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 defendantappellant [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

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, 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.
3

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 exemplary damages; as

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.

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.

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.

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 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:

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 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 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. 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.

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. The Case Before us are two Petitions for Review1 under Rule 45 of the Rules of Court, assailing the March 23, 2001 Decision2 and the August 17, 2001 Resolution3 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 The facts of the case are narrated by the CA as follows: "On November 8, 1982, plaintiff CASA Montessori International5 opened Current Account No. 0291-0081-01 with defendant BPI[,] with CASAs President Ms. Ma. Carina C. Lebron as one of its authorized signatories.

G.R. No. 149454

May 28, 2004

BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. CASA MONTESSORI INTERNATIONALE LEONARDO T. YABUT, respondents. x ----------------------------- x G.R. No. 149507 May 28, 2004

"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: Check No. 1. 839700 2. 839459 3. 839609 4. 839549 5. 839569 6. 729149 7. 729129 8. 839684 9. 729034 Total --

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 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, the other half. It also disallowed attorneys fees and moral and exemplary damages. Hence, these Petitions. 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: "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
9

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]. "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 real13 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

Date April 1990 Nov. 1990 Oct. 1990 April 1990 Sept. 1990 Mar. 1990 Mar. 1990 Dec. 1990 Mar. 1990

Amount 24, P 43,400. 00 2, 110,500.0 0 17, 7, 23, 47,723.00 90,700.00 52,277.00

22, 148,000.0 0 16, 51,015.00

1, 140,000.0 0 2, 98,985.00 P 782,600 .006

"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

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 Report24 that the PNP Crime Laboratory had earlier issued to BPI -- the drawee bank -- upon the latters request. 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 Voluntary Admission Constitutional Rights Not Violative of

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 Rights40 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 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 executed46 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 selfincrimination. Clear, Positive and Convincing Examination and Evidence The examination by the PNP, though inconclusive, was nevertheless clear, positive and convincing. 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 crossexamination 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 evidence61 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.

The voluntary admission of Yabut did not violate his constitutional rights (1) on custodial investigation, and (2) against self-incrimination. 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 Constitution28 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 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

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. 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 diligence73 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 required78 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 ten-day period. This notice is a simple confirmation81 or "circularization" -- in accounting parlance -- that requests clientdepositors 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. 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 right90 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 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 95 et de jurepresumption 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 account103 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 Unit111 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 liable112 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 letter118 that embodies the terms and conditions of the audit and ends with the fulfilled expectation of the auditors ethical119 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 operations123 and is never under the control or supervision124 of the client. Yabut was an independent auditor125 hired by CASA. He handled its monthly bank reconciliations and had access to all relevant documents and checkbooks.126 In him was reposed the clients127 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 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 governance140 and a sworn statement on adequate and effective training.141 The missing checks were certainly reported by the bookkeeper142 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. The bookkeeper144 who had exclusive custody of the checkbooks145 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 -- even in collusion -- and management would still have no way to verify its cash accountabilities. 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. Third Issue: Award of Monetary Claims

Moral Damages Denied We deny CASAs claim for moral damages. 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 discretion152 -- the claimant must nonetheless satisfactorily prove the existence of its factual basis153 and causal relation154 to the claimants act or omission.155 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 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 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. Interest Allowed 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. 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 P30,000.00 2. Moral damages 3. Temperate damages 4. Exemplary damages 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 damages 20,000.00 50,000.00 10,000.00

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. recovered: Damages may be

(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 pre- preliminary 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, 5869, 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. 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.

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 II 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 THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFFS' CHARGE OF CONSPIRACY AGAINST THE

DEFENDANTS HAS NOT SUFFICIENTLY ESTABLISHED." IV

BEEN

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. V 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 cross-claim 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 425429) 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 VicePresident 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 crossclaim 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.

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

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 Decision1 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 businessman2 in Cebu, is a holder of a Preferred Master Credit Card (Mastercard) bearing number 5423-3920-0786-7012

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 printout16presented by Aznar and the Warning Cancellation Bulletins17 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. CEB16474, 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 Court27 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 Division30 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 print-outs 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 print-out 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 117034 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; II. Whether or not the purchases made by Petitioner were beyond his credit limit; III. Whether or not the issues of dishonor by reason of overlimit was tried with the consent of the parties;

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

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. Q. So the word that was used was denied? A. Denied. 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 printout 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. 5423-39200786-7012. 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. 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: 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 in-charged [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". xxxx 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 rejected.44 (Emphasis supplied).

has

been

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. 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. 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: (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 (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 print-out was generated and how the said information could be relied upon as true. In fact, Aznar to repeat, testified as follows: ATTY. NERI 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) 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 5-39 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. 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: 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 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. 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: 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 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, explanation? what do you say to that

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? A Yes, your honor. Q Even if there is no augmenting? 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 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) The allegations of blacklisting not having been proved, is Citibank liable for damages for the dishonor of Aznars Mastercard? 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. 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 The invalidity of the terms and conditions being invoked by Citibank, notwithstanding, the Court still cannot award damages in favor of petitioner. 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. 221958 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.