FIRST DIVISION
G.R. No. 181426, July 13, 2015
GAMES AND GARMENTS DEVELOPERS, INC., Petitioner, v. ALLIED BANKING CORPORATION, Respondent.
D E C I S I O N
LEONARDO-DE CASTRO, J.:
Before Us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking a review of the Decision1 dated October 23, 2007 and Resolution2 dated January 23, 2008 of the Court of Appeals in CA-G.R. CV No. 82765, which affirmed with modification the Decision3 of the Regional Trial Court (RTC) of Quezon City4 in Civil Case No. Q-98-34077, a Complaint for Breach of Contract and Damages instituted by petitioner Games and Garments Developers, Inc. (GGDI) against spouses Bienvenida (Bienvenida) and Benedicto Pantaleon (together referred to as the spouses Pantaleon), Ernesto Mercado (Mercado), and respondent Allied Banking Corporation (Allied Bank). While the RTC rendered judgment against the spouses Pantaleon and Allied Bank, the appellate court dismissed the Complaint in so far as it pertained to Allied Bank.
The antecedent facts are as follows:
Bienvenida, married to Benedicto Pantaleon, agreed to purchase a parcel of land located at Bayanan, Muntinlupa, covered by Transfer Certificate of Title (TCT) No. 205965 of the Register of Deeds, Makati City (subject property), in the name of petitioner Games and Garments Developers, Inc. (GGDI), for the sums of P14,000,000.00 payable to GGDI, P4,000,000.00 payable to the Cosay Family,5 and P1,000,000.00 as attorney's fees payable to GGDI VP-Legal and counsel Atty. Cesar M. Lao (Lao). The parties executed a Memorandum of Agreement6 (MOA) dated August 22, 1996, with the following terms and conditions:chanRoblesvirtualLawlibrary
2. [GGDI], [Cosay family] and Atty. Cesar M. Lao shall be paid in the following manner:chanRoblesvirtualLawlibraryOn August 22, 1996, Mercado, Branch Manager of Allied Bank-Pasong Tamo, issued a letter addressed to Atty. Lao of GGDI and with Bienvenida's conforme, printed on the letterhead of Allied Bank, which reads:chanRoblesvirtualLawlibrarya) Upon signing of this Agreement, the sum of SIX MILLION PESOS (P6,000,000.00) shall be paid directly to [GGDI] by way of Managers/Cashiers check drawn against the Allied Bank, Pasong Tamo Branch, Makati City, and the balance of EIGHT MILLION PESOS (P8,000,000.00) together with interest at the rate of eighteen (18%) percent per annum until the same is fully paid by way of postdated check in ninety (90) days from date of this Agreement with bank [guaranty] of paying the same by Allied Banking Corporation;cralawlawlibrary3. Simultaneous upon receipt of payments as above stated in paragraph 2 hereof, [GGDI] shall submit to Allied Bank Pasong Tamo Branch, Makati City, a Deed of Sale in favor of [Bienvenida] while the [Cosay family] their Motion for the withdrawal of the pending Civil Case aforestated. and petition for the cancellation of lis pendens annotated in the title under Entry No. (479691) S-107492 TCT No. 205965 addressjed] to the Register of Deeds of Makati City.
b) Upon signing this agreement, the sum of THREE MILLION PESOS (P3,000,000.00) shall be paid directly to the [Cosay family] by way of managers/cashiers check drawn against the Allied Bank, Pasong Tamo Branch, Makati City, and the balance of ONE MILLION PESOS (P1,000,000.00) without interest by way of postdated check ninety (90) days from date of this agreement with the bank [guaranty] of paying the same by Allied Banking Corporation;cralawlawlibrary
c) The sum of ONE MILLION PESOS (P1,000,000.00) together with interest of eighteen (18%) percent per annum until the same is fully paid shall be paid directly to Atty. Cesar M. Lao by way of postdated check ninety (90) days from date of this Agreement, with bank [guaranty] of paying the same issued by Allied Banking Corporation;ChanRoblesVirtualawlibrary
x x xx
7. In case [Bienvenida] fails for any reason whatsoever to pay the balance of the amount indicated above in paragraph 2 hereof, then the sale executed by [GGDI] in favor of Bienvenida shall be considered CANCELLED and NULL and VOID and the amount received by the respective parties shall be deemed forfeited in their favor as liquidated damages[.]ChanRoblesVirtualawlibrary
This is with reference to the real property located at National Road, Bayanan, Muntinlupa City[,] a lot covered by Transfer Certificate of Title (TCT) No. 205965.Upon the spouses Pantaleon's request, and assured by Mercado's letter dated August 22, 1996, GGDI, through its President Sunder Hemandas (Hemandas), executed a Deed of Sale8 on August 23, 1996 in favor of the spouses Pantaleon. However, in the Deed of Sale, the amount of purchase price for the subject property was reduced to P11,000,000.00, payable to GGDI thus:chanRoblesvirtualLawlibrary
Please be advised that Bienvenida Pantaleon/Sucat Import/Export who is purchasing the above-mentioned property has an approved real estate loan with us in the amount of PESOS: ELEVEN MILLION ONLY (P11,000,000.00), the portion of the proceeds of which shall be used to partially liquidate the account with you. Succeeding releases which is secured by the subject property will be made payable to Games and Garments Developers, Inc.
After said Transfer Certificate of Title (TCT) covering said property is already transferred in our client's name, our mortgage duly annotated thereon, we guarantee to pay directly to you the amount of PESOS: EIGHT MILLION THREE HUNDRED SIXTY THOUSAND ONLY (P8,360,000.00) ninety days from August 23, 1996 or on or before November 21, 1996.
It is understood that this guaranty is irrevocable.7ChanRoblesVirtualawlibrary
1. Upon signing of this Deed, [Bienvenida] shall pay [GGDI] the sum of THREE MILLION PESOS (P3,000,000.00), Philippine Currency, receipt of which is hereby acknowledged by [GGDI] from [Bienvenida] and the balance of the purchase price in the sum of EIGHT MILLION PESOS (P8,000,000.00) plus interest of 18% per annum until the same is fully paid by way of post-dated check ninety (90) days from date hereof and bank [guaranty] from [Allied Bank] to assume payment thereof.ChanRoblesVirtualawlibraryThe Deed of Sale also stipulated that:chanRoblesvirtualLawlibrary
4. In case for any reason whatsoever, [Bienvenida] fails to pay the balance of the purchase price of P8,000,000.00 then this Deed shall be deemed cancelled and null and void and all payments previously made shall be deemed forfeited in favor of [GGDI] as liquidated damages.ChanRoblesVirtualawlibraryAlso on August 23, 1996, the same day the Deed of Sale was executed, the Register of Deeds of Makati cancelled TCT No. 205965 in the name of GGDI and issued TCT No. 206877 in the name of Bienvenida, married to Benedicto Pantaleon;9 and to secure her loan for P14,000,000.00 approved by Allied Bank, Bienvenida executed a Real Estate Mortgage of even date constituting a mortgage on the subject property and one other property covered by TCT No. 205488 in favor of said bank.10 The notice of lis pendens (concerning the civil case of the Cosay family against GGDI) was cancelled and the Real Estate Mortgage in favor of Allied Bank was annotated on Bienvenida's TCT No. 206877. All of the aforementioned transactions were expedited and accomplished in a single day because of the assistance of Allied Bank.
We asked Mr. Mercado about this and he said that this letter [dated January 27, 1997] was not really intended as a [guaranty] for anything but was an accommodation to a request of Atty. Cesar Lao, the Vice President of Games and Garments Developers, Inc. He even emphasized to Atty. Lao that he was not authorized to issue such [guaranty] inasmuch as banks are not allowed to do so under the General Banking Act.In a letter dated December 19, 1997 to Maclang, Hemandas inquired as to the status of the demand for payment of GGDI and sought an opportunity to discuss the matter.21
We noted that the letter dated 27 January, 1997 makes reference to a lot covered by TCT# 205965 which was supposed to be purchased, but our records show that this title was already superseded by TCT# 206877 issued to Bienvenida S. Pantaleon since 23 August, 1996 yet.20ChanRoblesVirtualawlibrary
On the Complaint-In its Reply and Answer to Counterclaim,29 GGDI contested the assertion of Allied Bank that it came to know of the existence of the Deed of Sale only in the later part of 1997 as the bank, through Mercado, received a copy of the Deed of Sale on August 23, 1996. It was pursuant to said Deed of Sale that Allied Bank was able to undertake, also on August 23, 1996, the cancellation of the lis pendens annotated on TCT No. 205965; the cancellation of TCT No. 205965 in the name of GGDI and the issuance of TCT No. 206877 in the name of Bienvenida, married to Benedicto Pantaleon; and the annotation on TCT No. 206877 of the mortgage on the subject property in favor of Allied Bank and the Special Power of Attorney in favor of Bienvenida. GGDI explained that it had no reason not to rely on the guaranty given in the two letters dated August 22, 1996 and January 27, 1997 since these were written on official paper of Allied Bank and signed by Mercado, whose precise job as Branch Manager was to represent Allied Bank. GGDI avowed that without the guaranty of Allied Bank, it would not have executed the Deed of Sale and transferred ownership of the subject property to the spouses Pantaleon. GGDI likewise contradicted the claim of Allied Bank that the letters of guaranty were merely the personal accommodation of Mercado as the contents of said letters were confirmed when Allied Bank, by virtue of the Deed of Sale executed by GGDI, was able to transfer the TCT for the subject property in Bienvenida's name and annotate thereon Bienvenida's Real Estate Mortgage in favor of the bank. GGDI lastly averred that the purchase price for the subject property was really P19,000,000.00 as embodied in the MOA, and it was only stated as P11,000,000.00 in the Deed of Sale to lessen the amount of taxes and fees which the parties had to pay on the sale.
1. [GGDI's] complaint be dismissed;cralawlawlibrary
cralawlawlibrary
On the Counterclaim -
1. A judgment be issued ordering [GGDI] to pay [Allied Bank] the following:
a) Moral damages in the amount of P2,000,000.00;cralawlawlibrary
b) Exemplary damages in the amount of P2,000,000.00;cralawlawlibrary
c) Attorney's fees in the amount of P300,000.00 plus the costs of suits;cralawlawlibrary
On the Crossclaim -
1.) In the remote event that [Allied Bank] be held liable to [GGDI] by reason of the letter of guaranty executed by Mercado without [Allied Bank's] authority, Mercado and Sps. Pantaleon should be held jointly and severally liable to indemnify or reimburse [Allied Bank] for whatever amount it may be held liable to [GGDI]. 2.) In the remote event that the Transfer Certificate of Title No. 206877 and the Real Estate Mortgage executed by Pantaleon in favor of [Allied Bank] be cancelled and rescinded and/or declared null and void, Mercado and Sps. Pantaleon should be held liable to pay the value of the said property in the amount of P21,006,000.00 which was the auction sale price of the property when it was sold at public auction pursuant to the application for extrajudicial foreclosure filed by [Allied Bank] against Pantaleon for failure of the latter to pay its loan obligation with [Allied Bank].28
WHEREFORE, under the above premises, it is most respectfully prayed that the Honorable Court, after trial, order the dismissal of the instant case with respect to the Defendant Pantaleon Spouses; order the Plaintiff [GGDI] to pay to them moral damages in the amount of TEN MILLION PESOS (P10,000,000.00), exemplary damages of TWO MILLION PESOS (P2,000,000,00), attorney's fees of ONE MILLION PESOS (P1,000,000.00) and costs of suit; and order Defendants Allied Banking Corporation and Ernesto Mercado to annul or render null and void the foreclosure of the mortgage on the property in question and in the event the title has already been consolidate in the bank's name, to reconvey the same to Defendant Pantaleon Spouses and to pay jointly and severally to the Defendant Pantaleon Spouses moral damages of TWENTY MILLION PESOS (P20,000,000.00), exemplary damages of FIVE MILLION PESOS (P5,000,000.00), attorney's fees of ONE MILLION PESOS (P1,000,000.00) and costs of suit.31ChanRoblesVirtualawlibraryDuring the Pre-trial Conference, attended by the counsels for GGDI, Allied Bank, and spouses Pantaleon, the parties stipulated and admitted that GGDI received the amount of P6,000,000.00 via Allied Bank Check No. 85-0017246 dated August 23, 1996 as the spouses Pantaleon's partial payment for the subject property.32 During trial, Hemandas, as witness for GGDI, testified that GGDI only received from the spouses Pantaleon as partial payments for the subject property the amounts of P6,000,000.00 upon execution of the Deed of Sale on August 23, 1996 and P1,000,000.00 through two checks of P500,000.00 each sometime in January 1997;33 and the amounts of P1,045,000.00 and P665,000.00 were paid by the spouses Pantaleon, not to GGDI, but to Atty, Lao as his attorney's fees and broker's fees, respectively.
WHEREFORE, in light of the foregoing, JUDGMENT is hereby RENDERED IN FAVOR of the Plaintiff [GGDI] and against the Defendant-Spouses Pantaleon and Defendant [Allied Bank]:The RTC, in an Order dated February 19, 2004, denied the Motion for Reconsideration of Allied Bank because the arguments raised therein were mere repetitions and reiterations of its contentions in the pleadings which had already been amply passed upon by the trial court.35
1) ORDERING the Defendant-Spouses Pantaleon and Defendant [Allied Bank] to pay jointly and severally the Plaintiff [GGDI] the sum of SEVEN MILLION TFIREE HUNDRED SIXTY THOUSAND PESOS (P7,360,000.00) representing the unpaid balance on the subject property, plus 18% interest per annum computed from March 29, 1997 (as per parties' agreement Exh. A) until the whole amount is fully paid; OR, in case of failure to do so within thirty (30) days from the finality of this Decision, all of the following are hereby DECLARED cancelled, annulled, reconsidered, and voided:
a) Deed of Sale (Exh. C) null and void pursuant to paragraph 4, page 2 of the said Deed of Sale dated August 23, 1996; b) Transfer Certificate of Title No. 206877 (Exh. E) in the name of Defendant Bienvenida Pantaleon married to Benedicto Pantaleon; c) Real Estate Mortgage (Exh. 2-Defendant ABC) executed by Defendants Spouses Pantaleon in favor of Defendant [Allied Bank]; and d) Transfer Certificate of Title issued in the name of Defendant [Allied Bank];
AND
The Defendant [Allied Bank] and/or Defendant-Spouses Pantaleons are hereby ORDERED to reconvey the property subject matter hereof to the plaintiff Company, [GGDI].
AND
In case of failure or refusal of said Defendant [Allied Bank] to do so, for whatsoever reason, the Registry of [Deeds] of Makati City (now Muntinlupa City) is hereby DIRECTED to immediately cancel Transfer Certificate of Title in the name of the said Defendant [Allied Bank], and thereafter, to issue to Plaintiff [GGDI] another title free from any liens or encumbrances whatsoever;cralawlawlibrary
2) ORDERING the Defendant-Spouses Pantaleons and Defendant [Allied Bank] to pay, jointly and severally, the Plaintiff [GGDI] the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00) as Exemplary Damages;cralawlawlibrary
3) ORDERING the Defendant-Spouses Pantaleons and Defendant [Allied Bank] to pay, jointly and severally, the Plaintiff [GGDI] Attorney's fees often percent (10%) of the total amount, referred to in no. 1 above; and
4) ORDERING the Defendant-Spouses Pantaleons and Defendant [Allied Bank] to pay, jointly and severally, the Costs of suit.34ChanRoblesVirtualawlibrary
Section 74 of the General Banking Act expressly prohibits banks or banking institutions from entering "directly or indirectly, into any contract of guaranty or surety" or to "guarantee the interest or principal of any obligation of any person..." Considering that the Bank is prohibited from acting as a guarantor, Ernesto Mercado, is likewise prohibited from entering into a contract where the Bank would become a guarantor as a consequence thereof. Also, while there is no question that as the Bank's Branch Manager, Defendant Mercado was an officer and agent of the Bank, the Bank's By-laws, or the law does not in any way confer upon Ernesto Mercado the authority to sign a guaranty agreement. Consequently, when Mercado disregarded this statutory prohibition, he did not only exceed, and acted beyond, the powers and authority granted to him by the Bank and the law, but he also violated the clear provision of the General Banking Act. As such, said letters of guaranty are unenforceable against the corporation unless ratified by the corporation.The Court of Appeals likewise declared erroneous the alternative order of the RTC to cancel and nullify the certificate of title of Allied Bank in the event that said bank and the spouses Pantaleon failed to pay GGDI the balance of the purchase price for the subject property. The appellate court pointed out that GGDI filed a Complaint for breach of contract and/or rescission with damages, but there was no privity of contract between GGDI and Allied Bank. The Court of Appeals further ruled that Allied Bank acquired the subject property at the public auction sale after the mortgage on the said property was foreclosed; and absent substantial evidence to the contrary, the foreclosure and sale of the subject property are deemed valid and existing. More importantly, according to the appellate court, the Complaint for Breach of Contract (Rescission) with Damages of GGDI constituted a collateral attack on the title of Allied Bank over the subject property, which is prohibited by law and jurisprudence.
However, after a careful review of the records of this case, We find that the Bank neither ratified the letters of guaranty executed by Ernesto Mercado nor was it estopped from denying the same.36 (Citations omitted.)ChanRoblesVirtualawlibrary
WHEREFORE, the instant Appeal is GRANTED IN PART. The assailed Decision, dated [September 25, 2003], and Order, dated February 19, 2004, of the Regional Trial Court of Quezon City, Branch 101, in Civil Case No. Q-98-34077, are hereby AFFIRMED with MODIFICATIONS in that the Complaint for Breach of Contract and Damages against Defendant-Appellant Allied Banking Corporation is DISMISSED and that the alternative order directing the nullification of Deed of Sale dated August 23, 1996, Transfer Certificate of Title No. 206877 in the name of Defendant Bienvenida Pantaleon, Real Estate Mortgage, and the Transfer Certificate of Title issued under the name of Defendant-Appellant Allied Banking Corporation, referred to in paragraph 1(a), 1(b), 1(c) and 1(d) of the assailed Decision are hereby DELETED.The Motion for Partial Reconsideration of GGDI was denied by the Court of Appeals in a Resolution dated January 23, 2008 as all issues raised therein were already resolved and for lack of an imperative reason to disturb or modify its Decision as regards said issues.38
Accordingly, the order directing the Register of Deeds of Makati to cancel the transfer certificate of title under the name of Defendant-Appellant [Allied Bank] covering the subject property is DELETED and rendered VOID.37ChanRoblesVirtualawlibrary
3.1 Whether or not the Court of Appeals committed reversible error and /or grave abuse of discretion insofar as it concerns the dismissal of the amended complaint in Civil Case No. Q-98-34077 against Respondent Allied Bank, but upholding the decision of the RTC of Quezon City against Defendants Spouses Bienvenida and Benedicto Pantaleon.Essentially, GGDI attributes error on the part of the Court of Appeals in absolving Allied Bank of any liability to GGDI.
3.2 Whether or not Respondent Allied Bank should be held liable for Defendant Spouses Pantaleon's unpaid obligation because it is not a party or a witness to the Memorandum of Agreement and Deed of Sale.
3.3 The Court of Appeals grossly erred in merely relying upon Respondent Allied Bank's assertion that Section 74 of the General Banking Act prohibits banks from entering directly or indirectly into any contract of guaranty or surety.
3.4 Whether or not Respondent Allied Bank is an innocent mortgagee for value of subject property.
3.5 The Court of Appeals erred in its own finding that the Branch Manager of respondent Allied Bank, Ernesto Mercado, had no authority to sign and issue the two (2) letters of [guaranty].
3.6 The Court of Appeals grossly and erroneously failed to apply the doctrine of apparent authority in the present case.
3.7 The Court of Appeals erred in not holding Respondent Allied Bank estopped from questioning the authority of its Branch Manager Ernesto Mercado to sign and issue the letters of [guaranty] dated 22 August 1996 and 27 January 1997.
3.8 The Court of Appeals grossly erred in not holding Respondent Allied Bank to have acted fraudulently and in bad faith in its dealings with Petitioner [GGDI].39ChanRoblesVirtualawlibrary
Sec. 74. No bank or banking institution shall enter, directly, or indirectly, into any contract of guaranty or suretyship, or shall guarantee the interest or principal of any obligation of any person, copartnership, association, corporation or other entity. The provisions of this section shall, however, not apply to the following: (a) borrowing of money by banking institution through the rediscounting of receivables; (b) acceptance of drafts or bills of exchange; (c) certification of checks; (d) transactions involving the release of documents attached to items received for collection; (e) letters of credit transaction, including stand-by arrangements; (f) repurchase agreements; (g) shipside bonds; (h) ordinary guarantees or indorsements in favor of foreign creditors where the principal obligation involves loans and credits extended directly by foreign firms or persons to domestic borrowers for capital investment purposes; and (i) other transactions which the Monetary Board may, by regulation, define or specify as not covered by the prohibition.ChanRoblesVirtualawlibraryIt is undisputed that Mercado wrote two "letters of guaranty" dated August 22, 1996 and January 27, 1997. Although Mercado's letters used the words "guarantee" and "guaranty," the same do not constitute contracts of guaranty covered by the prohibition under Section 74 of the General Banking Act, as amended. Section 74 of the General Banking Act, as amended, proscribes banks from entering into "any contract of guaranty or suretyship" without providing definitions of such contracts. Consequently, we rely on the general definitions of contracts of guaranty and suretyship under Article 2047 of the Civil Code:chanRoblesvirtualLawlibrary
ART. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so.While a surety undertakes to pay if the principal does not pay, the guarantor only binds himself to pay if the principal cannot pay. The former is the insurer of the debt, the latter an insurer of the solvency of the debtor.41 We further expounded on the nature of a contract of guaranty (vis-a-vis a contract of surety) in E. Zobel, Inc. v. Court of Appeals,42 thus:chanRoblesvirtualLawlibrary
If a person binds himself solidarity with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship.ChanRoblesVirtualawlibrary
A contract of surety is an accessory promise by which a person binds himself for another already bound, and agrees with the creditor to satisfy the obligation if the debtor does not. A contract of guaranty, on the other hand, is a collateral undertaking to pay the debt of another in case the latter does not pay the debt.There was no express undertaking in Mercado's letters dated August 22, 1996 and January 27, 1997 to pay Bienvenida's debt to GGDI in case Bienvenida failed to do so. In said letters, Mercado merely acknowledged that Bienvenida and/or her company had an approved real estate loan with Allied Bank and guaranteed that subsequent releases from the loan would be made directly to GGDI provided that the certificate of title over the subject property would be transferred to Bienvenida's name and the real estate mortgage constituted on the subject property in favor of Allied Bank would be annotated on the said certificate. Mercado, by the plain language of his letters, merely committed to the manner by which the proceeds of Bienvenida's approved loan from Allied Bank would be released, but did not obligate Allied Bank to be answerable with its own money to GGDI should Bienvenida default on the payment of the purchase price for the subject property. For this reason, Mercado's letters may not be deemed as contracts of guaranty, although they may be binding as innominate contracts. The rule is settled that a contract constitutes the law between the parties who are bound by its stipulations which, when couched in clear and plain language, should be applied according to their literal tenor. We cannot supply material stipulations, read into the contract words it does not contain or, for that matter, read into it any other intention that would contradict its plain import. Neither can we rewrite contracts because they operate harshly or inequitably as to one of the parties, or alter them for the benefit of one party and to the detriment of the other, or by construction, relieve one of the parties from the terms which he voluntarily consented to, or impose on him those which he did not.43
Strictly speaking, guaranty and surety are nearly related, and many of the principles are common to both. However, under our civil law, they may be distinguished thus: A surety is usually bound with his principal by the same instrument, executed at the same time, and on the same consideration. He is an original promissor and debtor from the beginning, and is held, ordinarily, to know every default of his principal. Usually, he will not be discharged, either by the mere indulgence of the creditor to the principal, or by want of notice of the default of the principal, no matter how much he may be injured thereby. On the other hand, the contract of guaranty is the guarantor's own separate undertaking, in which the principal does not join. It is usually entered into before or after that of the principal, and is often supported on a separate consideration from that supporting the contract of the principal. The original contract of his principal is not his contract, and he is not bound to take notice of its non-performance. He is often discharged by the mere indulgence of the creditor to the principal, and is usually not liable unless notified of the default of the principal. (Citations omitted.)ChanRoblesVirtualawlibrary
We have held that if a corporation knowingly permits its officer, or any other agent, to perform acts within the scope of an apparent authority, holding him out to the public as possessing power to do those acts, the corporation will, as against any person who has dealt in good faith with the corporation through such agent, be estopped from denying such authority. We reiterated this doctrine in Prudential Bank vs. Court of Appeals, thus:chanRoblesvirtualLawlibraryIn Prudential Bank, wherein we particularly applied the doctrine of apparent authority to banks, we stressed that the "[a]pplication of these principles is especially necessary because banks have a fiduciary relationship with the public and their stability depends on the confidence of the people in their honesty and efficiency. Such faith will be eroded where banks do not exercise strict care in the selection and supervision of its employees, resulting in prejudice to their depositors."A bank holding out its officers and agent as worthy of confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom. Accordingly, a banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person for his own ultimate benefit.ChanRoblesVirtualawlibraryIn Francisco vs. Government Service Insurance System, we ruled:chanRoblesvirtualLawlibraryCorporate transactions would speedily come to a standstill were every person dealing with a corporation held duty-bound to disbelieve every act of its responsible officers, no matter how regular they should appear on their face. This Court has observed in Ramirez vs. Orientalist Co., 38 Phil. 634, 654-655, that-Petitioner maintains that respondent should have first inquired whether the deposit of P100 Million and the fixing of the interest rate were pursuant to its (petitioner's) internal procedures. Petitioner's stance is a futile attempt to evade an obligation clearly established by the intent of the parties. What transpires in the corporate board room is entirely an internal matter. Hence, petitioner may not impute negligence on the part of respondent's representative in failing to find out the scope of authority of petitioner's Branch Manager. Indeed, the public has the right to rely on the trustworthiness of bank managers and their acts. Obviously, confidence in the banking system, which necessarily includes reliance on bank managers, is vital in the economic life of our society.ChanRoblesVirtualawlibraryIn passing upon the liability of a corporation in cases of this kind it is always well to keep in mind the situation as it presents itself to the third party with whom the contract is made. Naturally he can have little or no information as to what occurs in corporate meetings; and he must necessarily rely upon the external manifestations of corporate consent. The integrity of commercial transactions can only be maintained by holding the corporation strictly to the liability fixed upon it by its agents in accordance with law; and we would be sorry to announce a doctrine which would permit the property of a man in the city of Paris to be whisked out of his hands and carried into a remote quarter of the earth without recourse against the corporation whose name and authority had been used in the manner disclosed in this case. As already observed, it is familiar doctrine that if a corporation knowingly permits one of its officers, or any other agent, to do acts within the scope of an apparent authority, and thus holds him out to the public as possessing power to do those acts, the corporation will, as against any one who has in good faith dealt with the corporation through such agent, be estopped from denying his authority; and where it is said "if the corporation permits," this means the same as if the thing is permitted by the directing power of the corporation.ChanRoblesVirtualawlibrary
ART. 2224. Temperate or moderate damages, which are more than nominal but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount can not, from the nature of the case, be proved with certainty.Temperate or moderate damages may be allowed in cases where from the nature of the case, definite proof of pecuniary loss cannot be adduced, although the court is convinced that the aggrieved party suffered some pecuniary loss.51 The computation of the amount of temperate or moderate damages is usually left to the discretion of the courts, but the amount must be reasonable, bearing in mind that temperate damages should be more than nominal but less than compensatory.52 In this case, we find it proper to hold Allied Bank liable to GGDI for temperate or moderate damages in the amount of P500,000.00.53
ART. 2225. Temperate damages must be reasonable under the circumstances.ChanRoblesVirtualawlibrary
As this Court explained in the case of Spouses Mathay v. Court of Appeals:chanRoblesvirtualLawlibraryBecause Allied Bank was a mortgagee in bad faith, its foreclosure on the mortgage and the subsequent public auction sale of the subject property, in which the bank was the highest bidder, are null and void.Although it is a recognized principle that a person dealing on a registered land need not go beyond its certificate of title, it is also a firmly settled rule that where there are circumstances which would put a party on guard and prompt him to investigate or inspect the property being sold to him, such as the presence of occupants/tenants thereon, it is, of course, expected from the purchaser of a valued piece of land to inquire first into the status or nature of possession of the occupants, i.e., whether or not the occupants possess the land en concepto de dueño, in concept of owner. As is the common practice in the real estate industry, an ocular inspection of the premises involved is a safeguard a cautious and prudent purchaser usually takes. Should he find out that the land he intends to buy is occupied by anybody else other than the seller who, as in this case, is not in actual possession, it would then be incumbent upon the purchaser to verify the extent of the occupant's possessory rights. The failure of a prospective buyer to take such precautionary steps would mean negligence on his part and would thereby preclude him from claiming or invoking the rights of a "purchaser in good faith."ChanRoblesVirtualawlibraryThis rule equally applies to mortgagees of real property. In the case of Crisoslomo v. Court of Appeals, the Court held:chanRoblesvirtualLawlibraryIt is a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts which should put a reasonable man upon his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor or mortgagor. His mere refusal to believe that such defect exists, or his willful closing of his eyes to the possibility of the existence of a defect in the vendor's or mortgagor's title, will not make him an innocent purchaser or mortgagee for value, if it afterwards develops that the title was in fact defective, and it appears that he had such notice of the defects as would have led to its discovery had he acted with the measure of a prudent man in a like situation.ChanRoblesVirtualawlibraryBanks, their business being impressed with public interest, are expected to exercise more care and prudence than private individuals in their dealings, even those involving registered lands. Hence, for merely relying on the certificates of title and for its failure to ascertain the status of the mortgaged properties as is the standard procedure in its operations, we agree with the Court of Appeals that CRB is a mortgagee in bad faith. (Citations omitted.)ChanRoblesVirtualawlibrary
The concept of non-collateral attack of title is based on Section 48, P.D. 1529, which provides:chanRoblesvirtualLawlibraryWe also expounded in Consolidated Rural Bank (Cagayan Valley), Inc.59 that "[w]hile certificates of title are indefeasible, unassailable and binding against the whole world, they merely confirm or record title already existing and vested. They cannot be used to protect a usurper from the true owner, nor can they be used for the perpetration of fraud; neither do they permit one to enrich himself at the expense of others."Certificate Not Subject to Collateral attack. - A certificate of title shall not be subject to collateral attack. It cannot be altered, modified, or cancelled except in a direct proceeding in accordance with law.ChanRoblesVirtualawlibraryClear it is from the above that what cannot be collaterally attacked is the certificate of title and not the title itself. As it is, a certificate of title is the document issued by the Register of Deeds in case of conveyance of real estates and is known as TCT. But by title, the law refers to the ownership which a certificate of title merely represents. Apparently, respondent Bank confuses a certificate of title with the title itself. Placing a parcel of land under the mantle of the Torrens system does not mean that ownership thereof can no longer be disputed. Ownership is different from a certificate of title. (Citations omitted.)ChanRoblesVirtualawlibrary
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.As to rescission of the sale of an immovable property such as a parcel of land, Article 1592 of the Civil Code further provides:chanRoblesvirtualLawlibrary
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case.
He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.ChanRoblesVirtualawlibrary
ART. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term.ChanRoblesVirtualawlibraryThe right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other party who violates the reciprocity between them.62 The failure of the spouses Pantaleon to pay the balance of the purchase price for the subject property entitled GGDI to rescind the Deed of Sale. And in view of our finding that Allied Bank was a mortgagee in bad faith, the subsequent transfer in its favor by way of foreclosure on the mortgage and purchase of the subject property at the public auction sale did not and cannot bar rescission.63
Endnotes:
1Rollo, pp. 31-48; penned by Associate Justice Noel G. Tijam with Associate Justices Martin S. Villarama, Jr. and Sesinando E. Villon, concurring.
2 Id. at 50-51.
3 Id. at 72-92.
4 Although the real property involved in this case is located in Muntinlupa City, Civil Case No. Q-98-34077 was instituted before the RTC in Quezon City pursuant to paragraph 8 of the Memorandum of Agreement between the parties Games and Garments Developers, Inc. and Bienvenida Pantaleon, which provides that "[a]ny legal action that may arise from this agreement shall be brought only before the courts in Quezon City, Philippines." Spouses Bienvenida and Benedicto Pantaleon filed a motion to dismiss Civil Case No. Q-98-34077 for improper venue, among other grounds, which was denied by the RTC in an Order dated August 12, 1998.
5 The Cosay family is the previous owner of the subject property who mortgaged the same to GGDI. GGDI later foreclosed on the mortgage and acquired and registered the subject property in its name. The Cosay family filed a civil case against GGDI before the RTC of Muntinlupa City, Branch 276 to recover the subject property.
6 Records, Vol. I, pp. 11-14.
7 Id. at 44.
8 Id. at 15-17.
9 Id. at 50.
10 Id. at 202.
11 The records do not show whether the loan proceeds were released by Allied Bank-Pasong Tamo or Allied Bank Head Office.
12 Records, Vol. I, p. 51.
13 Id. at 52.
14 Id. at 53.
15 TSN, December 28, 1998, p. 38.
16 Records, Vol. I, p. 154.
17 Id. at 54.
18 Id at 154; Return slip dated April 1, 1997 from China Bank.
19 Id. at 56.
20 Id. at 57.
21 Id. at 58.
22 Id. at 59.
23 Id. at 29-39; Amended Complaint.
24 Id. at 101.
25 Id. at 119.
26 Id. at 132.
27 Id. at 205-206.
28 Id. at 197-198.
29 Id. at 209-218.
30 Id. at 307-315.
31 Id. at 312-313.
32 Id. at 383-385.
33 TSN, December 15, 2000, pp. 35.
34Rollo, pp. 91-92.
35 Records, Vol. II, pp. 721-722.
36Rollo, p. 40.
37Rollo, p. 46.
38 CA rollo, pp. 316-317.
39Rollo, pp. 139-140.
40 Republic Act No. 8791, otherwise known as The General Banking Law of 2000, took effect on June 13, 2000, Section 35 of which already allows a bank to extend loans, credit accommodations, and guarantees to any person, partnership, association, corporation or other entity, subject to the limitation that these would not exceed 20% of the net worth of such bank.
41Machetti v. Hospicio de San Jose, 43 Phil. 297, 300 (1922).
42 352 Phil. 608, 614-615 (1998).
43Cabahug v. National Power Corporation, G.R. No. 186069, January 30, 2013, 689 SCRA 666, 673-674.
44 Republic Act No. 337, otherwise known as the General Banking Act, as amended, Section 21.
45 Id. at Section 27.
46 G.R. No. 132390, May 21, 2004, 429 SCRA 30, 37-39.
47 G.R. No. 108957, June 14, 1993, 223 SCRA 350.
48 117 Phil. 586 (1963).
49Rural Bank of Milaor (Camarines Sur) v. Ocfemia, 381 Phil. 911, 924 (2000).
50Borromeo v. Court of Appeals, 573 Phil. 400, 411-412 (2008).
51Premiere Development Bank v. Court of Appeals, 471 Phil. 704, 719 (2004).
52Seven Brothers Shipping Corp. v. DMC-Construction Resources, Inc., G.R. No. 193914, November 26, 2014.
53See Maceda, Jr. v. Development Bank of the Philippines, G.R. No. 174979, August 11, 2010, 628 SCRA 196, 208.
54Citibank, N.A. v. Dinopol, G.R. No. 188412, November 22, 2010, 635 SCRA 649, 659.
55See Maceda, Jr. v. Development Bank of the Philippines, supra note 53 at 208.
56 Id.
57 489 Phil. 320, 336-338 (2005).
58 527 Phil. 639, 654-655 (2006).
59 Supra note 57 at 338.
60Raquel-Santos v. Court of Appeals, 609 Phil. 630, 655 (2009).
61 Records, Vol. I, p. 16.
62Velarde v. Court of Appeals, 413 Phil. 360, 373 (2001).
63See Bank of the Philippine Islands v. Sanchez, G.R. Nos. 179518, 179835 & 179954, November 19, 2014.
64 REVISED RULES OF COURT, Rule 130, Section 9.
65 CIVIL CODE, Article 2226.
66 442 Phil. 340, 361 (2002).