821 Phil.

915

THIRD DIVISION
G.R. No. 205838, November 29, 2017

JOSEPH HARRY WALTER POOLE-BLUNDEN,

PETITIONER, V. UNION BANK OF THE PHILIPPINES,
RESPONDENT.

DE CIS ION

LEONEN, J.:

Banks are required to observe a high degree of diligence in their affairs. This
encompasses their dealings concerning properties offered as security for
loans. A bank that wrongly advertises the area of a property acquired through
foreclosure because it failed to dutifully ascertain the property's specifications
is grossly negligent as to practically be in bad faith in offering that property to
prospective buyers. Any sale made on this account is voidable for causal
fraud. In actions to void such sales, banks cannot hide under the defense that
a sale was made on an as-is-where-is basis. As-is-where-is stipulations can
only encompass physical features that are readily perceptible by an ordinary
person possessing no specialized skills.

This resolves a Petition for Review on Certiorari[1] under Rule 45 of the

1997 Rules of Civil Procedure praying that the assailed November 15, 2012
Decision[2] and February 12, 2013 Resolution[3] of the Court of Appeals in
CA-G.R. CV No. 95369 be reversed and set aside and that judgment be
rendered annulling or rescinding the Contract to Sell between petitioner
Joseph Harry Walter Poole-Blunden (Poole-Blunden) and respondent Union
Bank of the Philippines (UnionBank).

The assailed Court of Appeals Decision affirmed the April 20, 2010 Decision
of the Regional Trial Court, Branch 65, Makati City which dismissed the
Complaint for Rescission of Contract and Damages filed by Poole-Blunden
against respondent UnionBank. [4] The assailed Court of Appeals Resolution
denied Poole-Blunden's Motion for Reconsideration. [5]

Sometime in March 2001, Poole-Blunden came across an advertisement

placed by Union Bank in the Manila Bulletin. The ad was for the public
auction of certain properties. One of these properties was a condominium
unit, identified as Unit 2-C of T-Tower Condominium (the "Unit"), located at
5040 P. Burgos corner Calderon Streets, Makati City. [6] UnionBank had
acquired the property through foreclosure proceedings "after the developer
defaulted in the payment of its loan from [UnionBank]."[7]

The Unit was advertised to have an area of 95 square meters. Thinking that it
was sufficient and spacious enough for his residential needs, Poole-Blunden
decided to register for the sale and bid on the unit. [8]

About a week prior to the auction, Poole-Blunden visited the unit for
inspection. He was accompanied by a representative of UnionBank. The unit
had an irregular shape; it was neither a square nor a rectangle and included a
circular terrace. Poole-Blunden did not doubt the unit's area as advertised.
However, he found that the ceiling was in bad condition, that the parquet
floor was damaged, and that the unit was in need of other substantial repairs
to be habitable. [9]

On the day of the auction, Poole-Blunden inspected the Master Title of the
project owner to the condominium in the name of Integrated Network (TCT
No. 171433) and the Condominium Certificate of Title of UnionBank (CCT
No. 36151) to verify once again the details as advertised and the ownership
of the unit. Both documents were on display at the auction venue. [10]

Poole-Blunden placed his bid and won the unit for P2,650,000.00. [11] On
May 7, 2001, Poole-Blunden entered into a Contract to Sell with UnionBank.
This Contract stipulated that Poole-Blunden would pay 10% of the purchase
price as down payment [12] and that the balance shall be paid over a period of
15 years in equal monthly instalments, with interest of 15% per annum
starting July 7, 2001. [13]

Poole-Blunden started occupying the unit in June 2001. By July 20, 2003, he
was able to fully pay for the Unit, paying a total amount of P3,257,142.49.
[14]
In late 2003, Poole-Blunden decided to construct two (2) additional
bedrooms in the Unit. Upon examining it, he noticed apparent problems in its
dimensions. He took rough measurements of the Unit, which indicated that its
floor area was just about 70 square meters, not 95 square meters, as
advertised by UnionBank. [15]

Poole-Blunden got in touch with an officer of UnionBank to raise the matter,

but no action was taken. [16] On July 12, 2004, Poole-Blunden wrote to
UnionBank, informing it of the discrepancy. He asked for a rescission of the
Contract to Sell, along with a refund of the amounts he had paid, in the event
that it was conclusively established that the area of the unit was less than 95
square meters. [17]

In a letter dated December 6, 2004, [18] UnionBank informed Poole-Blunden

that after inquiring with the Housing and Land Use Regulatory Board
(HLURB), the Homeowners' Association of T-Tower Condominium, and its
appraisers, the Unit was confirmed to be 95 square meters, inclusive of the
terrace and the common areas surrounding it. [19]

Poole-Blunden was not satisfied with UnionBank's response as the

condominium's Master Title expressly stated that the "boundary of each unit
are the interior surfaces of the perimeter walls, floors, ceilings, windows and
doors thereof."[20] Thus, he hired an independent geodetic engineer, Engr.
Gayril P. Tagal (Engr. Tagal) of the Filipinas Dravo Corporation, to survey
the Unit and measure its actual floor area. Engr. Tagal issued a certification
stating that the total floor area of the Unit was only 74.4 square meters.
[21] Poole-Blunden gave UnionBank a copy of Engr. Tagal's certification on

July 12, 2005. [22]

In a letter dated February 1, 2006, UnionBank explained:

[T]he total area of the subject unit based on the ratio allocation
maintenance cost submitted by the developer to HLURB is 98
square meters (60 square meters as unit area and 38 square meters
as share on open space). On the other hand, the actual area
thereof based on the measurements made by its surveyor is 74.18
square meters which was much higher than the unit area of 60
square meters that was approved by HLURB. [23]
Poole-Blunden's dissatisfaction with UnionBank's answer prompted him to
file his Complaint for Rescission of Contract and Damages with the Regional
Trial Court, Makati City. [24]

On April 20, 2010, the Regional Trial Court dismissed Poole-Blunden's

complaint for lack of merit. The dispositive portion of its Decision read:

WHEREFORE, premises considered, the instant complaint for

rescission of contract and damages is hereby DISMISSED for lack
of merit. The counterclaim is likewise DENIED.

SO ORDERED. [25]

On appeal, the Court of Appeals affirmed the ruling of the Regional Trial
Court. [26] It noted that the sale was made on an "as-is-where-is" basis as
indicated in Section 12 of the Contract to Sell. [27] Thus, Poole-Blunden
supposedly waived any errors in the bounds or description of the unit.
[28] The Court of Appeals added that Poole-Blunden failed to show, by clear
and convincing evidence that causal fraud can be attributed to UnionBank.
[29] It added that the sale was made for a lump-sum amount and that, in

accordance with Article 1542, paragraph 1 of the Civil Code, [30] Poole-
Blunden could not demand a reduction in the purchase price. [31]

Following the denial of his Motion for Reconsideration, Poole-Blunden filed

the present Petition before this Court. [32]

Poole-Blunden charges UnionBank with fraud in failing to disclose to him

that the advertised 95 square meters was inclusive of common areas. [33] With
the vitiation of his consent as to the object of the sale, he asserts that the
Contract to Sell may be voided. He insists that UnionBank is liable for breach
of warranty despite the "as-is-where-is" clause in the Contract to Sell.
[34] Finally, he assails the Court of Appeals' application of Article 1542 of the

Civil Code. [35]

For resolution is the sole issue of whether or not respondent Union Bank of
the Philippines committed such a degree of fraud as would entitle petitioner
Joseph Harry Walter Poole-Blunden to the voiding of the Contract to Sell the
condominium unit identified as Unit 2C, T-Tower Condominium, 5040 P.
Burgos corner Calderon Streets, Makati City.
 I

No longer in dispute at this juncture is how the Unit's interior area is only
74.4 square meters. While respondent has maintained that the Unit's total
area is in keeping with the advertised 95 square meters, it has conceded that
these 95 square meters is inclusive of outside spaces and common areas.

Even before litigation commenced, in a December 6, 2004 letter,

[36] respondent informed petitioner that, following inquiries with the HLURB,
the Homeowners' Association of T-Tower Condominium, and its appraisers,
it had confirmed that the Unit's 95 square meters was inclusive of "the
terrace and the common areas surrounding it."[37]

During trial, respondent's former Assistant Vice President of the Asset and
Recovery Group, Atty. Elna N. Cruz (Atty. Cruz), testified on how there
would have been documents (such as an appraisal report) relating to
inspections made by respondent's personnel at the time the unit was being
offered as a collateral to a loan. These would have concerned the unit's area.
[38] She affirmed respondent's statements in its December 6, 2004 letter and
indicated that, based on an appraisal report, the declared 95 square meters
was not exclusive to the Unit's interiors but included common areas:

Q: So my impression, Madam Witness, is that before you accepted the

property as a collateral, Union Bank already knew what was the actual area
of the unit?
A: Yes, sir.

Q: But you do not know what was the actual area as found by your inspector?
A: It would be 95 square meters as per the record, sir.

Q: That was the actual findings of your inspector, Madam Witness?

A: Yes, sir.

Q: What's your basis for saying that?

A: The appraisal report, sir.

Q: Do you have now with you that appraisal report showing that the actual
area of the unit is indeed 95 square meters?
A: We gathered the appraisal report and in the December 06, 2004 letter
that we gave Mr. Blunden, we consulted the appraiser of the Bank and
 we were informed that the area was indeed 95 square meters. But that
area was brought about by measuring not just the inside of the unit,
sir, but including also the terrace, and the common area.[39] (Emphasis
supplied)

Respondent has not disavowed Atty. Cruz's testimony. In its Comment, it

merely asserted that the "[e]xtensive reference to the [transcript of
stenographic notes] is unmistakable proof that the litigated issue is one of
fact, not of law" and insisted that this Court should not take cognizance of the
present Petition. [40]

Respondent's insistence on how common spaces should be included in

reckoning the Unit's total area runs afoul of how Republic Act No. 4726,
otherwise known as the Condominium Act, reckons what forms part of a
condominium unit.

Section 3(b) of the Condominium Act defines a condominium unit, as

follows:

Section 3. As used in this Act, unless the context otherwise

requires:
....

(b) "Unit" means a part of the condominium project intended for any type of
independent use or ownership, including one or more rooms or spaces
located in one or more floors (or part or parts of floors) in a building or
buildings and such accessories as may be appended thereto.

Section 6(a) of the Condominium Act specifies the reckoning of a

condominium unit's bounds. It also specifies that areas of common use "are
not part of the unit":

Section 6. Unless otherwise expressly provided in the enabling or

master deed or the declaration of restrictions, the incidents of a
condominium grant are as follows:

(a) The boundary of the unit granted are the interior surfaces of the perimeter
walls, floors, ceilings, windows and doors thereof. The following are not
part of the unit bearing walls, columns, floors, roofs, foundations and
other common structural elements of the building; lobbies, stairways,
hallways, and other areas of common use, elevator equipment and shafts,
central heating, central refrigeration and central air-conditioning equipment,
 reservoirs, tanks, pumps and other central services and facilities, pipes,
ducts, flues, chutes, conduits, wires and other utility installations, wherever
located, except the outlets thereof when located within the unit. (Emphasis
supplied.)

Thus, the unit sold to petitioner was deficient in relation to its advertised area.
This advertisement having been made by respondent, it is equally settled
there was a falsity in the declarations made by respondent prior to, and with
the intention of enticing buyers to the sale. What remains in issue is whether
or not this falsity amounts to fraud warranting the voiding of the Contract to
Sell.

II

For there to be a valid contract, all the three (3) elements of consent, subject
matter, and price must be present. [41] Consent wrongfully obtained is
defective. The party to a contract whose consent was vitiated is entitled to
have the contract rescinded. Accordingly, Article 1390 of the Civil
Code[42] stipulates that a contract is voidable or annullable even if there is no
damage to the contracting parties where "consent is vitiated by mistake,
violence, intimidation, undue influence or fraud."

Under Article 1338 of the Civil Code "[t]here is fraud when, through insidious
words or machinations of one of the contracting parties, the other is induced
to enter into a contract which, without them, he would not have agreed to."
However, not all instances of fraud enable the voiding of contracts. Article
1344 clarifies that in order to make a contract voidable, the fraud "should be
serious and should not have been employed by both contracting parties."[43]

Thus, Tankeh v. Development Bank of the Philippines[44] explained, "There

are two types of fraud contemplated in the performance of contracts: dolo
incidente or incidental fraud and dolo causante or fraud serious enough to
render a contract voidable."[45] The fraud required to annul or avoid a
contract "must be so material that had it not been present, the defrauded
party would not have entered into the contract."[46] The fraud must be "the
determining cause of the contract, or must have caused the consent to be
given."[47]

Petitioner's contention on how crucial the dimensions and area of the Unit are
to his decision to proceed with the purchase is well-taken. The significance of
space and dimensions to any buyer of real property is plain to see. This is
particularly significant to buyers of condominium units in urban areas, and
even more so in central business districts, where the scarcity of space drives
vertical construction and propels property values. It would be immensely
guileless of this Court to fail to appreciate how the advertised area of the Unit
was material or even indispensable to petitioner's consent. As petitioner
emphasized, he opted to register for and participate in the auction for the Unit
only after determining that its advertised area was spacious enough for his
residential needs. [48]

III

The significance of the Unit's area as a determining cause of the Contract to

Sell is readily discernible. Falsity on its area is attributable to none but to
respondent, which, however, pleads that it should not be considered as having
acted fraudulently given that petitioner conceded to a sale on an as-is-where-
is basis, thereby waiving "warranties regarding possible errors in boundaries
or description of property."[49]

Section 12 of the Contract to Sell spells out the "as-is-where-is" terms of the
purchase:

Section 12. The BUYER recognizes that he is buying the property

on an "as-is-where-is" basis including errors in boundaries or
description of property, if any etc. and among others, he shall be
responsible for the eviction of the occupants on the property, if
any, or for the repair of the property, if needed. It shall be
understood that the SELLER makes no warranty whatsoever on
the authenticity, accuracy, or title over property. [50] (Emphasis
supplied.)

Reliance on Section 12's as-is-where-is stipulation is misplaced for two (2)

reasons. First, a stipulation absolving a seller of liability for hidden defects can
only be invoked by a seller who has no knowledge of hidden defects.
Respondent here knew that the Unit's area, as reckoned in accordance with
the Condominium Act, was not 95 square meters. Second, an as-is-where-is
stipulation can only pertain to the readily perceptible physical state of the
object of a sale. It cannot encompass matters that require specialized scrutiny,
as well as features and traits that are immediately appreciable only by
someone with technical competence.
A seller is generally responsible for warranty against hidden defects of the
thing sold. As stated in Article 1561 of the New Civil Code:

Article 1561. The vendor shall be responsible for warranty against

the hidden defects which the thing sold may have, should they
render it unfit for the use for which it is intended, or should they
diminish its fitness for such use to such an extent that, had the
vendee been aware thereof, he would not have acquired it or
would have given a lower price for it; but said vendor shall not be
answerable for patent defects or those which may be visible, or
for those which are not visible if the vendee is an expert who, by
reason of his trade or profession, should have known.

Article 1566, paragraph 2 states the seller's liability for hidden defects shall be
inapplicable if there is a stipulation made to the contrary. However, a mere
stipulation does not suffice. To be fully absolved of liability, Article 1566,
paragraph 2 also requires a seller to be unaware of the hidden defects in the
thing sold.

Article 1566. The vendor is responsible to the vendee for any

hidden faults or defects in the thing sold, even though he was not
aware thereof.

This provision shall not apply if the contrary has been stipulated,
and the vendor was not aware of the hidden faults or defects in
the thing sold. (Emphasis supplied.)

It is clear from the records that respondent fully knew that the Unit's area,
reckoned strictly in accordance with the Condominium Act, did not total 95
square meters. Respondent admits that the only way the Unit's area could
have amounted to 95 square meters was if some areas for common use were
added to its interior space. It acknowledged knowing this fact through the
efforts of its appraisers and even conceded that their findings were
documented in their reports.

In Hian v. Court of Tax Appeals, [51] this Court construed an as-is-where-is

stipulation as pertaining to the "physical condition" of the thing sold and "not
to [its] legal situation."[52] As further explained in National Development
Company v. Madrigal Wan Hai Lines Corporation:[53]
 In Hian vs. Court of Tax Appeals, we had the occasion to
construe the phrase "as is, where is" basis, thus:

"We cannot accept the contention in the Government's

Memorandum of March 31, 1976 that Condition No. 5
in the Notice of Sale to the effect that 'The above-
mentioned articles (the tobacco) are offered for sale
'AS IS' and the Bureau of Customs gives no warranty
as to their condition' relieves the Bureau of Customs of
liability for the storage fees in dispute. As we
understand said Condition No. 5, it refers to the
physical condition of the tobacco and not to the legal
situation in which it was at the time of the sale, as
could be implied from the right of inspection to
prospective bidders under Condition No. 1 [.]"
(Emphasis ours)

The phrase "as is, where is" basis pertains solely to the physical
condition of the thing sold, not to its legal situation. In the case at
bar, the US tax liabilities constitute a potential lien which applies to
NSCP's legal situation, not to its physical aspect. Thus,
respondent as a buyer, has no obligation to shoulder the same. [54]

A condominium unit's area is a physical attribute. In Hian's contemplation, it

appeared that the total area of a condominium unit is a valid object of an as-
is-where-is clause. However, while as-is-where-is clauses exclusively apply to
the physical attributes of a thing sold, they apply only to physical features that
are readily observable. The significance of this Court's pronouncements
in Hian and National Development Company are in clarifying that legal
status, which is a technical matter perceptible only by lawyers and regulators,
cannot be encompassed by an as-is-where-is stipulation. Hian and National
Development Company are not a sweeping approbation of such stipulations'
coverage of every corporeal attribute or tangible trait of objects being sold.
Thus, in Asset Privatization v. T.J. Enterprises, [55] the as-is-where-is
stipulation was understood as one which "merely describes the actual state
and location of the machinery and equipment sold,"[56] and nothing else.
Features that may be physical but which can only be revealed after
examination by persons with technical competence cannot be covered by as-
is-where-is stipulations. A buyer cannot be considered to have agreed "to take
possession of the things sold 'in the condition where they are found and from
the place where they are located'"[57] if the critical defect is one which he or
she cannot even readily sense.

In inspecting the Unit prior to the auction sale, petitioner took note of its
actual state: "he noticed that the ceilings were down, [that] there was water
damage from the leaks coming from the unit above, and [that] the parquet
floor was damaged."[58] He also took note of its irregular shape and the
circular terrace outside it. These observations represent the full extent of what
was readily perceptible to petitioner. The precise measurement of the Unit's
area, in contrast, could only be determined by someone with specialized or
technical capabilities. While ordinary persons, such as petitioner, may hold
such opinions that the Unit looks small, their perception could not be
ascertained until after an examination by someone equipped with peculiar
skills and training to measure real property. Indeed, petitioner's suspicions
were not roused until years after he had occupied the Unit and confirmed
until after a certification was issued by a surveyor.

Any waiver of warranties under Section 12 of the Contract to Sell could have
only been concerned with the readily apparent subpar condition of the Unit. A
person not equipped with technical knowledge and expertise to survey real
property could not reasonably be expected to recognize deficiencies in
measurement at the first instance especially if that property was of "irregular
shape," "neither square nor rectangle," and having a "circular terrace."[59]

IV

Contrary to the Court of Appeals' assertion, Article 1542 of the Civil Code
does not bar the voiding of the Contract to Sell.

Article 1542 of the Civil Code states:

Article 1542. In the sale of real estate, made for a lump sum and
not at the rate of a certain sum for a unit of measure or number,
there shall be no increase or decrease of the price, although there
be a greater or less area or number than that stated in the
contract.

The same rule shall be applied when two or more immovables are
sold for a single price; but if, besides mentioning the boundaries,
which is indispensable in every conveyance of real estate, its area
or number should be designated in the contract, the vendor shall
 be bound to deliver all that is included within said boundaries,
even when it exceeds the area or number specified in the contract;
and, should he not be able to do so, he shall suffer a reduction in
the price, in proportion to what is lacking in the area or number,
unless the contract is rescinded because the vendee does not
accede to the failure to deliver what has been stipulated.
(Emphasis supplied.)

Article 1542 has nothing to do with annulling fraudulently made sales. What it
is concerned with is the proportionate reduction of the purchase price in
relation to the measurable units of the thing sold. Petitioner does not seek a
reduction of the purchase price. He seeks judicial relief to have the entirety of
his purchase annulled, his consent having been fraudulently obtained. By
filing an action under Article 1390 of the Civil Code, petitioner declared that
his consent to the entire subject matter of the contract was vitiated. What
suffices as relief is the complete annulment of the sale, not the partial
reimbursement upon which Article 1542 is premised.

Likewise, Article 1542 does not contemplate the seller's delivery to the buyer
of things other than the agreed object of the sale. While it is true that
petitioner did not buy the unit on a per-square-meter basis, it remains that
what he bought was a condominium unit. A condominium unit's bounds are
reckoned by "the interior surfaces of [its] perimeter walls, floors, ceilings,
windows and doors."[60] It excludes common areas. Thus, when petitioner
agreed to purchase the Unit at a lump-sum price, he never consented to
including common areas as part of his purchase. Article 1542's concern with a
ratable reduction of the price delivered by the buyer assumes that the seller
correctly delivered, albeit deficiently, the object of the sale.

In any case, for Article 1542 to operate, "the discrepancy must not be
substantial."[61] Article 1542 remains anchored on a sense of what is
reasonable. An estimate given as a premise for a sale should be "more or less"
the actual area of the thing sold. [62] Here, the area advertised and stipulated
in the Contract to Sell was 95 square meters but the actual area of the unit
was only 74.4 square meters. [63] By no stretch of the imagination can a
21.68% deficiency be discounted as a mere minor discrepancy.

By definition, fraud presupposes bad faith or malicious intent. It transpires

when insidious words or machinations are deliberately employed to induce
agreement to a contract. Thus, one could conceivably claim that respondent
could not be guilty of fraud as it does not appear to have crafted a deceptive
strategy directed specifically at petitioner. However, while petitioner was not a
specific target, respondent was so callously remiss of its duties as a bank. It
was so grossly negligent that its recklessness amounts to a wrongful
willingness to engender a situation where any buyer in petitioner's shoes
would have been insidiously induced into buying a unit with an actual area so
grossly short of its advertised space.

In Spouses Carbonell v. Metropolitan Bank and Trust Company, [64] this

Court considered gross negligence, in relation to the fiduciary nature of banks:

Gross negligence connotes want of care in the performance of

one's duties; it is a negligence characterized by the want of even
slight care, acting or omitting to act in a situation where there is
duty to act, not inadvertently but wilfully and intentionally, with a
conscious indifference to consequences insofar as other persons
may be affected. It evinces a thoughtless disregard of
consequences without exerting any effort to avoid them.

In order for gross negligence to exist as to warrant holding the

respondent liable therefor, the petitioners must establish that the
latter did not exert any effort at all to avoid unpleasant
consequences, or that it wilfully and intentionally disregarded the
proper protocols or procedure . . . and in selecting and supervising
its employees. [65] (Emphasis supplied)

Banks assume a degree of prudence and diligence higher than that of a good
father of a family, because their business is imbued with public
interest[66] and is inherently fiduciary. [67] Thus, banks have the obligation to
treat the accounts of its clients "meticulously and with the highest degree of
care."[68] With respect to its fiduciary duties, this Court explained:

The law imposes on banks high standards in view of the fiduciary

nature of banking. Section 2 of Republic Act No. 8791 ("RA
8791"), which took effect on 13 June 2000, declares that the State
recognizes the "fiduciary nature of banking that requires high
standards of integrity and performance." This new provision in the
general banking law, introduced in 2000, is a statutory affirmation
of Supreme Court decisions, starting with the 1990 case of Simex
International v. Court of Appeals, holding that "the bank is under
 obligation to treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their
relationship.

This fiduciary relationship means that the bank's obligation to

observe "high standards of integrity and performance" is deemed
written into every deposit agreement between a bank and its
depositor. The fiduciary nature of banking requires banks to
assume a degree of diligence higher than that of a good father of a
family. Article 1172 of the Civil Code states that the degree of
diligence required of an obligor is that prescribed by law or
contract, and absent such stipulation then the diligence of a good
father of a family. Section 2 of RA 8791 prescribes the statutory
diligence required from banks — that banks must observe "high
standards of integrity and performance" in servicing their
depositors. [69] (Citations omitted)

The high degree of diligence required of banks equally holds true in their
dealing with mortgaged real properties, and subsequently acquired through
foreclosure, such as the Unit purchased by petitioner. In the same way that
banks are "presumed to be familiar with the rules on land registration," given
that they are in the business of extending loans secured by real estate
mortgage, [70] banks are also expected to exercise the highest degree of
diligence. This is especially true when investigating real properties offered as
security, since they are aware that such property may be passed on to an
innocent purchaser in the event of foreclosure. Indeed, "the ascertainment of
the status or condition of a property offered to it as security for a loan must
be a standard and indispensable part of a bank's operations":[71]

When the purchaser or the mortgagee is a bank, the rule on

innocent purchasers or mortgagees for value is applied more
strictly. Being in the business of extending loans secured by real
estate mortgage, banks are presumed to be familiar with the rules
on land registration. Since the banking business is impressed with
public interest, they are expected to be more cautious, to exercise
a higher degree of diligence, care and prudence, than private
individuals in their dealings, even those involving registered lands.
Banks may not simply rely on the face of the certificate of title.
Hence, they cannot assume that, simply because the title offered
as security is on its face free of any encumbrances or lien, they
are relieved of the responsibility of taking further steps to verify
 the title and inspect the properties to be mortgaged. As expected,
the ascertainment of the status or condition of a property offered
to it as security for a loan must be a standard and indispensable
part of a bank's operations. It is of judicial notice that the standard
practice for banks before approving a loan is to send its
representatives to the property offered as collateral to assess its
actual condition, verify the genuineness of the title, and investigate
who is/are its real owner/s and actual possessors. [72] (Citations
omitted)

Credit investigations are standard practice for banks before approving loans
and admitting properties offered as security. It entails the assessment of such
properties: an appraisal of their value, an examination of their condition, a
verification of the authenticity of their title, and an investigation into their real
owners and actual possessors. [73] Whether it was unaware of the unit's actual
interior area; or, knew of it, but wrongly thought that its area should include
common spaces, respondent's predicament demonstrates how it failed to
exercise utmost diligence in investigating the Unit offered as security before
accepting it. This negligence is so inexcusable; it is tantamount to bad faith.

Even the least effort on respondent's part could have very easily confirmed
the Unit's true area. Similarly, the most cursory review of the Condominium
Act would have revealed the proper reckoning of a condominium unit's area.
Respondent could have exerted these most elementary efforts to protect not
only clients and innocent purchasers but, most basically, itself. Respondent's
failure to do so indicates how it created a situation that could have led to no
other outcome than petitioner being defrauded.

VI

The Regional Trial Court and the Court of Appeals gravely erred in finding
that causal fraud is not attendant in this case. Quite the contrary, it is evident
that respondent orchestrated a situation rife for defrauding buyers of the
advertised unit. Therefore, the assailed Decision and Resolution must be
reversed, the Contract to Sell between petitioner and respondent be annulled,
and petitioner be refunded all the amounts he paid to respondent in respect of
the purchase of the Unit.

Under Article 2232, in relation to Article 2229 of the Civil Code, "[i]n
contracts and quasi-contracts, the court may award exemplary damages if the
defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner," "by way of example or correction for the public good." By awarding
exemplary damages to petitioner, this case shall serve as an example and
warning to banks to observe the requisite care and diligence in all of their
affairs.

Consistent with Article 2208 of the Civil Code, [74] respondent is equally liable
to petitioner for attorney's fees and the costs of litigation.

WHEREFORE, the Petition is GRANTED. The assailed November 15,

2012 Decision and February 12, 2013 Resolution of the Court of Appeals in
CA-G.R. CV No. 95369 are REVERSED and SET ASIDE.

The Contract to Sell entered into by petitioner Joseph Harry Walter Poole-
Blunden and respondent Union Bank of the Philippines is declared null and
void. Respondent is ordered to pay petitioner the amount of P3,257,142.49
to refund the amounts petitioner has paid to purchase Unit 2C of T-Tower
Condominium located at 5040 P. Burgos corner Calderon Streets, Makati
City. This refund shall earn legal interest at twelve percent (12%) per annum
from the date of the filing of petitioner's Complaint for Rescission of Contract
and Damages up to June 30, 2013; and six percent (6%) per annum,
reckoned from July 1, 2013 until fully paid.

Respondent is ordered to pay petitioner P100,000.00 as exemplary damages,

P100,000.00 as attorney's fees, and the costs of litigation.

SO ORDERED.

Velasco, Jr., (Chairperson), Bersamin, and Martires, JJ., concur.

Gesmundo, J., on leave.

March 1, 2018

NOTICE OF JUDGMENT

Sirs/Mesdames:

Please take notice that on November 29, 2017 a Decision, copy attached
hereto, was rendered by the Supreme Court in the above-entitled case, the
original of which was received by this Office on March 1, 2018 at 9:18 a.m.

Very truly yours,

(SGD.) WILFREDO V.
LAPITAN
Division Clerk of Court

[1] Rollo, pp. 11-43.

[2] Id. at 45-53. The Decision was penned by Associate Justice Socorro B.
Inting and concurred in by Associate Justices Jose C. Reyes, Jr., and Mario V.
Lopez of the Ninth Division, Court of Appeals, Manila.

[3] Id. at 55-56. The Resolution was penned by Associate Justice Socorro B.
Inting and concurred in by Associate Justices Jose C. Reyes, Jr., and Mario V.
Lopez of the Ninth Division, Court of Appeals, Manila.
[4] Id. at 45 and 52.

[5] Id. at 56.

[6] Id. at 12.

[7] Id. at 66, Comment.

[8] Id. at 12-13.

[9] Id. at 13.

[10] Id.

[11] Id. at 14.

[12] Id. at 46, citing the Regional Trial Court Decision.
[13] Id. at 14.

[14] Id. at 46.

[15] Id. at 14-15.
[16] Id. at 15.

[17] Id.
[18] Id. at 47, citing the Regional Trial Court Decision.

[19] Id. at 15.

[20] Id.

[21] Id.
[22] Id. at 16.

[23] Id. at 47.

[24] Id. at 17.

[25] Id. at 48.

[26] Id. at 52.
[27] Id. at 32. Section 12 of the Contract to Sell provides:

Section 12. The BUYER recognizes that he is buying the property

on an "as-is-where-is" basis including errors in boundaries or
description of property, if any etc. and among others, he shall be
responsible for the eviction of the occupants on the property, if
any, or for the repair of the property, if needed. It shall be
understood that the SELLER makes no warranty whatsoever on
the authenticity, accuracy, or title over property.
[28] Rollo, pp. 49-50.

[29] Id. at 51.

[30] CIVIL CODE, art. 1542 provides:
 Article 1542. In the sale of real estate, made for a lump sum and
not at the rate of a certain sum for a unit of measure or number,
there shall be no increase or decrease of the price, although there
be a greater or less area or number than that stated in the contract.

[31] Rollo, p. 52.

[32] Id. at 11-43.

[33] Id. at 20 and 27.

[34] Id. at 30.
[35] Id. at 35-36.

[36] Id. at 47, citing the Regional Trial Court Decision.

[37] Id. at 15.

[38] Id. at 22-23.

[39] Id. at 24.

[40] Id. at 60.

[41]See Coronel v. Court of Appeals, 331 Phil. 294 (1996) [Per J. Melo,
Third Division]; Dizon v. Court of Appeals, 361 Phil. 963 (1999) [Per J.
Martinez, First Division]; Londres v. Court of Appeals, 442 Phil. 340 (2002)
[Per J. Carpio, First Division].

[42] CIVIL CODE, art. 1390 provides:

Article 1390. The following contracts are voidable or annullable,

even though there may have been no damage to the contracting
parties:

(1) Those where one of the parties is incapable of giving consent

to a contract;
(2) Those where the consent is vitiated by mistake, violence,
intimidation, undue influence or fraud. These contracts are
 binding, unless they are annulled by a proper action in court. They
are susceptible of ratification.

[43] CIVIL CODE, art. 1344.

[44] 720 Phil. 641 (2013) [Per J. Leonen, Third Division].

[45] Id. at 670.

[46] Id. at 671.
[47]Fontana Resort and Country Club, Inc. v. Spouses Tan, 680 Phil. 395,
412 (2012) [Per J. Leonardo-de Castro, First Division] citing Rural Bank of
Sta. Maria Pangasinan v. Court of Appeals, 373 Phil. 27 (1999) [Per J.
Gonzaga-Reyes, Third Division].

[48] Rollo, pp. 12-13.

[49] Id. at 66.

[50] Id. at 32.

[51] 196 Phil. 217 (1981) [Per J. Barredo, Second Division].

[52] Id. at 231.

[53] 458 Phil. 1038 (2003) [Per J. Sandoval-Gutierrez, Third Division].

[54] Id. at 1054.

[55] 605 Phil. 563 (2009) [Per J. Tinga, Second Division].
[56] Id. at 570.

[57]Casimiro Development Corporation v. Renato Mateo, 670 Phil. 311, 329

(2011) [Per J. Bersamin, First Division].
[58] Rollo, p. 13.

[59] Id.
[60] Rep. Act No. 4726, sec. 6(a).
[61]Rudolf Lietz, Inc. v. Court of Appeals, 514 Phil. 634, 642 (2005) [Per J.
Tinga, Second Division].

[62] Id.
[63] Rollo, p. 47, citing the findings of the Trial Court.

[64] G.R. No. 178467, April 26, 2017 <

http://sc.judiciary.gov.ph/pdf/web/viewer.html?
file=/jurisprudence/2017/april2017/178467.pdf > 4-5 [Per J. Bersamin, Third
Division].
[65]Id. at 4-5 citing Comsaving Banks (now GSIS Family Bank) v.
Capistrano, 716 Phil. 547 (2013) [Per J. Bersamin, Third Division].

[66]Land Bank of the Philippines v. Belle Corporation, 768 Phil. 368, 385-
386 (2015) [Per J. Peralta, Second Division], citing Heirs of Gregorio Lopez
v. Development Bank of the Philippines, 747 Phil. 427 (2014) [Per J.
Leonen, Second Division]; Arguelles v. Malarayat Rural Bank, Inc., 730
Phil. 226 (2014) [Per J. Villarama, Jr., First Division]; and PNB v. Corpuz,
626 Phil. 410, 413 (2010) [Per J. Abad, Second Division]; Bank of
Commerce v. San Pablo, 550 Phil. 805 (2007) [Per J. Chico-Nazario, Third
Division]; Philippine Commercial International Bank v. Court of Appeals,
403 Phil. 361 (2001) [Per J. Quisumbing, Second Division]; Philippine
Banking Corporation v. Court of Appeals, 464 Phil. 614 (2004) [Per J.
Carpio, First Division]; Citibank, N.A. v. Dinopol, 650 Phil. 188 (2010) [Per
J. Mendoza, Second Division]; Gonzales v. Philippine Commercial and
International Bank, 659 Phil. 244 (2011) [Per J. Velasco, Jr., First
Division]; Comsavings Bank v. Spouses Capistrano, 716 Phil. 547 (2013)
[Per J. Bersamin, First Division].
[67]Consolidated Bank and Trust Corp. v. Court of Appeals, 457 Phil. 688,
705 (2003) [Per J. Carpio, First Division].

[68]Westmont Bank v. Ong, 425 Phil. 834, 845 (2002) [Per J. Quisumbing,
Second Division].
[69]Consolidated Bank and Trust Corp. v. Court of Appeals, 457 Phil. 688,
705-706 (2003) [Per J. Carpio, First Division].
[70]Land Bank of the Philippines v. Belle Corporation, 768 Phil. 368, 385
(2015) [Per J. Peralta, Second Division].

[71]Id. at 386 citing Philippine Amanah Bank v. Contreras, 744 Phil. 256
(2014) [Per J. Brion, Second Division].
[72] Id. at 385-386.

[73] Id. at 386 citing Alano v. Planter's Development Bank, 661 Phil. 81, 89-
90 (2011) [Per J. Del Castillo, First Division]; Philippine National Bank v.
Corpuz, 626 Phil. 410, 413 (2010) [Per J. Abad, Second Division]; Erasusta,
Jr. v. Court of Appeals, 527 Phil. 639, 651 (2006) [Per J. Garcia, Second
Division]; and PNB v. Heirs of Militar, 504 Phil. 634, 644 (2005) [Per J.
Ynares-Santiago, First Division].
[74] CIVIL CODE, art. 2208 provides:

Article 2208. In the absence of stipulation, attorney's fees and

expenses of litigation, other than judicial costs, cannot be
recovered, except:

(1) When exemplary damages are awarded;

(2) When the defendant's act or omission has compelled the plaintiff to litigate
with third persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the
plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to
satisfy the plaintiff's plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and
skilled workers;
(8) In actions for indemnity under workmen's compensation and employer's
liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that
attorney's fees and expenses of litigation should be recovered.