JOSEPH HARRY WALTER POOLE-BLUNDEN, Petitioner, v.

UNION BANK
OF THE PHILIPPINES, Respondent.

DECISION

LEONEN, J.:

Banks are required to observe a high degree of diligence in their affairs. This
encompasses their dealings concerning properties offered as security for
loans. A bank that wrongly advertises the area of a property acquired through
foreclosure because it failed to dutifully ascertain the property's specifications
is grossly negligent as to practically be in bad faith in offering that property to
prospective buyers. Any sale made on this account is voidable for causal fraud.
In actions to void such sales, banks cannot hide under the defense that a sale
was made on an as-is-where-is basis. As-is-where-is stipulations can only
encompass physical features that are readily perceptible by an ordinary
person possessing no specialized skills.

This resolves a Petition for Review on Certiorari1 under Rule 45 of the 1997
Rules of Civil Procedure praying that the assailed November 15, 2012
Decision2 and February 12, 2013 Resolution3 of the Court of Appeals in CA-
G.R. CV No. 95369 be reversed and set aside and that judgment be rendered
annulling or rescinding the Contract to Sell between petitioner Joseph Harry
Walter Poole-Blunden (Poole-Blunden) and respondent Union Bank of the
Philippines (UnionBank).

The assailed Court of Appeals Decision affirmed the April 20, 2010 Decision of
the Regional Trial Court, Branch 65, Makati City which dismissed the
Complaint for Rescission of Contract and Damages filed by Poole-Blunden
against respondent UnionBank.4 The assailed Court of Appeals Resolution
denied Poole-Blunden's Motion for Reconsideration.5

Sometime in March 2001, Poole-Blunden came across an advertisement

placed by Union Bank in the Manila Bulletin. The ad was for the public auction
of certain properties. One of these properties was a condominium unit,
identified as Unit 2-C of T-Tower Condominium (the "Unit"), located at 5040
P. Burgos corner Calderon Streets, Makati City.6 UnionBank had acquired the
property through foreclosure proceedings "after the developer defaulted in the
payment of its loan from [UnionBank]."7

The Unit was advertised to have an area of 95 square meters. Thinking that it
was sufficient and spacious enough for his residential needs, Poole-Blunden
decided to register for the sale and bid on the unit.8
About a week prior to the auction, Poole-Blunden visited the unit for
inspection. He was accompanied by a representative of UnionBank. The unit
had an irregular shape; it was neither a square nor a rectangle and included
a circular terrace. Poole-Blunden did not doubt the unit's area as advertised.
However, he found that the ceiling was in bad condition, that the parquet floor
was damaged, and that the unit was in need of other substantial repairs to be
habitable.9

On the day of the auction, Poole-Blunden inspected the Master Title of the
project owner to the condominium in the name of Integrated Network (TCT
No. 171433) and the Condominium Certificate of Title of UnionBank (CCT No.
36151) to verify once again the details as advertised and the ownership of the
unit. Both documents were on display at the auction venue.10

Poole-Blunden placed his bid and won the unit for P2,650,000.00.11 On May
7, 2001, Poole-Blunden entered into a Contract to Sell with UnionBank. This
Contract stipulated that Poole-Blunden would pay 10% of the purchase price
as down payment 12 and that the balance shall be paid over a period of 15
years in equal monthly instalments, with interest of 15% per annum starting
July 7, 2001.13

Poole-Blunden started occupying the unit in June 2001. By July 20, 2003, he
was able to fully pay for the Unit, paying a total amount of P3,257,142.49.14

In late 2003, Poole-Blunden decided to construct two (2) additional bedrooms

in the Unit. Upon examining it, he noticed apparent problems in its
dimensions. He took rough measurements of the Unit, which indicated that its
floor area was just about 70 square meters, not 95 square meters, as
advertised by UnionBank.15

Poole-Blunden got in touch with an officer of UnionBank to raise the matter,

but no action was taken.16On July 12, 2004, Poole-Blunden wrote to
UnionBank, informing it of the discrepancy. He asked for a rescission of the
Contract to Sell, along with a refund of the amounts he had paid, in the event
that it was conclusively established that the area of the unit was less than 95
square meters.17

In a letter dated December 6, 2004,18 UnionBank informed Poole-Blunden that

after inquiring with the Housing and Land Use Regulatory Board (HLURB), the
Homeowners' Association of T-Tower Condominium, and its appraisers, the
Unit was confirmed to be 95 square meters, inclusive of the terrace and the
common areas surrounding it.19
Poole-Blunden was not satisfied with UnionBank's response as the
condominium's Master Title expressly stated that the "boundary of each unit
are the interior surfaces of the perimeter walls, floors, ceilings, windows and
doors thereof."20 Thus, he hired an independent geodetic engineer, Engr.
Gayril P. Tagal (Engr. Tagal) of the Filipinas Dravo Corporation, to survey the
Unit and measure its actual floor area. Engr. Tagal issued a certification stating
that the total floor area of the Unit was only 74.4 square meters. 21 Poole-
Blunden gave UnionBank a copy of Engr. Tagal's certification on July 12,
2005.22

In a letter dated February 1, 2006, UnionBank explained:

[T]he total area of the subject unit based on the ratio allocation maintenance
cost submitted by the developer to HLURB is 98 square meters (60 square
meters as unit area and 38 square meters as share on open space). On the
other hand, the actual area thereof based on the measurements made by its
surveyor is 74.18 square meters which was much higher than the unit area of
60 square meters that was approved by HLURB.23

Poole-Blunden's dissatisfaction with UnionBank's answer prompted him to file

his Complaint for Rescission of Contract and Damages with the Regional Trial
Court, Makati City.24

On April 20, 2010, the Regional Trial Court dismissed Poole-Blunden's

complaint for lack of merit. The dispositive portion of its Decision read:

WHEREFORE, premises considered, the instant complaint for rescission of

contract and damages is hereby DISMISSED for lack of merit. The
counterclaim is likewise DENIED.

SO ORDERED.25

On appeal, the Court of Appeals affirmed the ruling of the Regional Trial
Court.26 It noted that the sale was made on an "as-is-where-is" basis as
indicated in Section 12 of the Contract to Sell.27 Thus, Poole-Blunden
supposedly waived any errors in the bounds or description of the unit.28 The
Court of Appeals added that Poole-Blunden failed to show, by clear and
convincing evidence that causal fraud can be attributed to UnionBank.29 It
added that the sale was made for a lump-sum amount and that, in accordance
with Article 1542, paragraph 1 of the Civil Code,30 Poole-Blunden could not
demand a reduction in the purchase price.31

Following the denial of his Motion for Reconsideration, Poole-Blunden filed the
present Petition before this Court.32
Poole-Blunden charges UnionBank with fraud in failing to disclose to him that
the advertised 95 square meters was inclusive of common areas.33 With the
vitiation of his consent as to the object of the sale, he asserts that the Contract
to Sell may be voided. He insists that UnionBank is liable for breach of
warranty despite the "as-is-where-is" clause in the Contract to Sell.34 Finally,
he assails the Court of Appeals' application of Article 1542 of the Civil Code.35

For resolution is the sole issue of whether or not respondent Union Bank of
the Philippines committed such a degree of fraud as would entitle petitioner
Joseph Harry Walter Poole-Blunden to the voiding of the Contract to Sell the
condominium unit identified as Unit 2C, T-Tower Condominium, 5040 P.
Burgos corner Calderon Streets, Makati City.

No longer in dispute at this juncture is how the Unit's interior area is only 74.4
square meters. While respondent has maintained that the Unit's total area is
in keeping with the advertised 95 square meters, it has conceded that these
95 square meters is inclusive of outside spaces and common areas.

Even before litigation commenced, in a December 6, 2004 letter,36 respondent

informed petitioner that, following inquiries with the HLURB, the Homeowners'
Association of T-Tower Condominium, and its appraisers, it had confirmed that
the Unit's 95 square meters was inclusive of "the terrace and the common
areas surrounding it."37

During trial, respondent's former Assistant Vice President of the Asset and
Recovery Group, Atty. Elna N. Cruz (Atty. Cruz), testified on how there would
have been documents (such as an appraisal report) relating to inspections
made by respondent's personnel at the time the unit was being offered as a
collateral to a loan. These would have concerned the unit's area.38 She
affirmed respondent's statements in its December 6, 2004 letter and indicated
that, based on an appraisal report, the declared 95 square meters was not
exclusive to the Unit's interiors but included common areas:

Q: So my impression, Madam Witness, is that before you accepted the

property as a collateral, Union Bank already knew what was the actual
area of the unit?

A: Yes, sir.
 Q: But you do not know what was the actual area as found by your
inspector?

A: It would be 95 square meters as per the record, sir.

Q: That was the actual findings of your inspector, Madam Witness?

A: Yes, sir.

Q: What's your basis for saying that?

A: The appraisal report, sir.

Q: Do you have now with you that appraisal report showing that the actual
area of the unit is indeed 95 square meters?

A: We gathered the appraisal report and in the December 06, 2004 letter
that we gave Mr. Blunden, we consulted the appraiser of the Bank and
we were informed that the area was indeed 95 square meters. But that
area was brought about by measuring not just the inside of the unit,
sir, but including also the terrace, and the common area.39 (Emphasis
supplied)

Respondent has not disavowed Atty. Cruz's testimony. In its Comment, it

merely asserted that the "[e]xtensive reference to the [transcript of
stenographic notes] is unmistakable proof that the litigated issue is one of
fact, not of law" and insisted that this Court should not take cognizance of the
present Petition.40

Respondent's insistence on how common spaces should be included in

reckoning the Unit's total area runs afoul of how Republic Act No. 4726,
otherwise known as the Condominium Act, reckons what forms part of a
condominium unit.

Section 3(b) of the Condominium Act defines a condominium unit, as follows:

Section 3. As used in this Act, unless the context otherwise requires:

....
 (b) "Unit" means a part of the condominium project intended for any type
of independent use or ownership, including one or more rooms or
spaces located in one or more floors (or part or parts of floors) in a
building or buildings and such accessories as may be appended
thereto.

Section 6(a) of the Condominium Act specifies the reckoning of a condominium

unit's bounds. It also specifies that areas of common use "are not part of the
unit":

Section 6. Unless otherwise expressly provided in the enabling or master deed

or the declaration of restrictions, the incidents of a condominium grant are as
follows:

(a) The boundary of the unit granted are the interior surfaces of the
perimeter walls, floors, ceilings, windows and doors thereof. The
following are not part of the unitbearing walls, columns, floors, roofs,
foundations and other common structural elements of the building;
lobbies, stairways, hallways, and other areas of common use, elevator
equipment and shafts, central heating, central refrigeration and central
air-conditioning equipment, reservoirs, tanks, pumps and other central
services and facilities, pipes, ducts, flues, chutes, conduits, wires and
other utility installations, wherever located, except the outlets thereof
when located within the unit. (Emphasis supplied.)

Thus, the unit sold to petitioner was deficient in relation to its advertised area.
This advertisement having been made by respondent, it is equally settled
there was a falsity in the declarations made by respondent prior to, and with
the intention of enticing buyers to the sale. What remains in issue is whether
or not this falsity amounts to fraud warranting the voiding of the Contract to
Sell.

II

For there to be a valid contract, all the three (3) elements of consent, subject
matter, and price must be present.41 Consent wrongfully obtained is defective.
The party to a contract whose consent was vitiated is entitled to have the
contract rescinded. Accordingly, Article 1390 of the Civil Code42 stipulates that
a contract is voidable or annullable even if there is no damage to the
contracting parties where "consent is vitiated by mistake, violence,
intimidation, undue influence or fraud."
Under Article 1338 of the Civil Code "[t]here is fraud when, through insidious
words or machinations of one of the contracting parties, the other is induced
to enter into a contract which, without them, he would not have agreed to."
However, not all instances of fraud enable the voiding of contracts. Article
1344 clarifies that in order to make a contract voidable, the fraud "should be
serious and should not have been employed by both contracting parties."43

Thus, Tankeh v. Development Bank of the Philippines44 explained, "There are

two types of fraud contemplated in the performance of contracts: dolo
incidente or incidental fraud and dolo causante or fraud serious enough to
render a contract voidable."45 The fraud required to annul or avoid a contract
"must be so material that had it not been present, the defrauded party would
not have entered into the contract."46 The fraud must be "the determining
cause of the contract, or must have caused the consent to be given."47

Petitioner's contention on how crucial the dimensions and area of the Unit are
to his decision to proceed with the purchase is well-taken. The significance of
space and dimensions to any buyer of real property is plain to see. This is
particularly significant to buyers of condominium units in urban areas, and
even more so in central business districts, where the scarcity of space drives
vertical construction and propels property values. It would be immensely
guileless of this Court to fail to appreciate how the advertised area of the Unit
was material or even indispensable to petitioner's consent. As petitioner
emphasized, he opted to register for and participate in the auction for the Unit
only after determining that its advertised area was spacious enough for his
residential needs.48

III

The significance of the Unit's area as a determining cause of the Contract to

Sell is readily discernible. Falsity on its area is attributable to none but to
respondent, which, however, pleads that it should not be considered as having
acted fraudulently given that petitioner conceded to a sale on an as-is-where-
is basis, thereby waiving "warranties regarding possible errors in boundaries
or description of property."49

Section 12 of the Contract to Sell spells out the "as-is-where-is" terms of the
purchase:

Section 12. The BUYER recognizes that he is buying the property on an "as-
is-where-is" basis including errors in boundaries or description of property, if
any etc. and among others, he shall be responsible for the eviction of the
occupants on the property, if any, or for the repair of the property, if needed.
It shall be understood that the SELLER makes no warranty whatsoever on the
authenticity, accuracy, or title over property.50 (Emphasis supplied.)

Reliance on Section 12's as-is-where-is stipulation is misplaced for two (2)

reasons. First, a stipulation absolving a seller of liability for hidden defects can
only be invoked by a seller who has no knowledge of hidden defects.
Respondent here knew that the Unit's area, as reckoned in accordance with
the Condominium Act, was not 95 square meters. Second, an as-is-where-is
stipulation can only pertain to the readily perceptible physical state of the
object of a sale. It cannot encompass matters that require specialized scrutiny,
as well as features and traits that are immediately appreciable only by
someone with technical competence.

A seller is generally responsible for warranty against hidden defects of the

thing sold. As stated in Article 1561 of the New Civil Code:

Article 1561. The vendor shall be responsible for warranty against the hidden
defects which the thing sold may have, should they render it unfit for the use
for which it is intended, or should they diminish its fitness for such use to such
an extent that, had the vendee been aware thereof, he would not have
acquired it or would have given a lower price for it; but said vendor shall not
be answerable for patent defects or those which may be visible, or for those
which are not visible if the vendee is an expert who, by reason of his trade or
profession, should have known.

Article 1566, paragraph 2 states the seller's liability for hidden defects shall
be inapplicable if there is a stipulation made to the contrary. However, a mere
stipulation does not suffice. To be fully absolved of liability, Article 1566,
paragraph 2 also requires a seller to be unaware of the hidden defects in the
thing sold.

Article 1566. The vendor is responsible to the vendee for any hidden faults or
defects in the thing sold, even though he was not aware thereof.

This provision shall not apply if the contrary has been stipulated, and the
vendor was not aware of the hidden faults or defects in the thing
sold. (Emphasis supplied.)

It is clear from the records that respondent fully knew that the Unit's area,
reckoned strictly in accordance with the Condominium Act, did not total 95
square meters. Respondent admits that the only way the Unit's area could
have amounted to 95 square meters was if some areas for common use were
added to its interior space. It acknowledged knowing this fact through the
efforts of its appraisers and even conceded that their findings were
documented in their reports.

In Hian v. Court of Tax Appeals,51 this Court construed an as-is-where-is

stipulation as pertaining to the "physical condition" of the thing sold and "not
to [its] legal situation."52 As further explained in National Development
Company v. Madrigal Wan Hai Lines Corporation:53

In Hian vs. Court of Tax Appeals, we had the occasion to construe the phrase
"as is, where is" basis, thus:

"We cannot accept the contention in the Government's Memorandum of March

31, 1976 that Condition No. 5 in the Notice of Sale to the effect that 'The
above-mentioned articles (the tobacco) are offered for sale 'AS IS' and the
Bureau of Customs gives no warranty as to their condition' relieves the Bureau
of Customs of liability for the storage fees in dispute. As we understand said
Condition No. 5, it refers to the physical condition of the tobacco and not to
the legal situation in which it was at the time of the sale, as could be implied
from the right of inspection to prospective bidders under Condition No. 1 [.]"
(Emphasis ours)

The phrase "as is, where is" basis pertains solely to the physical condition of
the thing sold, not to its legal situation. In the case at bar, the US tax liabilities
constitute a potential lien which applies to NSCP's legal situation, not to its
physical aspect. Thus, respondent as a buyer, has no obligation to shoulder
the same.54

A condominium unit's area is a physical attribute. In Hian's contemplation, it

appeared that the total area of a condominium unit is a valid object of an as-
is-where-is clause. However, while as-is-where-is clauses exclusively apply to
the physical attributes of a thing sold, they apply only to physical features that
are readily observable. The significance of this Court's pronouncements
in Hian and National Development Company are in clarifying that legal status,
which is a technical matter perceptible only by lawyers and regulators, cannot
be encompassed by an as-is-where-is stipulation. Hian and National
Development Company are not a sweeping approbation of such stipulations'
coverage of every corporeal attribute or tangible trait of objects being sold.
Thus, in Asset Privatization v. T.J. Enterprises,55 the as-is-where-is stipulation
was understood as one which "merely describes the actual state and location
of the machinery and equipment sold,"56 and nothing else. Features that may
be physical but which can only be revealed after examination by persons with
technical competence cannot be covered by as-is-where-is stipulations. A
buyer cannot be considered to have agreed "to take possession of the things
sold 'in the condition where they are found and from the place where they are
located'"57 if the critical defect is one which he or she cannot even readily
sense.

In inspecting the Unit prior to the auction sale, petitioner took note of its actual
state: "he noticed that the ceilings were down, [that] there was water damage
from the leaks coming from the unit above, and [that] the parquet floor was
damaged."58 He also took note of its irregular shape and the circular terrace
outside it. These observations represent the full extent of what was readily
perceptible to petitioner. The precise measurement of the Unit's area, in
contrast, could only be determined by someone with specialized or technical
capabilities. While ordinary persons, such as petitioner, may hold such
opinions that the Unit looks small, their perception could not be ascertained
until after an examination by someone equipped with peculiar skills and
training to measure real property. Indeed, petitioner's suspicions were not
roused until years after he had occupied the Unit and confirmed until after a
certification was issued by a surveyor.

Any waiver of warranties under Section 12 of the Contract to Sell could have
only been concerned with the readily apparent subpar condition of the Unit. A
person not equipped with technical knowledge and expertise to survey real
property could not reasonably be expected to recognize deficiencies in
measurement at the first instance especially if that property was of "irregular
shape," "neither square nor rectangle," and having a "circular terrace."59

IV

Contrary to the Court of Appeals' assertion, Article 1542 of the Civil Code does
not bar the voiding of the Contract to Sell.

Article 1542 of the Civil Code states:

Article 1542. In the sale of real estate, made for a lump sum and not at the
rate of a certain sum for a unit of measure or number, there shall be no
increase or decrease of the price, although there be a greater or less area or
number than that stated in the contract.

The same rule shall be applied when two or more immovables are sold for a
single price; but if, besides mentioning the boundaries, which is indispensable
in every conveyance of real estate, its area or number should be designated
in the contract, the vendor shall be bound to deliver all that is included within
said boundaries, even when it exceeds the area or number specified in the
contract; and, should he not be able to do so, he shall suffer a reduction in
the price, in proportion to what is lacking in the area or number, unless the
contract is rescinded because the vendee does not accede to the failure to
deliver what has been stipulated. (Emphasis supplied.)

Article 1542 has nothing to do with annulling fraudulently made sales. What
it is concerned with is the proportionate reduction of the purchase price in
relation to the measurable units of the thing sold. Petitioner does not seek a
reduction of the purchase price. He seeks judicial relief to have the entirety of
his purchase annulled, his consent having been fraudulently obtained. By filing
an action under Article 1390 of the Civil Code, petitioner declared that his
consent to the entire subject matter of the contract was vitiated. What suffices
as relief is the complete annulment of the sale, not the partial reimbursement
upon which Article 1542 is premised.

Likewise, Article 1542 does not contemplate the seller's delivery to the buyer
of things other than the agreed object of the sale. While it is true that
petitioner did not buy the unit on a per-square-meter basis, it remains that
what he bought was a condominium unit. A condominium unit's bounds are
reckoned by "the interior surfaces of [its] perimeter walls, floors, ceilings,
windows and doors."60 It excludes common areas. Thus, when petitioner
agreed to purchase the Unit at a lump-sum price, he never consented to
including common areas as part of his purchase. Article 1542's concern with
a ratable reduction of the price delivered by the buyer assumes that the seller
correctly delivered, albeit deficiently, the object of the sale.

In any case, for Article 1542 to operate, "the discrepancy must not be
substantial."61 Article 1542 remains anchored on a sense of what is
reasonable. An estimate given as a premise for a sale should be "more or less"
the actual area of the thing sold.62 Here, the area advertised and stipulated in
the Contract to Sell was 95 square meters but the actual area of the unit was
only 74.4 square meters.63 By no stretch of the imagination can a 21.68%
deficiency be discounted as a mere minor discrepancy.

By definition, fraud presupposes bad faith or malicious intent. It transpires

when insidious words or machinations are deliberately employed to induce
agreement to a contract. Thus, one could conceivably claim that respondent
could not be guilty of fraud as it does not appear to have crafted a deceptive
strategy directed specifically at petitioner. However, while petitioner was not
a specific target, respondent was so callously remiss of its duties as a bank.
It was so grossly negligent that its recklessness amounts to a wrongful
willingness to engender a situation where any buyer in petitioner's shoes
would have been insidiously induced into buying a unit with an actual area so
grossly short of its advertised space.
In Spouses Carbonell v. Metropolitan Bank and Trust Company,64 this Court
considered gross negligence, in relation to the fiduciary nature of banks:

Gross negligence connotes want of care in the performance of one's duties; it

is a negligence characterized by the want of even slight care, acting or
omitting to act in a situation where there is duty to act, not inadvertently but
wilfully and intentionally, with a conscious indifference to consequences
insofar as other persons may be affected. It evinces a thoughtless disregard
of consequences without exerting any effort to avoid them.

In order for gross negligence to exist as to warrant holding the respondent

liable therefor, the petitioners must establish that the latter did not exert any
effort at all to avoid unpleasant consequences, or that it wilfully and
intentionally disregarded the proper protocols or procedure . . . and in
selecting and supervising its employees.65 (Emphasis supplied)

Banks assume a degree of prudence and diligence higher than that of a good
father of a family, because their business is imbued with public interest66 and
is inherently fiduciary.67 Thus, banks have the obligation to treat the accounts
of its clients "meticulously and with the highest degree of care."68 With respect
to its fiduciary duties, this Court explained:

The law imposes on banks high standards in view of the fiduciary nature of
banking. Section 2 of Republic Act No. 8791 ("RA 8791"), which took effect on
13 June 2000, declares that the State recognizes the "fiduciary nature of
banking that requires high standards of integrity and performance." This new
provision in the general banking law, introduced in 2000, is a statutory
affirmation of Supreme Court decisions, starting with the 1990 case of Simex
International v. Court of Appeals, holding that "the bank is under obligation
to treat the accounts of its depositors with meticulous care, always having in
mind the fiduciary nature of their relationship.

This fiduciary relationship means that the bank's obligation to observe "high
standards of integrity and performance" is deemed written into every deposit
agreement between a bank and its depositor. The fiduciary nature of banking
requires banks to assume a degree of diligence higher than that of a good
father of a family. Article 1172 of the Civil Code states that the degree of
diligence required of an obligor is that prescribed by law or contract, and
absent such stipulation then the diligence of a good father of a family. Section
2 of RA 8791 prescribes the statutory diligence required from banks — that
banks must observe "high standards of integrity and performance" in servicing
their depositors.69(Citations omitted)
The high degree of diligence required of banks equally holds true in their
dealing with mortgaged real properties, and subsequently acquired through
foreclosure, such as the Unit purchased by petitioner. In the same way that
banks are "presumed to be familiar with the rules on land registration," given
that they are in the business of extending loans secured by real estate
mortgage,70 banks are also expected to exercise the highest degree of
diligence. This is especially true when investigating real properties offered as
security, since they are aware that such property may be passed on to an
innocent purchaser in the event of foreclosure. Indeed, "the ascertainment of
the status or condition of a property offered to it as security for a loan must
be a standard and indispensable part of a bank's operations":71

When the purchaser or the mortgagee is a bank, the rule on innocent

purchasers or mortgagees for value is applied more strictly. Being in the
business of extending loans secured by real estate mortgage, banks are
presumed to be familiar with the rules on land registration. Since the banking
business is impressed with public interest, they are expected to be more
cautious, to exercise a higher degree of diligence, care and prudence, than
private individuals in their dealings, even those involving registered lands.
Banks may not simply rely on the face of the certificate of title. Hence, they
cannot assume that, simply because the title offered as security is on its face
free of any encumbrances or lien, they are relieved of the responsibility of
taking further steps to verify the title and inspect the properties to be
mortgaged. As expected, the ascertainment of the status or condition of a
property offered to it as security for a loan must be a standard and
indispensable part of a bank's operations. It is of judicial notice that the
standard practice for banks before approving a loan is to send its
representatives to the property offered as collateral to assess its actual
condition, verify the genuineness of the title, and investigate who is/are its
real owner/s and actual possessors.72 (Citations omitted)

Credit investigations are standard practice for banks before approving loans
and admitting properties offered as security. It entails the assessment of such
properties: an appraisal of their value, an examination of their condition, a
verification of the authenticity of their title, and an investigation into their real
owners and actual possessors.73 Whether it was unaware of the unit's actual
interior area; or, knew of it, but wrongly thought that its area should include
common spaces, respondent's predicament demonstrates how it failed to
exercise utmost diligence in investigating the Unit offered as security before
accepting it. This negligence is so inexcusable; it is tantamount to bad faith.

Even the least effort on respondent's part could have very easily confirmed
the Unit's true area. Similarly, the most cursory review of the Condominium
Act would have revealed the proper reckoning of a condominium unit's area.
Respondent could have exerted these most elementary efforts to protect not
only clients and innocent purchasers but, most basically, itself. Respondent's
failure to do so indicates how it created a situation that could have led to no
other outcome than petitioner being defrauded.

VI

The Regional Trial Court and the Court of Appeals gravely erred in finding that
causal fraud is not attendant in this case. Quite the contrary, it is evident that
respondent orchestrated a situation rife for defrauding buyers of the
advertised unit. Therefore, the assailed Decision and Resolution must be
reversed, the Contract to Sell between petitioner and respondent be annulled,
and petitioner be refunded all the amounts he paid to respondent in respect
of the purchase of the Unit.

Under Article 2232, in relation to Article 2229 of the Civil Code, "[i]n contracts
and quasi-contracts, the court may award exemplary damages if the
defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner," "by way of example or correction for the public good." By awarding
exemplary damages to petitioner, this case shall serve as an example and
warning to banks to observe the requisite care and diligence in all of their
affairs.

Consistent with Article 2208 of the Civil Code,74 respondent is equally liable to
petitioner for attorney's fees and the costs of litigation.

WHEREFORE, the Petition is GRANTED. The assailed November 15, 2012

Decision and February 12, 2013 Resolution of the Court of Appeals in CA-G.R.
CV No. 95369 are REVERSED and SET ASIDE.

The Contract to Sell entered into by petitioner Joseph Harry Walter Poole-
Blunden and respondent Union Bank of the Philippines is declared null and
void. Respondent is ordered to pay petitioner the amount of P3,257,142.49 to
refund the amounts petitioner has paid to purchase Unit 2C of T-Tower
Condominium located at 5040 P. Burgos corner Calderon Streets, Makati City.
This refund shall earn legal interest at twelve percent (12%) per annum from
the date of the filing of petitioner's Complaint for Rescission of Contract and
Damages up to June 30, 2013; and six percent (6%) per annum, reckoned
from July 1, 2013 until fully paid.

Respondent is ordered to pay petitioner P100,000.00 as exemplary damages,

P100,000.00 as attorney's fees, and the costs of litigation.

SO ORDERED.