G.R. No. L-27155 May 18, 1978
PHILIPPINE NATIONAL BANK, petitioner, vs. THE COURT OF APPEALS, RITA GUECO TAPNIO, CECILIO GUECO and THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., respondents.

FACTS

Respondent Rita Gueco Tapnio had an outstanding crop loan with petitioner Philippine National Bank (PNB), secured by a mortgage on her sugar quota. She did not need her quota for the agricultural year 1956-1957 and entered into a lease agreement with Jacobo Tuazon for its use, with the consideration to be paid directly to PNB to settle her loan. The agreement required bank approval. PNB’s branch manager initially required a higher rental, which Tuazon accepted, informing the manager he had an approved loan with the bank ready to fund the payment. Despite this, PNB’s central office in Manila inexplicably delayed and ultimately disapproved the lease.
Due to this disapproval, which occurred as the agricultural year was about to expire, Tuazon rescinded the contract. Tapnio consequently failed to pay her loan. The bank called on the surety, respondent Philippine American General Insurance Company, Inc. (Philamgen), which paid the debt. Philamgen then sued Tapnio and her co-defendant Cecilio Gueco on their indemnity agreement. Tapnio filed a third-party complaint against PNB, arguing that her failure to pay was due to the bank’s fault in unreasonably disapproving the lease which would have provided the funds.

ISSUE

Whether PNB is liable to Tapnio for damages resulting from its disapproval of the lease of her sugar quota.

RULING

Yes, the Supreme Court affirmed the Court of Appeals’ decision holding PNB liable. The legal logic is anchored on the principles of human relations under the Civil Code. While the bank had the right to approve or disapprove the lease as mortgagee, this right must be exercised in accordance with Article 19, which requires every person to “act with justice, give everyone his due, and observe honesty and good faith.” The Court found PNB failed to observe this standard.
The bank knew the lease proceeds were intended to pay Tapnio’s loan, that Tuazon had acceptable funds available, and that the agricultural year was expiring. Its central office’s unexplained delay and disapproval, without reasonable cause and despite the branch manager’s recommendation, constituted a lack of the care and vigilance the circumstances demanded. This failure directly caused the rescission of the contract and Tapnio’s inability to pay. The act was deemed contrary to morals and good faith, making PNB liable under Article 21 for willfully causing loss in a manner contrary to public policy. The Court rejected PNB’s defense of acting within its rights, clarifying that the exercise of a right must be done justly and without negligence. Consequently, PNB was ordered to pay Tapnio the amount she owed Philamgen, including interest and attorney’s fees.