Cagungun vs. Planters Dev't Bank

8/13/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 473
VOL. 473, OCTOBER 17, 2005 259

Cagungun vs. Planters Development Bank
*
G.R. No. 158674. October 17, 2005.
LAPRECIOSISIMA CAGUNGUN, REMEDIOS L.

CAGUNGUN, JESUS L. CAGUNGUN, VICENTE L.
CAGUNGUN, JR., RICARDO L. CAGUNGUN, EDUARDO
L. CAGUNGUN, ROWENA L. CAGUNGUN, ALVIN L.
CAGUNGUN and ALMA L. CAGUNGUN, petitioners, vs.
PLANTERS DEVELOPMENT BANK, respondent.
Commercial Law; Banks and Banking; Negligence; The bank

was indeed grossly negligent when it allowed the sum of
P220,000.00 to be withdrawn through falsified withdrawal slips
without petitioner’s authority and knowledge and its failure to
comply with petitioner’s instruction to apply their deposits on their
loan.—The bank was indeed grossly negligent when it allowed the
sum of P220,000.00 to be withdrawn through falsified withdrawal
slips without petitioners’ authority and knowledge and its failure
to comply with petitioners’ instruction to apply their deposits on
their loan. In so doing, respondent bank breached the trust that
petitioners reposed on it.
Same; Same; Same; Respondent did not exercise the degree of
diligence it ought to have exercised in dealing with its clients—
diligence higher than that of a good father of a family.—We agree
in the findings of the two courts below that the unauthorized
transactions were committed by one or some of the employees of
respondent bank for which it should be liable. The evidence
showed that respondent did not exercise the degree of diligence it
ought to have exercised in dealing with its clients—diligence
higher than that of a good father of a family. If only respondent
exercised such diligence, no anomaly or irregularity would have
happened.
Civil Law; Damages; Moral Damages; Settled is the rule that
gross negligence of a bank in the handling of its client’s deposit
amounts to bad faith that calls for an award of moral damages.—
Settled is the rule that gross negligence of a bank in the handling
of its client’s deposit amounts to bad faith that calls for an award
of moral damages. Moral damages are meant to compensate the
www.central.com.ph/sfsreader/session/0000016c8ac9e86f0b16a460003600fb002c009e/t/?o=False 1/21
claimant for any physical suffering, mental anguish, fright,

serious anxi-
_______________
* SECOND DIVISION.
260
260 SUPREME COURT REPORTS ANNOTATED
ety, besmirched reputation, wounded feelings, moral shock, social

humiliation and similar injuries unjustly caused.
Same; Same; Same; 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.—In culpa contractual or breach of
contract, as in the case before us, 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. In fine, the
requisites on 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 Article 2219 and Article 2220 of the Civil Code. All
these elements are present in the instant case.
Same; Same; Exemplary Damages; The award of exemplary
damages is warranted by the failure of respondent bank to prevent
the unauthorized withdrawals from petitioners’ deposits and its
failure to properly apply the latter’s deposits to their loan.—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 a
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. The award of exemplary
damages is warranted by the failure of respondent bank to
prevent the unauthorized withdrawals from petitioners’ deposits
and its failure to properly apply the latter’s deposits to their loan.
We, however, find the P300,000.00 awarded by the lower court to
be excessive and should accordingly be reduced to P50,000.00.
261
VOL. 473, OCTOBER 17, 2005 261
Same; Same; Attorney’s Fees; An award of attorney’s fees,

being an exception from the policy of not putting a premium or a
penalty on the right to litigate, has since been limited to the
grounds specified by law.—On the matter of attorney’s fees and
expenses of litigation, it is settled that the reasons or grounds for
the award thereof must be set forth in the decision of the court.
An award of attorney’s fees, being an exception from the policy of
not putting a premium or a penalty on the right to litigate, has
since been limited to the grounds specified by law. Article 2208 of
the Civil Code enumerates the instances where attorney’s fees
and expenses of litigation can be recovered.
Same; Same; Same; There being an award for exemplary
damages, it follows that there should be an award of attorney’s fees
and litigation expenses.—In the case at bar, the RTC clearly
stated in its decision that petitioners are entitled to attorney’s
fees and litigation expenses because they were compelled to
litigate in order to protect their interest. We agree. Moreover,
there being an award for exemplary damages, it follows that there
should be an award of attorney’s fees and litigation expenses.
However, the awards of P50,000.00 for attorney’s fees and
P50,000.00 for litigation expenses by the RTC are too much, while
the award of P30,000.00 of the Court of Appeals for both is too
small. In as much as this case has been pending for more than
twenty (20) years, the award of P25,000.00 for each will be
sufficient.
Remedial Law; Civil Procedure; Actions; Evidence; Pleadings
and Practice; Under Section 5, Rule 10 of the Revised Rules of
Court, if evidence is objected to at the trial on the ground that it is
not within the issues made by the pleadings, the Court may allow
the pleadings to be amended freely when the presentation of the
merits of the action will be subserved thereby.—Under Section 5,
Rule 10 of the Revised Rules of Court, if evidence is objected to at
the trial on the ground that it is not within the issues made by the
pleadings, the Court may allow the pleadings to be amended

freely when the presentation of the merits of the action will be
subserved thereby and the admission of such evidence would not
prejudice the objecting party in maintaining his action or defense
upon the merit. x x x It is thus clear that when there is an
objection on the evidence presented because it is not within the
issues made by the pleadings, an amendment must be made
before accepting such evidence. If no
262
amendment is made, the evidence objected to cannot be

considered. In the case before us, the trial court, there being an
objection on the evidence being presented by respondent, failed to
order the amendment of the complaint. Thus, we are constrained
not to consider evidence regarding the P30,000.00 and
P118,000.00 allegedly withdrawn from their accounts. With this
ruling, it follows that the outstanding loan of petitioners in the
amount of P58,297.16 remains unpaid.
PETITION for review on certiorari of the decision and

resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.

Carmelino M. Roque for petitioners.
Carolyn J. Senador-Farinas for respondent.
CHICO-NAZARIO, J.:
Assailed in a Petition for Review on Certiorari under Rule

1
45 of the 1997 Rules of Civil Procedure are the decision of
the Court of Appeals dated 25 March 2002 that modified
the decision of the Regional Trial Court (RTC) of Olongapo
City, Branch 74, in Civil Case No. 245-0-83, dated 26 June
1997, deleting the awards of moral and exemplary damages
and finding that the mortgaged loan was deemed paid and
enjoining foreclosure, as well as reducing the awards
2
for
litigation fees and expenses, and its Resolution dated 06
June 2003 denying petitioners Lapreciosisima Cagungun,
et al.’s motion for reconsideration.
The antecedents are summarized by the Court of
Appeals in its decision as follows:
_______________
1 CA Rollo, pp. 91-98; Penned by Associate Justice Roberto A. Barrios

with Associate Justices Ma. Alicia Austria-Martinez (now Associate
Justice of this Court) and Bienvenido L. Reyes, concurring.
2 Id., at p. 132.
263
VOL. 473, OCTOBER 17, 2005 263

On September 1, 1987, the spouses Vicente Cagungun and

Lapreciosisima Cagungun (or the Cagungun spouses) filed suit
with the Regional Trial Court of Olongapo City against the
Country Development Bank (or COUNTRY), and which was
docketed as Civil Case No. 245-083 and assigned to Branch 74.
Vicente Cagungun has since died and was substituted as plaintiff
on August 8, 1984 by their children. On the other hand
COUNTRY has entered into a merger and reflective of this the
party defendant has been changed to Planters Development Bank
(or PLANTERS) on September 1, 1987.
COUNTRY had opened an extension office in Olongapo City,
and among their first customers were the Cagungun spouses who
had diverse business interests in the locality. They opened some
accounts, and for two (2) of which they were issued Savings
Passbook No. 12241-16 in the name of Puring’s Dry Goods and
Savings Passbook No. 38470-29 in the names of V/L Cagungun.
It was claimed by the Cagungun spouses and testified to by
them and their daughter-in-law Sarah Cagungun, that because of
the exigencies of their businesses that required daily deposits of
the proceeds and of the trust that they have reposed with
COUNTRY and its personnel, they entrusted and left with them
their said savings pass books. At least once a day the Branch
manager Ruperto Reyes or a certain Bong and Ding would come
to get their funds and with the agreement that these would be
rounded off and deposited to their account while the odd
remainder would be applied to their loan. The arrangement
apparently went well, until March 1981 when the Cagungun
spouses received a letter from COUNTRY telling them that their
loan is past due and payment was demanded . . . or else. This
prompted them to investigate, but this was tedious and difficult
because of lack of cooperation and even resistance from
COUNTRY. But with the help of friends in high places the
Cagungun spouses were able to access and pry information that in
the year 1979 on the dates of October 8, 18, 20 and 31 and
November 15, and December 4 and 8, with the use of withdrawal
slips a total of P220,000.00 was withdrawn from their Savings
Passbook No. 12241-16. These withdrawals were invalid for no

such withdrawal was authorized, made or received by the
depositors, and the signatures of Vicente Cagungun on the slips
were forgeries. This was confirmed by Arcadio Ramos, Chief of the
Questioned Documents Division of the NBI when these were
subjected to examination.
264

The side of PLANTERS was explicated by its employees, Internal

Auditor Lilia Tactay, Branch Manager Lolita Mendoza and
Cashier Bella Lumanog. It was explained that the withdrawal of
P20,000.00 made on October 8, 1979 from Savings Account No.
12241-16 and the withdrawals of a total of P30,000.00 from
several of the other accounts of the spouses, were placed on time
deposits on the same date by Vicente Cagungun in five (5)
accounts held with their children. The other said withdrawals
from Savings Account No. 12241-16 were made by Vicente
Cagungun in exchange for Manager’s Checks made in the names
of payees
3
Santiago Lee, Rosita Saldana, Benito Yap and Joaquin
Aganda.
The lower court ruled, among other things, that the

withdrawals from Savings4 Account No. 12241-16 through
seven (7) withdrawal slips amounting to P220,000.00 were
not made by petitioners as the alleged signatures of
Vicente Cagungun, Jr. appearing therein were falsified as
confirmed by the National Bureau of Investigation
Handwriting Expert Arcadio Ramos. It likewise considered
petitioners to have paid their mortgage loan in the amount
of P58,297.16 in view of their instruction to respondent to
apply their funds in Savings Account No. 38470-29 thereto
which were adequate for this purpose.
For not applying the savings of petitioners in Savings
Account No. 38470-29 as payment to their loan, thereby
causing the threatened foreclosure of the real estate
mortgage over their house and lot, and for allowing the
unauthorized withdrawals from Savings Account No.
12241-16 through falsified withdrawal slips, the lower
court held respondent liable to pay moral damages. For
ignoring the two (2) demand letters of petitioners, the
demand letter of petitioners’ counsel and the
representations made by Pampanga Gov. Estelito Mendoza
and Central Bank Governor Jaime Laya, and for the
attempt to cover up the misdeeds of its employees
constituting malice and bad faith, respondent was also

ordered to pay
_______________
3 CA Rollo, pp. 91-93.

4 Exhs. A, A-1 to A-6.
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VOL. 473, OCTOBER 17, 2005 265

exemplary damages as an example to others. On account of

these acts, respondent was also ordered to pay attorney’s
fees and the cost of5 suit.
In its decision dated 26 June 1997, the lower court
disposed of the case in this wise:
“WHEREFORE, judgment is hereby rendered in favor of the

plaintiffs and against the defendant as follows:
1.) Enjoining the defendant from foreclosing the

mortgage of plaintiffs property located at No. 88
Gordon Avenue, Pag-asa, Olongapo City;
2.) Ordering the defendant to pay plaintiffs the amount
of P220,000.00 actual damages representing the
total amount withdrawn from their accounts plus
twelve (12%) percent interest per annum from the
date of the filing of the complaint until it shall have
been fully paid;
3.) Considering plaintiffs mortgaged account in the
amount of P58,297.16 to have been paid;
of P300,000.00 moral damages;
of P300,000.00 exemplary damages; and
6.) Ordering defendant to pay plaintiffs the amount of
P50,000.00 litigation expense,
6
P50,000.00
attorney’s fee plus the cost of suit.
Aggrieved, respondent appealed to the Court of Appeals.

The Court of Appeals agreed that money was withdrawn
from the deposits of petitioners without their authority or
knowledge, and that this was done by one or some of the
personnel of respondent. However, it held that petitioners
are not free from the obligation to pay the admitted loan
(P58,297.16) for though the same was not paid for failure of
respondent to comply with the instruction to apply the
remainder of the
_______________
5 Records, pp. 473-493.

6 Id., at pp. 492-493.
266

sums deposited to their loan, it remained admittedly an

unpaid obligation. It removed the awards for moral and
exemplary damages and reduced the awards for attorney’s
fees and litigation expenses.
The Court of Appeals promulgated its decision on 25
March 2002, the dispositive portion of which reads:
“WHEREFORE, the appealed decision is AFFIRMED, but with

these MODIFICATONS (a) the dispositions in Par. 1 and Par. 3 of
the fallo deeming the mortgaged loan paid and enjoining
foreclosure, are DELETED; (b) the disposition in Par. 4 and Par. 5
of the fallo awarding moral and exemplary damages, are
DELETED; and (c) the awards of litigation
7
fees and expenses are
REDUCED to a combined P30,000.00.”
The motion for reconsideration filed by 8 petitioners was

denied in a resolution dated 06 June 2003.
Petitioners are now before us assailing the Decision and
Resolution of the Court of Appeals when the latter:
(A) DELETED THE PORTION OF THE RTC

DECISION DECLARING THE MORTGAGED
LOAN PAID AND ENJOINING FORECLOSURE;
(B) DELETED THE AWARD OF MORAL AND
EXEMPLARY DAMAGES; AND
(C) REDUCED 9 THE LITIGATION FEES AND
EXPENSES.
10
Respondent filed a Comment on 04 11
September 2003 to
which petitioners filed their Reply dated 06 February
2004.
On 06 December 2004, the Court gave due course to the
petition and required the parties to submit their respective
_______________
7 CA Rollo, p. 97.
8 Id., at p. 132.
9 Rollo, p. 4.
10 Id., at pp. 59-67.
11 Id., at pp. 73-82.
267
VOL. 473, OCTOBER 17, 2005 267

12
memoranda within 13
thirty (30) days from notice. Both
parties complied.
We first discuss the deletion made by the Court of
Appeals of the awards of moral damages and exemplary
damages.
Petitioners maintain that the Court of Appeals erred in
removing the award of moral damages considering that it is
settled jurisprudence that the same should be awarded
when the injured party suffers mental anguish and serious
anxiety. They contend that the Court of Appeals failed to
appreciate the torment they suffered from the time they
noticed their deposits were not properly recorded until the
receipt of respondent’s letter threatening the foreclosure of
their residential house and lot for a loan of P58,000.00.
They narrated that respondent bank refused to give them
copies of the ledgers of their deposits as well as copies of
the withdrawal slips. Despite the intercession of Pampanga
Governor Estelito Mendoza and Central Bank Governor
Jaime Laya, respondent did not give them copies of the
ledgers and withdrawal slips. It was only after the Chief of
the Criminal Investigation Service (CIS) of the Philippine
Constabulary sent two of his investigators, whom they
authorized to look into the records of their deposits, that
they received copies thereof. They discovered therein that
the sum of P220,000.00 was withdrawn from their accounts
by respondent bank through its employees by falsifying the
signatures of Vicente Cagungun, Jr. in seven withdrawal
slips. Despite the forgeries, they refused to acknowledge its
liability. Thus, on 07 September 1983, in order to protect
their rights, petitioners were forced to file the instant case
with prayer for issuance of a temporary restraining order
and/or writ of preliminary injunction to enjoin the
foreclosure of their property. Petitioners insist that
respondent, in allowing withdrawals in their savings
account without their
_______________
12 Id., at p. 85.
13 Id., at pp. 87-104; 105-118.
268

authority or knowledge, is guilty of gross negligence to

which it is liable for moral damages.
On the other hand, respondent maintains that the Court
of Appeals was correct in deleting the award of moral
damages.
Respondent argues that it should not be faulted if
petitioners had to experience inconveniences in acquiring
copies of ledgers of their deposits as well as copies of the
withdrawal slips since certain banking procedures must be
observed. It likewise faults petitioners for not strictly
observing security rules of financial institutions in the care
and custody of their passbooks, as well as in the standard
operating procedure for deposits and withdrawals which
led to the alleged improper recording of deposits and the
alleged losses they incurred. It stresses that passbooks
should be securely kept by the owner but, in the case of
petitioners, they openly entrusted their passbooks to other
people leaving them totally unable to monitor their
transactions. It added that there was absence of any actual
injury on the part of the petitioners. It asserts that it
neither acted in bad faith nor took advantage of petitioners’
deposit for its use and benefit. It claims that petitioners
failed to establish fraud on the part of respondent bank as
to make it liable for the alleged improper recording of
deposits. It claims that petitioners failed to present in court
the persons (Bong or Ding) to whom they entrusted their
money for deposit and to prove that Ruperto Reyes, then
Officer-In-Charge (O-I-C) of the Extension Office of
Country Development Bank, defrauded them by facilitating
withdrawals for the benefit of the bank. No proof was
adduced to show that they verified if the persons to whom
they delegated to make the deposits faithfully performed
the tasks in accordance with their intentions. Respondent
insists that it is the negligence of petitioners, not fraud on
its part, which was the reason that petitioners’ deposits
were not applied in accordance with their intentions
resulting to the (threatened) foreclosure of their mortgaged
property.
269
VOL. 473, OCTOBER 17, 2005 269

From the foregoing reasons advanced by respondent bank,

it is apparent that it is trying to pass all the blame on
petitioners for the unauthorized withdrawals amounting to
P220,000.00 and the non-applications of deposits to their
loan.
This cannot be. The fact that petitioners left the custody
of their passbooks to respondent, through its employee O-I-
C Ruperto Reyes, and that they entrusted to Bong or Ding
their deposits will not excuse respondent from being liable.
Petitioners did these things because they trusted and
depended on respondent to take care of their accounts with
it. If respondent bank was really strict in enforcing the
banking rule that the passbook must be kept by the
depositor, why did it not do so? For its failure, any anomaly
or damage that might result therefrom should be borne by
it.
We, likewise, find untenable respondent’s contention
that petitioners should have presented O-I-C Ruperto
Reyes, Bong or Ding as witnesses to clear the air. On the
contrary, it should have been respondent’s duty to present
these persons they being their employees. It should have
presented these people, especially O-I-C Ruperto Reyes,
who had custody of the passbooks, to explain why
unauthorized withdrawals were made and why the
instruction to apply petitioners’ deposit to their loan was
not complied with.
The bank was indeed grossly negligent when it allowed
the sum of P220,000.00 to be withdrawn through falsified
withdrawal slips without petitioners’ authority and
knowledge and its failure to comply with petitioners’
instruction to apply their deposits on their loan. In so
doing, respondent bank breached the trust that petitioners
reposed on it.
We agree in the findings of the two courts below that the
unauthorized transactions were committed by one or some
of the employees of respondent bank for which it should be
liable. The evidence showed that respondent did not
exercise the degree of diligence it ought to have exercised
in dealing with its clients—diligence higher than that of a
good father of
270

a family. If only respondent exercised such diligence, no

anomaly or irregularity would have happened. 14
In the case of Philippine National Bank v. Pike, we
discussed the degree of diligence imposed on banks as
follows:
“With banks, the degree of diligence required, contrary to the

position of petitioner PNB, is more than that of a good father of a
family considering that the business of banking is imbued with
public interest due to the nature of their functions. The stability
of banks largely depends on the confidence of the people in the
honesty and efficiency of banks. Thus, the law imposes on banks a
high degree of obligation to treat the accounts of its depositors
with meticulous care, always having in mind the fiduciary nature
of banking. Section 2 of Republic Act No. 8791, which took effect
on 13 June 2000, makes a categorical declaration that the State
recognizes the “fiduciary nature of banking that requires high
standards of integrity and performance.”
Though passed long after the unauthorized withdrawals in this
case, the aforequoted provision is a statutory affirmation of
Supreme Court decisions already in esse at the time of such
withdrawals. We elucidated in the 1990 case of Simex
International, Inc. v. Court of Appeals that “the bank is under
obligation to treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their
relationship.”
Likewise, in the case of The Consolidated Bank and Trust
Corporation v. Court of Appeals, we clarified that said fiduciary
relationship means that the bank’s obligation to observe “highest
standards of integrity and performance” is deemed written into
every deposit agreement between a bank and its depositor. The
fiduciary nature of banking requires banks to assume a degree of
diligence higher than that of a good father of a family. Article
1172 of the New Civil Code states that the degree of diligence
required of an obligor is that prescribed by law or contract, and
absent such stipulation then the diligence of a family. In every
case, the depositor expects the bank to treat his account with
utmost fidelity, whether such accounts consists only of a few
hundred pesos or of millions of pesos.
_______________
14 G.R. No. 157845, 20 September 2005, 470 SCRA 328.
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VOL. 473, OCTOBER 17, 2005 271

Settled is the rule that gross negligence of a bank in the

handling of its client’s deposit amounts to bad faith that
calls for an award of moral damages. Moral damages are
meant to compensate the claimant for any physical
suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, 15
social humiliation and similar injuries unjustly caused.
In the case at bar, the failure of the bank to prevent
seven unauthorized withdrawals from the deposits of
petitioners and its non-compliance with petitioners’
instructions regarding the loan payments constitute gross
negligence which justifies the award of moral damages. As
employer, respondent is liable for the negligence or
misdeed of its employees which caused petitioners to have
sleepless nights thinking about the threatened foreclosure
of their house and lot. In addition, the way respondent gave
petitioners a hard time in securing copies of their
withdrawal slips and ledgers of their deposits is an
indication of bad faith. Respondent could have easily
cooperated with petitioners by immediately furnishing the
latter with documents they wanted. This was not to be.
Written communications from petitioners’ lawyers and
from the Central Bank Governor were not sufficient in
order that respondent will provide petitioners with the
documents they needed. It was only after two agents of the
CIS of the Philippine Constabulary went to the bank that
respondent was obliged to give petitioners what they were
asking for.
In16 culpa contractual or breach of contract, as in the
case before us, moral damages are recoverable only if the
defen-
_______________
15 Samson, Jr. v. Bank of the Philippine Islands, G.R. No. 150487, 10

July 2003, 405 SCRA 607.
16 The provisions of the New Civil Code on simple loan govern the
contract between a bank and its depositor. Specifically, Article 1980
categorically provides that “. . . savings . . . deposits of money in banks and
similar institutions shall be governed by the provisions concerning simple
loan.” Thus, the relationship between a bank and its depositor is that of a
debtor-creditor, the depositor being the
272

17
dant has acted fraudulently or in bad faith, or is found
guilty of gross negligence amounting to bad 18faith, or in
wanton disregard of his contractual obligations.
In fine, the requisites on 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 any19
of the instances expressed or envisioned
by Article 2219 and
_______________
creditor as it lends the bank money, and the bank is the debtor which
agrees to pay the depositor on demand.
17 Article 2220, New Civil Code.
Article 2220. Willful injury to property may be a legal ground for awarding moral
damages if the court should find that, under the circumstances, such damages are
justly due. The same rule applies to breaches of contract where the defendant
acted fraudulently or in bad faith.
18 Philippine Telegraph & Telephone Corporation v. Court of Appeals,

G.R. No. 139268, 03 September 2002, 388 SCRA 270.
19 Art. 2219. Moral damages may be recovered in the following and
analogous cases:
(1) A criminal offense resulting in physical injuries;

(2) Quasi-delicts causing physical injuries;
(3) Seduction, abduction, rape, or other lascivious acts;
(4) Adultery or concubinage;
(5) Illegal or arbitrary detention or arrest;
(6) Illegal search;
(7) Libel, slander or any other form of defamation;
(8) Malicious prosecution;
(9) Acts mentioned in article 309;
(10) Acts and actions referred to in articles 21, 26, 27, 28, 29, 30, 32, 34,
and 35.
273
VOL. 473, OCTOBER 17, 2005 273
20
Article 2220 of the Civil Code. All these elements are
present in the instant case.
There is no hard-and-fast rule in the determination of
what would be a fair amount of moral damages since each
case must be governed by its own peculiar facts. The
yardstick 21should be that it is not palpably and scandalously
excessive. We find the sum of P300,000.00 awarded by the
lower courts excessive. In our view, the award of
P100,000.00 as moral damages is reasonable and is in
accord with our rulings in similar cases involving banks’ 22
negligence with regard to the accounts of their depositors.
Anent the removal by the Court of Appeals of the award
of exemplary damages, we find the same to be not in order.
The law allows the grant of 23exemplary 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
_______________
The parents of the female seduced, abducted, raped, or abused, referred to in No. 3
of this article, may also recover moral damages.
The spouse, descendants, ascendants, and brothers and sisters may bring the
action mentioned in No. 9 of this article, in the order named.
20 Philippine Telegraph & Telephone Corporation v. Court of Appeals,

supra, note 18; Citytrust Banking Corporation (now Bank of the Philippine
Islands) v. Villanueva, G.R. No. 141011, 19 July 2001, 361 SCRA 446.
21 Prudential Bank v. Court of Appeals, G.R. No. 125536, 16 March
2000, 328 SCRA 264; Philippine National Bank v. Court of Appeals, G.R.
No. 126152, 28 September 1999, 315 SCRA 309; Samson, Jr. v. Bank of
the Philippine Islands, supra, note 15.
22 Philippine Banking Corporation v. Court of Appeals, G.R. No.
127469, 15 January 2004, 419 SCRA 487; Samson, Jr. v. Bank of the
Philippine Islands, supra note 15; Philippine National Bank v. Court of
Appeals, ibid.
23 Prudential Bank v. Court of Appeals, supra, note 21.
274

saving of money or as active instruments of business and

commerce, banks have attained a ubiquitous presence
among the people, who have come to regard them 24with
respect and even gratitude and most of all, confidence. For
this reason, banks should guard against injury25
attributable
to negligence or bad faith on its part. The award of
exemplary damages is warranted by the failure of
respondent bank to prevent the unauthorized withdrawals
from petitioners’ deposits and its failure to properly apply
the latter’s deposits to their loan. We, however, find the
P300,000.00 awarded by the lower court to be excessive and
should accordingly be reduced to P50,000.00.
On the matter of attorney’s fees and expenses of
litigation, it is settled that the reasons or grounds for the
award26 thereof must be set forth in the decision of the
court. An award of attorney’s fees, being an exception
from the policy of not putting a premium or a penalty on
the right to litigate,
27
has since28been limited to the grounds
specified by law. Article 2208 of
_______________
24 Bautista v. Mangaldan Rural Bank, Inc., G.R. No. 100755, 10

February 1994, 230 SCRA 16.
25 Solidbank Corporation v. Arrieta, G.R. No. 152720, 17 February
2005, 451 SCRA 711, 722.
26 Cipriano v. Court of Appeals, G.R. No. 107968, 30 October 1996, 263
SCRA 711.
27 Olan v. Court of Appeals, G.R. No. 126848, 12 March 1998, 287 SCRA
504.
28 Art. 2208. In the absence of stipulation, attorney’s fees and expenses
of litigation, other than judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;

(2) When the defendant’s act or omission has compelled the plaintiff
to litigate with third persons or to incur expenses to protect his
interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against
the plaintiff;
275
VOL. 473, OCTOBER 17, 2005 275

the Civil Code enumerates the instances where attorney’s

fees and expenses of litigation can be recovered.
In the case at bar, the RTC clearly stated in its decision
that petitioners are entitled to attorney’s fees and litigation
expenses because they were compelled to litigate in order
to protect their interest. We agree. Moreover, there being
an award for exemplary damages, it follows that there
should be an award of attorney’s fees and litigation
expenses. However, the awards of P50,000.00 for attorney’s
fees and P50,000.00 for litigation expenses by the RTC are
too much, while the award of P30,000.00 of the Court of
Appeals for both is too small. In as much as this case has
been pending for more than twenty (20) years, the award of
P25,000.00 for each will be sufficient.
Petitioners claim that the Court of Appeals erred in
deleting the portions of the RTC decision declaring their
mortgage loan paid and enjoining foreclosure. They insist
that they were able to prove that the amounts of
P30,000.00 and P118,000.00 were respectively withdrawn
from their accounts
_______________
(5) Where the defendant acted in gross and evident bad faith in
refusing to satisfy the plaintiff’s plainly valid, just and
demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers
and skilled workers;
(8) In actions for indemnity under workmen’s compensation and
employer’s liability laws;
(9) In a separate civil action to recover civil liability arising from a
crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that
attorney’s fees and expenses of litigation should be recovered.In all
cases, the attorney’s fees and expenses of litigation must be
reasonable.
276

(SA No. 38470-29 and No. 12241-16) and that same were
not applied as payment for their loan. They maintain that
by adding together said amounts, the sum thereof is
sufficient to pay their loan and to consider the real estate

mortgage as discharged.
Looking at the complaint filed by petitioners, there is no
allegation that said amounts were withdrawn from their
accounts and that same were not applied as payments for
their loan. Petitioners likewise did not ask in their prayer
that said amounts be returned to them or that they be used
to off-set their indebtedness to respondent. Moreover, when
petitioners tried to29 prove this allegation, counsel for
respondent objected and attempted to have the testimony
thereon 30stricken off the record on the ground of allegata et
probata. 31
Under Section 5, Rule 10 of the Revised Rules of Court,
if evidence is objected to at the trial on the ground that it is
not within the issues made by the pleadings, the Court may
allow the pleadings to be amended freely when the
presentation of the merits of the action will be subserved
thereby and the
_______________
29 TSN, 26 September 1984, pp. 3-7.

30 A rule of procedure whereby only matters alleged in the pleadings
may be proved (Robles v. Del Rosario, 100 Phil. 886 [1957]) cited in
Philippine Law Dictionary by Moreno, 2nd Ed., p. 35.
31 SEC. 5. Amendment to conform to or authorize presentation of
evidence.—When issues not raised by the pleadings are tried with the
express or implied consent of the parties, they shall be treated in all
respects as if they had been raised in the pleadings. Such amendment of
the pleadings as may be necessary to cause them to conform to the
evidence and to raise these issues may be made upon motion of any party
at any time, even after judgment; but failure to amend does not affect the
result of the trial of these issues. If evidence is objected to at the trial on
the ground that it is not within the issues made by the pleadings, the
court may allow the pleadings to be amended and shall do so with
liberality if the presentation of the merits of the action and the ends of
substantial justice will be subserved thereby. The court may grant a
continuance to enable the amendment to be made. (1997 Rules of Civil
Procedure).
277
VOL. 473, OCTOBER 17, 2005 277

admission of such evidence would not prejudice the

objecting party in maintaining his action or defense upon
the merit. Said section reads:
Sec. 5. Amendment to conform to or authorize presentation of

evidence.—When issues not raised by the pleadings are tried by
express or implied consent of the parties, they shall be treated in
all respects, as if they had been raised in the pleadings. Such
amendment of the pleadings as may be necessary to cause them to
conform to the evidence and to raise these issues may be made
upon motion of any party at any time, even after judgment but
failure to amend does not affect the result of the trial of these
issues. If evidence is objected to at the trial on the ground that it
is not within the issues made by the pleadings, the court may
allow the pleadings to be amended and shall do so freely when
presentation of the merits of the action will be subserved thereby
and the objecting party fails to satisfy the court that the
admission of such evidence would prejudice him in maintaining
his action or defense upon the merits. The court may grant a
continuance to enable the objecting party to meet such evidence.
It is thus clear that when there is an objection on the

evidence presented because it is not within the issues made
by the pleadings, an amendment must be made before
accepting such evidence. If no amendment is made, the
evidence objected to cannot be considered. In the case
before us, the trial court, there being an objection on the
evidence being presented by respondent, failed to order the
amendment of the complaint. Thus, we are constrained not
to consider evidence regarding the P30,000.00 and
P118,000.00 allegedly withdrawn from their accounts. With
this ruling, it follows that the outstanding loan of
petitioners in the amount of P58,297.16 remains unpaid.
As regards respondent’s right to exercise its right to
foreclosure of the real estate mortgage on petitioners’
property, we rule that respondent cannot exercise such
right under the circumstances obtaining. It will be the
height of inequity if we allow such a thing. The evidence is
clear that the sum of P220,000.00 was withdrawn from
petitioners’ deposits with-
278

out their knowledge and authority. This amount is more

than sufficient to pay for the loan had it not been illegally
withdrawn. Neither should petitioners be held liable for
any interest on the remaining balance of the loan
considering that they could have easily settled their
obligation with respondent if they were not embroiled in
the anomaly caused by respondent’s employees. Finally,

payment for the remaining balance of the loan amounting
to P58,297.16 should be deducted from the actual damages
awarded by the court.
WHEREFORE, premises considered, the petition is
PARTIALLY GRANTED. The 25 March 2002 decision of
the Court of Appeals modifying the decision of the Regional
Trial Court of Olongapo City is AFFIRMED with
MODIFICATIONS. As modified, respondent Planters
Development Bank is ordered to pay petitioners the
following: (1) P220,000.00 as actual damages representing
the total amount withdrawn from petitioners’ accounts plus
interest of 6% per annum to be computed from the date of
the filing of the complaint which interest rate shall become
12% per annum from the time of finality of this judgment
until actual payment; (2) P100,000.00 as moral damages;
(3) P50,000.00 as exemplary damages; and (4) P25,000.00
as attorney’s fees and P25,000.00 for litigation expenses.
Respondent is enjoined from foreclosing the real estate
mortgage on petitioners’ property located at No. 88 Gordon
Avenue, Pag-asa, Olongapo City. Payment for the
outstanding loan of petitioners in the amount of P58,297.16
shall be deducted from the damages awarded by the Court.
SO ORDERED.
Puno (Chairman), Callejo, Sr. and Tinga, JJ.,

concur.
Austria-Martinez, J.,No Part.
Petition partially granted, judgment affirmed with

modifications.
279
VOL. 473, OCTOBER 17, 2005 279

Valencia vs. Sandiganbayan
Notes.—A bank is under obligation to treat the accounts

of its depositors with meticulous care whether such account
consists only of a few hundred pesos or of millions of pesos.
(Philippine National Bank vs. Court of Appeals, 315 SCRA
309 [1999])
The degree of diligence required of banks is more than
that of a good father of a family; in keeping with their
responsibility to exercise the necessary care and prudence
in dealing even on a registered or titled property. (Canlas
vs. Court of Appeals, 326 SCRA 415 [2000])
Banks are engaged in a business impressed with public

interest, and it is their duty to protect in return their many
clients and depositors who transact business with them.
(Westmont Bank vs. Ong, 375 SCRA 212 [2002])
——o0o——
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8/13/2019 SUPREME COURT REPORTS ANNOTATED VOLUME 473

VOL. 473, OCTOBER 17, 2005 259

LAPRECIOSISIMA CAGUNGUN, REMEDIOS L.

Commercial Law; Banks and Banking; Negligence; The bank

claimant for any physical suffering, mental anguish, fright,

260 SUPREME COURT REPORTS ANNOTATED

Cagungun vs. Planters Development Bank

ety, besmirched reputation, wounded feelings, moral shock, social

For this reason, banks should guard against injury attributable to

VOL. 473, OCTOBER 17, 2005 261

Cagungun vs. Planters Development Bank

Same; Same; Attorney’s Fees; An award of attorney’s fees,

pleadings, the Court may allow the pleadings to be amended

262 SUPREME COURT REPORTS ANNOTATED

Cagungun vs. Planters Development Bank

amendment is made, the evidence objected to cannot be

PETITION for review on certiorari of the decision and

The facts are stated in the opinion of the Court.

Assailed in a Petition for Review on Certiorari under Rule

1 CA Rollo, pp. 91-98; Penned by Associate Justice Roberto A. Barrios

VOL. 473, OCTOBER 17, 2005 263

On September 1, 1987, the spouses Vicente Cagungun and

Passbook No. 12241-16. These withdrawals were invalid for no

264 SUPREME COURT REPORTS ANNOTATED

The side of PLANTERS was explicated by its employees, Internal

The lower court ruled, among other things, that the

constituting malice and bad faith, respondent was also

3 CA Rollo, pp. 91-93.

VOL. 473, OCTOBER 17, 2005 265

exemplary damages as an example to others. On account of

“WHEREFORE, judgment is hereby rendered in favor of the

1.) Enjoining the defendant from foreclosing the

Aggrieved, respondent appealed to the Court of Appeals.

5 Records, pp. 473-493.

266 SUPREME COURT REPORTS ANNOTATED

sums deposited to their loan, it remained admittedly an

“WHEREFORE, the appealed decision is AFFIRMED, but with

The motion for reconsideration filed by 8 petitioners was

(A) DELETED THE PORTION OF THE RTC

VOL. 473, OCTOBER 17, 2005 267

268 SUPREME COURT REPORTS ANNOTATED

authority or knowledge, is guilty of gross negligence to

VOL. 473, OCTOBER 17, 2005 269

From the foregoing reasons advanced by respondent bank,

270 SUPREME COURT REPORTS ANNOTATED

a family. If only respondent exercised such diligence, no

“With banks, the degree of diligence required, contrary to the

14 G.R. No. 157845, 20 September 2005, 470 SCRA 328.

VOL. 473, OCTOBER 17, 2005 271

Settled is the rule that gross negligence of a bank in the

15 Samson, Jr. v. Bank of the Philippine Islands, G.R. No. 150487, 10

272 SUPREME COURT REPORTS ANNOTATED

18 Philippine Telegraph & Telephone Corporation v. Court of Appeals,

(1) A criminal offense resulting in physical injuries;

VOL. 473, OCTOBER 17, 2005 273

Cagungun vs. Planters Development Bank

20 Philippine Telegraph & Telephone Corporation v. Court of Appeals,

274 SUPREME COURT REPORTS ANNOTATED

saving of money or as active instruments of business and