GR L 46539; (June, 1986) (Digest)
G.R. No. L-46539 June 25, 1986
METROPOLITAN BANK AND TRUST COMPANY, petitioner, vs. TAN CHUAN LEONG or RAMON C. L. TAN PALANCA, GILBERT K. TAN PALANCA, CHEN SIY YUAN, B & I REALTY COMPANY, INC., and THE HONORABLE COURT OF APPEALS, respondents.
FACTS
Metropolitan Bank and Trust Company (Metrobank) extended an overdraft line to Tan Chuan Leong, who subsequently incurred an unpaid balance. After obtaining a judgment for the sum of money against Leong, Metrobank discovered he had sold his only known asset, a parcel of land, to his son, Gilbert Tan Palanca. This property was also mortgaged to respondents B & I Realty Company, Inc. and Chen Siy Yuan. Metrobank filed an action to annul the sale and mortgages, alleging they were fraudulent conveyances designed to defraud creditors. The trial court dismissed Metrobank’s complaint and awarded attorney’s fees to B & I Realty and Chen Siy Yuan, finding the bank’s claim against them unfounded. The Court of Appeals modified the decision by declaring the sale between Leong and his son null and void as simulated, but affirmed the award of attorney’s fees. Subsequently, Metrobank entered into a compromise agreement with the Tan Palancas, settling the main monetary claim. The sole remaining issue for the Supreme Court’s resolution was the propriety of the attorney’s fees awarded to the other respondents.
ISSUE
Whether the Court of Appeals erred in affirming the award of attorney’s fees in favor of respondents B & I Realty Company, Inc. and Chen Siy Yuan.
RULING
The Supreme Court dismissed the petition and affirmed the award of attorney’s fees. The legal logic rests on Article 2208(4) of the Civil Code, which allows recovery of attorney’s fees in cases of clearly unfounded civil actions. The Court found that Metrobank’s action against B & I Realty and Chen Siy Yuan was indeed unfounded. The evidence established that these respondents were mortgagees in good faith. Chen Siy Yuan, in particular, was an innocent mortgagee for value who had the right to rely on the certificate of title and was not shown to have participated in any design to defraud Metrobank. The bank’s own negligence in protecting its interests, by failing to secure its credit line with a mortgage, led to its vulnerable position as an unsecured creditor. Since the mortgages were legitimate, the mortgagees were compelled to litigate to defend their valid interests against the bank’s baseless claim. The compromise with the principal debtor did not extinguish this liability for litigation costs wrongfully caused to the innocent third parties. Therefore, the award of attorney’s fees was a proper consequence of the bank’s initiation of a clearly unfounded proceeding against them.