PACIFIC BANKING CORPORATION AND CHESTER G. BABST, PETITIONERS, VS. THE COURT OF APPEALS, JOSEPH C. HART AND ELEANOR HART, RESPONDENTS.

This is a petition for review of the decision of the Court of
Appeals in CA – G.R. Nos. 52573 and 52574 directing petitioners to pay to
respondent Hart ONE HUNDRED THOUSAND (P100,000.00)
PESOS with legal interest from February 19, 1958 until fully paid, plus FIFTEEN
THOUSAND (P15,000.00) PESOS attorneys fees, but subject to the right of
reimbursement of petitioner Pacific Banking Corporation (PBC) from petitioner Babst, whatever amounts PBC should pay on account of the
judgment.

Briefly, the facts of the case are as follows:

On April 15, 1955,
herein private respondents Joseph and Eleanor Hart discovered an area
consisting of 480 hectares of tidewater land in Tambac,
Gulf of Lingayen which had great
potential for the cultivation of fish and saltmaking.  They organized Insular Farms Inc., applied
for and, after eleven months, obtained a lease from the Department of
Agriculture for a period of 25 years, renewable for another 25 years.

Subsequently Joseph Hart approached businessman John Clarkin, then President of Pepsi-Cola Bottling Co. in Manila,
for financial assistance.

On July 15, 1956, Joseph Hart and Clarkin
signed a Memorandum of Agreement pursuant to which:  a) of 1,000 shares outstanding, Clarkin was issued 500 shares in his and his wife’s name,
one share to J. Lapid, Clarkin’s
secretary, and nine shares in the name of the Harts were indorsed in blank and
held by Clarkin so that he had 510 shares as against
the Harts’ 490; b) Hart was appointed President and General Manager as a result of which he resigned as
Acting Manager of the First National City Bank at the Port Area, giving up a
salary of P1,125.00 a month and related fringe benefits.

Due to financial difficulties, Insular Farms Inc. borrowed P250,000.00 from Pacific Banking Corporation sometime in July of
1956.

On July 31, 1956,
Insular Farms Inc. executed a Promissory Note of P250,000.00
to the bank payable in five equal annual installments, the first installment
payable on or before July 1957.  Said
note provided that upon default in the payment of any installment when due, all
other installments shall become due and payable.

This loan was effected and the money
released without any security except for the Continuing Guaranty, executed on July 18, 1956, of John Clarkin, who owned seven and a half percent of the capital
stock of the bank, and his wife Helen.

Unfortunately, the business floundered and while attempts were
made to take in other partners, these proved unsuccessful.  Nevertheless, petitioner Pacific Banking
Corporation and its then Executive Vice President, petitioner Chester Babst, did not demand payment for the initial July 1957
installment nor of the entire obligation, but instead opted for more collateral
in addition to the guaranty of Clarkin.

As the business further deteriorated and the situation became
desperate, Hart agreed to Clarkin’s proposal that all
Insular Farms shares of stocks be pledged
to petitioner bank in lieu of additional collateral and to insure an extension
of the period to pay the July 1957 installment. 
Said pledge was executed on February
19, 1958.

Less than a month later, on March 3, 1958, Pacific Farms Inc. was organized to engage
in the same business as Insular Farms Inc. 
The next day, or on March 4,
1958, Pacific Banking Corporation, through petitioner Chester Babst wrote Insular Farms Inc. giving the latter 48 hours
to pay its entire obligation.

On March 7, 1958,
Hart received notice that the pledged shares of stocks of Insular Farms Inc.
would be sold at public auction on March
10, 1958 at 8:00 A.M. to satisfy
Insular Farms’ obligation.

On March 8, 1958,
the private respondents commenced the case below by filing a complaint for reconveyance and damages with prayer for writ of
preliminary injunction before the Court of First Instance of Manila docketed as
Civil Case No. 35524.  On the same date
the court granted the prayer for a writ of preliminary injunction.

However, on March 19,
1958, the trial court, acting on the urgent petitions for
dissolution of preliminary injunction filed by petitioners PBC and Babst on March 11 and March 14, 1958, respectively, lifted the writ of preliminary injunction.

The next day, or on March 20, 1958 respondents Hart received a
notice from PBC signed by Babst that the shares of
stocks of Insular Farms will be
sold at public auction on March 21, 1958 at 8:00 A.M.

In the morning of March
21, 1958, PBC through its lawyer-notary public sold the 1,000
shares of stocks of Insular Farms to Pacific Farms for P285,126.99.  The latter then sold its shares of stocks to
its own stockholders, who constituted themselves as stockholders of Insular
Farms and then resold back to Pacific Farms Inc. all of Insular Farms assets
except for a certificate of public convenience to operate an ice plant.

On September 28, 1959
Joseph Hart filed another case for recovery of sum of money comprising his
investments and earnings against Insular Farms, Inc. before the Court of First
Instance of Manila, docketed as Civil Case No. 41557.

The two cases below having been heard jointly, the court of
origin through then Judge Serafin R. Cuevas rendered
a decision on August 3, 1972,
the pertinent portions of which are as follows:

xxx                     xxx                   xxx

“It is plaintiffs’ contention that the sale by Pacific Banking
Corporation of the shares of stock of plaintiffs to the Pacific Farms on March 21, 1958 is void on the ground
that when said shares were pledged to the bank it was done to cause an
indefinite extension of time to pay their obligation under the promissory note
marked Exh. E. 
Plaintiffs observed that under said promissory note marked Exh. E, no demand was made whatsoever by the bank for its
payment.  The bank merely asked for more
collateral in addition to Clarkin’s continuing
guarantee.  In other words, it is the
view of the plaintiffs that the pledge of said shares of stock supersedes the
terms and conditions of the promissory note marked Exh.
E and that the same was only to insure an indefinite extension on the part of
the plaintiffs to pay their obligation under said promissory note.

Plaintiffs accuse defendants of conspiracy or a unity of purpose in
divesting said plaintiffs of their shares of stock and relieving Clarkin of his guarantee and obligation to Hart as well as
to enable the bank to recover its loan with a big profit and Pacific Farms, of
which Papa was President, to take over Insular Farms.

Plaintiffs contend that the purchase by Pacific Farms of the shares
of stock of Insular Farms is void, the former having been organized like the
latter for the purpose of engaging in agriculture (Section 190-1/7 of the
Corporation Law); and that the transfer of all the substantial assets of
Insular Farms to Pacific Farms for the nominal cost of P10,000.00 is in
violation of the Bulk Sales Law, plaintiffs and other creditors of Insular
Farms not having been notified of said sale and that said sale was not registered
in accordance with said law (Bulk Sales Law) which in effect is in fraud of
creditors.

As a result of defendant’s acts, plaintiffs contend that they lost
their 490 shares, the return of their 10 shares from Clarkin
and their exclusive and irrevocable right to preference in the purchase of Clarkin’s 50% in Insular Farms not to mention the mental
anguish, pain, suffering and embarrassment on their part for which they are
entitled to at least P100,000.00 moral damages.  They also claim that they have been deprived
of their expected profits to be realized from the operations and development of
Insular Farms; the sum of P112,500.00 representing salary and pecuniary
benefits of Joseph C. Hart from the First National City Bank of New York when
he was required to resign by Clarkin, and finally,
Joseph C. Hart and his wife being the beneficial owners of 499 shares in
Insular Farms that were pledged to the Pacific Banking Corporation which was
sold for P142,176.37 to satisfy the obligation of Insular Farms, the latter
became indebted to plaintiffs for said amount with interest from March 21,
1958, the date of the auction sale.

On the other hand, defendant Pacific Banking Corporation contends
that it merely exercised its legal right under the law when it caused the foreclosure
of the pledged (sic) executed by plaintiffs, together with defendant John P. Clarkin to secure a loan of P250,000.00,
said loan having become overdue.  True
the payment of a note may be extended by an oral agreement, but that agreement
to extend the time of payment in order to be valid must be for a definite time
(Philippine Engineering Co. vs. Green, 48 Phil. 466, 468).  Such being the case, it is the opinion of the
Court that plaintiffs contention that there was an
indefinite extension of time with respect to the payment of the loan in
question appears to be untenable.  It
cannot be admitted that the terms and conditions of the pledged (sic)
superseded the terms and conditions of the promissory note.

With respect to the charge of conspiracy or unity of purpose on the
part of all defendants to divest plaintiffs of the latter’s shares of stock,
relieving Clarkin of his guaranty and obligation to
Hart, to enable the bank to recover its loan and to enable Pacific Farms to
take over Insular Farms, suffice it to state that the charge of conspiracy has
not been sufficiently established.

Considering plaintiffs’ contention that the purchase by Pacific
Farms of the shares of stock of Insular Farms and the transfer of all of the
substantial assets of Insular Farms to Pacific Farms are in violation of the
provisions of the Bulk Sales Law, the Court cannot see its way in crediting
plaintiffs’ contention considering the prevailing jurisprudence on the matter
(People vs. Wong Szu Tung,
50 OG, pp. 48-57, 58-69, March 26, 1954)

With respect, however, to the claim of plaintiff Joseph C. Hart for
payment of salary as Director and General Manager of Insular Farms for a period
of almost one year at the rate of P2,000.00 a month,
the Court believes that said plaintiff is entitled to said amount.  On the basis of equity and there appearing
sufficient proof that said plaintiff has served the corporation not only as
Director but as General Manager, the Court believes that he should be paid by
the Insular Farms, Inc. the sum of P25,333.30, representing his salaries for
the period March 1, 1957 to March 20, 1958.

Again, with respect to the advances in the form of loans to the
corporation made by plaintiff Joseph C. Hart, the Court is of the opinion that
he should be reimbursed and paid therefor, together
with interest thereon from March 21,
1958, or the sum of P86,366.91.  This is so because said loans were ratified
by the Board of Directors of Insular Farms, Inc. in a special meeting held on July 22, 1957.  There is no showing that the aforesaid
special meeting was irregularly or improperly held.

The Court having maintained that the auction sale conducted by the
bank’s Notary Public which resulted in the purchase by Pacific Farms of the
1,000 shares of stock of Insular Farms, 490 of which were owned by plaintiffs,
to be valid, the Court cannot approve the claim of plaintiffs for the reconveyance to them of said 490 shares of stock of Insular
Farms.  If there is anybody to answer for
the pledging of said shares of stock to the bank, there is no one except the
defendant John Clarkin who induced plaintiff to do
so.  Again, it is noteworthy to note that
Clarkin owned and controlled 501 shares of said
outstanding shares of stock and have not made any claim for the reconveyance of the same.

In view of the foregoing, judgment is hereby rendered in favor of
plaintiffs and against defendant Insular Farms, Inc., sentencing the latter to
pay the former the sum of P25,333.30, representing
unpaid salaries to plaintiff Joseph C. Hart; the further sum of P86,366.91,
representing loans made by plaintiffs to Insular Farms, Inc. and attorney’s
fees equivalent to 10% of the amount due plaintiffs.

With respect to the other claims of plaintiffs, the same are hereby
denied in the same manner that all counter-claims filed against said plaintiffs
are dismissed.  Likewise, Francisco T.
Papa’s cross-claim against defendant Pacific Farms, Inc. is, as it is hereby,
ordered dismissed for insufficiency of evidence.” (pp. 462-467 of the
Record on Appeal [p. 83, Rollo])

Dissatisfied with the foregoing decision, private respondents
appealed the two consolidated cases to the Court of Appeals contending that:

“I

THE LOWER COURT
ERRED IN HOLDING THAT PLAINTIFFS’ CONTENTION TO THE EFFECT THAT THERE WAS AN
INDEFINITE EXTENSION OF TIME WITH RESPECT TO THE PAYMENT OF THE LOAN IN
QUESTION “APPEARS TO BE UNTENABLE.”

II

THE LOWER COURT
ERRED IN HOLDING THAT THE SALE BY
THE PACIFIC BANKING CORPORATION OF THE SHARES OF STOCKS OF PLAINTIFFS WITH THE
PACIFIC FARMS, INC. ON MARCH 21, 1958
IS VALID.

III

THE LOWER COURT
ERRED IN HOLDING THAT PLAINTIFFS’ CHARGE OF CONSPIRACY AGAINST THE DEFENDANTS
HAS NOT BEEN “SUFFICIENTLY ESTABLISHED.”

IV

THE LOWER COURT
ERRED IN NOT HOLDING DEFENDANTS LIABLE FOR DAMAGES CAUSED TO THE PLAINTIFFS BY
THEIR INDIVIDUAL AND COLLECTIVE ACTS WHICH ARE CONTRARY TO THE PROVISIONS OF
THE CIVIL CODE ON HUMAN RELATIONS.

V

THE LOWER COURT WAS CORRECT IN HOLDING THAT “IF THERE IS
ANYBODY TO ANSWER FOR THE PLEDGE OF SAID SHARES OF STOCK TO THE BANK, THERE IS
NO ONE EXCEPT DEFENDANT JOHN P. CLARKIN WHO INDUCED PLAINTIFFS TO DO SO”,
BUT ERRED IN NOT FINDING DEFENDANT JOHN P. CLARKIN LIABLE AS PRAYED FOR IN
PLAINTIFFS’ COMPLAINT.” (pp. 9-10, Rollo)

On December
9, 1986, the Court
of Appeals rendered its assailed decision, the dispositive
portion of which follows:

“IN VIEW WHEREOF, judgment modified, such that defendant Babst and defendant Pacific Banking are both condemned in
their primary capacity to pay unto Hart the sum of P100,000.00 with legal
interest from the date of the foreclosure sale on 19 February 1958 until fully
paid, plus P15,000.00 as attorney’s fees, also to earn legal interest from the
date of the filing of Civil Case Nos. 35524, until fully paid, plus the costs,
but subject to reimbursement of Pacific Banking from Babst
whatever Pacific Banking should pay unto Hart on account of this judgment, the
other defendants are absolved with no more pronouncement as to costs with respect to them.” (pp. 62-63,
Rollo)

Hence this petition with
petitioners contending that:

“a.  Respondent Court of
Appeals committed a grave error in not applying in favor of the herein petitioner
the clear and unequivocal ruling of this Honorable Court in the case of
Philippine Engineering vs. Green, 48
Phil. 466, that “an agreement to extend the time of payment in order to be
valid must be for a definite time”, which was relied upon by the trial
court in overruling the private respondents’ claim that petitioners had granted
them orally an indefinite extension of time to pay the loan;

b.  Respondent Court of
Appeals committed a grave error in finding that petitioner bank agreed to an
indefinite extension of time to pay the loan on the basis of the testimony of
private respondent Hart contained in his
deposition which was admitted in evidence over the petitioners’
objection; and that said finding is clearly violative of parol evidence
rule.

c.  Respondent
Court of Appeals committed a grave error in ignoring the legal presumption of
good faith established by Article 527 of the New Civil Code when it imputed bad faith to petitioner in
foreclosing the pledge and in not considering the issue to have been finally
disposed of by the trial court in its resolution, dated March 19, 1958
dissolving the writ of preliminary injunction and expressly allowing the
foreclosure sale.

d.  Respondent Court of
Appeals committed a grave error in condemning petitioners to pay damages to
private respondents notwithstanding that petitioner bank merely exercised a
right under the law in foreclosing the
pledge;

e.  Respondent
Court of Appeals committed a grave error in holding petitioner Chester G. Babst personally liable to private respondents under
Articles 2180 and 2181 of the New Civil Code.

f.  Respondent Court of
Appeals committed a grave error in sentencing petitioner Chester G. Babst to reimburse his co-petitioner bank, whatever amounts
the latter may be required to pay the private respondents on account of the
judgment, notwithstanding that said bank had not filed a cross-claim against
him and there was absolutely no litigation between them.” (pp. 14-15, Rollo)

We
find for the respondents on the
following grounds:

First, petitioners allege that the Court of Appeals erred in
deviating from the principle and rule of stare decisis
by not applying in favor of petitioners the ruling in the case of Philippine
Engineering v. Green (48 Phil. 466) that “an
agreement to extend the time of payment in order to be valid must be for a
definite time” which was relied upon by the trial court in overruling the
private respondents’ claim that the petitioners had granted them orally an
indefinite extension of time to pay the loan.

A reading of the Philippine Engineering Co.
case shows that the authority quoted from (i.e. 8 Corpus Juris 425-429) was not the ground used by the
Court in not giving credit to therein defendant’s statement as to the
purported agreement for an indefinite extension of time for the payment of the note. 
The principle relied upon
in that case was the dead man’s statute. 
The Court stated that the reason for not believing the purported
agreement for extension of time to
pay the note was that there was
no sufficient proof of the purported agreement because:

“Here we have only the defendant’s statement as to the
purported agreement for an indefinite period of grace, with one now dead.  Such proof falls far short of satisfying the rules of evidence.” (Phil. Engineering
v. Green 48 Phil. p. 468)

In the case at bar, the
parties to the purported agreement, Hart and Babst, were still alive, and
both testified in the trial court regarding the purported extension.  Their testimonies are in fact, quoted in the
decision of the respondent Court of Appeals (pp 49-54, Rollo).

We also note, that the rule which states that there can be no valid
extension of time by oral agreement unless the extension is for a definite
time, is not absolute but admits of qualifications and exceptions.

“The general rule is that an
agreement to extend the time of payment, in order to be valid, must be for a
definite time, although it seems that
no precise date be fixed, it being sufficient that the time can be readily
determined.” (8 C.J. 425)

In case the period of
extension is not precise, the provisions of Article 1197 of the Civil Code
should apply.

In this case, there was an agreement to extend the payment of the
loan, including the first installment thereon which was due on or before July
1957.  As the Court of Appeals stated:

“x x x – and
here, this court is rather well
convinced that Hart had been given the assurance by the conduct of Babst, Executive Vice President of Pacific Bank, that
payment would not as yet be pressed, and under 1197 New Civil Code, the meaning
must be that there having been intended a period to pay – modifying the fixed
period in original promissory note, really, the cause of action of Pacific Bank
would have been to ask the Courts for the fixing of the term;” (pp. 59-60,
Rollo)

The pledge executed as collateral
security on February 9, 1958
no longer contained the provision on an installment of P50,000.00
due on or before July 1957.  This can mean no other thing than that the
time of payment of the said installment of P50,000.00
was extended.

It is settled that bills and notes may be varied by subsequent
agreement.  Thus, conditions may be
introduced and arrangements made changing the terms of payment (10 CJS
758).  The agreement for extension of the
parties is clearly indicated and
may be inferred from the acts and declarations of the parties, as testified to
in court (pp. 49-52, Rollo).

The pledge constituted on February
19, 1958 on the shares of stocks of Insular Farms, Inc. was
sufficient consideration for the extension, considering that this pledge was
the additional collateral required by Pacific Banking in addition to the continuing guarantee of Clarkin.

Petitioners contend that the admission of Joseph Hart’s testimony
regarding the extension of time to pay, over the petitioners’ objections, was violative of the parol evidence
rule.  This argument is untenable in view
of the fact that Hart’s testimony regarding the oral agreement for extension of
time to pay was admitted in evidence without objection from petitioner Babst when the same was first offered as evidence before
the trial court.  Without need therefore
of a lengthy discussion of the background facts on this issue, and even
granting that said testimony violated the parol
evidence rule, it was nevertheless properly admitted for failure of petitioner
to timely object to the same.  Well
settled is the rule that failure to object to parol
evidence constitutes a waiver to the admissibility of said parol
evidence (see Talosig v. Vda.
de Niebe, 43 SCRA 472).

Petitioners likewise argue that the Court of Appeals erred in
ignoring the presumption of good faith provided in Art. 527
of the Civil Code when it imputed bad faith to petitioners in foreclosing the
pledge.  They argue in support thereof that the
extrajudicial foreclosure was held only after it was sanctioned by the trial
court; and that the main ground alleged by the private respondents against the
foreclosure was the alleged grant by Pacific Banking Corporation of an
indefinite extension of time to pay the obligation; that private respondents
did not adduce any evidence to prove the grant of extension, for which reason
the trial court did not believe that there was such a grant; that in view
thereof, the foreclosure which even the Court of Appeals considered as valid,
cannot be considered to have been done in bad faith.

The presumption of good faith of possession provided in Article 527, is only a presumption juris tantum.  Said
presumption cannot stand in the light of the evidence to the contrary in the
record.

It was established that there was an agreement to extend
indefinitely the payment of the installment of P50,000.00
in July 1957 as provided in the promissory note.  Consequently, Pacific Banking Corporation was
precluded from enforcing the payment of the said installment of July 1957,
before the expiration of the indefinite period of extension, which period had
to be fixed by the court as provided in
Art. 1197 of the Civil Code (10 CJS p. 7611, citing
Drake vs. Pueblo Nat. Bank, 96 P 999, 44 Colo. 49).

Even the pledge which modified the fixed period in the original
promissory note, did not provide for dates of payment
of installments, nor of any fixed date of maturity of the whole amount of
indebtedness.  Accordingly, the date of
maturity of the indebtedness should be as may be determined by the proper court
under Art. 1197 of the Civil Code.  Hence, the disputed foreclosure and the
subsequent sale were premature.

The whole indebtedness was guaranteed by the continuing guaranty
of Clarkin, who had a corresponding deposit with
Pacific Banking which guaranty and deposit, Babst and Charles Chua, president of Pacific Banking, had
actual knowledge of.

The Court of Appeals noted that no demand for payment of the P50,000.00 was made right after it allegedly fell due.  It was only on March 4, 1958 or 13 days after the
execution of the pledge instrument on February
19, 1958 that PBC presented its demand for payment to insular Farms.

As found by the Court
of Appeals, there was really no investigation of Insular Farms’ ability to pay
the loan after the pledge was executed but before the demand for payment,
considering that the latter was made barely two weeks after the execution of the
pledge.

The inconsistency of the petitioners’ position vis-a-vis the evidence on record is apparent.  According to Babst,
the investigation was made by Mr. Joseph Tupaz, who
rendered his report (TSN, IX; 6-9, C. Babst).  The report, however, as found by the Court of
Appeals, was dated August 28, 1957
way before the pledge was executed on February
19, 1958.

Babst also identified an auditor’s
report by Sycip, Gorres and
Velayo dated March
17, 1958.  The first
paragraph of the report states that the auditors went to inspect Insular Farms
pursuant to a request of Babst dated March 5, 1958 – that
is, as found by the Court of Appeals just one day after Babst had through his
letter of March 4, 1958, threatened Insular Farms, Clarkin and Hart, with the
remedies available to Pacific Bank if the whole loan was not paid within 48
hours.  This can also mean that the
investigation by the auditing firm was a well conceived subterfuge, when all
the while, foreclosure was already intended against
private respondents.

On account of the foregoing, the Court of Appeals concluded that
the foreclosure was an act of bad faith:

“5th – Foregoing cannot but convince this Court that the foreclosure was not an act of
good faith on the part of the Pacific Banking, – for it must be bound by the
acts or representations, active or tacit of its agent or its Executive Vice-
President Babst, x x x .” (pp. 56-57, Rollo)

Petitioners furthermore claim that the Court of Appeals erred in
ordering them to pay damages to private respondents as they were merely
exercising a right under the law in foreclosing the pledge.  They also argue that assuming that private
respondent suffered damages on
account of the foreclosure, such damages would be damnum
absque injuria,
the damage having been caused by the lawful and proper exercise of the right to
foreclosure, and an act of prudence on the part of Pacific Banking Corporation
to protect its own interests and those of its depositors.

In the light of the above discussion and our finding that the
foreclosure sale was premature and done in bad faith, petitioners are liable
for damages arising from a quasi-delict.  We see no
compelling reason to set aside the findings of the respondent court on this
matter.

Finally, the petitioners claim that it was error for the
respondent court to hold petitioner Chester G. Babst personally liable to private respondents under Articles 2180 and 2181 of
the Civil Code.  Petitioners also
contend that it was error to order Chester G. Babst
to reimburse Pacific Banking whatever Pacific Banking may be required to pay
the private respondents, inasmuch as
Pacific Banking has not filed a cross claim against Chester G. Babst.

The Court of Appeals
applied Article 2180 of the Civil Code, under which, “employers
shall be liable for the damages caused by their employees x x x acting within the scope of their assigned
tasks.” Chester G. Babst, as admitted, was
Executive Vice-President of Pacific Banking Corporation and “acted only
upon direction by the Board of Directors of the Pacific Banking Corporation.”
(p. 127, Rollo) The appellate court also applied
Article 2181 of the same Code which provides that “whoever pays for the
damages caused by his dependents or employees may recover from the latter what
he has paid or delivered in satisfaction of the claim.” (Art. 2181, Civil
Code)

It must be noted, however, that, as between Pacific Banking and Babst, the law merely gives the employer a right to
reimbursement from the employee for what is paid to the private
respondent.  Article 2181 does not make
recovery fom the employee a mandatory
requirement.  A right to relief shall be
recognized only when the party concerned asserts it through a proper pleading
filed in court.  In this case, the
employer, Pacific Banking Corporation did not manifest any claim against Babst by filing a cross-claim before the trial court; thus,
it cannot make its right automatically enforceable.  Babst was made a
party to the case upon the complaint of the private respondents in his official
capacity as Executive Vice President of the bank.  In the absence of a cross-claim against Babst, the court has no basis for enforcing a right against
him to which his co-defendant may be entitled. 
We leave the matter to the two petitioners’ own internal arrangements or
actions should the bank decide to charge its own officer.

WHEREFORE, the petition for review on certiorari
is DISMISSED subject to a MODIFICATION
with respect to the personal liability of petitioner Chester G. Babst to Pacific Banking Corporation which is SET ASIDE.

SO ORDERED.

Feliciano, Bidin, and Cortes, JJ., concur.

Fernan, C.J., (Chairman), no part.