SECOND DIVISION

G.R. No. 208638, January 24, 2018

SPOUSES FRANCISCO ONG AND BETTY LIM ONG, AND SPOUSES JOSEPH
ONG CHUAN AND ESPERANZA ONG CHUAN, Petitioners, v. BPI FAMILY
SAVINGS BANK, INC., Respondent.

DECISION

REYES, JR., J.:

This is a Petition for Review under Rule 45 of the Rules of Court, as amended,
seeking to reverse and set aside the Decision1 dated January 31, 2013 and
Resolution2 dated August 16, 2013 of the Court of Appeals (CA) in CA-G.R. CV No.
92348

The Facts

Spouses Francisco Ong and Betty Lim Ong and Spouses Joseph Ong Chuan and
Esperanza Ong Chuan (collectively referred to as the petitioners) are engaged in the
business of printing under the name and style "MELBROS PRINTING CENTER.3

Sometime in December 1996, Bank of Southeast Asia's (BSA) managers, Ronnie

Denila and Rommel Nayve, visited petitioners' office and discussed the various loan
and credit facilities offered by their bank. In view of petitioners' business expansion
plans and the assurances made by BSA's managers, they applied for the credit
facilities offered by the latter.

Sometime in April 1997, they executed a real estate mortgage (REM) over their
property situated in Paco, Manila, covered by Transfer Certificate of Title No.
143457, in favor of BSA as security for a P15,000,000.00 term loan and
P5,000,000.00 credit line or a total of P20,000,000.00.

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With regard to the term loan, only P10,444,271.49 was released by BSA (the amount
needed by the petitioners to pay out their loan with Ayala life assurance, the balance
was credited to their account with BSA).

With regard to the P5,000,000.00 credit line, only P3,000,000.00 was released. BSA
promised to release the remaining P2,000,000.00 conditioned upon the payment of
the P3,000,000.00 initially released to petitioners.

Petitioners acceded to the condition and paid the P3,000,000.00 in full. However,
BSA still refused to release the P2,000,000.00. Petitioners then refused to pay the
amortizations due on their term loan.

Later on, BPI Family Savings Bank (BPI) merged with BSA, thus, acquired all the
latter's rights and assumed its obligations. BPI filed a petition for extrajudicial
foreclosure of the REM for petitioners' default in the payment of their term loan.

In order to enjoin the foreclosure, petitioners instituted an action for damages with
Temporary Restraining Order and Preliminary Injunction against BPI praying for
P23,570,881.32 as actual damages; P1,000,000.00 as moral damages; P500,000.00
as attorney's fees, litigation expenses and costs of suit.

On November 10, 2008, the trial court rendered its Decision,4 disposing, thus:

WHEREFORE, in view of all the foregoing, the Court hereby resolves in favor of the
plaintiffs and against the defendant bank for the latter to pay the former the above-
cited sum of Php20,469,498.00 by way of actual damages and Php500,000.00 by
way of attorney's fees.

No pronouncement as to costs.

SO ORDERED.5

BPI thereafter appealed to the CA averring that the court a quo erred when it ruled
that petitioners were entitled to damages. BPI posited that petitioners are liable to
them on the principal balance of the mortgage loan agreement.

2
The CA reversed the decision of the lower court and ruled in favor of BPI, the
dispositive portion of which states:

WHEREFORE, in the light of the foregoing, the assailed Decision dated 10

November 2008 of the Regional Trial Court, Branch 49, Manila, in Civil Case No. 02-
105189 is hereby REVERSED and SET ASIDE. The Complaint for Damages below
is DISMISSED for lack of merit.

SO ORDERED.

Petitioners filed a Motion for Reconsideration but the same was denied by the CA in
a Resolution dated August 16, 2013, viz.:

Finding no new matter of substance which would warrant the modification much less
the reversal of the assailed decision, plaintiffs-appellees' motion for reconsideration
is hereby DENIED for lack of merit.

SO ORDERED.6

Aggrieved, petitioners filed the present petition.

The Issues

I. WHETHER OR NOT THERE WAS ALREADY AN EXISTING AND BINDING

CONTRACT BETWEEN PETITIONERS AND BSA WITH REGARD TO THE
OMNIBUS CREDIT LINE;

II. WHETHER OR NOT BSA INCURRED DELAY IN THE PERFORMANCE OF ITS

OBLIGATIONS;

III. WHETHER OR NOT PETITIONERS ARE ENTITLED TO DAMAGES; and

IV. WHETHER OR NOT BPI CAN FORECLOSE THE MORTGAGE ON THE LAND OF
HEREIN PETITIONERS.7

Ruling of the Court

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The Court finds merit in the petition.

In fine, petitioners contend that the CA in its assailed decision erred in ruling that
that there was no perfected contract between the parties with respect to the
omnibus credit line and that being so, no delay could be attributed to BPI, the
successor-in-interest of BSA. Petitioners likewise pointed out that it was error for the
CA to delve into the matter regarding existence or perfection of a contract, especially
when such issue was never raised by BPI in any of its pleadings or proceedings in
the lower court.

As a rule, a contract is perfected upon the meeting of the minds of the two parties.
It is perfected by mere consent, that is, from the moment that there is a meeting of
the offer and acceptance upon the thing and the cause that constitute the contract.8

In the case of Spouses Palada v. Solidbank Corporation, et al.,9 this Court held that
under Article 1934 of the Civil Code, a loan contract is perfected only upon the
delivery of the object of the contract. In that case, although therein petitioners
applied for a P3,000,000.00 loan, only the amount of P1,000,000.00 was approved
by therein respondent bank because petitioners became collaterally deficient.
Nonetheless, the loan contract was deemed perfected on March 17, 1997, the date
when petitioners received the P1,000,000.00 loan, which was the object of the
contract and the date when the REM was constituted over the property.10

Applying this to the case at bench, there is no iota of doubt that when BSA approved
and released the P3,000,000.00 out of the original P5,000,000.00 credit facility, the
contract was perfected.

The conclusion reached by the appellate court that only the term loan of
P15,000,000.00 was proved to have materialized into an actual contract while the
P5,000,000.00 omnibus line credit remained non-existent is ludicrous. A careful
perusal of the records reveal that the credit facility that BSA extended to petitioners
was a credit line of P20,000,000.00 consisting of a term loan in the sum of
P15,000,000.00 and a revolving omnibus line of P3,000,000.00 to be used in the
petitioner's printing business. In separate Letters both dated January 31, 1997, BSA

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approved the term loan and the credit line. Such approval and subsequent release of
the amounts, albeit delayed, perfected the contract between the parties.

Loan is a reciprocal obligation, as it arises from the same cause where one party is
the creditor and the other the debtor.11 The obligation of one party in a reciprocal
obligation is dependent upon the obligation of the other, and the performance
should ideally be simultaneous. This means that in a loan, the creditor should
release the full loan amount and the debtor repays it when it becomes due and
demandable.12

In this case, BSA did not only incur delay in releasing the pre-agreed credit line of
P5,000,000.00 but likewise violated the terms of its agreement with petitioners when
it deliberately failed to release the amount of P2,000,000.00 after petitioners
complied with their terms and paid the first P3,000,000.00 in full. The default
attributed to petitioners when they stopped paying their amortizations on the term
loan cannot be sustained by this Court because long before they sent a Letter to BSA
informing the latter of their refusal to continue paying amortizations, BSA had
already reneged on its obligation to release the amount previously agreed upon, i.e.,
the P5,000,000.00 covered by the credit line.

Article 1170 of the Civil Code enumerates the instances when parties to a contract
may be held liable for damages, viz.:

Article 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof,
are liable for damages.

It bears stressing that petitioners entered into a credit agreement with BSA to
enable them to buy machineries and equipment for their printing business. On its
face, it can be gleaned that the purpose of the credit agreement with BSA was
indeed to assist and finance petitioner's business by way of providing additional
funds as working capital or revolving fund.13

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The direct consequences therefore of the acts of BSA are: the machinery and
equipment that were essential to petitioners' business and requisite for its operations
had to be procured so late in time and had crippled the printing of school supplies,
hence, petitioners were constrained to cancel purchase orders of their clients to
petitioners' damage.14

BSA claims that the release of the amount covered by the credit line was subject to
the "availability of funds" thus only a part of the proceeds of the entire omnibus line
was released.

Assuming for the sake of discussion that the funds at the time were insufficient to
cover the entire P5,000,000.00, BSA should have at least informed petitioners in
advance so that the latter could have resorted to other means to secure the amount
needed for their printing business. The omnibus line was approved and became
effective on January 1997 yet BSA did not allow petitioners to draw from the line
until November 1997. Moreover, BSA downgraded petitioners' drawdown to only
P3,000,000.00 despite the clear wordings of their credit agreement whereby
petitioners were allowed to draw any portion or all of the omnibus line not to exceed
P5,000,000.00. The almost 10 months delay in releasing the amount applied for by
petitioners negates good faith on the part of BSA.

BPI insists that it acted in good faith when it sought extrajudicial foreclosure of the
mortgage and that it was not responsible for acts committed by its predecessor,
BSA. Good faith, however, is not an excuse to exempt BPI from the effects of a
merger or consolidation, viz.:

Section 80. Effects of merger or consolidation. - The merger or consolidation shall

have the following effects:

1. The constituent corporations shall become a single corporation which, in case of

merger, shall be the surviving corporation designated in the plan of merge; and, in
case of consolidation, shall be the consolidated corporation designated in the plan of
consolidation;

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xxxx

4. The surviving or the consolidated corporation shall thereupon and thereafter

possess all the right, privileges, immunities and franchises of each of the constituent
corporations; and all property, real or personal, and all receivable due on whatever
account, including subscriptions to shares and other choses in action, and all and
every other interest of, or belonging to, or due to each constituent corporation, shall
be deemed transferred to and vested in such surviving or consolidated corporation
without further act or deed; and

5. The surviving or consolidated corporation shall be responsible and liable

for all the liabilities and obligations of each of the constituent corporations
in the same manner as if such surviving or consolidated corporation had
itself incurred such liabilities or obligations; and any pending claim, action, or
proceeding brought by or against any of such constituent corporations may be
prosecuted by or against the surviving or consolidated corporation. The rights of
creditors or liens upon the property of any of such constituent corporations shall not
be impaired by such merger or consolidation. Applying the pertinent provisions of
the Corporation Code, BPI did not only acquire all the rights, privileges and assets of
BSA but likewise acquired the liabilities and obligations of the latter as if BPI itself
incurred it.

Moreover, Section 1(e) of the Articles of Merger dated November 21, 2001 provides
that all liabilities and obligations of BSA shall be transferred to and become the
liabilities and obligations of BPI in the same manner as if it had itself incurred such
liabilities or obligations.15

Pursuant to such merger and consolidation, BPI's right to foreclose the mortgage on
petitioner's property depends on the status of the contract and the corresponding
obligations of the parties originally involved, that is, the agreement between its
predecessor BSA and petitioner.

Since BSA incurred delay in the performance of its obligations and subsequently
cancelled the omnibus line without petitioners' consent, its successor BPI cannot be

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permitted to foreclose the loan for the reason that its successor BSA violated the
terms of the contract even prior to petitioners' justified refusal to continue paying
the amortizations.

The trial court pointed out that based on the evidence presented by petitioners, the
latter conformed to the acquisition of the loan precisely because BSA promised them
working capital for the expansion of their business, viz.:

Clear from the plaintiffs' evidence actually presented and marked is the fact that
plaintiffs conformed to the acquisition of the loan principally upon the promise by
BSA that the working capital would be made available to plaintiffs on time for the
opening of classes, for plaintiffs to be able to secure their machineries and meet the
orders of their clients.16

The subsequent refusal of BSA in releasing the maximum amount agreed upon,
transgressed the very purpose of petitioners in availing the credit facility. Clearly,
given the nature of petitioners' business, time is of the essence as they needed to
have the orders ready before opening of classes.

To emphasize the injury caused to the petitioners due to the bank's delay and
subsequent refusal to release the omnibus loan, the petitioners testified as follows:

And the 4.2 was released... When we originally received the Php 4. 2 Million, we
could not push through with our plan in our business, sir.

Q The fact that the bank did not allow you to avail of the omnibus line,
what is the effect to your business?

A Because I have already manufactured the notebooks for St. Michael and I
already sent them to supermarkets and family stores like SM and Gaisano
and they have PO coming, I cannot deliver the goods because of lack of
funds. They kept calling and confirming about their PO Because of this
my reputation is going down.

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(TSN dated November 28, 2002 pp. 28-29)

Witness: And the 4.2 was released... When we originally received the Php 4. 2
Million, we could not push through with our plan in our business, sir.

Court: Why?

Witness: Because it was not sufficient and money came to us very late with the
lines of our plans, because we are supposed to manufacture notebooks,
school items in time for the school opening in June, and it was delayed,
your Honor. We continued paying our amortization for two years. We paid
almost 7 million.

(TSN dated September 24, 2007 pp. 13 and 14)

Q How important is your working capital to your business?

A The omnibus line is the most important in the business.

Court: The question is, why is it important?

A: Because I need capital for my business to replenish my supply and to pay

the labor and materials

Atty. and when you said the proceeds of the omnibus line was released only on
Cinco: November 10, 1997, how did this affect your business?

A: My business suffered badly because I already got the orders from the

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 department stores and book stores.

(TSN dated September 17, 2004 pp. 43-44)17

The CA, on the other hand, is of the opinion that the delay and damages claimed by
the petitioners are mere cloaks to hide their obligations in the mortgage loan
agreement.

The Court disagrees.

No evidence was ever presented in the lower courts showing that the petitioners
defaulted in paying their amortizations on the term loan prior to their refusal which
was mainly grounded on BSA's failure to release the amount covered by the omnibus
line. Petitioners' continuous payment of amortizations even during the period
between January 1997 and November 1997 (when BSA incurred delay in releasing
the omnibus line credit) is inconsistent with the appellate court's finding that
petitioners intended to hide their obligations in the mortgage loan agreement.
Petitioners' refusal to continue paying was only prompted by BSA's refusal to abide
by the terms of the contract. Thus, it would be the height of injustice to allow BPI to
foreclose on the mortgage despite violation of its predecessor BSA of its principal
obligation.

In the case of Development Bank of the Philippines v. Guariña Agricultural and

Realty Development Corp.,18 the Court ruled that a debtor cannot incur delay unless
the creditor has fully performed its reciprocal obligation, viz.:

It is true that loans are often secured by a mortgage constituted on real or personal
property to protect the creditor's interest in case of the default of the debtor. By its
nature, however, a mortgage remains an accessory contract dependent on the
principal obligation, such that enforcement of the mortgage contract will depend on
whether or not there has been a violation of the principal obligation. While a creditor
and a debtor could regulate the order in which they should comply with their
reciprocal obligations, it is presupposed that in a loan the lender should perform its

10
obligation - the release of the full loan amount - before it could demand that the
borrower repay the loaned amount. In other words, Guariña Corporation would not
incur in delay before DBP fully performed its reciprocal obligation.19

Since the credit facility that BSA extended to petitioners was a credit line total of
P20,000,000.00, its refusal to release the balance on the omnibus line prevented full
performance of its obligation to petitioners. There being no release of the full loan
amount, no default could be attributed to petitioners. In other words, foreclosure
was premature.

In Metropolitan Bank v. Wong,20 the Court declared:

While the law recognizes the right of a bank to foreclose a mortgage upon the
mortgagor's failure to pay his obligation, it is imperative that such right be exercised
according to its clear mandate. Each and every requirement of the law must be
complied with, lest, the valid exercise of the right would end. It must be
remembered that the exercise of a right ends when the right disappears, and it
disappears when it is abused especially to the prejudice of others.21

BPI was remiss in its duty of looking into the transaction involving the mortgage it
sought to foreclose. As BSA's successor-in-interest, it cannot feign ignorance of
transactions entered into by the former especially when it seeks to benefit from the
same by foreclosing the mortgage thereon.

Anent the propriety of awarding damages, the Court upholds the ruling of the trial
court that actual damages in the amount of P2,772,000.00 is proper. Said amount is
the computed total difference in interest paid to other sources and that which should
have only been paid to BSA had the latter complied with the terms of the
agreement. However, with regard to the claim of damages representing petitioners'
unrealized profits of P23,570,881.32, the Court agrees with the CA that petitioners
failed to prove with a reasonable degree of certainty, premised upon competent
proof and on the best evidence obtainable, the actual amount of loss. Although
petitioners were able to present in evidence purchase orders, company records and
checks, the Court agrees with the appellate court that these are insufficient as they

11
are self-serving. Although petitioners claimed that these orders were cancelled, no
other evidence was adduced to prove such fact of cancellation.

The law allows the grant of exemplary damages to set an example for the public
good. The banking system has become an indispensable institution in the modern
world and plays a vital role in the economic life of every civilized society. Whether as
mere passive entities for the safe-keeping and saving of money or as active
instruments of business and commerce, banks have attained an ubiquitous presence
among the people, who have come to regard them with respect and even gratitude
and most of all, confidence. For this reason, banks should guard against injury
attributable to negligence or bad faith on its part.22 Thus, the Court finds it proper to
likewise award exemplary damages in the amount of P100,000.00.

Finally, as to the matter concerning attorney's fees, the Court finds the P500,000.00
awarded by the trial court to be excessive and should accordingly be reduced to
P300,000.00.

WHEREFORE, in light of the foregoing, the petition is hereby GRANTED. The

Decision dated January 31, 2013 of the Court of Appeals in CA-G.R. CV No. 92348 is
hereby REVERSED and SET ASIDE. The questioned extrajudicial foreclosure of
real estate mortgage is likewise declared VOID. Respondent BPI Family Savings
Bank, Inc. is hereby ORDERED to pay petitioners Spouses Francisco Ong and Betty
Lim Ong and Spouses Joseph Ong Chuan and Esperanza Ong Chuan the amount of
P2,772,000.00 as actual or compensatory damages; P100,000.00 as exemplary
damages; P300,000.00 as attorney's fees; and interest of six percent (6%) per
annum on all the amounts of damages reckoned from the finality of this decision.

SO ORDERED.

Carpio (Chairperson), Bersamin,* Perlas-Bernabe, and Caguioa, JJ., concur.

Endnotes:

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*
Designated additional Member per Raffle dated September 18, 2017 vice Associate
Justice Diosdado M. Peralta due to the concurrence of his wife in the assailed Court
of Appeals' decision and resolution.

1
Penned by Associate Justice Francisco P. Acosta, with Associate Justices Fernanda
Lampas Peralta and Angelita A. Gacutan concurring; rollo, pp. 56-64.

2
Id. at 65.

3
Id. at 11.

4
Id. at 178-188.

5
Id. at 188.

6
Id. at 65.

7
Id. at 21-22.

8
Traders Royal Bank v. Cuison Lumber Co.. Inc., et al., 606 Phil. 700, 713 (2009).

9
668 Phil. 172 (2011).

10
Id. at 182.

11
IV Tolentino, The Civil Code of the Philippines, p. 175 (1999).

12
Subic Bay Metropolitan Authority v. Court of Appeals, et al., 690 Phil. 336, 344
(2012).

13
Rollo, p. 183.

14
Id.

15
Id. at 307.

16
Id. at 184.

13
17
Id. at 185-186.

18
724 Phil. 209 (2014).

19
Id. at 221-222.

20
412 Phil. 207 (2001).

21
Id. at 220.

22
Cangungun v. Planters Development Bank, 510 Phil. 51, 65 (2005).

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