G.R. No. 159352 ; April 14, 2004
Premiere Development Bank, petitioner, vs. Court of Appeals, Panacor Marketing Corporation and Arizona Transport Corporation, respondents.

FACTS

Panacor Marketing Corporation, needing capital for an exclusive distributorship, was granted a P4.1 million credit line by Premiere Development Bank. The bank, however, suggested the loan be processed through its affiliate, Arizona Transport Corporation, an existing client. Arizona was granted a P6.1 million loan, with P2.7 million allocated to Panacor. To secure this loan, Arizona executed a real estate mortgage. As the released amount was insufficient, Panacor arranged a P10 million take-out loan with Iba Finance Corporation, part of which was to pay off Arizona’s debt to Premiere Bank. Iba Finance sent a letter to Premiere Bank outlining the terms, including a request for the title to annotate its new mortgage and an undertaking to remit payment for Arizona’s debt upon registration. A bank officer, Martillano, affixed her signature of conformity to this letter.
Despite Iba Finance subsequently paying Premiere Bank the full outstanding loan of P6,235,754.79, the bank refused to release the mortgage documents and cancel the mortgage. This refusal prevented Iba Finance from releasing the remaining loan balance to Panacor. Consequently, Panacor failed to meet its capital requirements, leading Colgate Palmolive to terminate their distributorship agreement. Panacor and Arizona sued Premiere Bank for specific performance and damages.

ISSUE

Whether Premiere Development Bank was legally obligated to release the mortgage documents and cancel the mortgage after receiving full payment, and consequently liable for damages for its refusal.

RULING

Yes. The Supreme Court affirmed the liability of Premiere Bank but modified the damages awarded. The officer’s signature of conformity on the Iba Finance letter created a perfected contract of novation, whereby the old obligation (Arizona’s loan secured by mortgage) was substituted by a new one (the terms in the letter). The bank became bound by the condition that the release of the mortgage documents would follow the annotation of Iba Finance’s mortgage lien, not full payment. By accepting full payment but refusing to comply with the ancillary obligation to release the documents, the bank acted in bad faith.
This bad faith refusal directly caused injury to Panacor, which lost its business opportunity. However, the claimed actual damages of P4.52 million were not proven with reasonable certainty. In lieu of actual damages, temperate damages are appropriate when some pecuniary loss has occurred but its exact amount cannot be proven, as in injury to commercial credit. The Court awarded P200,000.00 as temperate damages. The awards for exemplary damages and attorney’s fees were sustained due to the bank’s wanton and fraudulent conduct.