G.R. No.

156168

December 14, 2004

EQUITABLE BANKING CORPORATION, petitioner,

vs.
JOSE T. CALDERON, respondent.
GARCIA, J.:
Thru this petition for review on certiorari under Rule 45 of the Rules of Court,
petitioner Equitable Banking Corporation (EBC), seeks the reversal and
setting aside of the decision dated November 25, 20021 of the Court of Appeals
in CA-G.R. CV No. 60016, which partially affirmed an earlier decision of the
Regional Trial Court at Makati City, Branch 61, insofar as it grants moral
damages and costs of suit to herein respondent, Jose T. Calderon.
The decision under review recites the factual background of the case, as
follows:
Plaintiff-appellee [now respondent] Jose T. Calderon (Calderon for
brevity), is a businessman engaged in several business activities
here and abroad, either in his capacity as President or Chairman of
the Board thereon. In addition thereto, he is a stockholder of PLDT
and a member of the Manila Polo Club, among others. He is a
seasoned traveler, who travels at least seven times a year in the
U.S., Europe and Asia. On the other hand, the defendant-appellant
[now petitioner] Equitable Banking Corporation (EBC for brevity), is
one of the leading commercial banking institutions in the
Philippines, engaged in commercial banking, such as acceptance
of deposits, extension of loans and credit card facilities, among
others.
xxx

xxx

xxx

Sometime in September 1984, Calderon applied and was issued

an Equitable International Visa card (Visa card for brevity). The
said Visa card can be used for both peso and dollar transactions
within and outside the Philippines. The credit limit for the peso
transaction is TWENTY THOUSAND (P20,000.00) PESOS; while
in the dollar transactions, Calderon is required to maintain a dollar
account with a minimum deposit of $3,000.00, the balance of dollar
account shall serve as the credit limit.
In April 1986, Calderon together with some reputable business
friends and associates, went to Hongkong for business and
pleasure trips. Specifically on 30 April 1986, Calderon
accompanied by his friend, Ed De Leon went to Gucci Department
Store located at the basement of the Peninsula Hotel (Hongkong).
There and then, Calderon purchased several Gucci items (t-shirts,
jackets, a pair of shoes, etc.). The cost of his total purchase
amounted to HK$4,030.00 or equivalent to US$523.00. Instead of
paying the said items in cash, he used his Visa card (No. 4921
6400 0001 9373) to effect payment thereof on credit. He then

presented and gave his credit card to the saleslady who promptly
referred it to the store cashier for verification. Shortly thereafter, the
saleslady, in the presence of his friend, Ed De Leon and other
shoppers of different nationalities, informed him that his Visa card
was blacklisted. Calderon sought the reconfirmation of the status of
his Visa card from the saleslady, but the latter simply did not honor
it and even threatened to cut it into pieces with the use of a pair of
scissors.
Deeply embarrassed and humiliated, and in order to avoid further
indignities, Calderon paid cash for the Gucci goods and items that
he bought.
Upon his return to the Philippines, and claiming that he suffered much torment
and embarrassment on account of EBCs wrongful act of
blacklisting/suspending his VISA credit card while at the Gucci store in
Hongkong, Calderon filed with the Regional Trial Court at Makati City a
complaint for damages2 against EBC.
In its Answer,3 EBC denied any liability to Calderon, alleging that the latters
credit card privileges for dollar transactions were earlier placed under
suspension on account of Calderons prior use of the same card in excess of his
credit limit, adding that Calderon failed to settle said prior credit purchase on
due date, thereby causing his obligation to become past due. Corollarily, EBC
asserts that Calderon also failed to maintain the required minimum deposit of
$3,000.00.
To expedite the direct examination of witnesses, the trial court required the
parties to submit affidavits, in question-and-answer form, of their respective
witnesses, to be sworn to in court, with cross examination to be made in open
court.
Eventually, in a decision dated October 10, 1997, 4 the trial court, concluding that
"defendant bank was negligent if not in bad faith, in suspending, or blacklisting
plaintiffs credit card without notice or basis", rendered judgment in favor of
Calderon, thus:
WHEREFORE PREMISES ABOVE CONSIDERED, judgment is
hereby rendered in favor of plaintiff as against defendant
EQUITABLE BANKING CORPORATION, which is hereby
ORDERED to pay plaintiff as follows:
1. the sum of US$150.00 as actual damages;
2. the sum of P200,000.00 as and by way of moral
damages;
3. the amount of P100,000.00 as exemplary damages;
4. the sum of P100,000.00 as attorneys fees plus
P500.00 per court hearing and

5. costs of suit.
SO ORDERED.
Therefrom, EBC went to the Court of Appeals (CA), whereat its recourse was
docketed as CA G.R. CV No. 60016.
After due proceedings, the CA, in a decision dated November 25,
2002,5 affirmed that of the trial court but only insofar as the awards of moral
damages, the amount of which was even reduced, and the costs of suits are
concerned. More specifically, the CA decision dispositively reads:6
WHEREFORE, in consideration of the foregoing disquisitions, the
decision of the court a quo dated 10 October 1997
is AFFIRMED insofar as the awards of moral damages and costs
of suit are concerned. However, anent the award of moral
damages, the same is reduced to One Hundred Thousand
(P100,000.00) Pesos.
The rest of the awards are deleted.
SO ORDERED.
Evidently unwilling to accept a judgment short of complete exemption from any
liability to Calderon, EBC is now with us via the instant petition on its lone
submission that "THE COURT OF APPEALS ERRED IN HOLDING THAT THE
RESPONDENT IS ENTITLED TO MORAL DAMAGES NOTWITHSTANDING
ITS FINDING THAT PETITIONERS ACTIONS HAVE NOT BEEN ATTENDED
WITH ANY MALICE OR BAD FAITH."7
The petition is impressed with merit.
In law, moral damages include physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation and similar injury.8 However, to be entitled to the award thereof, it is
not enough that one merely suffered sleepless nights, mental anguish or serious
anxiety as a result of the actuations of the other party. 9 In Philippine Telegraph
& Telephone Corporation vs. Court of Appeals,10 we have had the occasion to
reiterate the conditions to be met in order that moral damages may be
recovered, viz:
An award of moral damages would require, firstly, evidence of
besmirched reputation, or physical, mental or psychological
suffering sustained by the claimant; secondly, a culpable act or
omission factually established; thirdly, proof that the wrongful act or
omission of the defendant is the proximate cause of the damages
sustained by the claimant; and fourthly, that the case is predicated
on any of the instances expressed or envisioned by Articles 2219
and 2220 of the Civil Code.

Particularly, in culpa contractual or breach of contract, as here, moral damages

are recoverable only if the defendant has acted fraudulently or in bad faith, 11 or
is found guilty of gross negligence amounting to bad faith, or in wanton
disregard of his contractual obligations. 12 Verily, the breach must be wanton,
reckless, malicious or in bad faith, oppressive or abusive.13

outstanding accounts; a day before he left for Hongkong,

respondent made another deposit of US$14,000.00 in his dollar
account but did not bother to request the petitioner for the
reinstatement of his credit card privileges for dollar transactions,
thus the same remained under suspension."16

Here, the CA ruled, and rightly so, that no malice or bad faith attended
petitioners dishonor of respondents credit card. For, as found no less by the
same court, petitioner was justified in doing so under the provisions of its Credit
Card Agreement14 with respondent, paragraph 3 of which states:

The foregoing are based on the sworn affidavit of petitioners Collection

Manager, a certain Lourdes Canlas, who was never cross examined by the
respondent nor did the latter present any evidence to refute its veracity.

xxx the CARDHOLDER agrees not to exceed his/her approved

credit limit, otherwise, all charges incurred including charges
incurred through the use of the extension CARD/S, if any in excess
of credit limit shall become due and demandable and the credit
privileges shall be automatically suspended without notice to the
CARDHOLDER in accordance with Section 11 hereof.
We are thus at a loss to understand why, despite its very own finding of
absence of bad faith or malice on the part of the petitioner, the CA nonetheless
adjudged it liable for moral damages to respondent.
Quite evidently, in holding petitioner liable for moral damages, the CA justified
the award on its assessment that EBC was negligent in not informing Calderon
that his credit card was already suspended even before he left for Hongkong,
ratiocinating that petitioners right to automatically suspend a cardholders
privileges without notice should not have been indiscriminately used in the case
of respondent because the latter has already paid his past obligations and has
an existing dollar deposit in an amount more than the required minimum for
credit card at the time he made his purchases in Hongkong. But, as explained
by the petitioner in the memorandum it filed with this Court, 15 which
explanations were never controverted by respondent:
"xxx prior to the incident in question (i.e., April 30, 1986 when the
purchases at the Gucci store in Hongkong were made), respondent
made credit purchases in Japan and Hongkong from August to
September 1985 amounting to US$14,226.12, while only having a
deposit of US$3,639.00 in his dollar account as evidenced by the
pertinent monthly statement of respondents credit card
transactions and his bank passbook, thus exceeding his credit limit;
these purchases were accommodated by the petitioner on the
condition that the amount needed to cover the same will be
deposited in a few days as represented by respondents secretary
and his companys general manager a certain Mrs. Zamora and
Mr. F.R. Oliquiano; respondent however failed to make good on his
commitment; later, respondent likewise failed to make the required
deposit on the due date of the purchases as stated in the pertinent
monthly statement of account; as a consequence thereof, his card
privileges for dollar transactions were suspended; it was only four
months later on 31 January 1986, that respondent deposited the
sum of P14,501.89 in his dollar account to cover his purchases; the
said amount however was not sufficient to maintain the required
minimum dollar deposit of $3,000.00 as the respondents dollar
deposit stood at only US$2,704.94 after satisfaction of his

Given the above, and with the express provision on automatic suspension
without notice under paragraph 3,supra, of the parties Credit Card Agreement,
there is simply no basis for holding petitioner negligent for not notifying
respondent of the suspended status of his credit card privileges.
It may be so that respondent, a day before he left for Hongkong, made a
deposit of US$14,000.00 to his dollar account with petitioner. The sad reality,
however, is that he never verified the status of his card before departing for
Hongkong, much less requested petitioner to reinstate the same.17
And, certainly, respondent could not have justifiably assumed that petitioner
must have reinstated his card by reason alone of his having deposited
US$14,000.00 a day before he left for Hongkong. As issuer of the card,
petitioner has the option to decide whether to reinstate or altogether terminate a
credit card previously suspended on considerations which the petitioner
deemed proper, not the least of which are the cardholders payment record,
capacity to pay and compliance with any additional requirements imposed by it.
That option, after all, is expressly embodied in the same Credit Card
Agreement, paragraph 12 of which unmistakably states:
The issuer shall likewise have the option of reinstating the card
holders privileges which have been terminated for any reason
whatsoever upon submission of a new accomplished application
form if required by the issuer and upon payment of an additional
processing fee equivalent to annual fee. 18
Even on the aspect of negligence, therefore, petitioner could not have been
properly adjudged liable for moral damages.
Unquestionably, respondent suffered damages as a result of the dishonor of his
card. There is, however, a material distinction between damages and injury. To
quote from our decision in BPI Express Card Corporation vs. Court of Appeals:19
Injury is the illegal invasion of a legal right; damage is the loss, hurt
or harm which results from the injury; and damages are the
recompense or compensation awarded for the damage
suffered. Thus, there can be damage without injury in those
instances in which the loss or harm was not the result of a
violation of a legal duty. In such cases the consequences must
be borne by the injured person alone, the law affords no remedy for
damages resulting from an act which does not amount to a legal

injury or wrong. These situations are often called damnum absque

injuria.
In other words, in order that a plaintiff may maintain an action for
the injuries of which he complains, he must establish that such
injuries resulted from a breach of duty which the defendant owed to
the plaintiff- a concurrence of injury to the plaintiff and legal
responsibility by the person causing it. The underlying basis for the
award of tort damages is the premise that an individual was injured
in contemplation of law. Thus, there must first be a breach of
some duty and the imposition of liability for that breach before
damages may be awarded; and the breach of such duty should be
the proximate cause of the injury. (Emphasis supplied).
In the situation in which respondent finds himself, his is a case of damnum
absque injuria.
We do not take issue with the appellate court in its observation that the Credit
Card Agreement herein involved is a contract of adhesion, with the stipulations
therein contained unilaterally prepared and imposed by the petitioner to
prospective credit card holders on a take-it-or-leave-it basis. As said by us
in Polotan, Sr. vs. Court of Appeals:20
A contract of adhesion is one in which one of the contracting parties
imposes a ready-made form of contract which the other party may
accept or reject, but cannot modify. One party prepares the
stipulation in the contract, while the other party merely affixes his
signature or his adhesion thereto giving no room for negotiation
and depriving the latter of the opportunity to bargain on equal
footing.
On the same breath, however, we have equally ruled that such a contract is "as
binding as ordinary contracts, the reason being that the party who adheres to
the contract is free to reject it entirely." 21
Moreover, the provision on automatic suspension without notice embodied in
the same Credit Card Agreement is couched in clear and unambiguous term,
not to say that the agreement itself was entered into by respondent who, by his
own account, is a reputable businessman engaged in business activities here
and abroad.
On a final note, we emphasize that "moral damages are in the category of an
award designed to compensate the claim for actual injury suffered and not to
impose a penalty on the wrongdoer."22
WHEREFORE, the instant petition is hereby GRANTED and the decision under
review REVERSED and SET ASIDE.
SO ORDERED.

G.R. No. 149454

May 28, 2004

BANK OF THE PHILIPPINE ISLANDS, petitioner,

vs.
CASA MONTESSORI INTERNATIONALE LEONARDO T.
YABUT, respondents.

defendant BPI[,] with CASAs President Ms. Ma. Carina C. Lebron

as one of its authorized signatories.

the other half. It also disallowed attorneys fees and moral and exemplary
damages.

"In 1991, after conducting an investigation, plaintiff discovered that

nine (9) of its checks had been encashed by a certain Sonny D.
Santos since 1990 in the total amount of P782,000.00, on the
following dates and amounts:

Hence, these Petitions.9

x ----------------------------- x
G.R. No. 149507

May 28, 2004

CASA
MONTESSORI
INTERNATIONALE, petitioner,
vs.
BANK OF THE PHILIPPINE ISLANDS, respondent.
PANGANIBAN, J.:
By the nature of its functions, a bank is required to take meticulous care of the
deposits of its clients, who have the right to expect high standards of integrity
and performance from it.
Among its obligations in furtherance thereof is knowing the signatures of its
clients. Depositors are not estopped from questioning wrongful withdrawals,
even if they have failed to question those errors in the statements sent by the
bank to them for verification.

Check No. Date

Amount

1. 839700

April 24, 1990

P 43,400.00

2. 839459

Nov. 2, 1990

110,500.00

3. 839609

Oct. 17, 1990

47,723.00

4. 839549

April 7, 1990

90,700.00

5. 839569

Sept. 23, 1990 52,277.00

6. 729149

Mar. 22, 1990

148,000.00

7. 729129

Mar. 16, 1990

51,015.00

8. 839684

Dec. 1, 1990

140,000.00

9. 729034

Mar. 2, 1990

98,985.00

Total --

Issues
In GR No. 149454, Petitioner BPI submits the following issues for our
consideration:
"I. The Honorable Court of Appeals erred in deciding this case NOT
in accord with the applicable decisions of this Honorable
Court to the effect that forgery cannot be presumed; that it must be
proved by clear, positive and convincing evidence; and that the
burden of proof lies on the party alleging the forgery.
"II. The Honorable Court of Appeals erred in deciding this case not
in accord with applicable laws, in particular the Negotiable
Instruments Law (NIL) which precludes CASA, on account of its
own negligence, from asserting its forgery claim against BPI,
specially taking into account the absence of any negligence on the
part of BPI."10
In GR No. 149507, Petitioner CASA submits the following issues:

P 782,600.006

"1. The Honorable Court of Appeals erred when it ruled that there
is no showing that [BPI], although negligent, acted in bad faith x x x
thus denying the prayer for the award of attorneys fees, moral
damages and exemplary damages to [CASA]. The Honorable Court
also erred when it did not order [BPI] to pay interest on the amounts
due to [CASA].

The Case
Before us are two Petitions for Review1 under Rule 45 of the Rules of Court,
assailing the March 23, 2001 Decision 2 and the August 17, 2001 Resolution 3 of
the Court of Appeals (CA) in CA-GR CV No. 63561. The decretal portion of the
assailed Decision reads as follows:
"WHEREFORE, upon the premises, the decision appealed from
is AFFIRMED with the modification that defendant bank [Bank of
the Philippine Islands (BPI)] is held liable only for one-half of the
value of the forged checks in the amount of P547,115.00 after
deductions subject to REIMBURSEMENT from third party
defendant Yabut who is likewise ORDERED to pay the other half to
plaintiff corporation [Casa Montessori Internationale (CASA)]." 4
The assailed Resolution denied all the parties Motions for Reconsideration.
The Facts

"It turned out that Sonny D. Santos with account at BPIs

Greenbelt Branch [was] a fictitious name used by third party
defendant Leonardo T. Yabut who worked as external auditor of
CASA. Third party defendant voluntarily admitted that he forged the
signature of Ms. Lebron and encashed the checks. "The PNP
Crime Laboratory conducted an examination of the nine (9) checks
and concluded that the handwritings thereon compared to the
standard signature of Ms. Lebron were not written by the latter.
"On March 4, 1991, plaintiff filed the herein Complaint for Collection
with Damages against defendant bank praying that the latter be
ordered to reinstate the amount of P782,500.007 in the current and
savings accounts of the plaintiff with interest at 6% per annum.
"On February 16, 1999, the RTC rendered the appealed decision in
favor of the plaintiff."8
Ruling of the Court of Appeals

The facts of the case are narrated by the CA as follows:

"On November 8, 1982, plaintiff CASA Montessori
International 5 opened Current Account No. 0291-0081-01 with

Modifying the Decision of the Regional Trial Court (RTC), the CA apportioned
the loss between BPI and CASA. The appellate court took into account CASAs
contributory negligence that resulted in the undetected forgery. It then ordered
Leonardo T. Yabut to reimburse BPI half the total amount claimed; and CASA,

"2. The Honorable Court of Appeals erred when it declared that

[CASA] was likewise negligent in the case at bar, thus warranting
its conclusion that the loss in the amount of P547,115.00 be
apportioned between [CASA] and [BPI] x x x."11
These issues can be narrowed down to three. First, was there forgery under the
Negotiable Instruments Law (NIL)? Second, were any of the parties negligent
and therefore precluded from setting up forgery as a defense?Third, should
moral and exemplary damages, attorneys fees, and interest be awarded?
The Courts Ruling
The Petition in GR No. 149454 has no merit, while that in GR No. 149507 is
partly meritorious.
First Issue:
Forged Signature Wholly Inoperative

Section 23 of the NIL provides:

"Section 23. Forged signature; effect of. -- When a signature is
forged or made without the authority of the person whose signature
it purports to be, it is wholly inoperative, and no right x x x to
enforce payment thereof against any party thereto, can be acquired
through or under such signature, unless the party against whom it
is sought to enforce such right is precluded from setting up the
forgery or want of authority."12
Under this provision, a forged signature is a real 13 or absolute defense,14 and a
person whose signature on a negotiable instrument is forged is deemed to have
never become a party thereto and to have never consented to the contract that
allegedly gave rise to it.15
The counterfeiting of any writing, consisting in the signing of anothers name
with intent to defraud, is forgery.16
In the present case, we hold that there was forgery of the drawers signature on
the check.
First, both the CA17 and the RTC18 found that Respondent Yabut himself had
voluntarily admitted, through an Affidavit, that he had forged the drawers
signature and encashed the checks.19 He never refuted these findings.20 That he
had been coerced into admission was not corroborated by any evidence on
record.21
Second, the appellate and the trial courts also ruled that the PNP Crime
Laboratory, after its examination of the said checks, 22 had concluded that the
handwritings thereon -- compared to the standard signature of the drawer -were not hers.23 This conclusion was the same as that in the Report 24 that the
PNP Crime Laboratory had earlier issued to BPI -- the drawee bank -- upon the
latters request.

Therefore, to fall within the ambit of Section 12, quoted above, there must be an
arrest or a deprivation of freedom, with "questions propounded on him by the
police authorities for the purpose of eliciting admissions, confessions, or any
information."30 The said constitutional provision does "not apply to spontaneous
statements made in a voluntary manner"31 whereby an individual orally admits
to authorship of a crime.32 "What the Constitution proscribes is the compulsory
or coercive disclosure of incriminating facts."33
Moreover, the right against self-incrimination34 under Section 17 of Article III35 of
the Constitution, which is ordinarily available only in criminal prosecutions,
extends to all other government proceedings -- including civil actions, legislative
investigations,36 and administrative proceedings that possess a criminal or
penal aspect37 -- but not to private investigations done by private individuals.
Even in such government proceedings, this right may be waived, 38 provided the
waiver is certain; unequivocal; and intelligently, understandingly and willingly
made.39
If in these government proceedings waiver is allowed, all the more is it so in
private investigations. It is of no moment that no criminal case has yet been filed
against Yabut. The filing thereof is entirely up to the appropriate authorities or to
the private individuals upon whom damage has been caused. As we shall also
explain later, it is not mandatory for CASA -- the plaintiff below -- to implead
Yabut in the civil case before the lower court.
Under these two constitutional provisions, "[t]he Bill of Rights 40 does not
concern itself with the relation between a private individual and another
individual. It governs the relationship between the individual and the
State."41Moreover, the Bill of Rights "is a charter of liberties for the individual
and a limitation upon the power of the [S]tate."42 These rights43 are guaranteed
to preclude the slightest coercion by the State that may lead the accused "to
admit something false, not prevent him from freely and voluntarily telling the
truth."44

Indeed, we respect and affirm the RTCs factual findings, especially when
affirmed by the CA, since these are supported by substantial evidence on
record.25

Yabut is not an accused here. Besides, his mere invocation of the aforesaid
rights "does not automatically entitle him to the constitutional
protection."45 When he freely and voluntarily executed 46 his Affidavit, the State
was not even involved. Such Affidavit may therefore be admitted without
violating his constitutional rights while under custodial investigation and against
self-incrimination.

Voluntary Admission Not Violative of Constitutional Rights

Clear, Positive and Convincing Examination and Evidence

The voluntary admission of Yabut did not violate his constitutional rights (1) on
custodial investigation, and (2) against self-incrimination.

The examination by the PNP, though inconclusive, was nevertheless clear,

positive and convincing.

In the first place, he was not under custodial investigation. 26 His Affidavit was
executed in private and before private individuals. 27 The mantle of protection
under Section 12 of Article III of the 1987 Constitution 28 covers only the period
"from the time a person is taken into custody for investigation of his possible
participation in the commission of a crime or from the time he is singled out as a
suspect in the commission of a crime although not yet in custody."29

Forgery "cannot be presumed." 47 It must be established by clear, positive and

convincing evidence.48 Under the best evidence rule as applied to documentary
evidence like the checks in question, no secondary or substitutionary evidence
may inceptively be introduced, as the original writing itself must be produced in
court.49But when, without bad faith on the part of the offeror, the original checks
have already been destroyed or cannot be produced in court, secondary
evidence may be produced. 50 Without bad faith on its part, CASA proved the
loss or destruction of the original checks through the Affidavit of the one person

who knew of that fact51 -- Yabut. He clearly admitted to discarding the paid
checks to cover up his misdeed.52 In such a situation, secondary evidence like
microfilm copies may be introduced in court.
The drawers signatures on the microfilm copies were compared with the
standard signature. PNP Document Examiner II Josefina de la Cruz testified on
cross-examination that two different persons had written them. 53Although no
conclusive report could be issued in the absence of the original checks, 54 she
affirmed that her findings were 90 percent conclusive. 55 According to her, even if
the microfilm copies were the only basis of comparison, the differences were
evident.56 Besides, the RTC explained that although the Report was
inconclusive, no conclusive report could have been given by the PNP, anyway,
in the absence of the original checks.57 This explanation is valid; otherwise, no
such report can ever be relied upon in court.
Even with respect to documentary evidence, the best evidence rule applies only
when the contents of a document -- such as the drawers signature on a check
-- is the subject of inquiry. 58 As to whether the document has been actually
executed, this rule does not apply; and testimonial as well as any other
secondary evidence is admissible.59 Carina Lebron herself, the drawers
authorized signatory, testified many times that she had never signed those
checks. Her testimonial evidence is admissible; the checks have not been
actually executed. The genuineness of her handwriting is proved, not only
through the courts comparison of the questioned handwritings and admittedly
genuine specimens thereof,60 but above all by her.
The failure of CASA to produce the original checks neither gives rise to the
presumption of suppression of evidence 61 nor creates an unfavorable inference
against it.62 Such failure merely authorizes the introduction of secondary
evidence63 in the form of microfilm copies. Of no consequence is the fact that
CASA did not present the signature card containing the signatures with which
those on the checks were compared. 64 Specimens of standard signatures are
not limited to such a card. Considering that it was not produced in evidence,
other documents that bear the drawers authentic signature may be resorted
to.65 Besides, that card was in the possession of BPI -- the adverse party.
We have held that without the original document containing the allegedly forged
signature, one cannot make a definitive comparison that would establish
forgery;66 and that a comparison based on a mere reproduction of the document
under controversy cannot produce reliable results. 67 We have also said,
however, that a judge cannot merely rely on a handwriting experts
testimony,68 but should also exercise independent judgment in evaluating the
authenticity of a signature under scrutiny. 69 In the present case, both the RTC
and the CA conducted independent examinations of the evidence presented
and arrived at reasonable and similar conclusions. Not only did they admit
secondary evidence; they also appositely considered testimonial and other
documentary evidence in the form of the Affidavit.
The best evidence rule admits of exceptions and, as we have discussed earlier,
the first of these has been met. 70The result of examining a questioned
handwriting, even with the aid of experts and scientific instruments, may be
inconclusive;71 but it is a non sequitur to say that such result is not clear,
positive and convincing. The preponderance of evidence required in this case
has been satisfied.72

Second Issue:
Negligence Attributable to BPI Alone
Having established the forgery of the drawers signature, BPI -- the drawee -erred in making payments by virtue thereof. The forged signatures are wholly
inoperative, and CASA -- the drawer whose authorized signatures do not
appear on the negotiable instruments -- cannot be held liable thereon. Neither is
the latter precluded from setting up forgery as a real defense.

Furthermore, there is always the audit risk that errors would not be
detected87 for various reasons. One,materiality is a consideration in audit
planning;88 and two, the information obtained from such a substantive test is
merely presumptive and cannot be the basis of a valid waiver.89 BPI has no right
to impose a condition unilaterally and thereafter consider failure to meet such
condition a waiver. Neither may CASA renounce a right 90 it has never
possessed.91
Every right has subjects -- active and passive. While the active subject is
entitled to demand its enforcement, the passive one is duty-bound to suffer
such enforcement.92

Clear Negligence in Allowing Payment Under a Forged Signature

We have repeatedly emphasized that, since the banking business is impressed
with public interest, of paramount importance thereto is the trust and confidence
of the public in general. Consequently, the highest degree of diligence 73 is
expected,74 and high standards of integrity and performance are even required,
of it.75 By the nature of its functions, a bank is "under obligation to treat the
accounts of its depositors with meticulous care, 76always having in mind the
fiduciary nature of their relationship."77
BPI contends that it has a signature verification procedure, in which checks are
honored only when the signatures therein are verified to be the same with or
similar to the specimen signatures on the signature cards. Nonetheless, it still
failed to detect the eight instances of forgery. Its negligence consisted in the
omission of that degree of diligence required 78 of a bank. It cannot now feign
ignorance, for very early on we have already ruled that a bank is "bound to
know the signatures of its customers; and if it pays a forged check, it must be
considered as making the payment out of its own funds, and cannot ordinarily
charge the amount so paid to the account of the depositor whose name was
forged."79 In fact, BPI was the same bank involved when we issued this ruling
seventy years ago.
Neither Waiver nor Estoppel Results from Failure to Report Error in Bank
Statement
The monthly statements issued by BPI to its clients contain a notice worded as
follows: "If no error is reported in ten (10) days, account will be correct." 80 Such
notice cannot be considered a waiver, even if CASA failed to report the error.
Neither is it estopped from questioning the mistake after the lapse of the tenday period.
This notice is a simple confirmation 81 or "circularization" -- in accounting
parlance -- that requests client-depositors to affirm the accuracy of items
recorded by the banks. 82 Its purpose is to obtain from the depositors a direct
corroboration of the correctness of their account balances with their respective
banks.83 Internal or external auditors of a bank use it as a basic audit
procedure84 -- the results of which its client-depositors are neither interested in
nor privy to -- to test the details of transactions and balances in the banks
records.85 Evidential matter obtained from independent sources outside a bank
only serves to provide greater assurance of reliability86than that obtained solely
within it for purposes of an audit of its own financial statements, not those of its
client-depositors.

On the one hand, BPI could not have been an active subject, because it could
not have demanded from CASA a response to its notice. Besides, the notice
was a measly request worded as follows: "Please examine x x x and report x x
x."93 CASA, on the other hand, could not have been a passive subject, either,
because it had no obligation to respond. It could -- as it did -- choose not to
respond.
Estoppel precludes individuals from denying or asserting, by their own deed or
representation, anything contrary to that established as the truth, in legal
contemplation.94 Our rules on evidence even make a juris et de
jurepresumption95 that whenever one has, by ones own act or omission,
intentionally and deliberately led another to believe a particular thing to be true
and to act upon that belief, one cannot -- in any litigation arising from such act
or omission -- be permitted to falsify that supposed truth.96
In the instant case, CASA never made any deed or representation that misled
BPI. The formers omission, if any, may only be deemed an innocent mistake
oblivious to the procedures and consequences of periodic audits. Since its
conduct was due to such ignorance founded upon an innocent mistake,
estoppel will not arise.97 A person who has no knowledge of or consent to a
transaction may not be estopped by it.98 "Estoppel cannot be sustained by mere
argument or doubtful inference x x x."99 CASA is not barred from questioning
BPIs error even after the lapse of the period given in the notice.
Loss Borne by Proximate Source of Negligence
For allowing payment100 on the checks to a wrongful and fictitious payee, BPI -the drawee bank -- becomes liable to its depositor-drawer. Since the encashing
bank is one of its branches,101 BPI can easily go after it and hold it liable for
reimbursement.102 It "may not debit the drawers account 103 and is not entitled to
indemnification from the drawer." 104 In both law and equity, when one of two
innocent persons "must suffer by the wrongful act of a third person, the loss
must be borne by the one whose negligence was the proximate cause of the
loss or who put it into the power of the third person to perpetrate the wrong." 105
Proximate cause is determined by the facts of the case. 106 "It is that cause
which, in natural and continuous sequence, unbroken by any efficient
intervening cause, produces the injury, and without which the result would not
have occurred."107

Pursuant to its prime duty to ascertain well the genuineness of the signatures of
its client-depositors on checks being encashed, BPI is "expected to use
reasonable business prudence." 108 In the performance of that obligation, it is
bound by its internal banking rules and regulations that form part of the contract
it enters into with its depositors.109
Unfortunately, it failed in that regard. First, Yabut was able to open a bank
account in one of its branches without privity;110 that is, without the proper
verification of his corresponding identification papers. Second, BPI was unable
to discover early on not only this irregularity, but also the marked differences in
the signatures on the checks and those on the signature card. Third, despite the
examination procedures it conducted, the Central Verification Unit 111 of the bank
even passed off these evidently different signatures as genuine. Without
exercising the required prudence on its part, BPI accepted and encashed the
eight checks presented to it. As a result, it proximately contributed to the fraud
and should be held primarily liable 112 for the "negligence of its officers or agents
when acting within the course and scope of their employment." 113 It must bear
the loss.
CASA Not Negligent in Its Financial Affairs
In this jurisdiction, the negligence of the party invoking forgery is recognized as
an exception114 to the general rule that a forged signature is wholly
inoperative.115 Contrary to BPIs claim, however, we do not find CASA negligent
in handling its financial affairs. CASA, we stress, is not precluded from setting
up forgery as a real defense.
Role of Independent Auditor
The major purpose of an independent audit is to investigate and determine
objectively if the financial statements submitted for audit by a corporation have
been prepared in accordance with the appropriate financial reporting
practices116 of private entities. The relationship that arises therefrom is both
legal and moral.117 It begins with the execution of the engagement letter 118 that
embodies the terms and conditions of the audit and ends with the fulfilled
expectation of the auditors ethical 119 and competent performance in all aspects
of the audit.120
The financial statements are representations of the client; but it is the auditor
who has the responsibility for the accuracy in the recording of data that
underlies their preparation, their form of presentation, and the
opinion121expressed therein.122 The auditor does not assume the role of
employee or of management in the clients conduct of operations 123 and is never
under the control or supervision124 of the client.
Yabut was an independent auditor 125 hired by CASA. He handled its monthly
bank reconciliations and had access to all relevant documents and
checkbooks.126 In him was reposed the clients 127 trust and confidence128 that he
would perform precisely those functions and apply the appropriate procedures
in accordance with generally accepted auditing standards. 129 Yet he did not
meet these expectations. Nothing could be more horrible to a client than to
discover later on that the person tasked to detect fraud was the same one who
perpetrated it.

Cash Balances Open to Manipulation

even in collusion -- and management would still have no way to verify its cash
accountabilities.

It is a non sequitur to say that the person who receives the monthly bank statements,
together with the cancelled checks and other debit/credit memoranda, shall examine
the contents and give notice of any discrepancies within a reasonable time.
Awareness is not equipollent with discernment.
Besides, in the internal accounting control system prudently installed by CASA, 130 it
was Yabut who should examine those documents in order to prepare the bank
reconciliations.131 He owned his working papers, 132 and his output consisted of his
opinion as well as the clients financial statements and accompanying notes thereto.
CASA had every right to rely solely upon his output -- based on the terms of the audit
engagement -- and could thus be unwittingly duped into believing that everything was
in order. Besides, "[g]ood faith is always presumed and it is the burden of the party
claiming otherwise to adduce clear and convincing evidence to the contrary." 133
Moreover, there was a time gap between the period covered by the bank statement
and the date of its actual receipt. Lebron personally received the December 1990
bank statement only in January 1991134 -- when she was also informed of the forgery
for the first time, after which she immediately requested a "stop payment order." She
cannot be faulted for the late detection of the forged December check. After all, the
bank account with BPI was not personal but corporate, and she could not be
expected to monitor closely all its finances. A preschool teacher charged with molding
the minds of the youth cannot be burdened with the intricacies or complexities of
corporate existence.
There is also a cutoff period such that checks issued during a given month, but not
presented for payment within that period, will not be reflected therein. 135 An
experienced auditor with intent to defraud can easily conceal any devious scheme
from a client unwary of the accounting processes involved by manipulating the cash
balances on record -- especially when bank transactions are numerous, large and
frequent. CASA could only be blamed, if at all, for its unintelligent choice in the
selection and appointment of an auditor -- a fault that is not tantamount to
negligence.
Negligence is not presumed, but proven by whoever alleges it. 136 Its mere existence
"is not sufficient without proof that it, and no other cause," 137 has given rise to
damages.138 In addition, this fault is common to, if not prevalent among, small and
medium-sized business entities, thus leading the Professional Regulation
Commission (PRC), through the Board of Accountancy (BOA), to require today not
only accreditation for the practice of public accountancy, 139 but also the registration of
firms in the practice thereof. In fact, among the attachments now required upon
registration are the code of good governance 140 and a sworn statement on adequate
and effective training.141
The missing checks were certainly reported by the bookkeeper 142 to the
accountant143 -- her immediate supervisor -- and by the latter to the auditor. However,
both the accountant and the auditor, for reasons known only to them, assured the
bookkeeper that there were no irregularities.
144

145

The bookkeeper who had exclusive custody of the checkbooks did not have to
go directly to CASAs president or to BPI. Although she rightfully reported the matter,
neither an investigation was conducted nor a resolution of it was arrived at, precisely
because the person at the top of the helm was the culprit. The vouchers, invoices and
check stubs in support of all check disbursements could be concealed or fabricated --

Clearly then, Yabut was able to perpetrate the wrongful act through no fault of CASA.
If auditors may be held liable for breach of contract and negligence, 146 with all the
more reason may they be charged with the perpetration of fraud upon an
unsuspecting client. CASA had the discretion to pursue BPI alone under the NIL, by
reason of expediency or munificence or both. Money paid under a mistake may
rightfully be recovered,147 and under such terms as the injured party may choose.

Attorneys Fees Granted

Although it is a sound policy not to set a premium on the right to litigate, 170 we find
that CASA is entitled to reasonable attorneys fees based on "factual, legal, and
equitable justification."171

Moral Damages Denied

When the act or omission of the defendant has compelled the plaintiff to incur
expenses to protect the latters interest, 172 or where the court deems it just and
equitable,173 attorneys fees may be recovered. In the present case, BPI persistently
denied the claim of CASA under the NIL to recredit the latters account for the value
of the forged checks. This denial constrained CASA to incur expenses and exert
effort for more than ten years in order to protect its corporate interest in its bank
account. Besides, we have already cautioned BPI on a similar act of negligence it
had committed seventy years ago, but it has remained unrelenting. Therefore, the
Court deems it just and equitable to grant ten percent (10%) 174 of the total value
adjudged to CASA as attorneys fees.

We deny CASAs claim for moral damages.

Interest Allowed

In the absence of a wrongful act or omission, 148 or of fraud or bad faith,149 moral
damages cannot be awarded. 150 The adverse result of an action does not per se
make the action wrongful, or the party liable for it. One may err, but error alone is not
a ground for granting such damages.151 While no proof of pecuniary loss is necessary
therefor -- with the amount to be awarded left to the courts discretion 152 -- the
claimant must nonetheless satisfactorily prove the existence of its factual basis 153 and
causal relation154 to the claimants act or omission.155

For the failure of BPI to pay CASA upon demand and for compelling the latter to
resort to the courts to obtain payment, legal interest may be adjudicated at the
discretion of the Court, the same to run from the filing 175 of the Complaint.176 Since a
court judgment is not a loan or a forbearance of recovery, the legal interest shall be at
six percent (6%) per annum.177 "If the obligation consists in the payment of a sum of
money, and the debtor incurs in delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of x x x legal interest, which is six
percent per annum."178 The actual base for its computation shall be "on the amount
finally adjudged,"179 compounded180 annually to make up for the cost of
money181 already lost to CASA.

Third Issue:
Award of Monetary Claims

Regrettably, in this case CASA was unable to identify the particular instance -enumerated in the Civil Code -- upon which its claim for moral damages is
predicated.156 Neither bad faith nor negligence so gross that it amounts to
malice157 can be imputed to BPI. Bad faith, under the law, "does not simply connote
bad judgment or negligence;158 it imports a dishonest purpose or some moral obliquity
and conscious doing of a wrong, a breach of a known duty through some motive or
interest or ill will that partakes of the nature of fraud."159
As a general rule, a corporation -- being an artificial person without feelings, emotions
and senses, and having existence only in legal contemplation -- is not entitled to
moral damages,160 because it cannot experience physical suffering and mental
anguish.161 However, for breach of the fiduciary duty required of a bank, a corporate
client may claim such damages when its good reputation is besmirched by such
breach, and social humiliation results therefrom. 162 CASA was unable to prove that
BPI had debased the good reputation of,163 and consequently caused incalculable
embarrassment to, the former. CASAs mere allegation or supposition thereof, without
any sufficient evidence on record,164 is not enough.
Exemplary Damages Also Denied
We also deny CASAs claim for exemplary damages. Imposed by way of
correction165 for the public good, 166 exemplary damages cannot be recovered as a
matter of right.167 As we have said earlier, there is no bad faith on the part of BPI for
paying the checks of CASA upon forged signatures. Therefore, the former cannot be
said to have acted in a wanton, fraudulent, reckless, oppressive or malevolent
manner.168 The latter, having no right to moral damages, cannot demand exemplary
damages.169

Moreover, the failure of the CA to award interest does not prevent us from granting it
upon damages awarded for breach of contract. 182 Because BPI evidently breached its
contract of deposit with CASA, we award interest in addition to the total amount
adjudged. Under Section 196 of the NIL, any case not provided for shall be
"governed by the provisions of existing legislation or, in default thereof, by the rules of
the law merchant."183 Damages are not provided for in the NIL. Thus, we resort to the
Code of Commerce and the Civil Code. Under Article 2 of the Code of Commerce,
acts of commerce shall be governed by its provisions and, "in their absence, by the
usages of commerce generally observed in each place; and in the absence of both
rules, by those of the civil law." 184 This law being silent, we look at Article 18 of the
Civil Code, which states: "In matters which are governed by the Code of Commerce
and special laws, their deficiency shall be supplied" by its provisions. A perusal of
these three statutes unmistakably shows that the award of interest under our civil law
is justified.
WHEREFORE, the Petition in GR No. 149454 is hereby DENIED, and that in GR No.
149507 PARTLY GRANTED. The assailed Decision of the Court of Appeals
is AFFIRMED with modification: BPI is held liable for P547,115, the total value of the
forged checks less the amount already recovered by CASA from Leonardo T. Yabut,
plus interest at the legal rate of six percent (6%) per annum -- compounded annually,
from the filing of the complaint until paid in full; and attorneys fees of ten percent
(10%) thereof, subject to reimbursement from Respondent Yabut for the entire
amount, excepting attorneys fees. Let a copy of this Decision be furnished the Board
of Accountancy of the Professional Regulation Commission for such action as it may
deem appropriate against Respondent Yabut. No costs. SO ORDERED.

G.R. No. L-25414 July 30, 1971

LEOPOLDO ARANETA, petitioner,
vs.
BANK of AMERICA, respondent.
MAKALINTAL, J.:
Petition for review by certiorari of the decision of Court of Appeals in CA-G.R.
No. L-34508-R modifying that of the Court of First Instance of Manila in the
Case No. 52442.
Leopoldo Araneta, the petitioner herein, was a local merchant engaged in the
import and export business. On June 30, 1961 he issued a check for $500
payable to cash and drawn against the San Francisco main office of the Bank of
America, where he had been maintaining a dollar current account since 1948.
At that time he had a credit balance of $523.81 in his account, confirmed by the
bank's assistant cashier in a letter to Araneta dated September 7, 1961.
However, when the check was received by the bank on September 8, 1961, a
day after the date of the letter, it was dishonored and stamped with the notation
"Account Closed."
Upon inquiry by Araneta as to why his check had been dishonored, the Bank of
America acknowledged that it was an error, explaining that for some reason the
check had been encoded with wrong account number, and promising that "we
shall make every effort to see that this does not reoccur." The bank sent a letter
of apology to the payee of the check, a Mr. Harry Gregory of Hongkong, stating
that "the check was returned through an error on our part and should not reflect
adversely upon Mr. Araneta." In all probability the matter would have been
considered closed, but another incident of a similar nature occurred later.
On May 25, and 31, 1962 Araneta issued Check No. 110 for $500 and Check
No. 111 for $150, respectively, both payable to cash and drawn against the
Bank of America. These two checks were received by the bank on June 3,
1962. The first check appeared to have come into the hands of Rufina Saldana,
who deposited it to her account the First National City Bank of New York, which
in turn cleared it through the Federal Reserve Bank. The second check
appeared to have been cleared through the Wells Fargo Bank. Despite the
sufficiency of Araneta's deposit balance to cover both checks, they were again
stamped with the notation "Account Closed" and returned to the respective
clearing banks.
In the particular case of Check No. 110, it was actually paid by the Bank of
America to the First National City Bank. Subsequently, however, the Bank of
America, claiming that the payment had been inadvertently made, returned the
check to the First National City Bank with the request that the amount thereof
be credited back to the Bank of America. In turn, the First National City Bank
wrote to the depositor of the check, Rufina Saldana, informing her about its
return with the notation "Account Closed" and asking her consent to the
deduction of its amount from her deposit. However, before Mrs. Saldana's reply
could be received, the Bank of America recalled the check from the First
National City Bank and honored it.

In view of the foregoing incidents, Araneta, through counsel, sent a letter to the
Bank of America demanding damages in the sum of $20,000. While admitting
responsibility for the inconvenience caused to Araneta, the bank claimed that
the amount demanded was excessive, and offered to pay the sum of P2,000.00.
The offer was rejected.
On December 11, 1962 Araneta filed the complaint in this case against the Bank
of America for the recovery of the following:
1. Actual or compensatory damages P30,000.00
2.
Moral
damages
20,000.00
3.
Temperate
damages
50,000.00
4.
Exemplary
damages
10,000.00
5. Attorney's fees 10,000.00
TOTAL P120,000.00
The judgment of the trial court awarded all the item prayed for, but on appeal by
the defendant the Court of Appeals eliminated the award of compensatory and
temperate damages and reduced the moral damages to P8,000.00, the
exemplary damages to P1,000.00 and the attorney's fees to P1,000.00.
Not satisfied with the decision of the appellate court the plaintiff filed the instant
petition for review, alleging two reasons why it should be allowed, as follows:
(1) The Court of Appeals erred in holding that
temperate damages cannot be awarded without proof
of actual pecuniary loss. There is absolutely no legal
basis for this ruling; worse yet, it runs counter to the
very provisions of ART. 2216 of the New Civil Code
and to the established jurisprudence on the matter;
(2) The Court of Appeals erred in not holding that moral
damages may be recovered as an item separate and
distinct from the damages recoverable for injury to
business standing and commercial credit. This involves
the application of paragraph (2) of Art. 2205 of the New
Civil Code which up to now has not yet received an
authoritative interpretation from the Supreme
Court. ... .
In his brief, however, the petitioner assigned five (5) errors committed by the
appellate court, namely: (1) in concluding that the petitioner, on the basis of the
evidence, had not sufficiently proven his claim for actual damages, where such
evidence, both testimonial and documentary, stands uncontradicted on the
record; (2) in holding that temperate damages cannot be awarded to the
petitioner without proof of actual pecuniary loss; (3) in not granting moral
damages for mental anguish, besmirched reputation, wounded feelings, social
humiliation, etc., separate and distinct from the damages recoverable for injury
to business reputation; (4) in reducing, without any ostensible reason, the award
of exemplary damages granted by the lower court; and (5) in reducing, without
special reason, the award of attorney's fees by the lower court.

We consider the second and third errors, as they present the issues raised in
the petition for review and on the basis of which it was given due course.
In disallowing the award of temperate damages, the Court of Appeals ruled:
In view of all the foregoing considerations we hold that
the plaintiff has not proven his claim that the two
checks for $500 each were in partial payment of two
orders for jewels worth P50,000 each. He has likewise
not proven the actual damage which he claims he has
suffered. And in view of the fact that he has not proven
the existence of the supposed contract for himself to
buy jewels at a profit there is not even an occasion for
an award of temperate damages on this score.
This ruling is now assailed as erroneous and without legal basis. The petitioner
maintains that in an action by a depositor against a bank for damages resulting
from the wrongful dishonor of the depositor's checks, temperate damages for
injury to business standing or commercial credit may be recovered even in the
absence of definite proof of direct pecuniary loss to the plaintiff, a finding as it
was found by the Court of Appeals that the wrongful acts of the respondent
had adversely affected his credit being sufficient for the purpose. The following
provisions of the Civil Code are invoked:
ART. 2205. Damages may be recovered:
(1) For loss or impairment of earning capacity in cases
of temporary or permanent personal injury;
(2) For injury to the plaintiff's business standing or
commercial credit.
ART. 2216. No proof of pecuniary loss is necessary in
order that moral, nominal, temperate, liquidated or
exemplary damages may be adjudicated. The
assessment of such damages, except liquidated ones,
is left to the discretion of the court, according to the
circumstances of each case.
Also invoked by the petitioner is the case of Atlanta National Bank vs. Davis, 96
Ga 334, 23 SE 190; 1 and the following citations in American Jurisprudence:
In some states what are called "temperate damages"
are allowed in certain classes of cases, without proof of
actual or special damages, where the wrong done
must in fact have caused actual damage to the plaintiff,
though from the nature of the case, he cannot furnish
independent, distinct proof thereof. Temperate
damages are more than nominal damages, and, rather,
are such as would be a reasonable compensation for
the injury sustained. ... . (15 Am. Jur. 400)

... . It has been generally, although not universally,

held, in an action based upon the wrongful act of a
bank dishonoring checks of a merchant or trader
having sufficient funds on deposit with the bank, that
substantial damages will be presumed to follow such
act as a necessary and natural consequence, and
accordingly, that special damages need not be shown.
One of the reasons given for this rule is that the
dishonor of a merchant's or trader's check is
tantamount or analogous, to a slander of his trade or
business, imputing to him insolvency or bad faith. ... .
(10 Am. Jur. 2d. 545)
On the other hand the respondent argues that since the petitioner invokes
Article 2205 of the Civil Code, which speaks of actual or compensatory
damages for injury to business standing or commercial credit, he may not claim
them as temperate damages and thereby dispense with proof of pecuniary loss
under Article 2216. The respondent cites Article 2224, which provides that
"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 cannot, from the nature of the
case, proved with certainty," and contends that the petitioner failed to show any
such loss in this case.
The question, therefore, is whether or not on the basis of the findings of the
Court of Appeals, there is reason to conclude that the petitioner did sustain
some pecuniary loss although no sufficient proof of the amount thereof has
been adduced. In rejecting the claim for temperate damages the said Court
referred specifically to the petitioner's failure to prove "the existence of a
supposed contract for him to buy jewels at a profit," in connection with which he
issued the two checks which were dishonored by the respondent. This may be
true as far as it goes, that is, with particular reference to the alleged loss in that
particular transaction. But it does not detract from the finding of the same Court
that actual damages had been suffered, thus:
... Obviously, the check passed the hands of other
banks since it was cleared in the United States. The
adverse reflection against the credit of Araneta with
said banks was not cured nor explained by the letter of
apology to Mr. Gregory.
xxx xxx xxx
... This incident obviously affected the credit of Araneta
with Miss Saldana.
xxx xxx xxx
However, in so far as the credit of Araneta with the
First National City Bank, with Miss Rufina Saldana and
with any other persons who may have come to know
about the refusal of the defendant to honor said
checks, the harm was done ...

The financial credit of a businessman is a prized and valuable asset, it being a

significant part of the foundation of his business. Any adverse reflection thereon
constitutes some material loss to him. As stated in the case Atlanta National
Bank vs. Davis, supra, citing 2 Morse Banks, Sec. 458, "it can hardly be
possible that a customer's check can be wrongfully refused payment without
some impeachment of his credit, which must in fact be an actual injury, though
he cannot, from the nature of the case, furnish independent, distinct proof
thereof."
The Code Commission, in explaining the concept of temperate damages under
Article 2224, makes the following comment:
In some States of the American Union, temperate
damages are allowed. There are cases where from the
nature of the case, definite proof of pecuniary loss
cannot be offered, although the court is convinced that
there has been such loss. For instance, injury to one's
commercial credit or to the goodwill of a business firm
is often hard to show with certainty in terms of money.
Should damages be denied for that reason? The judge
should be empowered to calculate moderate damages
in such cases, rather than that the plaintiff should
suffer, without redress from the defendant's wrongful
act.
The petitioner, as found by the Court of Appeals, is a merchant of long standing
and good reputation in the Philippines. Some of his record is cited in the
decision appealed from. We are of the opinion that his claim for temperate
damages is legally justified. Considering all the circumstances, including the
rather small size of the petitioner's account with the respondent, the amounts of
the checks which were wrongfully dishonored, and the fact that the respondent
tried to rectify the error soon after it was discovered, although the rectification
came after the damage had been caused, we believe that an award of P5,000
by way of temperate damages is sufficient.
Under the third error assigned by the petitioner in his brief, which is the second
of the two reasons relieve upon in his petition for review, he contends that moral
damages should have been granted for the injury to his business standing or
commercial credit, separately from his wounded feelings and mental anguish. It
is true that under Article 2217 of the Civil Code. "besmirched reputation" is a
ground upon which moral damages may be claimed, but the Court of Appeals
did take this element into consideration in adjudging the sum of P8,000 in his
favor. We quote from the decision:
... the damages to his reputation as an established and
well known international trader entitled himself to
recover moral damages.
xxx xxx xxx
... It was likewise established that when plaintiff
learned that his checks were not honored by the
drawee Bank, his wounded feelings and the mental

anguish suffered by him caused his blood pressure to

rise beyond normal limits, thereby necessitating
medical attendance for an extended period.
The trial court awarded attorney's fees in the amount of P10,000. This was
reduced by the Court of Appeals to only P1,000. Considering the nature and
extent of the services rendered by the petitioner's counsel both in the trial and
appellate courts, the amount should be increased to P4,000. This may be
done motu propio by this Court under Article 2208 of the Civil Code, which
provides that attorney's fees may be recovered in the instances therein
enumerated and "in any other case where the Court deems, it first and equitable
that attorney's fees ... should be recovered," provided the amount thereof be
reasonable in all cases.
We do not entertain the first and fourth errors assigned by the petitioner. Neither
of them was raised and ruled upon as reasons for the allowance of his petition
for review, as required by Section 2 of Rule 45. Besides, the first error involves
a question of fact and calls for a review of the evidence and a reappraisal of its
probative value a task not within the appellate jurisdiction of this case. And
with respect to the fourth error, while there was gross negligence on the part of
the respondent, the record shows, as hereinbefore observed, that it tried to
rectify its error soon after the same was discovered, although not in time to
prevent the damage to the petitioner.
WHEREFORE, the judgment of the Court of Appeals is modified by awarding
temperate damages to the petitioner in the sum of P5,000 and increasing the
attorney's fees to P4,000; and is affirmed in all other respects. Costs against the
respondent.

G.R. No. L-45656 May 5, 1989

PACIFIC BANKING CORPORATION and CHESTER G. BABST, petitioners,
vs.
THE COURT OF APPEALS, JOSEPH C. HART and ELEANOR
HART, respondents.
GUTIERREZ, JR., J.:
This is a petition for review of the decision of the Court of Appeals in CA-G.R.
Nos. 52573 and 52574 directing petitioners to pay to respondent Hart ONE
HUNDRED THOUSAND (P 100,000.00) PESOS with legal interest from
February 19, 1958 until fully paid, plus FIFTEEN THOUSAND (P 15,000.00)
PESOS attorneys fees, but subject to the right of reimbursement of petitioner
Pacific Banking Corporation (PBC) from petitioner Babst, whatever amounts
PBC should pay on account of the judgment.
Briefly, the facts of the case are as follows:
On April 15, 1955, herein private respondents Joseph and Eleanor Hart
discovered an area consisting of 480 hectares of tidewater land in Tambac Gulf
of Lingayen which had great potential for the cultivation of fish and saltmaking.
They organized Insular Farms Inc., applied for and, after eleven months,
obtained a lease from the Department of Agriculture for a period of 25 years,
renewable for another 25 years.
Subsequently Joseph Hart approached businessman John Clarkin, then
President of Pepsi-Cola Bottling Co. in Manila, for financial assistance.
On July 15, 1956, Joseph Hart and Clarkin signed a Memorandum of
Agreement pursuant to which: a) of 1,000 shares out-standing, Clarkin was
issued 500 shares in his and his wife's name, one share to J. Lapid, Clarkin's
secretary, and nine shares in the name of the Harts were indorsed in blank and
held by Clarkin so that he had 510 shares as against the Harts' 490; b) Hart was
appointed President and General Manager as a result of which he resigned as
Acting Manager of the First National City Bank at the Port Area, giving up salary
of P 1,125.00 a month and related fringe benefits.
Due to financial difficulties, Insular Farms Inc. borrowed P 250,000.00 from
Pacific Banking Corporation sometime in July of 1956.
On July 31, 1956 Insular Farms Inc. executed a Promissory Note of P
250,000.00 to the bank payable in five equal annual installments, the first
installment payable on or before July 1957. Said note provided that upon default
in the payment of any installment when due, all other installments shall become
due and payable.
This loan was effected and the money released without any security except for
the Continuing Guaranty executed on July 18, 1956, of John Clarkin, who
owned seven and half percent of the capital stock of the bank, and his wife
Helen.

Unfortunately, the business floundered and while attempts were made to take in
other partners, these proved unsuccessful. Nevertheless, petitioner Pacific
Banking Corporation and its then Executive Vice President, petitioner Chester
Babst, did not demand payment for the initial July 1957 installment nor of the
entire obligation, but instead opted for more collateral in addition to the guaranty
of Clarkin.
As the business further deteriorated and the situation became desperate, Hart
agreed to Clarkin's proposal that all Insular Farms shares of stocks be pledged
to petitioner bank in lieu of additional collateral and to insure an extension of the
period to pay the July 1957 installment. Said pledge was executed on February
19, 1958.
Less than a month later, on March 3,1958, Pacific Farms Inc, was organized to
engage in the same business as Insular Farms Inc. The next day, or on March
4, 1958, Pacific Banking Corporation, through petitioner Chester Babst wrote
Insular Farms Inc. giving the latter 48 hours to pay its entire obligation.
On March 7, 1958, Hart received notice that the pledged shares of stocks of
Insular Farms Inc. would be sold at public auction on March 10, 1958 at 8:00
A.M. to satisfy Insular Farms' obligation.
On March 8, 1958, the private respondents commenced the case below by filing
a complaint for reconveyance and damages with prayer for writ of preliminary
injunction before the Court of First Instance of Manila docketed as Civil Case
No. 35524. On the same date the Court granted the prayer for a writ of prepreliminary injunction.
However, on March 19, 1958, the trial court, acting on the urgent petitions for
dissolution of preliminary injunction filed by petitioners PBC and Babst on March
11 and March 14,1958, respectively, lifted the writ of preliminary injunction.
The next day, or on March 20, 1958 respondents Hart received a notice from
PBC signed by Babst that the shares of stocks of Insular Farms will be sold at
public auction on March 21,1958 at 8:00 A.M.
In the morning of March 21, 1958, PBC through its lawyer notary public sold the
1,000 shares of stocks of Insular Farms to Pacific Farms for P 285,126.99. The
latter then sold its shares of stocks to its own stockholders, who constituted
themselves as stockholders of Insular Farms and then resold back to Pacific
Farms Inc. all of Insular Farms assets except for a certificate of public
convenience to operate an iceplant.
On September 28, 1959 Joseph Hart filed another case for I recovery of sum of
money comprising his investments and earnings against Insular Farms, Inc.
before the Court of First Instance of Manila, docketed as Civil Case No. 41557.
The two cases below having been heard jointly, the court of origin through then
Judge Serafin R. Cuevas rendered a decision on August 3, 1972, the pertinent
portions of which are as follows:

xxx xxx xxx

It is plaintiffs' contention that the sale by Pacific
Banking Corporation of the shares of stock of plaintiffs
to the Pacific Farms on March 21, 1958 is void on the
ground that when said shares were pledged to the
bank it was done to cause an indefinite extension of
time to pay their obligation under the promissory note
marked Exh. E. Plaintiffs observed that under said
promissory note marked Exh. E, no demand was made
whatsoever by the bank for its payment. The bank
merely asked for more collateral in addition to Clarkin's
continuing guarantee In other words, it is the view of
the plaintiffs that the pledge of said shares of stock
upersed the terms and conditions of the promissory
note marked Exh. E and that the same was only to
insure an indefinite extension on the part of the
plaintiffs to pay their obligation under said promissory
note.
Plaintiffs accuse defendants of conspiracy or a unity of
purpose in divesting said plaintiffs of their shares of
stock and relieving Clarkin of his guarantee and
obligation to Hart as well as to enable the bank to
recover its loan with a big profit and Pacific Farms, of
which Papa was President, to take over Insular Farms.
Plaintiffs contend that the purchase by Pacific Farms of
the shares of stock of Insular Farms is void, the former
having been organized like the latter for the purpose of
engaging in agriculture (Section 190-1/7 of the
Corporation Law); and that the transfer of all the
substantial assets of Insular Farms to Pacific Farms for
the nominal cost of P10,000.00 is in violation of the
Bulk Sales Law, plaintiffs and other creditors of Insular
Farms not having been notified of said sale and that
said sale was not registered in accordance with said
law (Bulk Sales Law) which in effect is in fraud of
creditors.
As a result of defendant's acts, plaintiffs contend that
they lost their 490 shares, the return of their 10 shares
from Clarkin and their exclusive and irrevocable right to
preference in the purchase of Clarkin's 50% in Insular
Farms not to mention the mental anguish, pain,
suffering and embarrassment on their part for which
they are entitled to at least P 100,000.00 moral
damages. They also claim that they have been
deprived of their expected profits to be realized from
the operations and development of Insular Farms; the
sum of P 112,500.00 representing salary and pecuniary
benefits of Joseph C. Hart from the First National City
Bank of New York when he was required to resign by
Clarkin, and finally, Joseph C. Hart and his wife being

the beneficial owners of 499 shares in Insular Farms

that were pledged to the Pacific Banking Corporation
which was sold for P 142,176.37 to satisfy the
obligation of Insular Farms, the latter became indebted
to plaintiffs for said amount with interest from March
21, 1958, the date of the auction sale.
On the other hand, defendant Pacific Banking
Corporation contends that it merely exercised its legal
right under the law when it caused the foreclosure of
the pledged (sic) executed by plaintiffs, together with
defendant John P. Clarkin to secure a loan of P
250,000.00, said loan having become overdue. True
the payment of a note my be extended by an oral
agreement, but that agreement to extend the time of
payment in order to be valid must be for a definite time
(Philippine Engineering Co. vs. Green, 48 Phil.
466,468). Such being the case, it is the opinion of the
Court that plaintiffs contention that there was an
indefinite extension of time with respect to the payment
of the loan in question appears to be untenable. It
cannot be admitted that the terms and conditions of the
pledged (sic) superseded the terms and conditions of
the promissory note.
With respect to the charge of conspiracy or unity of
purpose on the part of all defendants to divest plaintiffs
of the latter's shares of stock, relieving Clarkin of his
guaranty and obligation to Hart, to enable the bank to
recover its loan and to enable Pacific Farms to take
over Insular Farms, suffice it to state that the charge of
conspiracy has not been sufficiently established.
Considering plaintiffs' contention that the purchase by
Pacific Farms of the shares of stock of Insular Farms
and the transfer of all of the substantial assets of
Insular Farms to Pacific Farms are in violation of the
Provisions of the Bulk Sales Law, the Court cannot see
its way in crediting plaintiffs' contention considering the
prevailing jurisprudence on the mater (People vs.
Wong Szu Tung, 50 OG, pp. 48-57, 58-69, March
26,1954).
With respect, however, to the claim of plaintiff Joseph
C. Hart for payment of salary as Director and General
Manager of Insular Farms for a period of almost one
year at the rate of P 2,000.00 a month, the Court
believes that said plaintiff is entitled to said amount. On
the basis of equity and there appearing sufficient proof
that said plaintiff has served the corporation not only as
Director but as General Manager, the Court believes
that he should be paid by the Insular Farms, Inc. the
sum of P 25,333.30, representing his salaries for the
period March 1, 1957 to March 20,1958.

Again, with respect to the advances in the form of

loans to the corporation made by plaintiff Joseph C.
Hart, the Court is of the opinion that he should be
reimbursed and paid therefor, together with interest
thereon from March 21, 1958, or the sum of P
86,366.91. This is so because said loans were ratified
by the Board of Directors of Insular Farms, Inc. in a
special meeting held on July 22, 1957. There is no
showing that the aforesaid special meeting was
irregularly or improperly held.

II

The Court having maintained that the auction sale

conducted by the Bank's Notary Public which resulted
in the purchase by Pacific Farms of the 1,000 shares of
stock of Insular Farms, 490 of which were owned by
plaintiffs, to be valid, the Court cannot approve the
claim of plaintiffs for the reconveyance to them of said
490 shares of stock of Insular Farms. If there is
anybody to answer for the pledging of said shares of
stock to the bank, there is no one except the defendant
John Clarkin who induced plaintiff to do so. Again, it is
noteworthy to note that Clarkin owned and controlled
501 shares of said outstanding shares of stock and
have not made any claim for the reconveyance of the
same.

THE LOWER COURT ERRED IN HOLDING THAT

PLAINTIFFS' CHARGE OF CONSPIRACY AGAINST
THE DEFENDANTS HAS NOT BEEN SUFFICIENTLY
ESTABLISHED."

In view of the foregoing, judgment is hereby rendered

in favor of plaintiffs and against defendant Insular
Farms, Inc., sentencing the latter to pay the former the
sum of P 25,333.30, representing unpaid salaries to
plaintiff Joseph C. Hart; the further sum of P 86,366.91
representing loans made by plaintiffs to Insular Farms,
Inc. and attorney's fees equivalent to 10% of the
amount due plaintiffs.

With respect to the other claims of plaintiffs, the same

are hereby denied in the same manner that all counterclaims filed against said Plaintiff are dismissed.
Likewise, Francisco T. Papa's cross-claim against
defendant Pacific Farms, Inc. is, as it is hereby,
ordered dismissed for insufficiency of evidence. (pp.
462-467 of the Record on Appeal [p. 83, Rollo])
Dissatisfied with the foregoing decision, private respondents appealed the two
consolidated cases to the Court of Appeals contending that:
I
THE LOWER COURT ERRED IN HOLDING THAT
PLAINTIFFS' CONTENTION TO THE EFFECT THAT
THERE WAS AN INDEFINITE EXTENSION OF TIME
WITH RESPECT TO THE PAYMENT OF THE LOAN
IN QUESTION "APPEARS TO BE UNTENABLE

THE LOWER COURT ERRED IN HOLDING THAT

THE SALE BY THE PACIFIC BANKING
CORPORATION OF THE SHARES OF STOCKS OF
PLAINTIFFS WITH THE PACIFIC FARMS, INC. ON
MARCH 21, 1958 IS VALID.
III

IV
THE LOWER COURT ERRED IN NOT HOLDING
DEFENDANTS LIABLE FOR DAMAGES CAUSED TO
THE PLAINTIFFS BY THEIR INDIVIDUAL AND
COLLECTIVE ACTS WHICH ARE CONTRARY TO
THE PROVISIONS OF THE CIVIL CODE ON HUMAN
RELATIONS.

THE LOWER COURT WAS CORRECT IN HOLDING

THAT "IF THERE IS ANYBODY TO ANSWER FOR
THE PLEDGE OF SAID SHARES OF STOCK TO THE
BANK, THERE IS NO ONE EXCEPT DEFENDANT
JOHN P. CLARKIN WHO INDUCED PLAINTIFFS TO
DO SO", BUT ERRED IN NOT FINDING DEFENDANT
JOHN P. CLARKIN LIABLE AS PRAYED FOR IN
PLAINTIFFS' COMPLAINT." (pp. 9-10, Rollo)
On December 9, 1986, the Court of Appeals rendered its assailed decision, the
dispositive portion of which follows:
IN VIEW WHEREOF, judgment modified, such that
defendant Babst and defendant Pacific Banking are
both condemned in their primary capacity to pay unto
Hart the sum of P l00,000.00 with legal interest from
the date of the foreclosure sale on 19 February 1958
until fully paid, plus P 15,000.00 as attorney's fees,
also to earn legal interest from the date of the filing of
Civil Case Nos. 35524, until fully paid, plus the costs,
but subject to reimbursement of Pacific Banking from
Babst whatever Pacific Banking should pay unto Hart
on account of this judgment, the other defendants are
absolved with no more pronouncement as to costs with
respect to them. (pp. 62-63, Rollo)

Hence this petition with petitioners contending that:

a. Respondent Court of Appeals committed a grave
error in not applying in favor of the herein petitioner the
clear unequivocal ruling of this Honorable Court in the
case of Philippine Engineering vs. Green, 48 Phil. 466,
that "an agreement to extend the time of payment in
order to be valid must be for a definite time," which
was relied upon by the trial court in overruling the
private respondents' claim that petitioners had granted
them orally an indefinite extension of time to pay the
loan.
b. Respondent Court of Appeals committed a grave
error in finding that petitioner bank agreed to an
indefinite extension of time to pay the loan on the basis
of the testimony of private respondent Hart contained
in his deposition which was admitted in evidence over
the petitioners' objection; and that said finding is clearly
violative of parol evidence rule.
c. Respondent Court of Appeals committed a grave
error in ignoring the legal presumption of good faith
established by Article 527 of the New Civil Code when
it imputed bad faith to petitioner in foreclosing the
pledge and in not considering the issue to have been
finally disposed of by the trial court in its resolution,
dated March 19, 1958 dissolving the writ of preliminary
injunction and expressly allowing the foreclosure sale.
d. Respondent Court of Appeals committed a grave
error in condemning petitioners to pay damages to
private respondents notwithstanding that petitioner
bank merely exercised a right under the law in
foreclosing the pledge.
e. Respondent Court of Appeals committed a grave
error in holding petitioner Chester G. Babst personally
liable to private respondents under Articles 2180 and
2181 of the New civil Code.
f. Respondent Court of Appeals committed a grave
error in sentencing petitioner Chester G. Babst to
reimburse his co-petitioner bank, whatever amounts
the latter may be required to pay the private
respondents on account of the judgment,
notwithstanding that said bank had not filed a crossclaim against him and there was absolutely no litigation
between them. (pp. 14-15, Rollo)
We find for the respondents on the following grounds:

First, petitioners allege that the Court of Appeals erred in deviating from the
principle and rule of stare decisis by not applying in favor of petitioners the
ruling in the case of Philippine Engineering v. Green (48 Phil. 466) that "an
agreement to extend the time of payment in order to be valid must be for a
definite time" which was relied upon by the trial court in overruling the private
respondents' claim that the petitioners had granted them orally an indefinite
extension of time to pay the loan.
A reading of the Philippine Engineering Co. case shows that the authority
quoted from (i.e. 8 Corpus Juris 425-429) was not the ground used by the Court
in not giving credit to therein defendant's statement as to the purported
agreement for an indefinite extension of time for the payment of the note. The
principle relied upon in that case was the dead man's statute. The Court stated
that the reason for not believing the purported agreement for extension of time
to pay the note was that there was no sufficient proof of the purported
agreement because:
Here we have only the defendant's statement as to the
purported agreement for an indefinite period of grace,
with one now dead. Such proof falls far short of
satisfying the rules of evidence. (Phil. Engineering v.
Green, 48 Phil. p. 468)
In the case at bar, the parties to the purported agreement, Hart and Babst, were
still alive, and both testified in the trial court regarding the purported extension.
Their testimonies are in fact, quoted in the decision of the respondent Court of
Appeals (pp. 49-54, Rollo).
We also note, that the rule which states that there can be no valid extension of
time by oral agreement unless the extension is for a definite time, is not
absolute but admits of qualifications and exceptions.
The general rule is that an agreement to extend the
time of payment, in order to be valid, must be for a
definite time, although it seems that no precise date be
fixed, it being sufficient that the time can be readily
determined. (8 C.J. 425)
In case the period of extension is not precise, the provisions of Article 1197 of
the Civil Code should apply. In this case, there was an agreement to extend the
payment of the loan, including the first installment thereon which was due on or
before July 1957. As the Court of Appeals stated:
...-and here, this court is rather well convinced that
Hart had been given the assurance by the conduct of
Babst, Executive Vice President of Pacific Bank, that
payment would not as yet be pressed, and under 1197
New Civil Code, the meaning must be that there having
been intended a period to pay modifying the fixed
period in original promissory note, really, the cause of
action of Pacific Bank would have been to ask the
Courts for the fixing of the term; (pp. 59-60, Rollo)

The pledge executed as collateral security on February 9, 1958 no longer

contained the provision on an installment of P 50,000.00 due on or before July
1957. This can mean no other thing than that the time of payment of the said
installment of P 50,000.00 was extended.
It is settled that bills and notes may be varied by subsequent agreement. Thus,
conditions may be introduced and arrangements made changing the terms of
payment (10 CJS 758). The agreement for extension of the parties is clearly
indicated and may be inferred from the acts and declarations of the parties, as
testified to in court (pp. 49-52, Rollo).
The pledge constituted on February 19, 1958 on the shares of stocks of Insular
Farms, Inc. was sufficient consideration for the extension, considering that this
pledge was the additional collateral required by Pacific Banking in addition to
the continuing guarantee of Clarkin.
Petitioners contend that the admission of Joseph Hart's testimony regarding the
extension of time to pay, over the petitioners' objections, was violative of the
parol evidence rule. This argument is untenable in view of the fact that Hart's
testimony regarding the oral agreement for extension of time to pay was
admitted in evidence without objection from petitioner Babst when the same
was first offered as evidence before the trial court. Without need therefore of a
lengthy discussion of the background facts on this issue, and even granting that
said testimony violated the parol evidence rule, it was nevertheless properly
admitted for failure of petitioner to timely object to the same. Well settled is the
rule that failure to object to parol evidence constitutes a waiver to the
admissibility of said parol evidence (see Talosig v. Vda. de Niebe, 43 SCRA
472).
Petitioners likewise argue that the Court of Appeals erred in ignoring the
presumption of good faith provided in Art. 527 of the Civil Code when it imputed
bad faith to petitioners in foreclosing the pledge, They argue in support thereof
that the extrajudicial foreclosure was held only after it was sanctioned by the
trial court; and that the main ground alleged by the private respondents against
the foreclosure was the alleged grant by Pacific Banking Corporation of an
indefinite extension of time to pay the obligation; that private respondents did
not adduce any evidence to prove the grant of extension, for which reason the
trial court did not believe that there was such a grant, that in view thereof, the
foreclosure which even the Court of Appeals considered as valid, cannot be
considered to have been done in bad faith.
The presumption of good faith of possession provided in Article 527, is only a
presumption juris tantum Said presumption cannot stand in the light of the
evidence to the contrary in the record.
It was established that there was an agreement to extend indefinitely the
payment of the installment of P50,000.00 in July 1957 as provided in the
promissory note. Consequently, Pacific Banking Corporation was precluded
from enforcing the payment of the said installment of July 1957, before the
expiration of the indefinite period of extension, which period had to be fixed by
the court as provided in Art. 1197 of the Civil Code (10 CJS p. 7611, citing
Drake vs. Pueblo Nat. Bank, 96 P. 999, 44 Colo. 49).

Even the pledge which modified the fixed period in the original promissory note,
did not provide for dates of payment of installments, nor of any fixed date of
maturity of the whole amount of indebtedness. Accordingly, the date of maturity
of the indebtedness should be as may be determined by the proper court under
Art. 1197 of the Civil Code. Hence, the disputed foreclosure and the subsequent
sale were premature.
The whole indebtedness was guaranteed by the continuing guaranty of Clarkin,
who had a corresponding deposit with Pacific Banking which guaranty and
deposit, Babst and Charles Chua, president of Pacific Banking, had actual
knowledge of.
The Court of Appeals noted that no demand for payment of the P50,000.00 was
made right after it allegedly fell due. It was only on March 4, 1958 or 13
days after the execution of the pledge instrument on February 19,1958 that
PBC presented its demand for payment to Insular Farms.
As found by the Court of Appeals, there was really no investigation of Insular
Farms' ability to pay the loan after the pledge was executed but before the
demand for payment, considering that the latter was made barely two weeks
after the execution of the pledge.
The inconsistency of the petitioner's position vis-a-vis the evidence on record is
apparent. According to Babst, the investigation was made by Mr. Joseph Tupaz,
who rendered his report (TSN, IX: 6-9, C Babst). The report, however, as found
by the Court of Appeals,, was dated August 28, 1957 way before the pledge
was executed on February 19, 1958. Babst also Identified an auditor's report by
Sycip, Gorres and Velayo dated March 17, 1958. The first paragraph of the
report states that the auditors went to inspect Insular Farms pursuant to a
request of Babst dated March 5, 1958 that is, as found by the Court of Appeals
just one day after Babst had through his letter of March 4,1958, threatened
Insular Farms, Clarkin and Hart, with the remedies available to Pacific Bank if
the whole loan was not paid within 48 hours. This can also mean that the
investigation by the auditing firm was a well conceived subterfuge, when all the
while, foreclosure was already intended against private respondents.
On account of the foregoing, the Court of Appeals concluded that the
foreclosure was an act of bad faith:
5th-Foregoing cannot but convince this Court that the
foreclosure was not an act of good faith on the part of
the Pacific Banking for it must be bound by the acts or
representations, active or tacit of its agent or its
Executive Vice-President Babst, ... (pp. 56-57, Rollo)
Petitioners furthermore claim that the Court of Appeals erred in ordering them to
pay damages to private respondents as they were merely exercising a light
under the law in foreclosing the pledge. They also argue that assuming that
private respondent suffered damages on account of the foreclosure, such
damages would be aminimum absque injuria, the damage having been caused
by the lawful and proper exercise of the right to foreclosure, and an act of
prudence on the part of Pacific Banking Corporation to protect its own interests
and those of its depositors.

In the light of the above discussion and our finding that the foreclosure sale was
premature and done in bad faith, petitioners are liable for damages arising from
a quasi-delict. We see no compelling reason to set aside the findings of the
respondent court on this matter.
Finally, the petitioners claim that it was error for the respondent court to hold
petitioner Chester G. Babst personally liable to private respondents under
Articles 2180 and 2181 of the Civil Code. Petitioners also contend that it was
error to order Chester G. Babst to reimburse Pacific Banking whatever Pacific
Banking may be required to pay the private respondents, inasmuch as Pacific
Banking has not filed a cross claim against Chester G. Babst.
The Court of Appeals applied Article 2180 of the Civil Code, under which,
"employers shall be liable for the damages caused by their employees ... acting
within the scope of their assigned tasks." Chester G. Babst, as admitted, was
Executive Vice-President of Pacific Banking Corporation and "acted only upon
direction by the Board of Directors of the Pacific Banking Corporation." (p. 127,
Rollo) The appellate court also applied Article 2181 of the same Code which
provides that "whoever pays for the damages caused by his dependents or
employees may recover from the latter what he has paid or delivered in
satisfaction of the claim." (Art. 2181, Civil Code)
It must be noted, however, that as between Pacific Banking and Babst, the law
merely gives the employer a right to reimbursement from the employee for what
is paid to the private respondent. Article 2181 does not make recovery from the
employee a mandatory requirement. A right to relief shall be recognized only
when the party concerned asserts it through a proper pleading filed in court. In
this case, the employer, Pacific Banking Corporation did not manifest any claim
against Babst by filing a cross-claim before the trial court; thus, it cannot make
its light automatically enforceable. Babst was made a party to the case upon the
complaint of the private respondents in his official capacity as Executive Vice
President of the bank. In the absence of a cross-claim against Babst, the court
has no basis for enforcing a right against him to which his co-defendant may be
entitled. We leave the matter to the two petitioners' own internal arrangements
or actions should the bank decide to charge its own officer.
WHEREFORE, the petition for review on certiorari is DISMISSED subject to a
MODIFICATION with respect to the personal liability of petitioner Chester G.
Babst to Pacific Banking Corporation which is SET ASIDE.
SO ORDERED.

G.R. No. 164273

March 28, 2007

EMMANUEL B. AZNAR, Petitioner,

vs.
CITIBANK, N.A., (Philippines), Respondent.
AUSTRIA-MARTINEZ, J.:
Before this Court is a Petition for Review assailing the Decision 1 of the Court of
Appeals (CA) in CA-G.R. CV No. 62554 dated January 30, 2004 which set
aside the November 25, 1998 Order of the Regional Trial Court (RTC) Branch
10, Cebu City and reinstated the Decision of RTC Branch 20 of Cebu City dated
May 29, 1998 in Civil Case No. CEB-16474; and the CA Resolution dated May
26, 2004 denying petitioners motion for reconsideration.
The facts are as follows:
Emmanuel B. Aznar (Aznar), a known businessman 2 in Cebu, is a holder of a
Preferred Master Credit Card (Mastercard) bearing number 5423-3920-07867012 issued by Citibank with a credit limit of P150,000.00. As he and his wife,
Zoraida, planned to take their two grandchildren, Melissa and Richard Beane,
on an Asian tour, Aznar made a total advance deposit of P485,000.00 with
Citibank with the intention of increasing his credit limit toP635,000.00.3
With the use of his Mastercard, Aznar purchased plane tickets to Kuala Lumpur
for his group worth P237,000.00. On July 17, 1994, Aznar, his wife and
grandchildren left Cebu for the said destination. 4
Aznar claims that when he presented his Mastercard in some establishments in
Malaysia, Singapore and Indonesia, the same was not honored. 5 And when he
tried to use the same in Ingtan Tour and Travel Agency (Ingtan Agency) in
Indonesia to purchase plane tickets to Bali, it was again dishonored for the
reason that his card was blacklisted by Citibank. Such dishonor forced him to
buy the tickets in cash.6 He further claims that his humiliation caused by the
denial of his card was aggravated when Ingtan Agency spoke of swindlers trying
to use blacklisted cards.7 Aznar and his group returned to the Philippines on
August 10, 1994.8
On August 26, 1994, Aznar filed a complaint for damages against Citibank,
docketed as Civil Case No. CEB-16474 and raffled to RTC Branch 20, Cebu
City, claiming that Citibank fraudulently or with gross negligence blacklisted his
Mastercard which forced him, his wife and grandchildren to abort important tour
destinations and prevented them from buying certain items in their tour. 9 He
further claimed that he suffered mental anguish, serious anxiety, wounded
feelings, besmirched reputation and social humiliation due to the wrongful
blacklisting of his card. 10 To prove that Citibank blacklisted his Mastercard,
Aznar presented a computer print-out, denominated as ON-LINE
AUTHORIZATIONS FOREIGN ACCOUNT ACTIVITY REPORT, issued to him
by Ingtan Agency (Exh. "G") with the signature of one Victrina Elnado Nubi
(Nubi)11 which shows that his card in question was "DECL OVERLIMIT" or
declared over the limit.12

Citibank denied the allegation that it blacklisted Aznars card. It also contended
that under the terms and conditions governing the issuance and use of its credit
cards, Citibank is exempt from any liability for the dishonor of its cards by any
merchant affiliate, and that its liability for any action or incident which may be
brought against it in relation to the issuance and use of its credit cards is limited
to P1,000.00 or the actual damage proven whichever is lesser.13
To prove that they did not blacklist Aznars card, Citibanks Credit Card
Department Head, Dennis Flores, presented Warning Cancellation Bulletins
which contained the list of its canceled cards covering the period of Aznars
trip.14
On May 29, 1998, RTC Branch 20, Cebu City, through Judge Ferdinand J.
Marcos, rendered its decision dismissing Aznars complaint for lack of
merit.15 The trial court held that as between the computer print-out 16presented
by Aznar and the Warning Cancellation Bulletins 17 presented by Citibank, the
latter had more weight as their due execution and authenticity were duly
established by Citibank.18 The trial court also held that even if it was shown that
Aznars credit card was dishonored by a merchant establishment, Citibank was
not shown to have acted with malice or bad faith when the same was
dishonored.19
Aznar filed a motion for reconsideration with motion to re-raffle the case saying
that Judge Marcos could not be impartial as he himself is a holder of a Citibank
credit card.20 The case was re-raffled21 and on November 25, 1998, the RTC,
this time through Judge Jesus S. De la Pea of Branch 10 of Cebu City, issued
an Order granting Aznars motion for reconsideration, as follows:
WHEREFORE, the Motion for Reconsideration is hereby GRANTED. The
DECISION dated May 29, 1998 is hereby reconsidered, and consequently, the
defendant is hereby condemned liable to pay the following sums of money:
a) P10,000,000.00 as moral damages;
b) P5,000,000.00 as exemplary damages;
c) P1,000,000.00 as attorneys fees; and
d) P200,000.00 as litigation expenses.22
Judge De la Pea ruled that: it is improbable that a man of Aznars stature
would fabricate Exh. "G" or the computer print-out which shows that Aznars
Mastercard was dishonored for the reason that it was declared over the limit;
Exh. "G" was printed out by Nubi in the ordinary or regular course of business in
the modern credit card industry and Nubi was not able to testify as she was in a
foreign country and cannot be reached by subpoena; taking judicial notice of the
practice of automated teller machines (ATMs) and credit card facilities which
readily print out bank account status, Exh. "G" can be received as prima
facie evidence of the dishonor of Aznars Mastercard; no rebutting evidence was
presented by Citibank to prove that Aznars Mastercard was not dishonored, as
all it proved was that said credit card was not included in the blacklisted cards;
when Citibank accepted the additional deposit of P485,000.00 from Aznar, there

was an implied novation and Citibank was obligated to increase Aznars credit
limit and ensure that Aznar will not encounter any embarrassing situation with
the use of his Mastercard; Citibanks failure to comply with its obligation
constitutes gross negligence as it caused Aznar inconvenience, mental anguish
and social humiliation; the fine prints in the flyer of the credit card limiting the
liability of the bank to P1,000.00 or the actual damage proven, whichever is
lower, is a contract of adhesion which must be interpreted against Citibank. 23
Citibank filed an appeal with the CA and its counsel filed an administrative case
against Judge De la Pea for grave misconduct, gross ignorance of the law and
incompetence, claiming among others that said judge rendered his decision
without having read the transcripts. The administrative case was held in
abeyance pending the outcome of the appeal filed by Citibank with the
CA.24lawphi1.net
On January 30, 2004, the CA rendered its Decision granting Citibanks appeal
thus:
WHEREFORE, the instant appeal is GRANTED. The assailed order of the
Regional Trial Court, 7th Judicial Region, Branch 10, Cebu City, in Civil Case
No. CEB-16474, is hereby SET ASIDE and the decision, dated 29 May 1998 of
the Regional Trial Court, 7th Judicial Region, Branch 20, Cebu City in this case
is REINSTATED.
SO ORDERED.25
The CA ruled that: Aznar had no personal knowledge of the blacklisting of his
card and only presumed the same when it was dishonored in certain
establishments; such dishonor is not sufficient to prove that his card was
blacklisted by Citibank; Exh. "G" is an electronic document which must be
authenticated pursuant to Section 2, Rule 5 of the Rules on Electronic
Evidence26 or under Section 20 of Rule 132 of the Rules of Court 27 by anyone
who saw the document executed or written; Aznar, however, failed to prove the
authenticity of Exh. "G", thus it must be excluded; the unrefuted testimony of
Aznar that his credit card was dishonored by Ingtan Agency and certain
establishments abroad is not sufficient to justify the award of damages in his
favor, absent any showing that Citibank had anything to do with the said
dishonor; Citibank had no absolute control over the actions of its merchant
affiliates, thus it should not be held liable for the dishonor of Aznars credit card
by said establishments.28
Aznar filed a motion for reconsideration which the CA dismissed in its
Resolution dated May 26, 2004.29
Parenthetically, the administrative case against Judge De la Pea was activated
and on April 29, 2005, the Courts Third Division 30 found respondent judge guilty
of knowingly rendering an unjust judgment and ordered his suspension for six
months. The Court held that Judge De la Pea erred in basing his Order on a
manifestation submitted by Aznar to support his Motion for Reconsideration,
when no copy of such manifestation was served on the adverse party and it was
filed beyond office hours. The Court also noted that Judge De la Pea made an
egregiously large award of damages in favor of Aznar which opened himself to
suspicion.31

Aznar now comes before this Court on a petition for review alleging that: the CA
erroneously made its own factual finding that his Mastercard was not blacklisted
when the matter of blacklisting was already a non-issue in the November 25,
1998 Order of the RTC; the RTC found that Aznars Mastercard was dishonored
for the reason that it was declared over the credit limit; this factual finding is
supported by Exh. "G" and by his (Aznars) testimony; the issue of dishonor on
the ground of DECL OVERLIMIT, although not alleged in the complaint, was
tried with the implied consent of the parties and should be treated as if raised in
the pleadings pursuant to Section 5, Rule 10 of the Rules of Civil
Procedure;32 Exh. "G" cannot be excluded as it qualifies as an electronic
evidence following the Rules on Electronic Evidence which provides that printouts are also originals for purposes of the Best Evidence Rule; Exh. "G" has
remained complete and unaltered, apart from the signature of Nubi, thus the
same is reliable for the purpose for which it was generated; the RTC judge
correctly credited the testimony of Aznar on the issuance of the computer printout as Aznar saw that it was signed by Nubi; said testimony constitutes the
"other evidence showing the integrity and reliability of the print-out to the
satisfaction of the judge" which is required under the Rules on Electronic
Evidence; the trial court was also correct in finding that Citibank was grossly
negligent in failing to credit the additional deposit and make the necessary
entries in its systems to prevent Aznar from encountering any embarrassing
situation with the use of his Mastercard.33
Citibank, in its Comment, contends that: Aznar never had personal knowledge
that his credit card was blacklisted as he only presumed such fact; the issue of
dishonor on the ground that the card was declared over the limit was also never
tried with the implied consent of both parties; Aznars self-serving testimony is
not sufficient to prove the integrity and reliability of Exh. "G"; Aznar did not
declare that it was Nubi who printed the document and that said document was
printed in his presence as he merely said that the print-out was provided him;
there is also no annotation on Exh. "G" to establish that it was Nubi who printed
the same; assuming further that Exh. "G" is admissible and Aznars credit card
was dishonored, Citibank still cannot be held liable for damages as it only
shows that Aznars credit card was dishonored for having been declared over
the limit; Aznars cause of action against Citibank hinged on the alleged
blacklisting of his card which purportedly caused its dishonor; dishonor alone,
however, is not sufficient to award Aznar damages as he must prove that the
dishonor was caused by a grossly negligent act of Citibank; the award of
damages in favor of Aznar was based on Article 1170 34 of the Civil Code, i.e.,
there was fraud, negligence or delay in the performance of its obligation; there
was no proof, however that Citibank committed fraud or delay or that it
contravened its obligations towards Aznar; the terms and conditions of the credit
card cannot be considered as a contract of adhesion since Aznar was entirely
free to reject the card if he did not want the conditions stipulated therein; a
person whose stature is such that he is expected to be more prudent with
respect to his transactions cannot later on be heard to complain for being
ignorant or having been forced into merely consenting to the contract.35
In his Reply, Aznar contended that to a layman, the term "blacklisting" is
synonymous with the words "hot list" or "declared overlimit"; and whether his
card was blacklisted or declared over the limit, the same was dishonored due to
the fault or gross negligence of Citibank. 36
Aznar also filed a Memorandum raising as issues the following:

I. Whether or not the augmentation deposit in the amount

of P485,000.00 of the Petitioner constitutes relative extinctive
novation;

Aznar in his testimony admitted that he had no personal knowledge that his
Mastercard was blacklisted by Citibank and only presumed such fact from the
dishonor of his card.

II. Whether or not the purchases made by Petitioner were beyond

his credit limit;

Q Now, paragraph 12 also states and I quote: "its entry in the "hot" list was
confirmed to be authentic".

III. Whether or not the issues of dishonor by reason of overlimit was

tried with the consent of the parties;

Now, who confirmed that the blacklisting of your Preferred Citibank Mastercard
was authentic?

IV. Whether or not the "On Line Authorization Report" is an

electronic document."

A. Okey. When I presented this Mastercard, my card rather, at the Merchants

store, I do not know, they called up somebody for verification then later they told
me that "your card is being denied". So, I am not in a position to answer that. I
do not know whom they called up; where they verified. So, when it is denied
thats presumed to be blacklisted.

V. Whether or not the "On Line Authorization Report" constitutes

electronic evidence;
VI. Whether or not the agreement between the parties is a contract
of adhesion;

Q. So the word that was used was denied?

A. Denied.

VII. Whether or not the Respondent is negligent in not crediting the

deposits of the Respondent.37
Aznar further averred in his Memorandum that Citibank assured him that with
the use of his Mastercard, he would never be turned down by any merchant
store, and that under Section 43, Rule 130 of the Rules of Court, Exh. "G" is
admissible in evidence.38
Citibank also filed a Memorandum reiterating its earlier arguments. 39
Stripped to its essentials, the only question that needs to be answered is:
whether Aznar has established his claim against Citibank.
The answer is no.
It is basic that in civil cases, the burden of proof rests on the plaintiff to establish
his case based on a preponderance of evidence. The party that alleges a fact
also has the burden of proving it.40
In the complaint Aznar filed before the RTC, he claimed that Citibank blacklisted
his Mastercard which caused its dishonor in several establishments in Malaysia,
Singapore, and Indonesia, particularly in Ingtan Agency in Indonesia where he
was humiliated when its staff insinuated that he could be a swindler trying to
use a blacklisted card.
As correctly found by the RTC in its May 29, 1998 Decision, Aznar failed to
prove with a preponderance of evidence that Citibank blacklisted his Mastercard
or placed the same on the "hot list."41

Q. And after you were told that your card was denied you presumed that it
was blacklisted?
A. Definitely.
Q. So your statement that your card was allegedly blacklisted is only your
presumption drawn from the fact, from your allegations, that it was denied
at the merchandise store?
A. Yes, sir.42 (Emphasis supplied)
The dishonor of Aznars Mastercard is not sufficient to support a conclusion that
said credit card was blacklisted by Citibank, especially in view of Aznars own
admission that in other merchant establishments in Kuala Lumpur and
Singapore, his Mastercard was accepted and honored.43
Aznar puts much weight on the ON-LINE AUTHORIZATION FOREIGN
ACCOUNT ACTIVITY REPORT, a computer print-out handed to Aznar by Ingtan
Agency, marked as Exh. "G", to prove that his Mastercard was dishonored for
being blacklisted. On said print-out appears the words "DECL OVERLIMIT"
opposite Account No. 5423-3920-0786-7012.
As correctly pointed out by the RTC and the CA, however, such exhibit cannot
be considered admissible as its authenticity and due execution were not
sufficiently established by petitioner.
The prevailing rule at the time of the promulgation of the RTC Decision is
Section 20 of Rule 132 of the Rules of Court. It provides that whenever any
private document offered as authentic is received in evidence, its due execution
and authenticity must be proved either by (a) anyone who saw the document

executed or written; or (b) by evidence of the genuineness of the signature or

handwriting of the maker.

Section 2. Manner of authentication. Before any private electronic document

offered as authentic is received in evidence, its authenticity must be proved by
any of the following means:

Aznar, who testified on the authenticity of Exh. "G," did not actually see the
document executed or written, neither was he able to provide evidence on the
genuineness of the signature or handwriting of Nubi, who handed to him said
computer print-out. Indeed, all he was able to allege in his testimony are the
following:

(a) by evidence that it had been digitally signed by the person

purported to have signed the same;
(b) by evidence that other appropriate security procedures or
devices as may be authorized by the Supreme Court or by law for
authentication of electronic documents were applied to the
document; or

Q I show to you a Computer Print Out captioned as On Line Authorization

Activity Report where it is shown that the Preferred Master Card Number
5423392007867012 was denied as per notation on the margin of this Computer
Print Out, is this the document evidencing the dishonor of your Preferred Master
Card?
xxxx
A Yes sir, after that Ingtan incident, I went straight to the Service Agency there
and on the left hand side you will be able to see the name of the person incharged [sic] there certifying that really my card is being blacklisted and there is
the signature there of the agency.
ATTY. NAVARRO:
The witness, your honor, is pointing to the signature over the handwritten name
of Victrina Elnado Nubi which I pray, your honor, that the Computer Print Out be
marked as our Exhibit "G" and the remarks at the left hand bottom portion of
Victorina Elnado Nubi with her signature thereon be encircled and be marked as
our Exhibit "G-1".

(c) by other evidence showing its integrity and reliability to the

satisfaction of the judge.
Aznar claims that his testimony complies with par. (c), i.e., it constitutes the
"other evidence showing integrity and reliability of Exh. "G" to the satisfaction of
the judge." The Court is not convinced. Aznars testimony that the person from
Ingtan Agency merely handed him the computer print-out and that he thereafter
asked said person to sign the same cannot be considered as sufficient to show
said print-outs integrity and reliability. As correctly pointed out by Judge Marcos
in his May 29, 1998 Decision, Exh. "G" does not show on its face that it was
issued by Ingtan Agency as Aznar merely mentioned in passing how he was
able to secure the print-out from the agency; Aznar also failed to show the
specific business address of the source of the computer print-out because while
the name of Ingtan Agency was mentioned by Aznar, its business address was
not reflected in the print-out.45
Indeed, Aznar failed to demonstrate how the information reflected on the printout was generated and how the said information could be relied upon as true. In
fact, Aznar to repeat, testified as follows:

xxxx
ATTY. NERI
Q Mr. Aznar, where did you secure this Computer Print Out marked as
Exhibit "G"?
A This is provided by that Agency, your honor. They were the ones who
provided me with this. So what the lady did, she gave me the Statement
and I requested her to sign to show proof that my Preferred Master Card
has been rejected.44 (Emphasis supplied).
Even if examined under the Rules on Electronic Evidence, which took effect on
August 1, 2001, and which is being invoked by Aznar in this case, the
authentication of Exh. "G" would still be found wanting.

Q Now, paragraph 12 also states and I quote: "its entry in the "hot" list was
confirmed to be authentic"
Now, who confirmed that the blacklisting of your Preferred Citibank Mastercard
was authentic?
A Okey. When I presented this Mastercard, my card rather, at the Merchants
store, I do not know, they called up somebody for verification then later they told
me that "your card is being denied". So, I am not in a position to answer that. I
do not know whom they called up; where they verified. So, when it is
denied thats presumed to be blacklisted.46 (Emphasis supplied)

Pertinent sections of Rule 5 read:

Section 1. Burden of proving authenticity. The person seeking to introduce an
electronic document in any legal proceeding has the burden of proving its
authenticity in the manner provided in this Rule.

Aznar next invokes Section 43 of Rule 130 of the Rules of Court, which pertains
to entries in the course of business, to support Exh. "G". Said provision reads:
Sec. 43. Entries in the course of business. Entries made at, or near the time
of the transactions to which they refer, by a person deceased or unable to

testify, who was in a position to know the facts therein stated, may be received
as prima facie evidence, if such person made the entries in his professional
capacity or in the performance of duty and in the ordinary or regular course of
business or duty.
Under this rule, however, the following conditions are required:
1. the person who made the entry must be dead, or unable to
testify;
2. the entries were made at or near the time of the transactions to
which they refer;
3. the entrant was in a position to know the facts stated in the
entries;
4. the entries were made in his professional capacity or in the
performance of a duty, whether legal, contractual, moral or
religious; and
5. the entries were made in the ordinary or regular course of
business or duty.47
As correctly pointed out by the RTC in its May 29, 1998 Decision, there appears
on the computer print-out the name of a certain "Victrina Elnado Nubi" and a
signature purportedly belonging to her, and at the left dorsal side were
handwritten the words "Sorry for the delay since the records had to be
retrieved. Regards. Darryl Mario." It is not clear therefore if it was Nubi who
encoded the information stated in the print-out and was the one who printed the
same. The handwritten annotation signed by a certain Darryl Mario even
suggests that it was Mario who printed the same and only handed the print-out
to Nubi. The identity of the entrant, required by the provision above mentioned,
was therefore not established. Neither did petitioner establish in what
professional capacity did Mario or Nubi make the entries, or whether the entries
were made in the performance of their duty in the ordinary or regular course of
business or duty.
And even if Exh. "G" is admitted as evidence, it only shows that the use of the
credit card of petitioner was denied because it was already over the limit. There
is no allegation in the Complaint or evidence to show that there was gross
negligence on the part of Citibank in declaring that the credit card has been
used over the limit.
The Court is also perplexed that stated on Exh. "G" is the amount of
"6,289,195.10" opposite petitioner's account number, which data, petitioner did
not clarify.48 As plaintiff in this case, it was incumbent on him to prove that he did
not actually incur the said amount which is above his credit limit. As it is, the
Court cannot see how Exh. "G" could help petitioner's claim for damages.

The claim of petitioner that Citibank blacklisted his card through fraud or gross
negligence is likewise effectively negated by the evidence of Citibank which was
correctly upheld by the RTC and the CA, to wit:
xxx Mr. Dennis Flores, the Head of the Credit Card Department of defendant
Bank, presented documents known as Warning Cancellation Bulletin for July 10,
17, 24, and 31, 1994 (Exhibits 3, 3-1 to 3-38, 4, 4-1 to 4-38 5, 5-1 to 539 and 6, 6-1 to 6-39), for August 7, 1994 (Exhibit[s] 7, 7-1 to 7-37), for
August 8, 1994 (Exhibit[s] 8, 8-1 to 8-20) which show that plaintiffs Citibank
preferred mastercard was not placed in a hot list or was not blacklisted.
The Warning Cancellation Bulletins (WCB) (Exhibits 3, 4, 5, 6, 7, 8 and
their submarkings) which covered the period of four (4) days in July 1994 (from
July 10, 17, 24 and 31, 1994), and two (2) days in August 1994, (August 7 and
8, 1994), when plaintiff traveled in the aforementioned Asian countries showed
that said Citibank preferred mastercard had never been placed in a hot list or
the same was blacklisted, let alone the fact that all the credit cards which had
been cancelled by the defendant bank were all contained, reported and listed in
said Warning Cancellation Bulletin which were issued and released on a regular
basis.

any embarrassing situation with the use of his credit card. Again, the Court finds
that petitioner's argument on this point has no leg to stand on.

happened in this case because there is no way that the P237,000.00 can
be approved with the P150,000.00 credit limit.52 (Emphasis supplied)

Citibank never denied that it received petitioners additional deposit. 50 It even

claimed that petitioner was able to purchase plane tickets from Cebu to Kuala
Lumpur in the amount of P237,170.00, which amount was beyond
hisP150,000.00 limit, because it was able to credit petitioners additional deposit
to his account. Flores of Citibank testified:

The allegations of blacklisting not having been proved, is Citibank liable for
damages for the dishonor of Aznars Mastercard?

COURT:
Q When was this ticket purchased, after the account was augmented
or before?
A After the account was augmented, Your Honor, because there is no way we
can approve a P250,000.00 purchase with a P150,000.00 credit limit.51
xxx

These three hundred (300) Warning Cancellation Bulletins pieces of

documentary proofs, all in all, adduced by defendant pointed to the fact that
said plaintiffs credit car (sic) was not among those found in said bulletins as
having been cancelled for the period for which the said bulletins had been
issued.
Between said computer print out (Exhibit G) and the Warning Cancellation
Bulletins (Exhibits 3 to 8 and their submarkings) the latter documents adduced
by defendant are entitled to greater weight than that said computer print out
presented by plaintiff that bears on the issue of whether the plaintiffs preferred
master card was actually placed in the hot list or blacklisted for the following
reasons:

ATTY. NERI:
For the record, your honor, the deposit of P450,000.00 was made as per
exhibit of the plaintiff on June 28. The purchase of the tickets amount to
P237,000.00 was approved and debited on the account of Mr. Aznar on
July 20, your honor. The deposit was made about a month before the
purchase of the tickets as per documentary exhibits, your honor.
COURT:
So, Atty. Navarro, what do you say to that explanation?

The first reason is that the due execution and authentication of these Warning
Cancellation Bulletins (or WCB) have been duly established and identified by
defendants own witness, Dennis Flores, one of the banks officers, who is the
head of its credit card department, and, therefore, competent to testify on the
said bulletins as having been issued by the defendant bank showing that
plaintiffs preferred master credit card was never blacklisted or placed in the
Banks hot list. But on the other hand, plaintiffs computer print out (Exhibit G)
was never authenticated or its due execution had never been duly established.
Thus, between a set of duly authenticated commercial documents, the Warning
Cancellation Bulletins (Exhibits 3 to 8 and their submarkings), presented by
defendants (sic) and an unauthenticated private document, plaintiffs computer
print out (Exhibit G), the former deserves greater evidentiary weight supporting
the findings of this Court that plaintiffs preferred master card (Exhibit 1) had
never been blacklisted at all or placed in a so-called hot list by defendant.49
Petitioner next argues that with the additional deposit he made in his account
which was accepted by Citibank, there was an implied novation and Citibank
was under the obligation to increase his credit limit and make the necessary
entries in its computerized systems in order that petitioner may not encounter

ATTY. NAVARRO [counsel of petitioner]:

That is correct, your honor, that is borne out by the records, your
honor. (Emphasis supplied)
COURT: (to witness)
Q So, I think Atty. Navarro is only after whether a credit line could be extended?

Again, the answer is no.

Citibank, in its attempt to evade liability, invokes paragraphs 7 and 15 of the
terms and conditions governing the issuance of its Mastercard which read:
7. MERCHANT AFFILIATES. [Citibank is] not responsible if the Card is not
honored by any merchant affiliate for any reason. Furthermore, [the cardholder]
will not hold [Citibank] responsible for any defective product or service
purchased through the Card.
xxxx
15. LIMITATION OF LIABILITY. In any action arising from this agreement or any
incident thereto which [the cardholder] or any other party may file against
[Citibank], [Citibanks] liability shall not exceed One Thousand Pesos
[P1,000.00] or the actual damages proven, whichever is lesser.53
On this point, the Court agrees with Aznar that the terms and conditions of
Citibanks Mastercard constitute a contract of adhesion. It is settled that
contracts between cardholders and the credit card companies are contracts of
adhesion, so-called, because their terms are prepared by only one party while
the other merely affixes his signature signifying his adhesion thereto.54
In this case, paragraph 7 of the terms and conditions states that "[Citibank is]
not responsible if the Card is not honored by any merchant affiliate for any
reason x x x". While it is true that Citibank may have no control of all the actions
of its merchant affiliates, and should not be held liable therefor, it is incorrect,
however, to give it blanket freedom from liability if its card is dishonored by any
merchant affiliate for any reason. Such phrase renders the statement vague and
as the said terms and conditions constitute a contract of adhesion, any
ambiguity in its provisions must be construed against the party who prepared
the contract,55 in this case Citibank.
Citibank also invokes paragraph 15 of its terms and conditions which limits its
liability to P1,000.00 or the actual damage proven, whichever is lesser.

Q Even if there is no augmenting?

Again, such stipulation cannot be considered as valid for being unconscionable

as it precludes payment of a larger amount even though damage may be clearly
proven. This Court is not precluded from ruling out blind adherence to the terms
of a contract if the attendant facts and circumstances show that they should be
ignored for being obviously too one-sided.56

A No, sir, it is not possible. So, the only way the P237,000.00 transaction
could be approved was by way of advance payment which actually

The invalidity of the terms and conditions being invoked by Citibank,

notwithstanding, the Court still cannot award damages in favor of petitioner.

A Yes, your honor.

It is settled that in order that a plaintiff may maintain an action for the injuries of
which he complains, he must establish that such injuries resulted from a breach
of duty which the defendant owed to the plaintiff a concurrence of injury to the
plaintiff and legal responsibility by the person causing it. The underlying basis
for the award of tort damages is the premise that an individual was injured in
contemplation of law; thus there must first be a breach before damages may be
awarded and the breach of such duty should be the proximate cause of the
injury.57
It is not enough that one merely suffered sleepless nights, mental anguish or
serious anxiety as a result of the actuations of the other party. It is also required
that a culpable act or omission was factually established, that proof that the
wrongful act or omission of the defendant is shown as the proximate cause of
the damage sustained by the claimant and that the case is predicated on any of
the instances expressed or envisioned by Arts. 2219 58 and 222059 of the Civil
Code.60
In culpa contractual or breach of contract, moral damages are recoverable only
if the defendant has acted fraudulently or in bad faith, or is found guilty of gross
negligence amounting to bad faith, or in wanton disregard of his contractual
obligations. The breach must be wanton, reckless, malicious or in bad faith,
oppressive or abusive.61
While the Court commiserates with Aznar for whatever undue embarrassment
he suffered when his credit card was dishonored by Ingtan Agency, especially
when the agencys personnel insinuated that he could be a swindler trying to
use blacklisted cards, the Court cannot grant his present petition as he failed to
show by preponderance of evidence that Citibank breached any obligation that
would make it answerable for said suffering.
As the Court pronounced in BPI Express Card Corporation v. Court of
Appeals,62
We do not dispute the findings of the lower court that private respondent
suffered damages as a result of the cancellation of his credit card. However,
there is a material distinction between damages and injury. Injury is the illegal
invasion of a legal right; damage is the loss, hurt, or harm which results from the
injury; and damages are the recompense or compensation awarded for the
damage suffered. Thus, there can be damage without injury to those instances
in which the loss or harm was not the result of a violation of a legal duty. In such
cases, the consequences must be borne by the injured person alone, the law
affords no remedy for damages resulting from an act which does not amount to
a legal injury or wrong. These situations are often called damnum absque
injuria.63
WHEREFORE, the petition is denied for lack of merit.
SO ORDERED.