HONORABLE COURT OF APPEALS ERRED IN NULLIFYING THE
ESCALATION CLAUSE AS FOUND BY THE TRIAL COURT ORDERING THE
PAYMENT BY RESPONDENTS OF THE SUM OF P569,718.61.
"2. SECOND ASSIGNED ERROR:chanrob1es virtual 1aw library
THE HONORABLE COURT OF APPEALS ERRED IN FINDING THE PRINCIPAL
LOAN TO BE IN THE SUM OF P1,000,000.00 INSTEAD OF P1,400,000.00 AS
FOUND BY THE LOWER COURT.
"3. THIRD ASSIGNED ERROR:chanrob1es virtual 1aw library
THE HONORABLE COURT OF APPEALS ERRED IN REDUCING PETITIONER’S
AWARD OF ATTORNEY’S FEES TO P50,000.00 INSTEAD OF 20% OF THE
TOTAL INDEBTEDNESS AS FOUND BY THE TRIAL COURT." 7
The pivotal issue to be resolved in this case is whether or not the loan obtained by
private respondents from petitioners was in the amount of P1,400,000.00 or
P1,000,000.00 only.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph
In resolving this issue, the Court of Appeals in its decision under review,
held:jgc:chanrobles.com.ph
"After carefully reviewing the evidence, We are convinced that the trial court erred in
finding that the loan was P1,400,000 as stated in the promissory note (Exh. B) and
deed of mortgage. Like the trial court, We do not believe defendant Valderrama’s
allegation that he did not notice that the amount stated in the promissory note was
P1,400,000, instead of only P1,000,000, until demands for payment were sent to him
by the plaintiffs’ counsel. But neither do We believe the plaintiff Evelyn Sangrador’s
allegation that besides the sum of P1,000,000 admittedly received by the defendants
and evidenced by checks and receipts, she also gave them P400,000.00 in cash
without receipt. This is a case, therefore, where both parties prevaricated.
"The documentary evidence preponderantly proves that the loan was only
P1,000,000, not P1,400,000. The checks and receipts and the broker’s computations
found in Exhibit ‘1’ show clearly that the loan was only P1,000,000. Even the broker’s
P50,000 commission was computed on the basis of 5% of P1 million. The
circumstance that the alleged payment of P400,000 in cash to the debtors is not
evidenced by a receipt, is conclusive proof that it was not a part of the loan. The loan
was only P1 million.
"Obviously, the P400,000 that was added to the principal represents a hidden
interest charge for the promissory note contains no express provision fixing the rate
of interest on the loan." 8
Petitioners assail the foregoing findings and conclusions of the Court of Appeals,
contending that the amount of the loan as clearly and expressly stated in the Deed of
Real Estate Mortgage 9 and the Promissory Note, 10 is P1,400,000.00 and not
P1,000,000.00 only.
Because the findings of the trial court and the Court of Appeals differ on this crucial
factual issue, we have carefully reviewed and examined the evidence. The finding of
the Court of Appeals that the loan is in the amount of P1,000,000.00 only is
supported by substantial evidence.
The Promissory Note (Exh. B) and the Deed of Real Estate Mortgage (Exh. A)
executed by the respondents in favor of the petitioners indeed state that the loan is in
the amount of P1,400,000.00. However, the other documents executed by the parties
contemporaneously with said Promissory Note and Deed of Real Estate Mortgage
clearly show that the actual loan, i.e. the amount received by respondents, was only
P1,000,000.00. Thus, for the payment made by the petitioners for the account of the
respondents to Manuel Asencio, thereby releasing the mortgage on the property, so
that it could in turn be mortgaged to the petitioners, the respondents signed a receipt
in favor of the petitioners in the amount of P625,000.00 (Exh. 2). The respondents
executed another receipt in favor of the petitioners for the amount of P307,601.40
"representing full payment per promissory note dated 6 April 1984" (Exh. 4). The
broker who arranged for the loan signed a receipt in favor of the respondents for the
amount of P50,000.00 representing his commission in effecting the loan "for the
amount of P1,000,000.00" (Exh. 3). The attorney who assisted in the transaction was
paid attorney’s fees in the amount of P4,000.00 (Exh. 8). The petitioners submitted a
list of expenses chargeable to the respondents, totalling P13,398.69 covering
transfer fees, expenses in the Register of Deeds and payments to the BIR (Exh. 5).
All told, the loan of P1,000,000.00 obtained by the respondents from the petitioners
was applied or used in the following manner at the time the loan was
obtained:chanrob1es virtual 1aw library
P 625,000.00 — to pay Manuel Asencio (first creditor)
50,000.00 — to pay Wilson Jesena (for broker’s commission)
4,000.00 — to pay Atty. Enrique Arguelles
(for Attorney’s fees)
13,398.69 — to pay transfer fees and other expenses in
Register of Deeds and BIR
307,601.40 — to pay respondents as balance of the loan
——————
P1,000,000.09 TOTAL
The above itemization tallies with the breakdown of the proceeds of the loan, made
by the loan broker Wilson Jesena (Exh. 1).
Petitioners contend that over and above the P1,000,000.00, the amount of
P400,000.00 was delivered by them to the respondents in cash and that this delivery
was not evidenced by a receipt because, anyway, said amount (P400,000.00) is
already included in the statement of the loan amount in the promissory note and the
deed of real estate mortgage, which is P1,400,000.00. We find this contention to be
quite incredible, to say the least. It is contrary to ordinary human experience.
Normally, in delivering a hefty sum like P400,000.00 in cash, one would require some
sort of receipt or acknowledgment from the recipient.chanrobles.com : virtual law
library
Moreover, if petitioners were careful enough to require from the respondents the
separate receipts above-mentioned, there was no reason why they would not require
another receipt from the respondents for said amount of P400,000.00. And if, as
petitioners now allege, they did not anymore require a receipt for the P400,000.00
allegedly delivered by them in cash to the respondents because the loan amount
stated in the promissory note and the real estate mortgage already included said
amount of P400,000.00, then, by the same reasoning, there was no need for
requiring the other separate receipts abovementioned — as the amounts they
referred to were already a part of the loan amount stated in the promissory note and
real estate mortgage — and yet, said separate receipts were required by petitioners
of the respondents.
In short, we agree with the finding of the Court of Appeals that the disputed amount of
P400,000.00 was a hidden interest that the petitioners had required the respondents
to pay at the maturity of the loan, but said amount of P400,000.00 was not received
by or delivered to the respondents. This conclusion is strengthened by the fact that
the promissory note and the deed of real estate mortgage (Exhs. B and A), strangely
enough, do not contain any express stipulation on interest, or rate of interest, when
the loan involved therein is in the substantial amount of allegedly P1,400,000.00.
Petitioners may conceivably argue that, granting that the disputed amount of
P400,000.00 is interest on the loan of P1,000,000.00, yet, in line with this Court’s
decision in Liam Law v. Oriental Sawmill Co., Et Al., 11 there is no longer any ceiling
on interest or interest rates on loans. This may be so in a situation where the parties
openly and expressly agree on a specific rate of interest to accrue on the loan but, as
the Court of Appeals in its decision under review correctly pointed out, in the case at
bar, no interest rate is expressly stipulated in the promissory note and deed of real
estate mortgage. Circular No. 905 of the Central Bank dated 10 December 1982
provides:jgc:chanrobles.com.ph
"Section 1. The rate of interest, including commissions, premiums, fees and other
charges on a loan or forbearance of any money, goods, or credits, regardless of
maturity and whether secured or unsecured, that may be charged or collected by any
person, whether natural or juridical, shall not be subject to any ceiling prescribed
under or pursuant to the Usury law, as amended.
"Section 2. The rate of interest for the loan or forbearance of any money, goods or
credits and the rate allowed in judgments, in the absence of express contract as to
such rate of interest, shall continue to be twelve per cent (12%) per annum."
(Emphasis supplied).
The rate of interest for loans or forbearance of money, in the absence of express
contract as to such rate of interest, shall continue therefore to be twelve per cent
(12%) per annum. 12
Accordingly, the loan of P1,000,000.00 in the instant case should earn a twelve per
cent (12%) interest per annum computed from 6 April 1984 when the loan was
obtained by the respondents from the petitioners until paid.
Petitioners also impugn the Court of Appeals in nullifying the escalation clause in the
Deed of Real Estate Mortgage and Promissory Note. Under such escalation clause,
sustained by the trial court, the amount of P569,718.61 was awarded to herein
petitioners by way of adjustment of the loan of P1,400,000.00 after the eight (8)
month period of the loan. 13
The Deed of Real Estate Mortgage provides, among others, as
follows:jgc:chanrobles.com.ph
"14. That in the event that an extra-ordinary inflation of the Philippine peso should
supervene, it is hereby stipulated that the value of the currency at the time of the
establishment of the obligation shall be the basis of payment pursuant to Art. 1250 of
the New Civil Code of the Philippines. For this purpose, MORTGAGORS hereby
recognize the official exchange rate of the Philippine Peso to the US dollar at 14.002
to one. The corresponding adjustment in the value of the Philippine Peso shall be
made should at the time of the maturity of this obligation, the rate of exchange will
have changed as a result of the supervening inflation. It is further agreed that the
official rate of exchange as set by the Central Bank for private transactions shall be
the basis of this adjustment." (Emphasis supplied).
A cursory reading of the aforequoted provision of the Deed of Real Estate Mortgage
(similar stipulation is contained in the Promissory Note) shows that the escalation
clause takes effect "in the event that an extraordinary inflation of the Philippine Peso
should supervene," between the date the loan was granted and the date of its
maturity, in which case, the value of the (peso) currency at the time of the
establishment of the obligation shall be the basis of payment. To give meaning to the
"value of the currency at the time of the establishment of the obligation," the parties
agreed that on 6 April 1984 (date of loan), the exchange rate of the peso to the US
dollar was 14.002 to one.chanrobles.com.ph : virtual law library
Consequently, under the aforesaid escalation clause," (t)he corresponding
adjustment in the value of the Philippine Peso" at the maturity of the obligation
crucially depends upon the supervening of an extraordinary inflation in the sense
contemplated in Article 1250 of the Civil Code of the Philippines. 14
In Filipino Pipe and Foundry Corporation v. National Waterworks and Sewerage
Authority, 15 this Court held:jgc:chanrobles.com.ph
"Extraordinary inflation exists when ‘there is a decrease or increase in the purchasing
power of the Philippine currency which is unusual or beyond the common fluctuation
in the value of said currency, and such decrease or increase could not have been
reasonably foreseen or was manifestly beyond the contemplation of the parties at the
time of the establishment of the obligation. (Tolentino Commentaries and
Jurisprudence on the Civil Code Vol. IV, p. 284.)
An example of extraordinary inflation is the following description of what happened to
the deutschmark in 1920:chanrob1es virtual 1aw library
‘More recently, in the 1920’s Germany experience a case of hyper-inflation. In early
1921, the value of the German mark was 4.2 to the U.S. dollar. By May of the same
year, it had stumbled to 62 to the U.S. dollar. And as prices went up rapidly, so that
by October 1923, it had reached 4.2 trillion to the U.S. dollar!’ (Bernardo M. Villegas
& Victor R. Abola, Economics, An Introduction [Third Edition].
As reported, ‘prices were going up every week, then every day, then every hour.
Women were paid several times a day so that they could rush out and exchange their
money for something of value before what little purchasing power was left dissolved
in their hands. Some workers tried to beat the constantly rising prices by throwing
their money out of the windows to their waiting wives, who would rush to unload the
nearly worthless paper. A postage stamp cost millions of marks and a loaf of bread,
billions,’ (Sidney Rutberg, ‘The Money Baloon’ New York; Simon and Schuster, 1975,
p. 19, cited in ‘Economics, An Introduction’ by Villegas & Abola, 3rd Ed.).
‘While appellant’s voluminous records and statistics proved that there has been a
decline in the purchasing power of the Philippine peso, this downward fall of the
currency cannot be considered ‘extraordinary.’ It is simply a universal trend that has
not spared our country." 16
Since petitioners failed to prove the supervening of extraordinary inflation between 6
April 1984 and 7 December 1984 — no proofs were presented on how much, for
instance, the price index of goods and services had risen during the intervening
period — an extraordinary inflation cannot be assumed; consequently, there is no
reason or basis, legal or factual, for adjusting the value of the Philippine Peso in the
settlement of respondents’ obligation. Finally, the Court of Appeals did not commit
any error in reducing the award of attorney’s fees to P50,000.00. The contractual
provision for attorney’s fees may be modified by the courts in the exercise of their
sound judicial discretion. 17
WHEREFORE, the petition is DENIED. The decision of the Court of Appeals dated
12 August 1987 is AFFIRMED. With costs against petitioners.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 108555 December 20, 1994
RAMON TAN, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and RIZAL COMMERCIAL BANKING
CORPORATION, respondents.
Yulo, Quisumbing, Torres, Ali & Bello Law Offices for petitioner.
Siguion Reyna, Montecillo & Ongsiako for private respondent.
KAPUNAN, J.:
This petition seeks to set aside the decision of the Court of Appeals dated January 12,
1993 in CA-G.R. CV No. 31083, entitled Ramon Tan, plaintiff-appellee, vs. Rizal
Commercial Banking Corporation, defendant-appellant, reversing the decision of the
Regional Trial Court dated December 28, 1990 ordering respondent bank Rizal
Commercial Banking Corporation (RCBC), Binondo Branch, to pay petitioner
damages and attorney's fees in the amount of ONE MILLION THIRTY FIVE
THOUSAND (P1,035,000.00) PESOS.
The following are the uncontroverted facts:
Petitioner Ramon Tan, a trader-businessman and community leader in Puerto
Princesa, had maintained since 1976 Current Account No. 109058068 with
respondent bank's Binondo branch. On March 11, 1988, to avoid carrying cash while
enroute to Manila, he secured a Cashier's Check No. L 406000126 from the
Philippine Commercial Industrial Bank (PCIB), Puerto Princesa branch, in the
amount of Thirty Thousand (P30,000.00) Pesos, payable to his order. He deposited
the check in his account with RCBC Binondo on March 15. On the same day, RCBC
erroneously sent the same cashier's check for clearing to the Central Bank which
was returned for having been "missent" or "misrouted."1 The next day, March 16,
RCBC debited the amount covered by the same cashier's check from the account of
the petitioner. Respondent bank at this time had not informed the petitioner of its
action which the latter claims he learned of only 42 days after, specifically on March
16, when he received the bank's debit memo.2 Relying on the common knowledge
that a cashier's check was as good as cash, that the usual banking practice that local
checks are cleared within three (3) working days and regional checks within seven (7)
working days, and the fact that the cashier's check was accepted, petitioner issued
two (2) personal checks both dated March 18. Check No. 040719 in the name of Go
Lac for Five Thousand Five Hundred (P5,5000.00) Pesos was presented on April
25,3more than 30 days from petitioner's deposit date of the cashier's check. Check
No. 040718 in the name of MS Development Trading Corporation for Six Thousand
Fifty-Three Pesos and Seventy Centavos (P6,053.70) was returned twice on March
24, nine (9) days from his deposit date and again on April 26, twenty-two days after
the day the cashier's check was deposited for insufficiency of funds.4
Petitioner, alleging to have suffered humiliation and loss of face in the business
sector due to the bounced checks, filed a complaint against RCBC for damages in
the Regional Trial Court of Palawan and Puerto Princesa, Branch 47, docketed as
Civil Case No. 2101.5
During the trial, petitioner sought to prove:
First, that it was RCBC's responsibility to call his attention there and then that he had
erroneously filled the wrong deposit slip at the time he deposited the cashier's check
with the respondent bank's teller and it was negligence on RCBC's part not to have
done so;6
Second, that RCBC had been remiss in the performance of its obligation to the
petitioner when it "missent" the cashier's check to the Central Bank knowing, as it
should, that the source of the check, PCIB, Puerto Princesa Branch, is not included in
the areas required to be cleared by the Central Bank, a fact known to the banking
world and surely to the respondent bank;7
Third, that RCBC upon knowing of its error in "missending" the cashier's check to the
Central Bank did not attempt to rectify its "misclearing" error by clearing it seasonably
with PCIB, Puerto Princesa, thru its own RCBC Puerto Princesa Branch with whom it
had direct radio contact;8
Fourth, that as an old client, with twelve (12) years of good standing then, RCBC
should have given him more consideration by exerting greater diligence in clearing
the check with PCIB, Puerto Princesa, to protect its client's interest;9
Fifth, that RCBC failed to inform petitioner promptly that the check had not been
cleared, despite its debiting without delay the amount covered by the check from the
account of the petitioner and hastily charging the latter service fees immediately after
the return of the "missent checks"; 10 and
Finally, that the bounced checks resulting from RCBC's "misclearing" had put in
doubt his credibility among his business peers and sullied his reputation as a
community leader which he had painstakingly cultivated for years. His community
standing as a business-socio-civic leader was a source of pride for him in his old age
of 70. He cited being Chairman of Palawan Boy Scout Council, 2-term President of
the Rotary Club of Puerto Princesa, member of Palawan Chamber of Commerce and
Industry, member of the Monitoring Team of the Palawan Integrated Area
Development Project, member of Lion's Club, Philippine Rifle Pistol Association and
the Saturday Health Club to justify his claim for moral damages.11
In its defense, RCBC disowning any negligence, put the blame for the "misrouting" on
the petitioner for using the wrong check deposit slip. It insisted that the misuse of a
local check deposit slip, instead of a regional check deposit slip, triggered the
"misrouting" by RCBC of the cashier's check to the Central Bank and it was
petitioner's negligent "misuse" of a local deposit slip which was the proximate cause
of the "misrouting," thus he should bear the consequence.12
RCBC alleged that it complied strictly with accepted banking practice when it debited
the amount of P30,000.00 against petitioner's account since under Resolution No.
2202 dated December 21, 1979 of the Monetary Board, it is a matter of policy to
prohibit the drawing against uncollected deposits (DAUDS) except when the
drawings are made against uncollected deposits representing bank
manager's/cashier's/treasurer's checks, treasury warrants, postal money orders and
duly funded "on us" checks which may be permitted at the discretion of each
bank. 13 Without crediting the P30,000.00 deposit, petitioner's balance before and
after was Two Thousand Seven Hundred
Ninety-Two Pesos and the (P2,792.88) Eighty-Eight Centavos.14 Thus, it dishonored
the two (2) checks amounting to P11,553.70 since they were drawn against
insufficient funds. RCBC added that petitioner had no bills purchase (BP) line which
allows a depositor to receive or draw from proceeds of a check without waiting it to be
cleared. Besides, RCBC maintained, had it forwarded the Cashier's Check to PCIB
Puerto Princesa, Palawan, it would take at least twenty (20) working days for the
cashier's check to be cleared and it would take the same length of time to clear the
two (2) personal checks of Tan.15
RCBC further asseverated it was merely acting as petitioner's collecting agent and
it assumed no responsibilitybeyond care in selecting correspondents under the
theory that where a check is deposited with a collecting bank the relationship created
is that of agency and not creditor-debtor, thus it cannot be liable.16
Finally, respondent claimed that serious attempts were made to contact petitioner
through the telephone numbers in the signature specimen card of petitioner but to no
avail.17 The Assistant Branch Accountant of RCBC Binondo Branch testified that the
first telephone number in the card had been deleted from the phone company's list
and that when RCBC tried to contact petitioner's daughter Evelyn Tan-Banzon thru a
certain telephone number and when they asked for Evelyn Tan, they were told there
was no such person.18
The trial court rendered a decision on December 28, 1990 in petitioner's favor, the
dispositive portion 19 of which reads:
WHEREFORE, premises considered, plaintiff having proven the allegations of his
verified complaint by preponderance of evidence, the court hereby renders judgment
ordering defendant bank, Binondo Branch, Manila, to pay him damages and
attorney's fees in the total amount of P1,035,000.00 Philippine Currency, broken
down as follows: P700,000.00 as moral damages, P200,000.00 as exemplary
damages; P135,000.00 which is 15% of the sum herein awarded to plaintiff, as
attorney's fees and to pay costs of suit.
For having failed to prove by any receipt or writing to underpin it, plaintiff's claim for
actual damage is denied for lack of merit.
IT IS SO ORDERED.
RCBC appealed to the Court of Appeals contending that the trial court erred in
holding RCBC liable to petitioner on account of its alleged negligence and in
awarding petitioner moral and exemplary damages and attorney's fees.
The Court of Appeals on January 12, 1993 rendered a decision 20 with the following
decretal portion:
WHEREFORE, and upon all the foregoing, the decision of the court below is
REVERSED and this complaint is DISMISSED without pronouncement as to cost.
The Court of Appeals' decision is based on the following findings: 21
What appeared to have caused the unfortunate incident was that the plaintiff filled up
the wrong deposit slip which led to the sending of the check to the Central Bank when
the clearing should have been made elsewhere.
But the claim of the plaintiff that he was not advised that the Cashier's check was
missent does not seem to be correct. The evidence indicated that the defendant bank
thru its personnel had called him up thru telephone in the number (No. 60-45-23)
which he gave in his specimen signature card. But it came out, that said telephone
number was no longer active or was already deleted from the list of telephone
numbers.
There was an instruction on the part of the plaintiff for the bank to contact his
daughter, Mrs. Evelyn Tan Banzon and according to the plaintiff, she too, was not
contacted as per his instruction. The evidence, however, indicated that Ms. Evelyn
Tan also could not be contacted at the number supposed to pertain to her as
appeared in the specimen signature card. In other words while there was compliance
with the instructions given by the plaintiff but said instructions were faulty. The
plaintiff as a customer of the bank is under obligation to inform the defendant of any
changes in the telephone numbers to be contacted in the event of any exigency.
All in all, the facts indicate that the refusal of RCBC to credit the amount of
P30,000.00 to the plaintiff's current account is consistent with the accepted banking
practice. As the defendant bank had claimed, under Resolution No. 2202 dated
December 21, 1979 of the Monetary Board, it had been emphatically declared as a
matter of policy that no drawings should be made against uncollected deposits
except when the drawings are made against uncollected deposits representing bank
manager's/cashier's/treasurer's checks, treasury warrants, postal money orders, and
duly funded "on-us" checks as may be permitted at the discretion of each bank.
It is clear that immediate payment without awaiting clearance of a cashier's check is
discretionary with the bank to whom the check is presented and such being the case,
the refusal to allow it as in this case is not to be equated with negligence in the basic
perception that discretion is not demandable as a right. In the instant case, prior to
the deposit of P30,000.00, the plaintiff's account appeared to be only in the amount
of P2,792.98. So the two (2) checks issued by the plaintiff amounting to P11,553.70
had to be dishonored since they were drawn against insufficient funds.
What the plaintiff should have done, before issuing the two (2) checks, was to await
the clearance of the Cashier's check and his failure to do so is a fault not ascribable
to the defendant who appeared under the circumstance merely to have followed the
usual banking practice.
Petitioner now seeks to reverse the decision of the Court of Appeals and affirm that
of the lower court. He raises the following errors:
1. THE HONORABLE COURT OF APPEALS COMMITTED GROSS AND
MANIFEST ERROR IN CONCLUDING THAT THE NEGLIGENCE WAS
ASCRIBABLE TO HEREIN PETITIONER.
2. THE HONORABLE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION
IN FINDING THAT THE RESPONDENT BANK HAD NOT BEEN REMISS IN THE
PERFORMANCE OF ITS OBLIGATIONS TO HEREIN PETITIONER.
3. THE HONORABLE COURT OF APPEALS COMMITTED GROSS AND
MANIFEST ERROR AND GRAVE ABUSE OF DISCRETION IN REVERSING THE
AWARD OF MORAL AND EXEMPLARY DAMAGES TO THE PETITIONER.
4. THE HONORABLE COURT OF APPEALS COMMITTED GROSS AND
MANIFEST ERROR AND GRAVE ABUSE OF DISCRETION IN NOT AWARDING
ATTORNEY'S FEES TO PETITIONER.
In a most recent case decided by this Court, City Trust Corporation v. The
Intermediate Appellate Court, 22 involving damages against City Trust Banking
Corporation, the depositor, instead of stating her correct account number 29000823
inaccurately wrote 2900823. Because of this error, six postdated checks amounting
to P20,209.00 she issued were dishonored for insufficiency of funds. The Regional
Trial Court dismissed the complaint for lack of merit. The Court of Appeals, however,
found the appeal meritorious and ordered the bank to pay nominal damages of
P2,000.00, temperate and moderate damages of P5,000.00 and attorney's fees of
P4,000.00. Upon review, this Court quoted with favor the disquisition of the appellate
court:
We cannot uphold the position of defendant. For, even if it be true that there was
error on the part of the plaintiff in omitting a zero in her account number, yet, it is a
fact that her name, Emma E. Herrero, is clearly written on said deposit slip (Exh. B).
This is controlling in determining in whose account the deposit is made or should be
posted. This is so because it is not likely to commit an error in one's name that merely
relying on numbers which are difficult to remember, especially a number with eight (8)
digits as the account numbers of defendant's depositors. We view the use of
numbers as simply for the convenience of the bank but was never intended to
disregard the real name of its depositors. The bank is engaged in business
impressed with public interests, and it is its duty to protect in return its many clients
and depositors who transact business with it. It should not be a matter of the bank
alone receiving deposits, lending out money and collecting interests. It is also its
obligation to see to it that all funds invested with it are properly accounted for and
duly posted in its ledgers.
In the case before Us, we are not persuaded that defendant bank was not free from
blame for the fiasco. In the first place, the teller should not have accepted plaintiff's
deposit without correcting the account number on the deposit slip which, obviously,
was erroneous because, as pointed out by defendant, it contained only seven (7)
digits instead of eight (8). Second, the complete name of plaintiff depositor appears
in bold letters on the deposit slip (Exh. B). There could be no mistaking in her name,
and that the deposit was made in her name, Emma E. Herrero. In fact, defendant's
teller should not have fed her deposit slip to the computer knowing that her account
number written thereon was wrong as it contained only seven (7) digits. As it
happened, according to defendant, plaintiff's deposit had to be consigned to the
suspense accounts pending verification. This, indeed, could have been avoided at
the first instance had the teller of defendant bank performed her duties efficiently and
well. For then she could have readily detected that the account number in the name
of Emma E. Herrero was erroneous and would be rejected by the computer. That is,
or should be, part of the training and standard operating procedure of the bank's
employees. On the other hand, the depositors are not concerned with banking
procedure. That is the responsibility of the bank and its employees. Depositors are
only concerned with the facility of depositing their money, earning interest thereon, if
any, and withdrawing therefrom, particularly businessmen, like plaintiff, who are
supposed to be always on-the-go. Plaintiff's account is a current account which
should immediately be posted. After all, it does not earn interest. At least, the
forbearance should be commensurated with prompt, efficient and satisfactory
service.
Bank clients are supposed to rely on the services extended by the bank, including the
assurance that their deposits will be duly credited them as soon as they are made.
For, any delay in crediting their account can be embarrassing to them as in the case
of plaintiff.
The point is that as a business affected with public interest and because of the nature
of its functions, the bank is under obligation to treat the accounts of its depositors
with meticulous care, always having in mind the fiduciary nature of their relationship.
(Emphasis supplied).
In the light of the above-cited case, the respondent bank cannot exculpate itself from
liability by claiming that its depositor "impliedly instructed" the bank to clear his check
with the Central Bank by filling a local check deposit slip. Such posture is
disingenuous, to say the least. First, why would RCBC follow a patently erroneous
act born of ignorance or inattention or both. Second, bank transactions pass through
a succession of bank personnel whose duty is to check and countercheck
transactions for possible errors. In the instant case, the teller should not have
accepted the local deposit slip with the cashier's check that on its face was clearly a
regional check without calling the depositor's attention to the mistake at the very
moment this was presented to her. Neither should everyone else down the line who
processed the same check for clearing have allowed the check to be sent to Central
Bank. Depositors do not pretend to be past master of banking technicalities, much
more of clearing procedures. As soon as their deposits are accepted by the bank
teller, they wholly repose trust in the bank personnel's mastery of banking, their and
the bank's sworn profession of diligence and meticulousness in giving irreproachable
service.
We do not subscribe to RCBC's assertion that petitioner's use of the wrong deposit
slip was the proximate cause of the clearing fiasco and so, petitioner must bear the
consequence. In Pilipinas Bank, v. CA, 23 this Court said:
The bank is not expected to be infallible but, as correctly observed by respondent
Appellate Court, in this instance, it must bear the blame for not discovering the
mistake of its teller despite the established procedure requiring the papers and bank
books to pass through a battery of bank personnel whose duty it is to check and
countercheck them for possible errors. Apparently, the officials and employees
tasked to do that did not perform their duties with due care, . . .
So it is in the instance case, where the conclusion is inevitable that respondent
RCBC had been remiss in the performance of its duty and obligation to its client, as
well as to itself. We draw attention to the fact that the two dishonored checks issued
by petitioner, Check No. 040719 and Check
No. 040718 were presented for payment 24 more than 45 days from the day the
cashier's check was deposited. This gave RCBC more than ample time to have
cleared the cashier's check had it corrected its "missending" the same upon return
from Central Bank using the correct slip this time so it can be cleared properly.
Instead, RCBC promptly debited the amount of P30,000.00 against petitioner's
account and left it at that.
We observe, likewise, that RCBC inquired about an Evelyn Tan but no Evelyn
Tan-Banzon as specifically instructed in the same signature card. (Emphasis
supplied) 25
RCBC insists that immediate payment without awaiting clearance of a cashier's
check is discretionary with the bank to whom the check is presented and such being
the case, its refusal to immediately pay the cashier's check in this case is not to be
equated with negligence on its part. We find this disturbing and unfortunate.
An ordinary check is not a mere undertaking to pay an amount of money. There is an
element of certainty or assurance that it will be paid upon presentation that is why it is
perceived as a convenient substitute for currency in commercial and financial
transactions. The basis of the perception being confidence. Any practice that
destroys that confidence will impair the usefulness of the check as a currency
substitute and create havoc in trade circles and the banking community. 26
Now, what was presented for deposit in the instant cases was not just an ordinary
check but a cashier's check payable to the account of the depositor himself. A
cashier's check is a primary obligation of the issuing bank and accepted in
advance by its mere issuance. 27 By its very nature, a cashier's check is the bank's
order to pay drawn upon itself, committing in effect its total resources, integrity and
honor behind the check. A cashier's check by its peculiar character and general use
in the commercial world is regarded substantially to be as good as the money which it
represents.28 In this case, therefore, PCIB by issuing the check created an
unconditional credit in favor of any collecting bank.
All these considered, petitioner's reliance on the layman's perception that a cashier's
check is as good as cash is not entirely misplaced, as it is rooted in practice, tradition,
and principle. We see no reason thus why this so-called discretion was not exercised
in favor of petitioner, specially since PCIB and RCBC are members of the same
clearing house group relying on each other's solvency. RCBC could surely rely on the
solvency of PCIB when the latter issued its cashier's check.
On the third and fourth issue, RCBC contends that moral damages cannot be
recovered in an action for breach of contract since under Article 2219 of the New Civil
Code, the instant case is not among those enumerated. For an award of moral
damages in a breach of contract, it is imperative that the party acted in bad faith or
fraudulently as provided for in Art. 2220 of the Civil Code, to wit:
Art. 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 the defendant acted
fraudulently or in bad faith.

In the absence of moral damages, RCBC argues, exemplary damages cannot be

awarded under Art. 2225 of the same Code which states:

Exemplary damages or corrective damages are imposed, by way of example or

correction for the public good, in addition to the moral, temperate, liquidated or
compensatory damages.

We hold that petitioner has the right to recover moral damages even if the bank's
negligence may not have been attended with malice and bad faith. In American
Express International, Inc. v. IAC, 29 we held:

While petitioner was not in bad faith, its negligence caused the private respondent to
suffer mental anguish, serious anxiety, embarrassment and humiliation, for which he
is entitled to recover, reasonable moral damages (Art. 2217, Civil Code).

In Zenith Insurance Corporation v. CA, 30 we also said that moral damages are not
meant to enrich a complainant at the expense of defendant. It is only intended to
alleviate the moral suffering he has undergone. In the instant case, we find the award
of P700,000.00 as moral damages excessive and, accordingly, reduce it to one
hundred thousand (P100,000.00) pesos. We find the award of exemplary damages
of P200,000.00 unjustified in the absence of malice, bad faith or gross
negligence.31 The award of reasonable attorney's fees is proper for the petitioner was
compelled to litigate to protect his interest.32

IN VIEW WHEREOF, we REVERSE the decision of respondent Court of Appeals

and hereby order private respondent RCBC, Binondo Branch, to pay petitioner the
amount of one hundred thousand (P100,000.00) pesos as moral damages and the
sum of fifty thousand (P50,000.00) pesos as attorney's fees, plus costs.

SO ORDERED.