FIRST DIVISION

[G.R. No. 161319. January 23, 2007.]

SPS. EDGAR AND DINAH OMENGAN , petitioners, vs . PHILIPPINE

NATIONAL BANK, HENRY M. MONTALVO AND MANUEL S. ACIERTO ,
* respondents.

DECISION

CORONA , J : p

This petition for review on certiorari 1 seeks a review and reversal of the Court of Appeals
(CA) decision 2 and resolution 3 in CA-G.R. CV No. 71302.
In October 1996, the Philippine National Bank (PNB) Tabuk (Kalinga) Branch approved
petitioners-spouses' application for a revolving credit line of P3 million. The loan was
secured by two residential lots in Tabuk, Kalinga-Apayao covered by Transfer Certificate of
Title (TCT) Nos. 12954 and 12112. The certificates of title, issued by the Registry of Deeds
of the Province of Kalinga-Apayao, were in the name of Edgar 4 Omengan married to Dinah
Omengan.
The first P2.5 million was released by Branch Manager Henry Montalvo on three separate
dates. The release of the final half million was, however, withheld by Montalvo because of a
letter allegedly sent by Edgar's sisters. It read:
Appas, Tabuk

Kalinga
7 November 1996

The Manager
Philippine National Bank

Tabuk Branch

Poblacion, Tabuk

Kalinga
Sir:

This refers to the land at Appas, Tabuk in the name of our brother, Edgar
Omengan, which was mortgaged to [the] Bank in the amount of Three Million
Pesos (P3,000,000.00), the sum of [P2.5 Million] had already been released and
received by our brother, Edgar.

In this connection, it is requested that the remaining unreleased balance of [half a

million pesos] be held in abeyance pending an understanding by the rest of the
brothers and sisters of Edgar. Please be informed that the property
mortgaged, while in the name of Edgar Omengan, is owned in co-
ownership by all the children of the late Roberto and Elnora Omengan.
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 The lawyer who drafted the document registering the subject property
under Edgar's name can attest to this fact. We had a prior
understanding with Edgar in allowing him to make use of the property
as collateral, but he refuses to comply with such arrangement . Hence,
this letter. (emphasis ours)

Very truly yours,

(Sgd.) Shirley O. Gamon (Sgd.) Imogene O. Bangao

(Sgd.) Caroline O. Salicob (Sgd.) Alice O. Claver 5

Montalvo was eventually replaced as branch manager by Manuel Acierto who released the
remaining half million pesos to petitioners on May 2, 1997. Acierto also recommended the
approval of a P2 million increase in their credit line to the Cagayan Valley Business Center
Credit Committee in Santiago City.
The credit committee approved the increase of petitioners' credit line (from P3 million to
P5 million), provided Edgar's sisters gave their conformity. Acierto informed petitioners of
the conditional approval of their credit line. aScIAC

But petitioners failed to secure the consent of Edgar's sisters; hence, PNB put on hold the
release of the additional P2 million.
On October 7, 1998, Edgar Omengan demanded the release of the P2 million. He claimed
that the condition for its release was not part of his credit line agreement with PNB
because it was added without his consent. PNB denied his request.
On March 3, 1999, petitioners filed a complaint for breach of contract and damages
against PNB with the Regional Trial Court (RTC), Branch 25 in Tabuk, Kalinga. After trial, the
court decided in favor of petitioners.
Accordingly, judgment is hereby rendered finding in favor of [petitioners.] [PNB is
ordered]:

1) To release without delay in favor of [petitioners] the amount of

P2,000,000.00 to complete the P5,000,000.00 credit line agreement;
2) To pay [petitioners] the amount of P2,760,000.00 representing the losses
and/or expected income of the [petitioners] for three years;

3) To pay lawful interest, until the amount aforementioned on paragraphs 1

and 2 above are fully paid; and

4) To pay the costs.

SO ORDERED. 6

The CA, however, on June 18, 2003, reversed and set aside the RTC decision dated April
21, 2001. 7
Petitioners now contend that the CA erred when it did not sustain the finding of breach of
contract by the RTC. 8
The existence of breach of contract is a factual matter not usually reviewed in a petition
filed under Rule 45. But since the RTC and the CA had contradictory findings, we are
constrained to rule on this issue.
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 Was there a breach of contract? There was none.
Breach of contract is defined as follows:
[It] is the "failure without legal reason to comply with the terms of a contract." It is
also defined as the "[f]ailure, without legal excuse, to perform any promise which
forms the whole or part of the contract." 9

In this case, the parties agreed on a P3 million credit line. This sum was completely
released to petitioners who subsequently applied 1 0 for an increase in their credit line. This
was conditionally approved by PNB's credit committee. For all intents and purposes,
petitioners sought an additional loan. cSEAHa

The condition attached to the increase in credit line requiring petitioners to acquire the
conformity of Edgar's sisters was never acknowledged and accepted by petitioners. Thus,
as to the additional loan, no meeting of the minds actually occurred and no breach of
contract could be attributed to PNB. There was no perfected contract over the increase in
credit line.
"[T]he business of a bank is one affected with public interest, for which reason the bank
should guard against loss due to negligence or bad faith. In approving the loan of an
applicant, the bank concerns itself with proper [information] regarding its debtors." 1 1 Any
investigation previously conducted on the property offered by petitioners as collateral did
not preclude PNB from considering new information on the same property as security for
a subsequent loan. The credit and property investigation for the original loan of P3 million
did not oblige PNB to grant and release any additional loan. At the time the original P3
million credit line was approved, the title to the property appeared to pertain exclusively to
petitioners. By the time the application for an increase was considered, however, PNB
already had reason to suspect petitioners' claim of exclusive ownership.
A mortgagee can rely on what appears on the certificate of title presented by the
mortgagor and an innocent mortgagee is not expected to conduct an exhaustive
investigation on the history of the mortgagor's title. This rule is strictly applied to
banking institutions. . . .
cDAITS

Banks, indeed, should exercise more care and prudence in dealing even
with registered lands, than private individuals, as their business is one
affected with public interest. . . . Thus, this Court clarified that the rule
that persons dealing with registered lands can rely solely on the
certificate of title does not apply to banks . 1 2 (emphasis supplied)

Here, PNB had acquired information sufficient to induce a reasonably prudent person to
inquire into the status of the title over the subject property. Instead of defending their
position, petitioners merely insisted that reliance on the face of the certificate of title (in
their name) was sufficient. This principle, as already mentioned, was not applicable to
financial institutions like PNB.
In truth, petitioners had every chance to turn the situation in their favor if, as they said, they
really owned the subject property alone, to the exclusion of any other owner(s).
Unfortunately, all they offered were bare denials of the co-ownership claimed by Edgar's
sisters.
PNB exercised reasonable prudence in requiring the above-mentioned condition for the
release of the additional loan. If the condition proved unacceptable to petitioners, the
parties could have discussed other terms instead of making an obstinate and outright
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 demand for the release of the additional amount. If the alleged co-ownership in fact had no
leg to stand on, petitioners could have introduced evidence other than a simple denial of
its existence.
Since PNB did not breach any contract and since it exercised the degree of diligence
expected of it, it cannot be held liable for damages.
WHEREFORE, the decision and resolution of the Court of Appeals in CA-G.R. CV No. 71302
are hereby AFFIRMED.
Costs against petitioners.
SO ORDERED.
Puno, C.J., Sandoval-Gutierrez, Azcuna and Garcia, JJ., concur.
Footnotes

* Montalvo and Acierto were made parties to the petition in their capacity as branch
managers of PNB, Tabuk, Kalinga.
1. Filed under Rule 45 of the Rules of Court.
2. Penned by Associate Justice Eugenio S. Labitoria and concurred in by Associate
Justices Andres B. Reyes, Jr. and Regalado E. Maambong of the Fifth Division of the
Court of Appeals. Annex "A," rollo, pp. 40-47.
aDACcH

3. Annex "B," rollo, p. 49.

4. The CA Decision stated that the properties were registered in the name of "plaintiff-
appellee Danilo Omengan . . . ." We assume that this was a mere typographical error and
that the CA referred to Edgar since no other "Danilo" was mentioned in the records.

5. Annex "A," rollo, pp. 41-42.

6. Annex "A," rollo, p. 43.
7. Id., at 47.
8. Petition, rollo, pp. 17-33.
9. Cathay Pacific Airways, Ltd. v. Sps. Vasquez, 447 Phil. 306, 320 (2003). Citations
omitted.
10. Petition, rollo, p. 15.

11. United Coconut Planters Bank v. Ramos, G.R. 147800, 11 November 2003, 415 SCRA
596, 609.
12. Heirs of Eduardo Manlapat v. Court of Appeals G.R. No. 125585, June 8, 2005, 459
SCRA 412, 433. Citations omitted.

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