G.R. No. 172428. November 28, 2008.

HERMAN C. CRYSTAL, LAMBERTO C. CRYSTAL, ANN

GEORGIA C. SOLANTE, and DORIS C. MAGLASANG, as
Heirs of Deceased SPOUSES RAYMUNDO I. CRYSTAL and
DESAMPARADOS C. CRYSTAL, petitioners, vs. BANK OF
THE PHILIPPINE ISLANDS, respondent.
Civil Law; Obligations; A liability is solidary only when the
obligation expressly so states, when the law so provides or when the
nature of the obligation so requires.A solidary obligation is one in
which each of the debtors is liable for the entire obligation, and each of
the creditors is entitled to demand the satisfaction of the whole obligation
from any or all of the debtors. A liability is solidary only when the
obligation expressly so states, when the law so provides or when the
nature of the obligation so requires. Thus, when the obligor undertakes
to be jointly and severally liable, it means that the obligation is
solidary, such as in this case. By stating I/we promise to pay, jointly and
severally, to the BANK OF THE PHILIPPINE ISLANDS, the spouses
agreed to be sought out and be demanded payment from, by BPI. BPI did
demand payment from them, but they failed to comply with their
obligation, prompting BPIs valid resort to the foreclosure of the chattel
mortgage and the real estate mortgages.
Same; Same; Suretyship; If solidary liability was instituted to
guarantee a principal obligation, the law deems the contract to be one
of suretyship; The surety is directly and equally bound with the
principal.The promissory note, wherein the spouses undertook to be
solidarily liable for the principal loan, partakes the nature of a suretyship
and therefore is an additional security for the loan. Thus we held in one
case that if solidary liability was instituted to guarantee a principal
obligation, the law deems the contract to be one of suretyship. And while
a contract of a surety is in essence secondary only to a valid principal
obligation, the suretys liability to the creditor or promisee of the
principal is said to be direct, primary, and absolute; in other words, the
surety is directly and equally bound with the principal. The surety
therefore becomes liable for the debt
_______________
* SECOND DIVISION.
698

698

SUPREME COURT REPORTS ANNOTATED

or duty of another even if he possesses no direct or personal interest over

the obligations nor does he receive any benefit therefrom.
Same; Moral Damages; Corporation Law; Statements in Manero

and Mambulao are mere obiter dicta; While the Court may allow the
grant of moral damages to corporations, it is not automatically granted;
there must still be proof of the existence of the factual basis of the
damage and its causal relation to the defendants acts.In the more
recent cases of ABS-CBN Corp. v. Court of Appeals, et al., 301 SCRA
572 (1999) and Filipinas Broadcasting Network, Inc. v. Ago Medical and
Educational Center-Bicol Christian College of Medicine (AMECBCCM), 448 SCRA 413 (2005), the Court held that the statements in
Manero and Mambulao were mere obiter dicta, implying that the award
of moral damages to corporations is not a hard and fast rule. Indeed,
while the Court may allow the grant of moral damages to corporations, it
is not automatically granted; there must still be proof of the existence of
the factual basis of the damage and its causal relation to the defendants
acts. This is so because moral damages, though incapable of pecuniary
estimation, are in the category of an award designed to compensate the
claimant for actual injury suffered and not to impose a penalty on the
wrongdoer.

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.
Zosa & Quijano Law Offices for petitioners.
Alicia E. Bathan for respondent.
TINGA, J.:
Before us is a Petition for Review1 of the Decision2 and
_______________
1 Rollo, pp. 4-21.
2 Id., at pp. 23-31. Penned by Associate Justice Vicente L. Yap with Associate
Justices Arsenio J. Magpale and Apolinario D. Bruselas, Jr. concurring.
699

699

Resolution3 of the Court of Appeals dated 24 October 2005 and

31 March 2006, respectively, in CA G.R. CV No. 72886, which
affirmed the 8 June 2001 decision of the Regional Trial Court,
Branch 5, of Cebu City.4
The facts, as culled from the records, follow.
On 28 March 1978, spouses Raymundo and Desamparados
Crystal obtained a P300,000.00 loan in behalf of the Cebu
Contractors Consortium Co. (CCCC) from the Bank of the
Philippine Islands-Butuan branch (BPI-Butuan). The loan was

secured by a chattel mortgage on heavy equipment and

machinery of CCCC. On the same date, the spouses executed in
favor of BPI-Butuan a Continuing Suretyship5 where they bound
themselves as surety of CCCC in the aggregate principal sum of
not exceeding P300,000.00. Thereafter, or on 29 March 1979,
Raymundo Crystal executed a promissory note6 for the amount
of P300,000.00, also in favor of BPI-Butuan.
Sometime in August 1979, CCCC renewed a previous loan, this
time from BPI, Cebu City branch (BPI-Cebu City). The renewal
was evidenced by a promissory note7 dated 13 August 1979,
signed by the spouses in their personal capacities and as
managing partners of CCCC. The promissory note states that the
spouses are jointly and severally liable with CCCC. It appears
that before the original loan could be granted, BPI-Cebu City
required CCCC to put up a security. However, CCCC had no
real property to offer as security for the loan; hence, the spouses
executed a real estate mortgage8 over their own real property on
22 September 1977.9 On 3 October 1977, they executed another
real estate mortgage over the same lot
_______________
3 Id., at pp. 48-49.
4 CA Rollo, pp. 41-48. Penned by Judge Ireneo Lee Gako, Jr.
5 Records, pp. 26-29.
6 Defendants Folder of Exhibits, Exhibit 50.
7 Records, p. 25.
8 Records, p. 10.
9 A parcel of land identified as Lot 6098-B-2 covered by TCT No. T-16118.
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SUPREME COURT REPORTS ANNOTATED

in favor of BPI-Cebu City, to secure an additional loan of

P20,000.00 of CCCC.10
CCCC failed to pay its loans to both BPI-Butuan and BPI-Cebu
City when they became due. CCCC, as well as the spouses,
failed to pay their obligations despite demands. Thus, BPI
resorted to the foreclosure of the chattel mortgage and the real
estate mortgage. The foreclosure sale on the chattel mortgage
was initially stalled with the issuance of a restraining order

against BPI.11 However, following BPIs compliance with the

necessary requisites of extrajudicial foreclosure, the foreclosure
sale on the chattel mortgage was consummated on 28 February
1988, with the proceeds amounting to P240,000.00 applied to
the loan from BPI-Butuan which had then reached
P707,393.90.12 Meanwhile, on 7 July 1981, Insular Bank of Asia
and America (IBAA), through its Vice-President for Legal and
Corporate Affairs, offered to buy the lot subject of the two (2)
real estate mortgages and to pay directly the spouses
indebtedness in exchange for the release of the mortgages. BPI
rejected IBAAs offer to pay.13
_______________
10 Records, p. 11.
11 In Civil Case No. 31972, the CFI of Rizal Branch CLIII issued a restraining
order.
12 Supra note 2.
13 Plaintiffs Folder of Exhibits. The offer was contained in a letter dated 7
July 1981. It reads:
Gentlemen:
We are buying that parcel of land covered by Transfer Certificate of Title No.
T-16118 at present securing a loan of Cebu Contractors Consortium with you.
Please lend us the Certificate of Title so that the same can be transferred to us.
Your lien will, of course, continue to be annotated upon said title even when it
has already been transferred to us.
As soon as we procure the Certificate of Title in our name, we will pay directly
to you the amount needed to wipe off the indebted701

701

BPI filed a complaint for sum of money against CCCC and the
spouses before the Regional Trial Court of Butuan City (RTC
Butuan), seeking to recover the deficiency of the loan of CCCC
and the spouses with BPI-Butuan. The trial court ruled in favor
of BPI. Pursuant to the decision, BPI instituted extrajudicial
foreclosure of the spouses mortgaged property.14
On 10 April 1985, the spouses filed an action for Injunction
With Damages, With A Prayer For A Restraining Order and/or
Writ of Preliminary Injunction.15 The spouses claimed that the
foreclosure of the real estate mortgages is illegal because BPI
should have exhausted CCCCs properties first, stressing that

they are mere guarantors of the renewed loans. They also prayed
that they be awarded moral and exemplary damages, attorneys
fees, litigation expenses and cost of suit. Subsequently, the
spouses filed an amended complaint,16 additionally alleging that
CCCC had opened and maintained a foreign currency savings
account (FCSA-197) with bpi, Makati branch (BPI-Makati), and
that said FCSA was used as security for a P450,000.00 loan also
extended by BPI-Makati. The P450,000.00 loan was allegedly
paid, and thereafter the spouses demanded the return of the
FCSA passbook. BPI rejected the demand; thus, the spouses
were unable to withdraw from the said account to pay for their
other obligations to BPI.
The trial court dismissed the spouses complaint and ordered
them to pay moral and exemplary damages and attorneys fees
to BPI.17 It ruled that since the spouses agreed to bind
themselves jointly and severally, they are solidarily liable for the
loans; hence, BPI can validly foreclose the two real estate
mortgages. Moreover, being guarantors_______________
ness of Cebu Contractors Consortium, in exchange for your release of the
mortgage.
14 Exhibits 27, 28 and 29, Defendants Folder of Exhibits.
15 Records, pp. 1-9.
16 Id., at pp. 43-53.
17 RTC Records, pp. 353-362.
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SUPREME COURT REPORTS ANNOTATED

mortgagors, the spouses are not entitled to the benefit of

exhaustion. Anent the FCSA, the trial court found that CCCC
originally had FCDU SA No. 197 with BPI, Dewey Boulevard
branch, which was transferred to BPI-Makati as FCDU SA
76/0035, at the request of Desamparados Crystal. FCDU SA
76/0035 was thus closed, but Desamparados Crystal failed to
surrender the passbook because it was lost. The transferred
FCSA in BPI-Makati was the one used as security for CCCCs
P450,000.00 loan from BPI-Makati. CCCC was no longer
allowed to withdraw from FCDU SA No. 197 because it was

already closed.
The spouses appealed the decision of the trial court to the Court
of Appeals, but their appeal was dismissed.18 The spouses moved
for the reconsideration of the decision, but the Court of Appeals
also denied their motion for reconsideration.19 Hence, the present
petition.
Before the Court, petitioners who are the heirs of the spouses
argue that the failure of the spouses to pay the BPI-Cebu City
loan of P120,000.00 was due to BPIs illegal refusal to accept
payment for the loan unless the P300,000.00 loan from BPIButuan would also be paid. Consequently, in view of BPIs
unjust refusal to accept payment of the BPI-Cebu City loan, the
loan obligation of the spouses was extinguished, petitioners
contend.
The contention has no merit. Petitioners rely on IBAAs offer to
purchase the mortgaged lot from them and to directly pay BPI
out of the proceeds thereof to settle the loan.20 BPIs refusal to
agree to such payment scheme cannot extinguish the spouses
loan obligation. In the first place, IBAA is not privy to the loan
agreement or the promissory note between the spouses and BPI.
Contracts, after all, take effect only between the parties, their
successors in interest, heirs and
_______________
18 Rollo, pp. 23-31.
19 Id., at pp. 48-49.
20 Exhibit P, Plaintiffs Folder of Exhibits.
703

703

assigns.21 Besides, under Art. 1236 of the Civil Code, the

creditor is not bound to accept payment or performance by a
third person who has no interest in the fulfillment of the
obligation, unless there is a stipulation to the contrary. We see
no stipulation in the promissory note which states that a third
person may fulfill the spouses obligation. Thus, it is clear that
the spouses alone bear responsibility for the same.
In any event, the promissory note is the controlling repository of
the obligation of the spouses. Under the promissory note, the

spouses defined the parameters of their obligation as follows:

On or before June 29, 1980 on demand, for value received, I/we promise
to pay, jointly and severally, to the BANK OF THE PHILIPPINE
ISLANDS, at its office in the city of Cebu Philippines, the sum of ONE
HUNDRED TWENTY THOUSAND PESOS (P120,0000.00), Philippine
Currency, subject to periodic installments on the principal as follows:
P30,000.00 quarterly amortization starting September 28, 1979. x x x22

A solidary obligation is one in which each of the debtors is

liable for the entire obligation, and each of the creditors is
entitled to demand the satisfaction of the whole obligation from
any or all of the debtors.23 A liability is solidary only when the
obligation expressly so states, when the law so provides or when
the nature of the obligation so requires.24 Thus, when the
obligor undertakes to be jointly and severally liable, it means
that the obligation is solidary,25 such as in this case. By stating
I/we promise to pay, jointly and sever_______________
21 Civil Code, Art. 1311.
22 RTC Records, p. 25.
23 PH Credit Corp. v. Court of Appeals, 421 Phil. 821, 832; 370 SCRA 155,
165 (2001).
24 Inciong, Jr. v. Court of Appeals, 327 Phil. 364, 373; 257 SCRA 578, 588
(1996).
25 International Finance Corporation v. Imperial Textile Mills, Inc., 15
November 2005, 475 SCRA 149.
704

70
4

SUPREME COURT REPORTS ANNOTATED

ally, to the BANK OF THE PHILIPPINE ISLANDS, the

spouses agreed to be sought out and be demanded payment
from, by BPI. BPI did demand payment from them, but they
failed to comply with their obligation, prompting BPIs valid
resort to the foreclosure of the chattel mortgage and the real
estate mortgages.
More importantly, the promissory note, wherein the spouses
undertook to be solidarily liable for the principal loan, partakes
the nature of a suretyship and therefore is an additional security
for the loan. Thus we held in one case that if solidary liability
was instituted to guarantee a principal obligation, the law

deems the contract to be one of suretyship.26 And while a

contract of a surety is in essence secondary only to a valid
principal obligation, the suretys liability to the creditor or
promisee of the principal is said to be direct, primary, and
absolute; in other words, the surety is directly and equally bound
with the principal. The surety therefore becomes liable for the
debt or duty of another even if he possesses no direct or
personal interest over the obligations nor does he receive any
benefit therefrom.27
Petitioners contend that the Court of Appeals erred in not
granting their counterclaims, considering that they suffered
moral damages in view of the unjust refusal of BPI to accept the
payment scheme proposed by IBAA and the allegedly unjust
and illegal foreclosure of the real estate mortgages on their
property.28 Conversely, they argue that the Court of Appeals
erred in awarding moral damages to BPI, which is a corporation,
as well as exemplary damages, attorneys fees and expenses of
litigation.29
_______________
26 Id., at p. 159.
27 Garcia, Jr. v. Court of Appeals, G.R. No. 80201, 20 November 1990, 191
SCRA 493, 496.
28 Rollo, p. 16.
29 Id.
705

705

We do not agree. Moral damages are meant to compensate the

claimant for any physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral
shock, social humiliation and similar injuries unjustly caused.30
Such damages, to be recoverable, must be the proximate result
of a wrongful act or omission the factual basis for which is
satisfactorily established by the aggrieved party.31 There being
no wrongful or unjust act on the part of BPI in demanding
payment from them and in seeking the foreclosure of the chattel
and real estate mortgages, there is no lawful basis for award of

damages in favor of the spouses.

Neither is BPI entitled to moral damages. A juridical person is
generally not entitled to moral damages because, unlike a
natural person, it cannot experience physical suffering or such
sentiments as wounded feelings, serious anxiety, mental anguish
or moral shock.32 The Court of Appeals found BPI as being
famous and having gained its familiarity and respect not only in
the Philippines but also in the whole world because of its good
will and good reputation must protect and defend the same
against any unwarranted suit such as the case at bench.33 In
holding that BPI is entitled to moral damages, the Court of
Appeals relied on the case of People v. Manero,34 wherein the
Court ruled that [i]t is only when a juridical person has a good
reputation that is debased, resulting in social humiliation, that
moral damages may be awarded.35
_______________
30 Samson, Jr. v. Bank of the Philippine Islands, 453 Phil. 577, 583; 405
SCRA 607, 611 (2003).
31 Expertravel and Tours, Inc. v. Court of Appeals, 368 Phil. 444, 448; 309
SCRA 141, 144-145 (1999).
32 People v. Manero, Jr., G.R. Nos. 86883-85, 29 January 1993, 218 SCRA
85, 96-97.
33 Rollo, p. 30.
34 G.R. Nos. 86883-85, 29 January 1993, 218 SCRA 85.
35 Id., at p. 97.
706

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SUPREME COURT REPORTS ANNOTATED

We do not agree with the Court of Appeals. A statement similar

to that made by the Court in Manero can be found in the case of
Mambulao Lumber Co. v. PNB, et al.,36 thus:
x x x Obviously, an artificial person like herein appellant corporation
cannot experience physical sufferings, mental anguish, fright, serious
anxiety, wounded feelings, moral shock or social humiliation which are
basis of moral damages. A corporation may have good reputation which,
if besmirched may also be a ground for the award of moral damages.
x x x (Emphasis supplied)

Nevertheless, in the more recent cases of ABS-CBN Corp. v.

Court of Appeals, et al.,37 and Filipinas Broadcasting Network,

Inc. v. Ago Medical and Educational Center-Bicol Christian
College of Medicine (AMEC-BCCM),38 the Court held that the
statements in Manero and Mambulao were mere obiter dicta,
implying that the award of moral damages to corporations is not
a hard and fast rule. Indeed, while the Court may allow the grant
of moral damages to corporations, it is not automatically
granted; there must still be proof of the existence of the factual
basis of the damage and its causal relation to the defendants
acts. This is so because moral damages, though incapable of
pecuniary estimation, are in the category of an award designed
to compensate the claimant for actual injury suffered and not to
impose a penalty on the wrongdoer.39
The spouses complaint against BPI proved to be unfounded,
but it does not automatically entitle BPI to moral damages.
Although the institution of a clearly unfounded civil suit can at
times be a legal justification for an award of attor_______________
36 130 Phil. 366; 22 SCRA 359 (1968).
37 ABS-CBN Broadcasting Corp. v. Court of Appeals, 361 Phil. 499; 301
SCRA 572 (1999).
38 G.R. No. 141994, 17 January 2005, 448 SCRA 413.
39 Development Bank of The Philippines v. Court of Appeals, 451 Phil. 563,
587; 403 SCRA 460, 480 (2003).
707

707

neys fees, such filing, however, has almost invariably been held
not to be a ground for an award of moral damages. The rationale
for the rule is that the law could not have meant to impose a
penalty on the right to litigate. Otherwise, moral damages must
every time be awarded in favor of the prevailing defendant
against an unsuccessful plaintiff.40 BPI may have been
inconvenienced by the suit, but we do not see how it could have
possibly suffered besmirched reputation on account of the single
suit alone. Hence, the award of moral damages should be
deleted.
The awards of exemplary damages and attorneys fees, however,
are proper. Exemplary damages, on the other hand, are imposed

by way of example or correction for the public good, when the

party to a contract acts in a wanton, fraudulent, oppressive or
malevolent manner, while attorneys fees are allowed when
exemplary damages are awarded and when the party to a suit is
compelled to incur expenses to protect his interest.41 The spouses
instituted their complaint against BPI notwithstanding the fact
that they were the ones who failed to pay their obligations.
Consequently, BPI was forced to litigate and defend its interest.
For these reasons, BPI is entitled to the awards of exemplary
damages and attorneys fees.
WHEREFORE, the petition is DENIED. The Decision and
Resolution of the Court of Appeals dated 24 October 2005 and
31 March 2006, respectively, are hereby AFFIRMED, with the
MODIFICATION that the award of moral damages to Bank of
the Philippine Islands is DELETED.
Costs against the petitioners.
SO ORDERED.
_______________
40 Expertravel and Tours, Inc. v. Court of Appeals, 368 Phil. 444, 449-450;
309 SCRA 141, 147 (1999).
41 Spouses Paguyo v. Astorga, G.R. No. 13098, 16 September 2005, 470
SCRA 33, 35.