Professional Documents
Culture Documents
FIRST DIVISION
[G.R. No. 88013. March 19, 1990.]
SIMEX INTERNATIONAL (MANILA), INCORPORATED, Petitioner, v.
THE HONORABLE COURT OF APPEALS and TRADERS ROYAL
BANK, Respondents.
SYLLABUS
a result of the dishonored checks and that the existence of the loss having
been established "absolute certainty as to its amount is not
required."cralaw
virtua1aw
library
4. ID.; ID.; CORPORATION NOT ENTITLED TO MORAL DAMAGES AS A
RULE; EXCEPTION. A corporation is not as a rule entitled to moral
damages because, not being a natural person, it cannot experience physical
suffering or such sentiments as wounded feelings, serious anxiety, mental
anguish and moral shock. The only exception to this rule is where the
corporation has a good reputation that is debased, resulting in its social
humiliation.
5. ID.; ID.; AWARD OF NOMINAL DAMAGES NOT WARRANTED IN CASE AT
BAR. The petitioner did suffer injury because of the private respondents
negligence the caused the dishonor of the checks issued by it. The
immediate consequence was that its prestige was impaired because of the
bouncing checks and confidence in it as a reliable debtor was diminished.
The private respondent makes much of the one instance when the
petitioner was sued in a collection case, but that did not prove that it did
not have a good reputation that could not be marred, more so since that
case was ultimately settled. It does not appear that, as the private
respondent would portray it, the petitioner is an unsavory and disreputable
entity that has no good name to protect. Considering all this, we feel that
the award of nominal damages in the sum of P20,000.00 was not the
proper relief to which the petitioner was entitled. Under Article 2221 of the
Civil Code, "nominal damages are adjudicated in order that a right of the
plaintiff, which has been violated or invaded by the defendant, may be
vindicated or recognized, and not for the purpose of indemnifying the
plaintiff for any loss suffered by him." As we have found that the petitioner
has indeed incurred loss through the fault of the private respondent, the
proper remedy is the award to it of moral damages, which we impose, in
our
discretion,
in
the
same
amount
of
P20,000.00.
6. ID.; ID.; BANKS NEGLIGENCE IN THEIR DUTIES TOWARDS THEIR
CLIENTS WARRANTS AWARD OF EXEMPLARY DAMAGES; REASON THEREOF.
As a business affected with public interest and because of the nature of
its functions, 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. In the case at bar, it is obvious that the respondent
bank was remiss in that duty and violated that relationship. What is
especially deplorable is that, having been informed of its error in not
crediting the deposit in question to the petitioner, the respondent bank did
not immediately correct it but did so only one week later or twenty-three
days after the deposit was made. It bears repeating that the record does
not contain any satisfactory explanation of why the error was made in the
first place and why it was not corrected immediately after its discovery.
Such ineptness comes under the concept of the wanton manner
BANKING | 05Dec | 2
contemplated in the Civil Code that calls for the imposition of exemplary
damages. After deliberating on this particular matter, the Court, in the
exercise of its discretion, hereby imposes upon the respondent bank
exemplary damages in the amount of P50,000.00, "by way of example or
correction for the public good," in the words of the law. It is expected that
this ruling will serve as a warning and deterrent against the repetition of
the ineptness and indifference that has been displayed here, lest the
confidence of the public in the banking system be further impaired.
DECISION
7. Check No. 215412 dated June 10, 1981, in favor of Baguio Country Club
Corporation
in
the
amount
of
P4,385.02:
and
CRUZ, J.:
8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta Bayla in the
amount
of
P6,275.00.
2
5. Check No. 215474 dated June 10, 1981, in favor of Malabon Longlife
Trading Corporation in the amount of P12,953.00:chanrob1es virtual 1aw
library
6. Check No. 215477 dated June 9, 1981, in favor of Sea-Land Services,
Inc. in the amount of P27,024.45:chanrob1es virtual 1aw library
BANKING | 05Dec | 3
The respondent court found with the trial court that the private respondent
was guilty of negligence but agreed that the petitioner was nevertheless not
entitled to moral damages. It said:chanrob1es virtual 1aw library
The essential ingredient of moral damages is proof of bad faith (De Aparicio
v. Parogurga, 150 SCRA 280). Indeed, there was the omission by the
defendant-appellee bank to credit appellants deposit of P100,000.00 on
May 25, 1981. But the bank rectified its records. It credited the said
amount in favor of plaintiff-appellant in less than a month. The dishonored
checks were eventually paid. These circumstances negate any imputation or
insinuation of malicious, fraudulent, wanton and gross bad faith and
negligence
on
the
part
of
the
defendant-appellant.
It
is
this
ruling
that
is
faulted
in
the
petition
now
before
us.
This Court has carefully examined the facts of this case and finds that it
cannot share some of the conclusions of the lower courts. It seems to us
that the negligence of the private respondent had been brushed off rather
lightly as if it were a minor infraction requiring no more than a slap on the
wrist. We feel it is not enough to say that the private respondent rectified
its records and credited the deposit in less than a month as if this were
sufficient repentance. The error should not have been committed in the first
place. The respondent bank has not even explained why it was committed
at all. It is true that the dishonored checks were, as the Court of Appeals
put it, "eventually" paid. However, this took almost a month when, properly,
the
checks
should
have
been
paid
immediately
upon
presentment.chanrobles
lawlibrary
:
rednad
As the Court sees it, the initial carelessness of the respondent bank,
aggravated by the lack of promptitude in repairing its error, justifies the
grant of moral damages. This rather lackadaisical attitude toward the
complaining depositor constituted the gross negligence, if not wanton bad
faith, that the respondent court said had not been established by the
petitioner.
We also note that while stressing the rectification made by the respondent
bank, the decision practically ignored the prejudice suffered by the
petitioner. This was simply glossed over if not, indeed, disbelieved. The fact
is that the petitioners credit line was canceled and its orders were not
acted upon pending receipt of actual payment by the suppliers. Its business
declined. Its reputation was tarnished. Its standing was reduced in the
business community. All this was due to the fault of the respondent bank
which was undeniably remiss in its duty to the petitioner.
Article 2205 of the Civil Code provides that actual or compensatory
damages may be received" (2) for injury to the plaintiffs business standing
or commercial credit." There is no question that the petitioner did sustain
actual injury as a result of the dishonored checks and that the existence of
the loss having been established "absolute certainty as to its amount is not
required." 7 Such injury should bolster all the more the demand of the
petitioner for moral damages and justifies the examination by this Court of
the
validity
and
reasonableness
of
the
said
claim.
We agree that moral damages are not awarded to penalize the defendant
but to compensate the plaintiff for the injuries he may have suffered. 8 In
the case at bar, the petitioner is seeking such damages for the prejudice
sustained by it as a result of the private respondents fault. The respondent
court said that the claimed losses are purely speculative and are not
supported by substantial evidence, but if failed to consider that the amount
of such losses need not be established with exactitude, precisely because of
their nature. Moral damages are not susceptible of pecuniary estimation.
Article 2216 of the Civil Code specifically provides that "no proof of
pecuniary loss is necessary in order that moral, nominal, temperate,
liquidated or exemplary damages may be adjudicated." That is why the
determination of the amount to be awarded (except liquidated damages) is
left to the sound discretion of the court, according to "the circumstances of
each
case." cralawnad
From every viewpoint except that of the petitioners, its claim of moral
damages in the amount of P1,000,000.00 is nothing short of preposterous.
Its business certainly is not that big, or its name that prestigious, to sustain
such an extravagant pretense. Moreover, a corporation is not as a rule
entitled to moral damages because, not being a natural person, it cannot
experience physical suffering or such sentiments as wounded feelings,
serious anxiety, mental anguish and moral shock. The only exception to this
rule is where the corporation has a good reputation that is debased,
resulting
in
its
social
humiliation.
9
We shall recognize that the petitioner did suffer injury because of the
private respondents negligence the caused the dishonor of the checks
issued by it. The immediate consequence was that its prestige was impaired
because of the bouncing checks and confidence in it as a reliable debtor
was diminished. The private respondent makes much of the one instance
when the petitioner was sued in a collection case, but that did not prove
that it did not have a good reputation that could not be marred, more so
since that case was ultimately settled. 10 It does not appear that, as the
private respondent would portray it, the petitioner is an unsavory and
disreputable
entity
that
has
no
good
name
to
protect.
Considering all this, we feel that the award of nominal damages in the sum
of P20,000.00 was not the proper relief to which the petitioner was entitled.
Under Article 2221 of the Civil Code, "nominal damages are adjudicated in
order that a right of the plaintiff, which has been violated or invaded by the
BANKING | 05Dec | 4
for
the
exemplary
damages.
The point is that as a business affected with public interest and because of
the nature of its functions, 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. In the case at bar, it is obvious that
the respondent bank was remiss in that duty and violated that relationship.
What is especially deplorable is that, having been informed of its error in
not crediting the deposit in question to the petitioner, the respondent bank
did not immediately correct it but did so only one week later or twentythree days after the deposit was made. It bears repeating that the record
does not contain any satisfactory explanation of why the error was made in
the first place and why it was not corrected immediately after its discovery.
Such ineptness comes under the concept of the wanton manner
contemplated in the Civil Code that calls for the imposition of exemplary
damages.
Art. 2232. In contracts and quasi-contracts, the court may award After deliberating on this particular matter, the Court, in the exercise of its
exemplary damages if the defendant acted in a wanton, fraudulent, discretion, hereby imposes upon the respondent bank exemplary damages
reckless,
oppressive,
or
malevolent
manner. in the amount of P50,000.00, "by way of example or correction for the
public good," in the words of the law. It is expected that this ruling will
The banking system is an indispensable institution in the modern world and serve as a warning and deterrent against the repetition of the ineptness
plays a vital role in the economic life of every civilized nation. Whether as and indifference that has been displayed here, lest the confidence of the
mere passive entities for the safekeeping and saving of money or as active public in the banking system be further impaired.chanrobles law library :
instruments of business and commerce, banks have become an ubiquitous red
presence among the people, who have come to regard them with respect
and even gratitude and, most of all, confidence. Thus, even the humble ACCORDINGLY, the appealed judgment is hereby MODIFIED and the private
wage-earner has not hesitated to entrust his lifes savings to the bank of his respondent is ordered to pay the petitioner, in lieu of nominal damages,
choice, knowing that they will be safe in its custody and will even earn moral damages in the amount of P20,000.00, and exemplary damages in
some interest for him. The ordinary person, with equal faith, usually the amount of P50,000.00 plus the original award of attorneys fees in the
maintains a modest checking account for security and convenience in the amount
of
P5,000.00,
and
costs.
settling of his monthly bills and the payment of ordinary expenses. As for
business entities like the petitioner, the bank is a trusted and active SO ORDERED.
associate that can help in the running of their affairs, not only in the form
of loans when needed but more often in the conduct of their day-to-day
transactions like the issuance or encashment of checks.chanrobles.com :
virtual
law
library
In every case, the depositor expects the bank to treat his account with the
utmost fidelity, whether such account consists only of a few hundred pesos
or of millions. The bank must record every single transaction accurately,
down to the last centavo, and as promptly as possible. This has to be done
if the account is to reflect at any given time the amount of money the
depositor can dispose of as he sees fit, confident that the bank will deliver it
as and to whomever he directs. A blunder on the part of the bank, such as
the dishonor of a check without good reason, can cause the depositor not a
little embarrassment if not also financial loss and perhaps even civil and
criminal
litigation.
G.R. No. 127469
BANKING | 05Dec | 5
deposit of 30% of the total amount of the letters of credit. The time
deposits of Marcos would secure 70% of the letters of credit. Since Marcos
trusted the BANK and Pagsaligan, he signed blank printed forms of the
application for the domestic letters of credit, trust receipt agreements and
promissory notes.
Marcos executed three Trust Receipt Agreements totalling P851,250, broken
down as follows: (1) Trust Receipt No. CD 83.7 dated 8 March 1983 for
P300,000; (2) Trust Receipt No. CD 83.9 dated 15 March 1983 for
P300,000; and (3) Trust Receipt No. CD 83.10 dated 15 March 1983 for
P251,250. Marcos deposited the required 30% marginal deposit for the
trust receipt agreements. Marcos claimed that his obligation to the BANK
was therefore only P595,875 representing 70% of the letters of credit.
Marcos believed that he and the BANK became creditors and debtors of
each other. Marcos expected the BANK to offset automatically a portion of
his time deposits and the accumulated interest with the amount covered by
the three trust receipts totalling P851,250 less the 30% marginal deposit
that he had paid. Marcos argued that if only the BANK applied his time
deposits and the accumulated interest to his remaining obligation, which is
70% of the total amount of the letters of credit, he would have paid
completely his debt. Marcos further pointed out that since he did not apply
for a renewal of the trust receipt agreements, the BANK had no right to
renew the same.
Marcos accused the BANK of unjustly demanding payment for the total
amount of the trust receipt agreements without deducting the 30%
marginal deposit that he had already made. He decried the BANKs unlawful
charging of accumulated interest because he claimed there was no
agreement as to the payment of interest. The interest arose from numerous
alleged extensions and penalties. Marcos reiterated that there was no
agreement to this effect because his time deposits served as the collateral
for his remaining obligation.
Marcos also denied that he obtained another loan from the BANK for
P500,000 with interest at 25% per annum supposedly covered by
Promissory Note No. 20-979-83 dated 24 October 1983. Marcos bewailed
the BANKs belated claim that his time deposits were applied to this void
promissory note on 12 March 1985.
In sum, Marcos claimed that:
(1) his time deposit with the BANK "in the total sum of P1,428,795.345 has
earned accumulated interest since March 1982 up to the present in the total
amount of P1,727,305.45 at the rate of 17% per annum so his total money
with defendant (the BANK) is P3,156,100.79 less the amount of P595,875
BANKING | 05Dec | 6
representing the 70% balance of the marginal deposit and/or balance of the
trust agreements;" and
entrustee, who would undertake to deliver the proceeds of the sale or the
goods themselves to the entrustor within a specified time.
(2) his indebtedness was only P851,250 less the 30% paid as marginal
deposit or a balance of P595,875, which the BANK should have
automatically deducted from his time deposits and accumulated interest,
leaving the BANKs indebtedness to him at P2,560,025.79.
The BANK claimed that Marcos freely entered into the trust receipt
agreements. When Marcos failed to account for the goods delivered or for
the proceeds of the sale, the BANK filed a complaint for violation of
Presidential Decree No. 115 or the Trust Receipts Law. Instead of initiating
negotiations for the settlement of the account, Marcos filed this suit.
Marcos prayed the trial court to declare Promissory Note No. 20-979-83
void and to order the BANK to pay the amount of his time deposits with
interest. He also sought the award of moral and exemplary damages as well
as attorneys fees for P200,000 plus 25% of the amount due.
On 18 September 1989, summons and a copy of the complaint were served
on the BANK.6
On 9 October 1989, the BANK filed its Answer with Counterclaim. The BANK
denied the allegations in the complaint. The BANK believed that the suit
was Marcos desperate attempt to avoid liability under several trust receipt
agreements that were the subject of a criminal complaint.
The BANK alleged that as of 12 March 1982, the total amount of the various
time deposits of Marcos was only P764,897.67 and not P1,428,795.357 as
alleged in the complaint. The P764,897.67 included the P664,897.67 that
Marcos deposited on 11 March 1982.
The BANK pointed out that Marcos delivered to the BANK the time deposit
certificates by virtue of the Deed of Assignment dated 2 June 1989. Marcos
executed the Deed of Assignment to secure his various loan obligations.
The BANK claimed that these loans are covered by Promissory Note No. 20756-82 dated 2 June 1982 for P420,000 and Promissory Note No. 20-97983 dated 24 October 1983 for P500,000. The BANK stressed that these
obligations are separate and distinct from the trust receipt agreements.
When Marcos defaulted in the payment of Promissory Note No. 20-979-83,
the BANK debited his time deposits and applied the same to the obligation
that is now considered fully paid.8 The BANK insisted that the Deed of
Assignment authorized it to apply the time deposits in payment of
Promissory Note No. 20-979-83.
In March 1982, the wife of Marcos, Consolacion Marcos, sought the advice
of Pagsaligan. Consolacion informed Pagsaligan that she and her husband
needed to finance the purchase of construction materials for their business,
L.A. Marcos Construction Company. Pagsaligan suggested the opening of
the letters of credit and the execution of trust receipts, whereby the BANK
would agree to purchase the goods needed by the client through the letters
of credit. The BANK would then entrust the goods to the client, as
The BANK denied falsifying Promissory Note No. 20-979-83. The BANK
claimed that the promissory note is supported by documentary evidence
such as Marcos application for this loan and the microfilm of the cashiers
check issued for the loan. The BANK insisted that Marcos could not deny the
agreement for the payment of interest and penalties under the trust receipt
agreements. The BANK prayed for the dismissal of the complaint, payment
of damages, attorneys fees and cost of suit.
On 15 December 1989, the trial court on motion of Marcos counsel issued
an order declaring the BANK in default for filing its answer five days after
the 15-day period to file the answer had lapsed.9 The trial court also held
that the answer is a mere scrap of paper because a copy was not furnished
to Marcos. In the same order, the trial court allowed Marcos to present his
evidence ex parte on 18 December 1989. On that date, Marcos testified and
presented documentary evidence. The case was then submitted for
decision.
On 19 December 1989, Marcos received a copy of the BANKs Answer with
Compulsory Counterclaim.
On 29 December 1989, the BANK filed an opposition to Marcos motion to
declare the BANK in default. On 9 January 1990, the BANK filed a motion to
lift the order of default claiming that it had only then learned of the order of
default. The BANK explained that its delayed filing of the Answer with
Counterclaim and failure to serve a copy of the answer on Marcos was due
to excusable negligence. The BANK asked the trial court to set aside the
order of default because it had a valid and meritorious defense.
On 7 February 1990, the trial court issued an order setting aside the default
order and admitting the BANKs Answer with Compulsory Counterclaim. The
trial court ordered the BANK to present its evidence on 12 March 1990.
On 5 March 1990, the BANK filed a motion praying to cross-examine Marcos
who had testified during the ex-parte hearing of 18 December 1989. On 12
March 1990, the trial court denied the BANKs motion and directed the
BANK to present its evidence. Trial then ensued.
BANKING | 05Dec | 7
The BANK presented two witnesses, Rodolfo Sales, the Branch Manager of
the BANKs Cubao Branch since 1987, and Pagsaligan, the Branch Manager
of the same branch from 1982 to 1986.
On 24 April 1990, the counsel of Marcos cross-examined Pagsaligan. Due to
lack of material time, the trial court reset the continuation of the crossexamination and presentation of other evidence. The succeeding hearings
were postponed, specifically on 24, 27 and 28 of August 1990, because of
the BANKs failure to produce its witness, Pagsaligan. The BANK on these
scheduled hearings also failed to present other evidence.
On 7 September 1990, the BANK moved to postpone the hearing on the
ground that Pagsaligan could not attend the hearing because of illness. The
trial court denied the motion to postpone and on motion of Marcos counsel
ruled that the BANK had waived its right to present further evidence. The
trial court considered the case submitted for decision. The BANK moved for
reconsideration, which the trial court denied.
On 8 October 1990, the trial court rendered its decision in favor of Marcos.
Aggrieved, the BANK appealed to the Court of Appeals.
On 10 December 1996, the Court of Appeals modified the decision of the
trial court by reducing the amount of actual damages and deleting the
attorneys fees awarded to Marcos.
The Ruling of the Trial Court
The trial court ruled that the total amount of time deposits of Marcos was
P1,429,795.34 and not only P764,897.67 as claimed by the BANK. The trial
court found that Marcos made a time deposit on two occasions. The first
time deposit was made on 11 March 1982 for P664,897.67 as shown by
Receipt No. 635743. On 12 March 1982, Marcos again made a time deposit
for P764,897.67 as acknowledged by Pagsaligan in a letter of certification.
The two time deposits thus amounted to P1,429,795.34.
The trial court pointed out that no receipt was issued for the 12 March 1982
time deposit because the letter of certification was sufficient. The trial court
made a finding that the certification letter did not include the time deposit
made on 11 March 1982. The 12 March 1982 deposit was in cash while the
11 March 1982 deposit was in checks which still had to clear. The checks
were not included in the certification letter since the BANK could not credit
the amounts of the checks prior to clearing. The trial court declared that
even the Deed of Assignment acknowledged that Marcos made several time
deposits as the Deed stated that the assigment was charged against
"various" time deposits.
The trial court recognized the existence of the Deed of Assignment and the
two loans that Marcos supposedly obtained from the BANK on 28 May 1982
for P340,000 and on 2 June 1982 for P420,000. The two loans amounted to
P760,000. On 2 June 1982, the same day that he secured the second loan,
Marcos executed a Deed of Assignment assigning to the BANK P760,000 of
his time deposits. The trial court concluded that obviously the two loans
were immediately paid by virtue of the Deed of Assignment.
The trial court found it strange that Marcos borrowed money from the BANK
at a higher rate of interest instead of just withdrawing his time deposits.
The trial court saw no rhyme or reason why Marcos had to secure the loans
from the BANK. The trial court was convinced that Marcos did not know that
what he had signed were loan applications and a Deed of Assignment in
payment for his loans. Nonetheless, the trial court recognized "the said loan
of P760,000 and its corresponding payment by virtue of the Deed of
Assignment for the equal sum."10
If the BANKs claim is true that the time deposits of Marcos amounted only
to P764,897.67 and he had already assigned P760,000 of this amount, the
trial court pointed out that what would be left as of 3 June 1982 would only
be P4,867.67.11 Yet, after the time deposits had matured, the BANK
allowed Marcos to open letters of credit three times. The three letters of
credit were all secured by the time deposits of Marcos after he had paid the
30% marginal deposit. The trial court opined that if Marcos time deposit
was only P764,897.67, then the letters of credit totalling P595,875 (less
30% marginal deposit) was guaranteed by only P4,867.67,12 the remaining
time deposits after Marcos had executed the Deed of Assignment for
P760,000.
According to the trial court, a security of only P4,867.6713 for a loan worth
P595,875 (less 30% marginal deposit) is not only preposterous, it is also
comical. Worse, aside from allowing Marcos to have unsecured trust
receipts, the BANK still claimed to have granted Marcos another loan for
P500,000 on 25 October 1983 covered by Promissory Note No. 20-979-83.
The BANK is a commercial bank engaged in the business of lending money.
Allowing a loan of more than a million pesos without collateral is in the
words of the trial court, "an impossibility and a gross violation of Central
Bank Rules and Regulations, which no Bank Manager has such authority to
grant."14 Thus, the trial court held that the BANK could not have granted
Marcos the loan covered by Promissory Note No. 20-979-83 because it was
unsecured by any collateral.
The trial court required the BANK to produce the original copies of the loan
application and Promissory Note No. 20-979-83 so that it could determine
who applied for this loan. However, the BANK presented to the trial court
only the "machine copies of the duplicate" of these documents.
BANKING | 05Dec | 8
Based on the "machine copies of the duplicate" of the two documents, the
trial court noticed the following discrepancies: (1) Marcos signature on the
two documents are merely initials unlike in the other documents submitted
by the BANK; (2) it is highly unnatural for the BANK to only have duplicate
copies of the two documents in its custody; (3) the address of Marcos in the
documents is different from the place of residence as stated by Marcos in
the other documents annexed by the BANK in its Answer; (4) Pagsaligan
made it appear that a check for the loan proceeds of P470,588 less bank
charges was issued to Marcos but the checks payee was one ATTY.
LEONILO MARCOS and, as the trial court noted, Marcos is not a lawyer; and
(5) Pagsaligan was not sure what branch of the BANK issued the check for
the loan proceeds. The trial court was convinced that Marcos did not
execute the questionable documents covering the P500,000 loan and
Pagsaligan used these documents as a means to justify his inability to
explain and account for the time deposits of Marcos.
The trial court noted the BANKs "defective" documentation of its
transaction with Marcos. First, the BANK was not in possession of the
original copies of the documents like the loan applications. Second, the
BANK did not have a ledger of the accounts of Marcos or of his various
transactions with the BANK. Last, the BANK did not issue a certificate of
time deposit to Marcos. Again, the trial court attributed the BANKs lapses
to Pagsaligans scheme to defraud Marcos of his time deposits.
the time deposits of P643,240 as of March 1987. However, since the BANK
failed to return the time deposits of Marcos, which again matured in March
1990, the time deposits with interest, less the amount of trust receipts paid
in 1987, amounted to P971,292.49 as of March 1990.
In the alternative, the trial court ruled that even if Marcos had only one
time deposit of P764,897.67 as claimed by the BANK, the time deposit
would have still earned interest at the rate of 17% per annum. The time
deposit of P650,163 would have increased to P1,415,060 in 1987 after
earning interest. Deducting the amount of the three trust receipts, Marcos
time deposits still totalled P1,236,969.30 plus interest.
The dispositive portion of the decision of the trial court reads:
WHEREFORE, under the foregoing circumstances, judgment is hereby
rendered in favor of Plaintiff, directing Defendant Bank as follows:
1) to return to Plaintiff his time deposit in the sum of P971,292.49 with
interest thereon at the legal rate, until fully restituted;
2) to pay attorneys fees of P200,000.00; [and]
3) [to pay the] cost of these proceedings.
The trial court also took note of Pagsaligans demeanor on the witness
stand. Pagsaligan evaded the questions by giving unresponsive or
inconsistent answers compelling the trial court to admonish him. When the
trial court ordered Pagsaligan to produce the documents, he "conveniently
became sick"15 and thus failed to attend the hearings without presenting
proof of his physical condition.
IT IS SO ORDERED.16
The trial court disregarded the BANKs assertion that the time deposits were
converted into a savings account at 14% or 10% per annum upon maturity.
The BANK never informed Marcos that his time deposits had already
matured and these were converted into a savings account. As to the
interest due on the trust receipts, the trial court ruled that there is no basis
for such a charge because the documents do not stipulate any interest.
The appellate court ruled that the trial court committed a reversible error
when it denied the BANKs motion to cross-examine Marcos. The appellate
court ruled that the right to cross-examine is a fundamental right that the
BANK did not waive because the BANK vigorously asserted this right. The
BANKs failure to serve a notice of the motion to Marcos is not a valid
ground to deny the motion to cross-examine. The appellate court held that
the motion to cross-examine is one of those non-litigated motions that do
not require the movant to provide a notice of hearing to the other party.
In computing the amount due to Marcos, the trial court took into account
the marginal deposit that Marcos had already paid which is equivalent to
30% of the total amount of the three trust receipts. The three trust receipts
totalling P851,250 would then have a balance of P595,875. The balance
became due in March 1987 and on the same date, Marcos time deposits of
P669,932.30 had already earned interest from 1983 to 1987 totalling
P569,323.21 at 17% per annum. Thus, the trial court ruled that the time
deposits in 1987 totalled P1,239,115. From this amount, the trial court
deducted P595,875, the amount of the trust receipts, leaving a balance on
The Court of Appeals pointed out that when the trial court lifted the order of
default, it had the duty to afford the BANK its right to cross-examine
Marcos. This duty assumed greater importance because the only evidence
supporting the complaint is Marcos ex-parte testimony. The trial court
should have tested the veracity of Marcos testimony through the distilling
process of cross-examination. The Court of Appeals, however, believed that
the case should not be remanded to the trial court because Marcos
BANKING | 05Dec | 9
However, in its discussion of the assigned errors, the BANK claimed that
Marcos had yet to pay the loan.
On the second procedural issue, the Court of Appeals held that the trial
court did not err when it declared that the BANK had waived its right to
present its evidence and had submitted the case for decision. The appellate
court agreed with the grounds relied upon by the trial court in its Order
dated 7 September 1990.
The appellate court deleted the award of attorneys fees. It noted that the
trial court failed to justify the award of attorneys fees in the text of its
decision. The dispositive portion of the decision of the Court of Appeals
reads:
The Court of Appeals, however, differed with the finding of the trial court as
to the total amount of the time deposits. The appellate court ruled that the
total amount of the time deposits of Marcos is only P764,897.67 and not
P1,429,795.34 as found by the trial court. The certification letter issued by
Pagsaligan showed that Marcos made a time deposit on 12 March 1982 for
P764,897.67. The certification letter shows that the amount mentioned in
the letter was the aggregate or total amount of the time deposits of Marcos
as of that date. Therefore, the P764,897.67 already included the
P664,897.67 time deposit made by Marcos on 11 March 1982.
Besides, the Official Receipt (Exh. "B", p. 32, Records) dated March 11,
1982 covering the sum of P664,987.67 time deposit did not provide for a
maturity date implying clearly that the amount covered by said receipt
forms part of the total sum shown in the letter-certification which contained
a maturity date. Moreover, it taxes ones credulity to believe that appellee
would make a time deposit on March 12, 1982 in the sum of P764,897.67
which except for the additional sum of P100,000.00 is practically identical
(see underlined figures) to the sum of P664,897.67 deposited the day
before March 11, 1982.
Additionally, We agree with the contention of the appellant that the lower
court wrongly appreciated the testimony of Mr. Pagsaligan. Our finding is
strengthened when we consider the alleged application for loan by the
appellee with the appellant in the sum of P500,000.00 dated October 24,
1983. (Exh. "J", p. 40, Records), wherein it was stated that the loan is for
additional working capital versus the various time deposit amounting to
P760,000.00.17 (Emphasis supplied)
The Court of Appeals sustained the factual findings of the trial court in
ruling that Promissory Note No. 20-979-83 is void. There is no evidence of
a bank ledger or computation of interest of the loan. The appellate court
blamed the BANK for failing to comply with the orders of the trial court to
produce the documents on the loan. The BANK also made inconsistent
statements. In its Answer to the Complaint, the BANK alleged that the loan
was fully paid when it debited the time deposits of Marcos with the loan.
BANKING | 05Dec | 10
the order of default, the BANK was restored to its standing and rights in the
action. However, as a rule, the proceedings already taken should not be
disturbed.20 Nevertheless, it is within the trial courts discretion to reopen
the evidence submitted by the plaintiff and allow the defendant to challenge
the same, by cross-examining the plaintiffs witnesses or introducing
countervailing evidence.21 The 1964 Rules of Court, the rules then in effect
at the time of the hearing of this case, recognized the trial courts exercise
of this discretion. The 1997 Rules of Court retained this discretion.22
Section 3, Rule 18 of the 1964 Rules of Court reads:
Sec. 3. Relief from order of default. A party declared in default may any
time after discovery thereof and before judgment file a motion under oath
to set aside the order of default upon proper showing that his failure to
answer was due to fraud, accident, mistake or excusable neglect and that
he has a meritorious defense. In such case the order of default may be set
aside on such terms and conditions as the judge may impose in the interest
of justice. (Emphasis supplied)
The records show that the BANK did not ask the trial court to restore its
right to cross-examine Marcos when it sought the lifting of the default order
on 9 January 1990. Thus, the order dated 7 February 1990 setting aside
the order of default did not confer on the BANK the right to cross-examine
Marcos. It was only on 2 March 1990 that the BANK filed the motion to
cross-examine Marcos. During the 12 March 1990 hearing, the trial court
denied the BANKs oral manifestation to grant its motion to cross-examine
Marcos because there was no proof of service on Marcos. The BANKs
counsel pleaded for reconsideration but the trial court denied the plea and
ordered the BANK to present its evidence. Instead of presenting its
evidence, the BANK moved for the resetting of the hearing and when the
trial court denied the same, the BANK informed the trial court that it was
elevating the denial to the "upper court."23
To repeat, the trial court had previously declared the BANK in default. The
trial court therefore had the right to decide whether or not to disturb the
testimony of Marcos that had already been terminated even before the trial
court lifted the order of default.
We do not agree with the appellate courts ruling that a motion to crossexamine is a non-litigated motion and that the trial court gravely abused its
discretion when it denied the motion to cross-examine. A motion to crossexamine is adversarial. The adverse party in this case had the right to resist
the motion to cross-examine because the movant had previously forfeited
its right to cross-examine the witness. The purpose of a notice of a motion
is to avoid surprises on the opposite party and to give him time to study
and meet the arguments.24 In a motion to cross-examine, the adverse
party has the right not only to prepare a meaningful opposition to the
motion but also to be informed that his witness is being recalled for cross-
examination. The proof of service was therefore indispensable and the trial
court was correct in denying the oral manifestation to grant the motion for
cross-examination.
We find no justifiable reason to relax the application of the rule on notice of
motions25 to this case. The BANK could have easily re-filed the motion to
cross-examine with the requisite notice to Marcos. It did not do so. The
BANK did not make good its threat to elevate the denial to a higher court.
The BANK waited until the trial court rendered a judgment on the merits
before questioning the interlocutory order of denial.
While the right to cross-examine is a vital element of procedural due
process, the right does not necessarily require an actual cross-examination,
but merely an opportunity to exercise this right if desired by the party
entitled to it.26 Clearly, the BANKs failure to cross-examine is imputable to
the BANK when it lost this right27 as it was in default and failed thereafter
to exhaust the remedies to secure the exercise of this right at the earliest
opportunity.
The two other procedural lapses that the BANK attributes to the appellate
and trial courts deserve scant consideration.
The BANK raises for the very first time the issue of judicial admission on the
part of Marcos. The BANK even has the audacity to fault the Court of
Appeals for not ruling on this issue when it never raised this matter before
the appellate court or before the trial court. Obviously, this issue is only an
afterthought. An issue raised for the first time on appeal and not raised
timely in the proceedings in the lower court is barred by estoppel.28
The BANK cannot claim that Marcos had admitted the due execution of the
documents attached to its answer because the BANK filed its answer late
and even failed to serve it on Marcos. The BANKs answer, including the
actionable documents it pleaded and attached to its answer, was a mere
scrap of paper. There was nothing that Marcos could specifically deny under
oath. Marcos had already completed the presentation of his evidence when
the trial court lifted the order of default and admitted the BANKs answer.
The provision of the Rules of Court governing admission of actionable
documents was not enacted to reward a party in default. We will not allow a
party to gain an advantage from its disregard of the rules.
As to the issue of its right to present additional evidence, we agree with the
Court of Appeals that the trial court correctly ruled that the BANK had
waived this right. The BANK cannot now claim that it was deprived of its
right to conduct a re-direct examination of Pagsaligan. The BANK postponed
the hearings three times29 because of its inability to secure Pagsaligans
presence during the hearings. The BANK could have presented another
BANKING | 05Dec | 11
BANKING | 05Dec | 12
A bank holding out its officers and agents as worthy of confidence will not
be permitted to profit by the frauds they may thus be enabled to perpetrate
in the apparent scope of their employment; nor will it be permitted to shirk
its responsibility for such frauds, even though no benefit may accrue to the
bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation
is liable to innocent third persons where the representation is made in the
course of its business by an agent acting within the general scope of his
authority even though, in the particular case, the agent is secretly abusing
his authority and attempting to perpetrate a fraud upon his principal or
some other person, for his own ultimate benefit.38
The Existence of Promissory Note No. 20-979-83 was not Proven
The BANK failed to produce the best evidence the original copies of the
loan application and promissory note. The Best Evidence Rule provides that
the court shall not receive any evidence that is merely substitutionary in its
nature, such as photocopies, as long as the original evidence can be had.39
Absent a clear showing that the original writing has been lost, destroyed or
cannot be produced in court, the photocopy must be disregarded, being
unworthy of any probative value and being an inadmissible piece of
evidence.40
What the BANK presented were merely the "machine copies of the
duplicate" of the loan application and promissory note. No explanation was
ever offered by the BANK for its inability to produce the original copies of
the documentary evidence. The BANK also did not comply with the orders
of the trial court to submit the originals.
The purpose of the rule requiring the production of the best evidence is the
prevention of fraud.41 If a party is in possession of evidence and withholds
it, and seeks to substitute inferior evidence in its place, the presumption
naturally arises that the better evidence is withheld for fraudulent purposes,
which its production would expose and defeat.42
The absence of the original of the documentary evidence casts suspicion on
the existence of Promissory Note No. 20-979-83 considering the BANKs
fiduciary duty to keep efficiently a record of its transactions with its
depositors. Moreover, the circumstances enumerated by the trial court
bolster the conclusion that Promissory Note No. 20-979-83 is bogus. The
BANK has only itself to blame for the dearth of competent proof to establish
the existence of Promissory Note No. 20-979-83.
Total Amount Due to Marcos
The BANK and Marcos do not now dispute the ruling of the Court of Appeals
that the total amount of time deposits that Marcos placed with the BANK is
only P764,897.67 and not P1,429,795.34 as found by the trial court. The
BANK has always argued that Marcos time deposits only totalled
P764,897.67.43 What the BANK insists on in this petition is the trial courts
violation of its right to procedural due process and the absence of any
obligation to pay or return anything to Marcos. Marcos, on the other hand,
merely prays for the affirmation of either the trial court or appellate court
decision.44 We uphold the finding of the Court of Appeals as to the amount
of the time deposits as such finding is in accord with the evidence on
record.
Marcos claimed that the certificates of time deposit were with Pagsaligan for
safekeeping. Marcos was only able to present the receipt dated 11 March
1982 and the letter-certification dated 12 March 1982 to prove the total
amount of his time deposits with the BANK. The letter-certification issued
by Pagsaligan reads:
March 12, 1982
Dear Mr. Marcos:
This is to certify that we are taking care in your behalf various Time Deposit
Certificates with an aggregate value of PESOS: SEVEN HUNDRED SIXTY
FOUR THOUSAND EIGHT HUNDRED NINETY SEVEN AND 67/100
(P764,897.67) ONLY, issued today for 90 days at 17% p.a. with the interest
payable at maturity on June 10, 1982.
Thank you.
Sgd. FLORENCIO B. PAGSALIGAN
Branch Manager45
The foregoing certification is clear. The total amount of time deposits of
Marcos as of 12 March 1982 is P764,897.67, inclusive of the sum of
P664,987.67 that Marcos placed on time deposit on 11 March 1982. This is
plainly seen from the use of the word "aggregate."
We are not swayed by Marcos testimony that the certification is actually for
the first time deposit that he placed on 11 March 1982. The lettercertification speaks of "various Time Deposits Certificates with an
aggregate value of P764,897.67." If the amount stated in the lettercertification is for a single time deposit only, and did not include the 11
March 1982 time deposit, then Marcos should have demanded a new letter
of certification from Pagsaligan. Marcos is a businessman. While he already
made an error in judgment in entrusting to Pagsaligan the certificates of
time deposits, Marcos should have known the importance of making the
letter-certification reflect the true nature of the transaction. Marcos is
bound by the letter-certification since he was the one who prodded
Pagsaligan to issue it.
BANKING | 05Dec | 13
We modify the amount that the Court of Appeals ordered the BANK to
return to Marcos. The appellate court did not offset Marcos outstanding
debt with the BANK covered by the three trust receipt agreements even
though Marcos admits his obligation under the three trust receipt
agreements. The total amount of the trust receipts is P851,250 less the
30% marginal deposit of P255,375 that Marcos had already paid the BANK.
This reduced Marcos total debt with the BANK to P595,875 under the trust
receipts.
The trial and appellate courts found that the parties did not agree on the
imposition of interest on the loan covered by the trust receipts and thus no
interest is due on this loan. However, the records show that the three trust
receipt agreements contained stipulations for the payment of interest but
the parties failed to fill up the blank spaces on the rate of interest. Put
differently, the BANK and Marcos expressly agreed in writing on the
payment of interest46 without, however, specifying the rate of interest. We,
therefore, impose the legal interest of 12% per annum, the legal interest
for the forbearance of money,47 on each of the three trust receipts.
Based on Marcos testimony48 and the BANKs letter of demand,49 the
trust receipt agreements became due in March 1987. The records do not
show exactly when in March 1987 the obligation became due. In
accordance with Article 2212 of the Civil Code, in such a case the court
shall fix the period of the duration of the obligation.50 The BANKs letter of
demand is dated 6 March 1989. We hold that the trust receipts became due
on 6 March 1987.
Marcos payment of the marginal deposit of P255,375 for the trust receipts
resulted in the proportionate reduction of the three trust receipts. The
reduced value of the trust receipts and their respective interest as of 6
March 1987 are as follows:
1. Trust Receipt No. CD 83.7 issued on 8 March 1983 originally for
P300,000 was reduced to P210,618.75 with interest of P101,027.76.51
2. Trust Receipt No. CD 83.9 issued on 15 March 1983 originally for
P300,000 was reduced to P210,618.75 with interest of P100,543.04.52
3. Trust Receipt No. CD 83.10 issued on 15 March 1983 originally for
P251,250 was reduced to P174,637.5 with interest of P83,366.68. 53
Upon maturity of the three trust receipts, the BANK should have
automatically deducted, by way of offsetting, Marcos outstanding debt to
the BANK from his time deposits and its accumulated interest. Marcos time
deposits of P764,897.67 had already earned interest54 of P616,318.92 as
of 6 March 1987.55 Thus, Marcos total funds with the BANK amounted to
P1,381,216.59 as of the maturity of the trust receipts. After deducting
P880,812.48, the amount Marcos owed the BANK, from Marcos funds with
the BANK of P1,381,216.59, Marcos remaining time deposits as of 6 March
1987 is only P500,404.11. The accumulated interest on this P500,404.11 as
of 30 August 1989, the date of filing of Marcos complaint with the trial
court, is P211,622.96.56 From 30 August 1989, the interest due on the
accumulated interest of P211,622.96 should earn legal interest at 12% per
annum pursuant to Article 221257 of the Civil Code.
The BANKs dismal failure to account for Marcos money justifies the award
of moral58 and exemplary damages.59 Certainly, the BANK, as employer, is
liable for the negligence or the misdeed of its branch manager which caused
Marcos mental anguish and serious anxiety.60 Moral damages of P100,000
is reasonable and is in accord with our rulings in similar cases involving
banks negligence with regard to the accounts of their depositors.61
We also award P20,000 to Marcos as exemplary damages. The law allows
the grant of exemplary damages by way of example for the public good.62
The public relies on the banks fiduciary duty to observe the highest degree
of diligence. The banking sector is expected to maintain at all times this
high level of meticulousness.63
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with
MODIFICATION. Petitioner Philippine Banking Corporation is ordered to
return to private respondent Leonilo Marcos P500,404.11, the remaining
principal amount of his time deposits, with interest at 17% per annum from
30 August 1989 until full payment. Petitioner Philippine Banking Corporation
is also ordered to pay to private respondent Leonilo Marcos P211,622.96,
the accumulated interest as of 30 August 1989, plus 12% legal interest per
annum from 30 August 1989 until full payment. Petitioner Philippine
Banking Corporation is further ordered to pay P100,000 by way of moral
damages and P20,000 as exemplary damages to private respondent Leonilo
Marcos.
Costs against petitioner.
SO ORDERED.
When the trust receipts became due on 6 March 1987, Marcos owed the
BANK P880,812.48. This amount included P595,875, the principal value of
the three trust receipts after payment of the marginal deposit, and
P284,937.48, the interest then due on the three trust receipts.
G.R. No. 125585
June 8, 2005
BANKING | 05Dec | 14
BANKING | 05Dec | 15
area purchased by Ricardo from Eduardo and have the same covered by a
separate title.17
Thereafter, the Cruzes solicited the opinion of Ricardo Arandilla (Arandilla),
Land Registration Officer, Director III, Legal Affairs Department, Land
Registration Authority at Quezon City, who agreed with the advice given by
Flores.18 Relying on the suggestions of Flores and Arandilla, the Cruzes
hired two geodetic engineers to prepare the corresponding subdivision plan.
The subdivision plan was presented to the Land Management Bureau,
Region III, and there it was approved by a certain Mr. Pambid of said office
on 21 July 1989.
(1) Civil Case No. 650-M-89, for reconveyance with damages filed by the
heirs of Eduardo Manlapat against Consuelo Cruz, Rosalina Cruz-Bautista,
After securing the approval of the subdivision plan, the Cruzes went back to Rural Bank of San Pascual, Jose Salazar and Jose Flores, in his capacity as
RBSP and again asked for the owners duplicate certificate from Salazar. Deputy Registrar, Meycauayan Branch of the Registry of Deeds of Bulacan;
The Cruzes informed him that the presentation of the owners duplicate
certificate was necessary, per advise of the Register of Deeds, for the (2) Civil Case No. 141-M-90 for damages filed by Jose Salazar against
cancellation of the OCT and the issuance in lieu thereof of two separate Consuelo Cruz, et. [sic] al.; and
titles in the names of Ricardo and Eduardo in accordance with the approved
subdivision plan.19 Before giving the owners duplicate certificate, Salazar (3) Civil Case No. 644-M-89, for declaration of nullity of title with damages
required the Cruzes to see Atty. Renato Santiago (Atty. Santiago), legal filed by Rural Bank of San Pascual, Inc. against the spouses Ricardo Cruz
counsel of RBSP, to secure from the latter a clearance to borrow the title. and Consuelo Cruz, et al.25
Atty. Santiago would give the clearance on the condition that only Cruzes
put up a substitute collateral, which they did.20 As a result, the Cruzes got After trial of the consolidated cases, the RTC of Malolos rendered a decision
hold again of the owners duplicate certificate.
in favor of the heirs of Eduardo, the dispositive portion of which reads:
After the Cruzes presented the owners duplicate certificate, along with the
deeds of sale and the subdivision plan, the Register of Deeds cancelled the
OCT and issued in lieu thereof TCT No. T-9326-P(M) covering 603 square
meters of Lot No. 2204 in the name of Ricardo and TCT No. T-9327-P(M)
covering the remaining 455 square meters in the name of Eduardo.21
On 9 August 1989, the Cruzes went back to the bank and surrendered to
Salazar TCT No. 9327-P(M) in the name of Eduardo and retrieved the title
they had earlier given as substitute collateral. After securing the new
separate titles, the Cruzes furnished petitioners with a copy of TCT No.
9327-P(M) through the barangay captain and paid the real property tax for
1989.22
The Cruzes also sent a formal letter to Guillermo Reyes, Jr., Director,
Supervision Sector, Department III of the Central Bank of the Philippines,
inquiring whether they committed any violation of existing bank laws under
the circumstances. A certain Zosimo Topacio, Jr. of the Supervision Sector
sent a reply letter advising the Cruzes, since the matter is between them
and the bank, to get in touch with the bank for the final settlement of the
case.23
BANKING | 05Dec | 16
The trial court found that petitioners were entitled to the reliefs of
reconveyance and damages. On this matter, it ruled that petitioners were
bona fide mortgagors of an unclouded title bearing no annotation of any
lien and/or encumbrance. This fact, according to the trial court, was
confirmed by the bank when it accepted the mortgage unconditionally on
25 November 1981. It found that petitioners were complacent and
unperturbed, believing that the title to their property, while serving as
security for a loan, was safely vaulted in the impermeable confines of RBSP.
To their surprise and prejudice, said title was subdivided into two portions,
leaving them a portion of 455 square meters from the original total area of
1,058 square meters, all because of the fraudulent and negligent acts of
respondents and RBSP. The trial court ratiocinated that even assuming that
a portion of the subject lot was sold by Eduardo to Ricardo, petitioners were
still not privy to the transaction between the bank and the Cruzes which
eventually led to the subdivision of the OCT into TCTs No. T-9326-P(M) and
No. T-9327-P(M), clearly to the damage and prejudice of petitioners.27
Aggrieved by the decision of the trial court, RBSP, Salazar and the Cruzes
appealed to the Court of Appeals. The appellate court, however, reversed
the decision of the RTC. The decretal text of the decision reads:
SO ORDERED.30
The appellate court ruled that petitioners were not bona fide mortgagors
since as early as 1954 or before the 1981 mortgage, Eduardo already sold
to Ricardo a portion of the subject lot with an area of 553 square meters.
This fact, the Court of Appeals noted, is even supported by a document of
sale signed by Eduardo Jr. and Engracia Aniceto, the surviving spouse of
Eduardo, and registered with the Register of Deeds of Bulacan. The
appellate court also found that on 18 March 1981, for the second time,
Eduardo sold to Ricardo a separate area containing 50 square meters, as a
road right-of-way.31 Clearly, the OCT was issued only after the first sale. It
also noted that the title was given to the Cruzes by RBSP voluntarily, with
knowledge even of the banks counsel.32 Hence, the imposition of damages
cannot be justified, the Cruzes themselves being the owners of the
Concerning the claims for damages, the trial court found the same to be property. Certainly, Eduardo misled the bank into accepting the entire area
bereft of merit. It ruled that although the act of the Cruzes could be as a collateral since the 603-square meter portion did not anymore belong
deemed fraudulent, still it would not constitute intrinsic fraud. Salazar, to him. The appellate court, however, concluded that there was no
nonetheless, was clearly guilty of negligence in letting the Cruzes borrow conspiracy between the bank and Salazar.33
the owners duplicate certificate of the OCT. Neither the bank nor its
manager had business entrusting to strangers titles mortgaged to it by Hence, this petition for review on certiorari.
other persons for whatever reason. It was a clear violation of the mortgage
and banking laws, the trial court concluded.
Petitioners ascribe errors to the appellate court by asking the following
questions, to wit: (a) can a mortgagor be compelled to receive from the
The trial court also ruled that although Salazar was personally responsible mortgagee a smaller portion of the originally encumbered title partitioned
for allowing the title to be borrowed, the bank could not escape liability for during the subsistence of the mortgage, without the knowledge of, or
it was guilty of contributory negligence. The evidence showed that RBSPs authority derived from, the registered owner; (b) can the mortgagee
legal counsel was sought for advice regarding respondents request. This question the veracity of the registered title of the mortgagor, as noted in
could only mean that RBSP through its lawyer if not through its manager the owners duplicate certificate, and thus, deliver the certificate to such
had known in advance of the Cruzes intention and still it did nothing to third persons, invoking an adverse, prior, and unregistered claim against
prevent the eventuality. Salazar was not even summarily dismissed by the the registered title of the mortgagor; (c) can an adverse prior claim against
bank if he was indeed the sole person to blame. Hence, the banks claim for a registered title be noted, registered and entered without a competent
damages must necessarily fail.28
court order; and (d) can belief of ownership justify the taking of property
without due process of law?34
The trial court granted the prayer for the annulment of the TCTs as a
necessary consequence of its declaration that reconveyance was in order. The kernel of the controversy boils down to the issue of whether the
As to Flores, his work being ministerial as Deputy Register of the Bulacan cancellation of the OCT in the name of the petitioners predecessor-inRegistry of Deeds, the trial court absolved him of any liability with a stern interest and its splitting into two separate titles, one for the petitioners and
warning that he should deal with his future transactions more carefully and the other for the Cruzes, may be accorded legal recognition given the
in the strictest sense as a responsible government official.29
peculiar factual backdrop of the case. We rule in the affirmative.
BANKING | 05Dec | 17
Consonant with law and justice, the ultimate denouement of the property
dispute lies in the determination of the respective bases of the warring
claims. Here, as in other legal disputes, what is written generally deserves
credence.
A careful perusal of the evidence on record reveals that the Cruzes have
sufficiently proven their claim of ownership over the portion of Lot No. 2204
with an area of 553 square meters. The duly notarized instrument of
conveyance was executed in 1954 to which no less than Eduardo was a
signatory. The execution of the deed of sale was rendered beyond doubt by
Eduardos admission in his Sinumpaang Salaysay dated 24 April 1963.35
These documents make the affirmance of the right of the Cruzes
ineluctable. The apparent irregularity, however, in the obtention of the
owners duplicate certificate from the bank, later to be presented to the
Register of Deeds to secure the issuance of two new TCTs in place of the
OCT, is another matter.
Petitioners argue that the 1954 deed of sale was not annotated on the OCT
which was issued in 1976 in favor of Eduardo; thus, the Cruzes claim of
ownership based on the sale would not hold water. The Court is not
persuaded.
Registration is not a requirement for validity of the contract as between the
parties, for the effect of registration serves chiefly to bind third persons.36
The principal purpose of registration is merely to notify other persons not
parties to a contract that a transaction involving the property had been
entered into. Where the party has knowledge of a prior existing interest
which is unregistered at the time he acquired a right to the same land, his
knowledge of that prior unregistered interest has the effect of registration
as to him.37
Further, the heirs of Eduardo cannot be considered third persons for
purposes of applying the rule. The conveyance shall not be valid against
any person unless registered, except (1) the grantor, (2) his heirs and
devisees, and (3) third persons having actual notice or knowledge
thereof.38 Not only are petitioners the heirs of Eduardo, some of them were
actually parties to the Kasulatan executed in favor of Ricardo. Thus, the
annotation of the adverse claim of the Cruzes on the OCT is no longer
required to bind the heirs of Eduardo, petitioners herein.
Petitioners had no right to constitute
mortgage over disputed portion
The requirements of a valid mortgage are clearly laid down in Article 2085
of the New Civil Code, viz:
ART. 2085. The following requisites are essential to the contracts of pledge
and mortgage:
(1) That they be constituted to secure the fulfillment of a principal
obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing
pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free
disposal of their property, and in the absence thereof, that they be legally
authorized for the purpose.
Third persons who are not parties to the principal obligation may secure the
latter by pledging or mortgaging their own property. (emphasis supplied)
For a person to validly constitute a valid mortgage on real estate, he must
be the absolute owner thereof as required by Article 2085 of the New Civil
Code.39 The mortgagor must be the owner, otherwise the mortgage is
void.40 In a contract of mortgage, the mortgagor remains to be the owner
of the property although the property is subjected to a lien.41 A mortgage
is regarded as nothing more than a mere lien, encumbrance, or security for
a debt, and passes no title or estate to the mortgagee and gives him no
right or claim to the possession of the property.42 In this kind of contract,
the property mortgaged is merely delivered to the mortgagee to secure the
fulfillment of the principal obligation.43 Such delivery does not empower
the mortgagee to convey any portion thereof in favor of another person as
the right to dispose is an attribute of ownership.44 The right to dispose
includes the right to donate, to sell, to pledge or mortgage. Thus, the
mortgagee, not being the owner of the property, cannot dispose of the
whole or part thereof nor cause the impairment of the security in any
manner without violating the foregoing rule.45 The mortgagee only owns
the mortgage credit, not the property itself.46
Petitioners submit as an issue whether a mortgagor may be compelled to
receive from the mortgagee a smaller portion of the lot covered by the
originally encumbered title, which lot was partitioned during the subsistence
of the mortgage without the knowledge or authority of the mortgagor as
registered owner. This formulation is disingenuous, baselessly assuming, as
it does, as an admitted fact that the mortgagor is the owner of the
mortgaged property in its entirety. Indeed, it has not become a salient issue
in this case since the mortgagor was not the owner of the entire mortgaged
property in the first place.
Issuance of OCT No. P-153(M), improper
BANKING | 05Dec | 18
It is a glaring fact that OCT No. P-153(M) covering the property mortgaged
was in the name of Eduardo, without any annotation of any prior disposition
or encumbrance. However, the property was sufficiently shown to be not
entirely owned by Eduardo as evidenced by the Kasulatan. Readily apparent
upon perusal of the records is that the OCT was issued in 1976, long after
the Kasulatan was executed way back in 1954. Thus, a portion of the
property registered in Eduardos name arising from the grant of free patent
did not actually belong to him. The utilization of the Torrens system to
perpetrate fraud cannot be accorded judicial sanction.
Time and again, this Court has ruled that the principle of indefeasibility of a
Torrens title does not apply where fraud attended the issuance of the title,
as was conclusively established in this case. The Torrens title does not
furnish a shied for fraud.47 Registration does not vest title. It is not a mode
of acquiring ownership but is merely evidence of such title over a particular
property. It does not give the holder any better right than what he actually
has, especially if the registration was done in bad faith. The effect is that it
is as if no registration was made at all.48 In fact, this Court has ruled that a
decree of registration cut off or extinguished a right acquired by a person
when such right refers to a lien or encumbrance on the landnot to the
right of ownership thereofwhich was not annotated on the certificate of
title issued thereon.49
Issuance of TCT Nos. T-9326-P(M)
and T-9327-P(M), Valid
The validity of the issuance of two TCTs, one for the portion sold to the
predecessor-in-interest of the Cruzes and the other for the portion retained
by petitioners, is readily apparent from Section 53 of the Presidential
Decree (P.D.) No. 1529 or the Property Registration Decree. It provides:
SEC 53. Presentation of owners duplicate upon entry of new certificate.
No voluntary instrument shall be registered by the Register of Deeds,
unless the owners duplicate certificate is presented with such instrument,
except in cases expressly provided for in this Decree or upon order of the
court, for cause shown.
The production of the owners duplicate certificate, whenever any voluntary
instrument is presented for registration, shall be conclusive authority from
the registered owner to the Register of Deeds to enter a new certificate or
to make a memorandum of registration in accordance with such instrument,
and the new certificate or memorandum shall be binding upon the
registered owner and upon all persons claiming under him, in favor of every
purchaser for value and in good faith.
In all cases of registration procured by fraud, the owner may pursue all his
legal and equitable remedies against the parties to such fraud without
BANKING | 05Dec | 19
496, which extends only to purchasers for value and good faith, as well as
to mortgagees of the same character and description.53 Thus, this Court
clarified that the rule that persons dealing with registered lands can rely
solely on the certificate of title does not apply to banks.54
Bank Liable for Nominal Damages
Of deep concern to this Court, however, is the fact that the bank lent the
owners duplicate of the OCT to the Cruzes when the latter presented the
instruments of conveyance as basis of their claim of ownership over a
portion of land covered by the title. Simple rationalization would dictate that
a mortgagee-bank has no right to deliver to any stranger any property
entrusted to it other than to those contractually and legally entitled to its
possession. Although we cannot dismiss the banks acknowledgment of the
Cruzes claim as legitimized by instruments of conveyance in their
possession, we nonetheless cannot sanction how the bank was inveigled to
do the bidding of virtual strangers. Undoubtedly, the banks cooperative
stance facilitated the issuance of the TCTs. To make matters worse, the
bank did not even notify the heirs of Eduardo. The conduct of the bank is as
dangerous as it is unthinkably negligent. However, the aspect does not
impair the right of the Cruzes to be recognized as legitimate owners of their
portion of the property.
Undoubtedly, in the absence of the banks participation, the Register of
Deeds could not have issued the disputed TCTs. We cannot find fault on the
part of the Register of Deeds in issuing the TCTs as his authority to issue
the same is clearly sanctioned by law. It is thus ministerial on the part of
the Register of Deeds to issue TCT if the deed of conveyance and the
original owners duplicate are presented to him as there appears on theface
of the instruments no badge of irregularity or nullity.55 If there is someone
to blame for the shortcut resorted to by the Cruzes, it would be the bank
itself whose manager and legal officer helped the Cruzes to facilitate the
issuance of the TCTs.1avvphi1
The bank should not have allowed complete strangers to take possession of
the owners duplicate certificate even if the purpose is merely for
photocopying for a danger of losing the same is more than imminent. They
should be aware of the conclusive presumption in
Section 53. Such act constitutes manifest negligence on the part of the
bank which would necessarily hold it liable for damages under Article 1170
and other relevant provisions of the Civil Code.56
In the absence of evidence, the damages that may be awarded may be in
the form of nominal damages. Nominal damages are adjudicated in order
that a right of the plaintiff, which has been violated or invaded by the
defendant, may be vindicated or recognized, and not for the purpose of
BANKING | 05Dec | 20
indemnifying the plaintiff for any loss suffered by him.57 This award rests
on the mortgagors right to rely on the banks observance of the highest
diligence in the conduct of its business. The act of RBSP of entrusting to
respondents the owners duplicate certificate entrusted to it by the
mortgagor without even notifying the mortgagor and absent any prior
investigation on the veracity of respondents claim and
character is a patent failure to foresee the risk created by the act in view of
the provisions of Section 53 of P.D. No. 1529. This act runs afoul of every
banks mandate to observe the highest degree of diligence in dealing with
its clients. Moreover, a mortgagor has also the right to be afforded due
process before deprivation or diminution of his property is effected as the
OCT was still in the name of Eduardo. Notice and hearing are indispensable
elements of this right which the bank miserably ignored.
Under the circumstances, the Court believes the award of P50,000.00 as
nominal damages is appropriate.
Five-Year Prohibition against alienation
or encumbrance under the Public Land Act
One vital point. Apparently glossed over by the courts below and the parties
is an aspect which is essential, spread as it is all over the record and
intertwined with the crux of the controversy, relating as it does to the
validity of the dispositions of the subject property and the mortgage
thereon. Eduardo was issued a title in 1976 on the basis of his free patent
application. Such application implies the recognition of the public dominion
character of the land and, hence, the five (5)-year prohibition imposed by
the Public Land Act against alienation or encumbrance of the land covered
by a free patent or homestead58 should have been considered.
The deed of sale covering the fifty (50)-square meter right of way executed
by Eduardo on 18 March 1981 is obviously covered by the proscription, the
free patent having been issued on 8 October 1976. However, petitioners
may recover the portion sold since the prohibition was imposed in favor of
the free patent holder. In Philippine National Bank v. De los Reyes,59 this
Court ruled squarely on the point, thus:
While the law bars recovery in a case where the object of the contract is
contrary to law and one or both parties acted in bad faith, we cannot here
apply the doctrine of in pari delicto which admits of an exception, namely,
that when the contract is merely prohibited by law, not illegal per se, and
the prohibition is designed for the protection of the party seeking to
recover, he is entitled to the relief prayed for whenever public policy is
enhanced thereby. Under the Public Land Act, the prohibition to alienate is
predicated on the fundamental policy of the State to preserve and keep in
the family of the homesteader that portion of public land which the State
has gratuitously given to him, and recovery is allowed even where the land
acquired under the Public Land Act was sold and not merely encumbered,
within the prohibited period.60
The sale of the 553 square meter portion is a different story. It was
executed in 1954, twenty-two (22) years before the issuance of the patent
in 1976. Apparently, Eduardo disposed of the portion even before he
thought of applying for a free patent. Where the sale or transfer took place
before the filing of the free patent application, whether by the vendor or the
vendee, the prohibition should not be applied. In such situation, neither the
prohibition nor the rationale therefor which is to keep in the family of the
patentee that portion of the public land which the government has
gratuitously given him, by shielding him from the temptation to dispose of
his landholding, could be relevant. Precisely, he had disposed of his rights
to the lot even before the government could give the title to him.
The mortgage executed in favor of RBSP is also beyond the pale of the
prohibition, as it was forged in December 1981 a few months past the
period of prohibition.
WHEREFORE, the Decision of the Court of Appeals is AFFIRMED, subject to
the modifications herein. Respondent Rural Bank of San Pascual is hereby
ORDERED to PAY petitioners Fifty Thousand Pesos (P50,000.00) by way of
nominal damages. Respondents Consuelo Cruz and Rosalina Cruz-Bautista
are hereby DIVESTED of title to, and respondent Register of Deeds of
Meycauayan, Bulacan is accordingly ORDERED to segregate, the portion of
fifty (50) square meters of the subject Lot No. 2204, as depicted in the
approved plan covering the lot, marked as Exhibit "A", and to issue a new
title covering the said portion in the name of the petitioners at the expense
of the petitioners. No costs.
SO ORDERED.
BANKING | 05Dec | 21
On 23 March 1999, petitioners initiated with the RTC an action for the
annulment of REM constituted over the subject property on the ground that
the same was not covered by the SPA and that the said SPA, at the time
the loan obligations were contracted, no longer had force and effect since it
BANKING | 05Dec | 22
2. Declaring the Sheriffs Sale and Certificate of Sale under FRE No. 2217
dated January 15, 1998 over the property covered by TCT No. RT-18206
(106338) of the Registry of Deeds of Quezon City as NULL and VOID;
3. Ordering the defendant Registry of Deeds of Quezon City to cancel the
annotation of Real Estate Mortgages appearing on Entry Nos. PE-4543/RT18206 and 2012/RT-18206 on TCT No. RT-18206 (106338) of the Registry
of Deeds of Quezon City;
In the absence of authority to do so, the REM constituted by Julian over the
subject property was null and void; thus, petitioners likewise prayed that
the subsequent extra-judicial foreclosure proceedings and the auction sale
of the subject property be also nullified.
The other claim for damages and counterclaim are hereby DENIED for lack
of merit.11
Aggrieved, respondent appealed the adverse Decision before the Court of
Appeals.
In a Decision dated 12 October 2005, the Court of Appeals reversed the
RTC Decision and upheld the validity of the REM constituted over the
subject property on the strength of the SPA. The appellate court declared
that Perla intended the subject property to be included in the SPA she
executed in favor of Julian, and that her subsequent revocation of the said
SPA, not being contained in a public instrument, cannot bind third persons.
The Motion for Reconsideration interposed by the petitioners was denied by
the Court of Appeals in its Resolution dated 15 February 2006.
Petitioners are now before us assailing the Decision and Resolution
rendered by the Court of Appeals raising several issues, which are
summarized as follows:
I WHETHER OR NOT THERE WAS A VALID MORTGAGE CONSTITUTED OVER
SUBJECT PROPERTY.
II WHETHER OR NOT THERE WAS A VALID REVOCATION OF THE SPA.
III WHETHER OR NOT THE RESPONDENT WAS A MORTGAGEE-IN- GOOD
FAITH.
For a mortgage to be valid, Article 2085 of the Civil Code enumerates the
following essential requisites:
BANKING | 05Dec | 23
Art. 2085. The following requisites are essential to the contracts of pledge
and mortgage:
(1) That they be constituted to secure the fulfillment of a principal
obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing
pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free
disposal of their property, and in the absence thereof, that they be legally
authorized for the purpose.
Third persons who are not parties to the principal obligation may secure the
latter by pledging or mortgaging their own property.
In the case at bar, it was Julian who obtained the loan obligations from
respondent which he secured with the mortgage of the subject property.
The property mortgaged was owned by his wife, Perla, considered a third
party to the loan obligations between Julian and respondent. It was, thus, a
situation recognized by the last paragraph of Article 2085 of the Civil Code
afore-quoted. However, since it was not Perla who personally mortgaged
her own property to secure Julians loan obligations with respondent, we
proceed to determining if she duly authorized Julian to do so on her behalf.
Under Article 1878 of the Civil Code, a special power of attorney is
necessary in cases where real rights over immovable property are created
or conveyed.12 In the SPA executed by Perla in favor of Julian on 28 May
1992, the latter was conferred with the authority to "sell, alienate,
mortgage, lease and deal otherwise" the different pieces of real and
personal property registered in Perlas name. The SPA likewise authorized
Julian "[t]o exercise any or all acts of strict dominion or ownership" over
the identified properties, and rights and interest therein. The existence and
due execution of this SPA by Perla was not denied or challenged by
petitioners.
There is no question therefore that Julian was vested with the power to
mortgage the pieces of property identified in the SPA. However, as to
whether the subject property was among those identified in the SPA, so as
to render Julians mortgage of the same valid, is a question we still must
resolve.
Petitioners insist that the subject property was not included in the SPA,
considering that it contained an exclusive enumeration of the pieces of
property over which Julian had authority, and these include only: (1) TCT
No. T-53618, with an area of 3,522 square meters, located at Calapan,
BANKING | 05Dec | 24
In cases where the terms of the contract are clear as to leave no room for
interpretation, resort to circumstantial evidence to ascertain the true intent
of the parties, is not countenanced. As aptly stated in the case of JMA
House, Incorporated v. Sta. Monica Industrial and Development
Corporation,13 thus:
[T]he law is that if the terms of a contract are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of its
stipulation shall control. When the language of the contract is explicit,
leaving no doubt as to the intention of the drafters, the courts may not read
into it [in] any other intention that would contradict its main import. The
clear terms of the contract should never be the subject matter of
interpretation. Neither abstract justice nor the rule on liberal interpretation
justifies the creation of a contract for the parties which they did not make
themselves or the imposition upon one party to a contract or obligation not
assumed simply or merely to avoid seeming hardships. The true meaning
must be enforced, as it is to be presumed that the contracting parties know
their scope and effects.14
Equally relevant is the rule that a power of attorney must be strictly
construed and pursued. The instrument will be held to grant only those
powers which are specified therein, and the agent may neither go beyond
nor deviate from the power of attorney.15 Where powers and duties are
specified and defined in an instrument, all such powers and duties are
limited and are confined to those which are specified and defined, and all
other powers and duties are excluded.16 This is but in accord with the
disinclination of courts to enlarge the authority granted beyond the powers
expressly given and those which incidentally flow or derive therefrom as
being usual and reasonably necessary and proper for the performance of
such express powers.17
Even the commentaries of renowned Civilist Manresa18 supports a strict
and limited construction of the terms of a power of attorney:
The law, which must look after the interests of all, cannot permit a man to
express himself in a vague and general way with reference to the right he
confers upon another for the purpose of alienation or hypothecation,
whereby he might be despoiled of all he possessed and be brought to ruin,
such excessive authority must be set down in the most formal and explicit
terms, and when this is not done, the law reasonably presumes that the
principal did not mean to confer it.
In this case, we are not convinced that the property covered by TCT No.
106338 registered with the Registry of Deeds of Pasig (now Makati) is the
same as the subject property covered by TCT No. RT-18206 (106338)
registered with the Registry of Deeds of Quezon City. The records of the
case are stripped of supporting proofs to verify the respondents claim that
the two titles cover the same property. It failed to present any certification
from the Registries of Deeds concerned to support its assertion. Neither did
respondent take the effort of submitting and making part of the records of
this case copies of TCTs No. RT-106338 of the Registry of Deeds of Pasig
(now Makati) and RT-18206 (106338) of the Registry of Deeds of Quezon
City, and closely comparing the technical descriptions of the properties
covered by the said TCTs. The bare and sweeping statement of respondent
that the properties covered by the two certificates of title are one and the
same contains nothing but empty imputation of a fact that could hardly be
given any evidentiary weight by this Court.
Having arrived at the conclusion that Julian was not conferred by Perla with
the authority to mortgage the subject property under the terms of the SPA,
the real estate mortgages Julian executed over the said property are
therefore unenforceable.
Assuming arguendo that the subject property was indeed included in the
SPA executed by Perla in favor of Julian, the said SPA was revoked by virtue
of a public instrument executed by Perla on 10 March 1993. To address
respondents assertion that the said revocation was unenforceable against it
as a third party to the SPA and as one who relied on the same in good faith,
we quote with approval the following ruling of the RTC on this matter:
Moreover, an agency is extinguished, among others, by its revocation
(Article 1999, New Civil Code of the Philippines). The principal may revoke
the agency at will, and compel the agent to return the document evidencing
the agency. Such revocation may be express or implied (Article 1920,
supra).
In this case, the revocation of the agency or Special Power of Attorney is
expressed and by a public document executed on March 10, 1993.
The Register of Deeds of Quezon City was even notified that any attempt to
mortgage or sell the property covered by TCT No. [RT-18206] 106338
located at No. 21 Hillside Drive, Blue Ridge, Quezon City must have the full
consent documented in the form of a special power of attorney duly
authenticated at the Philippine Consulate General, New York City, N.Y.,
U.S.A.
The non-annotation of the revocation of the Special Power of Attorney on
TCT No. RT-18206 is of no consequence as far as the revocations existence
and legal effect is concerned since actual notice is always superior to
constructive notice. The actual notice of the revocation relayed to defendant
Registry of Deeds of Quezon City is not denied by either the Registry of
Deeds of Quezon City or the defendant Bank. In which case, there appears
no reason why Section 52 of the Property Registration Decree (P.D. No.
BANKING | 05Dec | 25
1529) should not apply to the situation. Said Section 52 of P.D. No. 1529
provides:
We are unconvinced. The property listed in the real estate mortgages Julian
executed in favor of PNB is the one covered by "TCT#RT-18206(106338)."
On the other hand, the Special Power of Attorney referred to TCT No. "RT106338 805 Square Meters of the Registry of Deeds of Pasig now Makati."
The palpable difference between the TCT numbers referred to in the real
estate mortgages and Julians SPA, coupled with the fact that the said TCTs
are registered in the Registries of Deeds of different cities, should have put
respondent on guard. Respondents claim of prudence is debunked by the
fact that it had conveniently or otherwise overlooked the inconsistent
details appearing on the face of the documents, which it was relying on for
its rights as mortgagee, and which significantly affected the identification of
the property being mortgaged. In Arrofo v. Quio,20 we have elucidated
that:
It thus developed that at the time the first loan transaction with defendant
Bank was effected on December 12, 1996, there was on record at the Office
of the Register of Deeds of Quezon City that the special power of attorney
granted Julian, Sr. by Perla had been revoked. That notice, works as
constructive notice to third parties of its being filed, effectively rendering
Julian, Sr. without authority to act for and in behalf of Perla as of the date
the revocation letter was received by the Register of Deeds of Quezon City
on February 7, 1996.19
Given that Perla revoked the SPA as early as 10 March 1993, and that she
informed the Registry of Deeds of Quezon City of such revocation in a letter
dated 23 January 1996 and received by the latter on 7 February 1996, then
third parties to the SPA are constructively notified that the same had been
revoked and Julian no longer had any authority to mortgage the subject
property. Although the revocation may not be annotated on TCT No. RT18206 (106338), as the RTC pointed out, neither the Registry of Deeds of
Quezon City nor respondent denied that Perlas 23 January 1996 letter was
received by and filed with the Registry of Deeds of Quezon City. Respondent
would have undoubtedly come across said letter if it indeed diligently
investigated the subject property and the circumstances surrounding its
mortgage.
The final issue to be threshed out by this Court is whether the respondent is
a mortgagee-in-good faith. Respondent fervently asserts that it exercised
reasonable diligence required of a prudent man in dealing with the subject
property.
Elaborating, respondent claims to have carefully verified Julians authority
over the subject property which was validly contained in the SPA. It
stresses that the SPA was annotated at the back of the TCT of the subject
property. Finally, after conducting an investigation, it found that the
property covered by TCT No. 106338, registered with the Registry of Deeds
of Pasig (now Makati) referred to in the SPA, and the subject property,
covered by TCT No. 18206 (106338) registered with the Registry of Deeds
of Quezon City, are one and the same property. From the foregoing,
[Settled is the rule that] a person dealing with registered lands [is not
required] to inquire further than what the Torrens title on its face indicates.
This rule, however, is not absolute but admits of exceptions. Thus, while its
is true, x x x that a person dealing with registered lands need not go
beyond the certificate of title, it is likewise a well-settled rule that a
purchaser or mortgagee cannot close his eyes to facts which should put a
reasonable man on his guard, and then claim that he acted in good faith
under the belief that there was no defect in the title of the vendor or
mortgagor. His mere refusal to face up the fact that such defect exists, or
his willful closing of his eyes to the possibility of the existence of a defect in
the vendors or mortgagors title, will not make him an innocent purchaser
for value, if it afterwards develops that the title was in fact defective, and it
appears that he had such notice of the defect as would have led to its
discovery had he acted with the measure of precaution which may be
required of a prudent man in a like situation.
By putting blinders on its eyes, and by refusing to see the patent defect in
the scope of Julians authority, easily discernable from the plain terms of
the SPA, respondent cannot now claim to be an innocent mortgagee.
Further, in the case of Abad v. Guimba,21 we laid down the principle that
where the mortgagee does not directly deal with the registered owner of
real property, the law requires that a higher degree of prudence be
exercised by the mortgagee, thus:
While [the] one who buys from the registered owner does not need to look
behind the certificate of title, one who buys from [the] one who is not [the]
registered owner is expected to examine not only the certificate of title but
all factual circumstances necessary for [one] to determine if there are any
flaws in the title of the transferor, or in [the] capacity to transfer the land.
BANKING | 05Dec | 26
Although the instant case does not involve a sale but only a mortgage, the
same rule applies inasmuch as the law itself includes a mortgagee in the
term "purchaser."22
This principle is applied more strenuously when the mortgagee is a bank or
a banking institution. Thus, in the case of Cruz v. Bancom Finance
Corporation,23 we ruled:
Respondent, however, is not an ordinary mortgagee; it is a mortgageebank. As such, unlike private individuals, it is expected to exercise greater
care and prudence in its dealings, including those involving registered
lands. A banking institution is expected to exercise due diligence before
entering into a mortgage contract. 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 its operations.24
Hence, considering that the property being mortgaged by Julian was not
his, and there are additional doubts or suspicions as to the real identity of
the same, the respondent bank should have proceeded with its transactions
with Julian only with utmost caution. As a bank, respondent must subject
all its transactions to the most rigid scrutiny, since its business is impressed
with public interest and its fiduciary character requires high standards of
integrity and performance.25 Where respondent acted in undue haste in
granting the mortgage loans in favor of Julian and disregarding the
apparent defects in the latters authority as agent, it failed to discharge the
degree of diligence required of it as a banking corporation.1awphil
Thus, even granting for the sake of argument that the subject property and
the one identified in the SPA are one and the same, it would not elevate
respondents status to that of an innocent mortgagee. As a banking
institution, jurisprudence stringently requires that respondent should take
more precautions than an ordinary prudent man should, to ascertain the
status and condition of the properties offered as collateral and to verify the
scope of the authority of the agents dealing with these. Had respondent
acted with the required degree of diligence, it could have acquired
knowledge of the letter dated 23 January 1996 sent by Perla to the Registry
of Deeds of Quezon City which recorded the same. The failure of the
respondent to investigate into the circumstances surrounding the mortgage
of the subject property belies its contention of good faith.
On a last note, we find that the real estate mortgages constituted over the
subject property are unenforceable and not null and void, as ruled by the
RTC. It is best to reiterate that the said mortgage was entered into by
Julian on behalf of Perla without the latters authority and consequently,
unenforceable under Article 1403(1) of the Civil Code. Unenforceable
contracts are those which cannot be enforced by a proper action in court,
unless they are ratified, because either they are entered into without or in
excess of authority or they do not comply with the statute of frauds or both
of the contracting parties do not possess the required legal capacity.26 An
unenforceable contract may be ratified, expressly or impliedly, by the
person in whose behalf it has been executed, before it is revoked by the
other contracting party.27 Without Perlas ratification of the same, the real
estate mortgages constituted by Julian over the subject property cannot be
enforced by any action in court against Perla and/or her successors in
interest.
In sum, we rule that the contracts of real estate mortgage constituted over
the subject property covered by TCT No. RT 18206 (106338) registered
with the Registry of Deeds of Quezon City are unenforceable. Consequently,
the foreclosure proceedings and the auction sale of the subject property
conducted in pursuance of these unenforceable contracts are null and void.
This, however, is without prejudice to the right of the respondent to proceed
against Julian, in his personal capacity, for the amount of the loans.
WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition is
GRANTED. The Decision dated 12 October 2005 and its Resolution dated 15
February 2006 rendered by the Court of Appeals in CA-G.R. CV No. 82636,
are hereby REVERSED. The Decision dated 23 September 2003 of the
Regional Trial Court of Quezon City, Branch 220, in Civil Case No. Q-9937145, is hereby REINSTATED and AFFIRMED with modification that the
real estate mortgages constituted over TCT No. RT 18206 (106338) are
not null and void but UNENFORCEABLE. No costs.
SO ORDERED.
BANKING | 05Dec | 27
On July 28, 1988, the respondent bank approved the said application of
PRCI and issued Foreign Exchange Demand Draft (FXDD) No. 209968 in the
sum applied for, that is, One Thousand Six Hundred Ten Australian Dollars
(AU$ 1,610.00), payable to the order of the 20th Asian Racing Conference
Secretariat of Sydney, Australia, and addressed to Westpac-Sydney as the
drawee bank.1wphi1.nt
On August 10, 1988, upon due presentment of the foreign exchange
demand draft, denominated as FXDD No. 209968, the same was
dishonored, with the notice of dishonor stating the following: "xxx No
account held with Westpac." Meanwhile, on August 16, 1988, Wespac-New
York sent a cable to respondent bank informing the latter that its dollar
account in the sum of One Thousand Six Hundred Ten Australian Dollars
(AU$ 1,610.00) was debited. On August 19, 1988, in response to PRCI's
complaint about the dishonor of the said foreign exchange demand draft,
respondent bank informed Westpac-Sydney of the issuance of the said
demand draft FXDD No. 209968, drawn against the Wespac-Sydney and
informing the latter to be reimbursed from the respondent bank's dollar
account in Westpac-New York. The respondent bank on the same day
likewise informed Wespac-New York requesting the latter to honor the
reimbursement claim of Wespac-Sydney. On September 14, 1988, upon its
second presentment for payment, FXDD No. 209968 was again dishonored
by Westpac-Sydney for the same reason, that is, that the respondent bank
has no deposit dollar account with the drawee Wespac-Sydney.
On September 17, 1988 and September 18, 1988, respectively, petitioners
spouses Gregorio H. Reyes and Consuelo Puyat-Reyes left for Australia to
attend the said racing conference. When petitioner Gregorio H. Reyes
arrived in Sydney in the morning of September 18, 1988, he went directly
to the lobby of Hotel Regent Sydney to register as a conference delegate. At
the registration desk, in the presence of other delegates from various
member of the conference secretariat that he could not register because
the foreign exchange demand draft for his registration fee had been
dishonored for the second time. A discussion ensued in the presence and
within the hearing of many delegates who were also registering. Feeling
terribly embarrassed and humiliated, petitioner Gregorio H. Reyes asked
the lady member of the conference secretariat that he be shown the subject
foreign exchange demand draft that had been dishonored as well as the
covering letter after which he promised that he would pay the registration
fees in cash. In the meantime he demanded that he be given his name
plate and conference kit. The lady member of the conference secretariat
relented and gave him his name plate and conference kit. It was only two
(2) days later, or on September 20, 1988, that he was given the dishonored
demand draft and a covering letter. It was then that he actually paid in cash
the registration fees as he had earlier promised.
BANKING | 05Dec | 28
xxx
xxx
Thus, the Bank had every reason to believe that the transaction finally went
through smoothly, considering that its New York account had been debited
and that there was no miscommunication between it and Westpac-New
York. SWIFT is a world wide association used by almost all banks and is
known to be the most reliable mode of communication in the international
banking business. Besides, the above procedure, with the Bank as drawer
and Westpac-Sydney as drawee, and with Westpac-New York as the
reimbursement Bank had been in place since 1960s and there was no
reason for the Bank to suspect that this particular demand draft would not
be honored by Westpac-Sydney.
From the evidence, it appears that the root cause of the
miscommunications of the Bank's SWIFT message is the erroneous
decoding on the part of Westpac-Sydney of the Bank's SWIFT message as
an MT799 format. However, a closer look at the Bank's Exhs. "6" and "7"
would show that despite what appears to be an asterick written over the
figure before "99", the figure can still be distinctly seen as a number "1"
and not number "7", to the effect that Westpac-Sydney was responsible for
the dishonor and not the Bank.
Moreover, it is not said asterisk that caused the misleading on the part of
the Westpac-Sydney of the numbers "1" to "7", since Exhs. "6" and "7" are
just documentary copies of the cable message sent to Wespac-Sydney.
Hence, if there was mistake committed by Westpac-Sydney in decoding the
cable message which caused the Bank's message to be sent to the wrong
department, the mistake was Westpac's, not the Bank's. The Bank had
done what an ordinary prudent person is required to do in the particular
situation, although appellants expect the Bank to have done more. The
Bank having done everything necessary or usual in the ordinary course of
banking transaction, it cannot be held liable for any embarrassment and
corresponding damage that appellants may have incurred.7
xxx
xxx
xxx
BANKING | 05Dec | 29
The courts a quo found that respondent bank did not misrepresent that it
was maintaining a deposit account with Westpac-Sydney. Respondent
bank's assistant cashier explained to Godofredo Reyes, representing PRCI
and petitioner Gregorio H. Reyes, how the transfer of Australian dollars
would be effected through Westpac-New York where the respondent bank
has a dollar account to Westpac-Sydney where the subject foreign
exchange demand draft (FXDD No. 209968) could be encashed by the
payee, the 20th Asian Racing Conference Secretariat. PRCI and its VicePresident for finance, petitioner Gregorio H. Reyes, through their said
representative, agreed to that arrangement or procedure. In other words,
the petitioners are estopped from denying the said arrangement or
procedure. Similar arrangements have been a long standing practice in
banking to facilitate international commercial transactions. In fact, the
SWIFT cable message sent by respondent bank to the drawee bank,
Westpac-Sydney, stated that it may claim reimbursement from its New York
branch, Westpac-New York, where respondent bank has a deposit dollar
account. The facts as found by the courts a quo show that respondent bank
did not cause an erroneous transmittal of its SWIFT cable message to
Westpac-Sydney. It was the erroneous decoding of the cable message on
the part of Westpac-Sydney that caused the dishonor of the subject foreign
exchange demand draft. An employee of Westpac-Sydney in Sydney,
Australia mistakenly read the printed figures in the SWIFT cable message of
respondent bank as "MT799" instead of as "MT199". As a result, WestpacSydney construed the said cable message as a format for a letter of credit,
and not for a demand draft. The appellate court correct found that "the
figure before '99' can still be distinctly seen as a number '1' and not
number '7'." Indeed, the line of a "7" is in a slanting position while the line
of a "1" is in a horizontal position. Thus, the number "1" in "MT199" cannot
be construed as "7".11
The evidence also shows that the respondent bank exercised that degree of
diligence expected of an ordinary prudent person under the circumstances
obtaining. Prior to the first dishonor of the subject foreign exchange
demand draft, the respondent bank advised Westpac-New York to honor the
reimbursement claim of Westpac-Sydney and to debit the dollar account12
of respondent bank with the former. As soon as the demand draft was
dishonored, the respondent bank, thinking that the problem was with the
reimbursement and without any idea that it was due to miscommunication,
re-confirmed the authority of Westpac-New York to debit its dollar account
for the purpose of reimbursing Westpac-Sydney.13 Respondent bank also
sent two (2) more cable messages to Westpac-New York inquiring why the
demand draft was not honored.14
With these established facts, we now determine the degree of diligence that
banks are required to exert in their commercial dealings. In Philippine Bank
of Commerce v. Court of Appeals15 upholding a long standing doctrine, we
BANKING | 05Dec | 30
ruled that the degree of diligence required of banks, is more than that of a
good father of a family where the fiduciary nature of their relationship with
their depositors is concerned. In other words banks are duty bound to treat
the deposit accounts of their depositors with the highest degree of care. But
the said ruling applies only to cases where banks act under their fiduciary
capacity, that is, as depositary of the deposits of their depositors. But the
same higher degree of diligence is not expected to be exerted by banks in
commercial transactions that do not involve their fiduciary relationship with
their depositors.
Considering the foregoing, the respondent bank was not required to exert
more than the diligence of a good father of a family in regard to the sale
and issuance of the subject foreign exchange demand draft. The case at bar
does not involve the handling of petitioners' deposit, if any, with the
respondent bank. Instead, the relationship involved was that of a buyer and
seller, that is, between the respondent bank as the seller of the subject
foreign exchange demand draft, and PRCI as the buyer of the same, with
the 20th Asian Racing conference Secretariat in Sydney, Australia as the
payee thereof. As earlier mentioned, the said foreign exchange demand
draft was intended for the payment of the registration fees of the
petitioners as delegates of the PRCI to the 20th Asian Racing Conference in
Sydney.
The evidence shows that the respondent bank did everything within its
power to prevent the dishonor of the subject foreign exchange demand
draft. The erroneous reading of its cable message to Westpac-Sydney by an
employee of the latter could not have been foreseen by the respondent
bank. Being unaware that its employee erroneously read the said cable
message, Westpac-Sydney merely stated that the respondent bank has no
deposit account with it to cover for the amount of One Thousand Six
Hundred Ten Australian Dollar (AU $1610.00) indicated in the foreign
exchange demand draft. Thus, the respondent bank had the impression
that Westpac-New York had not yet made available the amount for
reimbursement to Westpac-Sydney despite the fact that respondent bank
has a sufficient deposit dollar account with Westpac-New York. That was the
reason why the respondent bank had to re-confirm and repeatedly notify
Westpac-New York to debit its (respondent bank's) deposit dollar account
with it and to transfer or credit the corresponding amount to WestpacSydney to cover the amount of the said demand draft.
In view of all the foregoing, and considering that the dishonor of the
subject foreign exchange demand draft is not attributable to any fault of the
respondent bank, whereas the petitioners appeared to be under estoppel as
earlier mentioned, it is no longer necessary to discuss the alleged
application of Section 61 of the Negotiable Instruments Law to the case at
bar. In any event, it was established that the respondent bank acted in
good faith and that it did not cause the embarrassment of the petitioners in
Sydney, Australia. Hence, the Court of Appeals did not commit any
reversable error in its challenged decision.
WHEREFORE, the petition is hereby DENIED, and the assailed decision of
the Court of Appeals is AFFIRMED. Costs against the petitioners.
SO ORDERED.1wphi1.nt
BANKING | 05Dec | 31
PHILIPPINE
BANKING | 05Dec | 32
for payment to defendant Citibank on same date, December 19, 1977, and
the latter paid the face value of the check in the amount of P4,746,114.41.
Consequently, the amount of P4,746,114.41 was debited in plaintiff's
account with the defendant Citibank and the check was returned to the
plaintiff.
Upon verification, plaintiff discovered that its Citibank Check No. SN-04867
in the amount of P4,746,114.41 was not paid to the Commissioner of
Internal Revenue. Hence, in separate letters dated October 26, 1979,
addressed to the defendants, the plaintiff notified the latter that in case it
will be re-assessed by the BIR for the payment of the taxes covered by the
said checks, then plaintiff shall hold the defendants liable for
reimbursement of the face value of the same. Both defendants denied
liability and refused to pay.
In a letter dated February 28, 1980 by the Acting Commissioner of Internal
Revenue addressed to the plaintiff - supposed to be Exhibit "D", the latter
was officially informed, among others, that its check in the amount of P4,
746,114.41 was not paid to the government or its authorized agent and
instead encashed by unauthorized persons, hence, plaintiff has to pay the
said amount within fifteen days from receipt of the letter. Upon advice of
the plaintiff's lawyers, plaintiff on March 11, 1982, paid to the Bureau of
Internal Revenue, the amount of P4,746,114.41, representing payment of
plaintiff's percentage tax for the third quarter of 1977.
As a consequence of defendant's refusal to reimburse plaintiff of the
payment it had made for the second time to the BIR of its percentage
taxes, plaintiff filed on January 20, 1983 its original complaint before this
Court.
On December 24, 1985, defendant IBAA was merged with the Philippine
Commercial International Bank (PCI Bank) with the latter as the surviving
entity.
Defendant Citibank maintains that; the payment it made of plaintiff's
Citibank Check No. SN-04867 in the amount of P4,746,114.41 "was in due
course"; it merely relied on the clearing stamp of the depository/collecting
bank, the defendant IBAA that "all prior indorsements and/or lack of
indorsements guaranteed"; and the proximate cause of plaintiff's injury is
the gross negligence of defendant IBAA in indorsing the plaintiff's Citibank
check in question.
It is admitted that on December 19, 1977 when the proceeds of plaintiff's
Citibank Check No. SN-048867 was paid to defendant IBAA as collecting
bank, plaintiff was maintaining a checking account with defendant
Citibank."5
BANKING | 05Dec | 33
In G.R. No. 121479, appellant Ford presents the following propositions for
consideration:
I. Respondent Citibank is liable to petitioner Ford considering that:
1. As drawee bank, respondent Citibank owes to petitioner Ford, as the
drawer of the subject check and a depositor of respondent Citibank, an
absolute and contractual duty to pay the proceeds of the subject check only
to the payee thereof, the Commissioner of Internal Revenue.
2. Respondent Citibank failed to observe its duty as banker with respect to
the subject check, which was crossed and payable to "Payee's Account
Only."
3. Respondent Citibank raises an issue for the first time on appeal; thus the
same should not be considered by the Honorable Court.
4. As correctly held by the trial court, there is no evidence of gross
negligence on the part of petitioner Ford.9
II. PCI Bank is liable to petitioner Ford considering that:
1. There were no instructions from petitioner Ford to deliver the proceeds of
the subject check to a person other than the payee named therein, the
Commissioner of the Bureau of Internal Revenue; thus, PCIBank's only
obligation is to deliver the proceeds to the Commissioner of the Bureau of
Internal Revenue.10
2. PCIBank which affixed its indorsement on the subject check ("All prior
indorsement and/or lack of indorsement guaranteed"), is liable as collecting
bank.11
3. PCIBank is
proceedings.12
barred
from
raising
issues
of
fact
in
the
instant
BANKING | 05Dec | 34
On April 20, 1979, Ford drew another Citibank Check No. SN-16508 in the
amount of P6,311,591.73, representing the payment of percentage tax for
the first quarter of 1979 and payable to the Commissioner of Internal
Revenue. Again a BIR Revenue Tax Receipt No. A-1697160 was issued for
the said purpose.
From this 'Reynaldo Reyes' account, Castro drew various checks distributing
the sahres of the other participating conspirators namely (1) CRISANTO
BERNABE, the mastermind who formulated the method for the
embezzlement; (2) RODOLFO R. DE LEON a customs broker who negotiated
the initial contact between Bernabe, FORD's Godofredo Rivera and PCIB's
Remberto Castro; (3) JUAN VASTILLO who assisted de Leon in the initial
arrangements; (4) GODOFREDO RIVERA, FORD's accountant who passed
on the first check (Exhibit "A") to Castro; (5) REMERTO CASTRO, PCIB's
pro-manager at San Andres who performed the switching of checks in the
clearing process and opened the fictitious Reynaldo Reyes account at the
PCIB Meralco Branch; (6) WINSTON DULAY, PCIB's Assistant Manager at its
Meralco Branch, who assisted Castro in switching the checks in the clearing
process and facilitated the opening of the fictitious Reynaldo Reyes' bank
account; (7) ALEXIS MARINDO, Rivera's Assistant at FORD, who gave the
second check (Exh. "B") to Castro; (8) ELEUTERIO JIMENEZ, BIR Collection
Agent who provided the fake and spurious revenue tax receipts to make it
appear that the BIR had received FORD's tax payments.
Both checks were "crossed checks" and contain two diagonal lines on its
upper corner between, which were written the words "payable to the
payee's account only."
The checks never reached the payee, CIR. Thus, in a letter dated February
28, 1980, the BIR, Region 4-B, demanded for the said tax payments the
corresponding periods above-mentioned.
As far as the BIR is concernced, the said two BIR Revenue Tax Receipts
were considered "fake and spurious". This anomaly was confirmed by the
NBI upon the initiative of the BIR. The findings forced Ford to pay the BIR a
new, while an action was filed against Citibank and PCIBank for the
recovery of the amount of Citibank Check Numbers SN-10597 and 16508.
The Regional Trial Court of Makati, Branch 57, which tried the case, made
its findings on the modus operandi of the syndicate, as follows:
"A certain Mr. Godofredo Rivera was employed by the plaintiff FORD as its
General Ledger Accountant. As such, he prepared the plaintiff's check
marked Ex. 'A' [Citibank Check No. Sn-10597] for payment to the BIR.
Instead, however, fo delivering the same of the payee, he passed on the
check to a co-conspirator named Remberto Castro who was a pro-manager
of the San Andres Branch of PCIB.* In connivance with one Winston Dulay,
Castro himself subsequently opened a Checking Account in the name of a
fictitious person denominated as 'Reynaldo reyes' in the Meralco Branch of
PCIBank where Dulay works as Assistant Manager.
After an initial deposit of P100.00 to validate the account, Castro deposited
a worthless Bank of America Check in exactly the same amount as the first
FORD check (Exh. "A", P5,851,706.37) while this worthless check was
coursed through PCIB's main office enroute to the Central Bank for clearing,
replaced this worthless check with FORD's Exhibit 'A' and accordingly
tampered the accompanying documents to cover the replacement. As a
result, Exhibit 'A' was cleared by defendant CITIBANK, and the fictitious
deposit account of 'Reynaldo Reyes' was credited at the PCIB Meralco
Branch with the total amount of the FORD check Exhibit 'A'. The same
method was again utilized by the syndicate in profiting from Exh. 'B'
BANKING | 05Dec | 35
Petitioner Ford prays that judgment be rendered setting aside the portion of
the Court of Appeals decision and its resolution dated March 5, 1997, with
respect to the dismissal of the complaint against PCIBank and holding
Citibank solely responsible for the proceeds of Citibank Check Numbers SN10597 and 16508 for P5,851,706.73 and P6,311,591.73 respectively.
Ford avers that the Court of Appeals erred in dismissing the complaint
against defendant PCIBank considering that:
I. Defendant PCIBank was clearly negligent when it failed to exercise the
diligence required to be exercised by it as a banking insitution.
II. Defendant PCIBank clearly failed to observe the diligence required in the
selection and supervision of its officers and employees.
III. Defendant PCIBank was, due to its negligence, clearly liable for the loss
or damage resulting to the plaintiff Ford as a consequence of the
substitution of the check consistent with Section 5 of Central Bank Circular
No. 580 series of 1977.
IV. Assuming arguedo that defedant PCIBank did not accept, endorse or
negotiate in due course the subject checks, it is liable, under Article 2154 of
the Civil Code, to return the money which it admits having received, and
which was credited to it its Central bank account.16
The main issue presented for our consideration by these petitions could be
simplified as follows: Has petitioner Ford the right to recover from the
collecting bank (PCIBank) and the drawee bank (Citibank) the value of the
checks intended as payment to the Commissioner of Internal Revenue? Or
has Ford's cause of action already prescribed?
Note that in these cases, the checks were drawn against the drawee bank,
but the title of the person negotiating the same was allegedly defective
because the instrument was obtained by fraud and unlawful means, and the
proceeds of the checks were not remitted to the payee. It was established
that instead of paying the checks to the CIR, for the settlement of the
approprite quarterly percentage taxes of Ford, the checks were diverted
and encashed for the eventual distribution among the mmbers of the
syndicate. As to the unlawful negotiation of the check the applicable law is
Section 55 of the Negotiable Instruments Law (NIL), which provides:
"When title defective -- The title of a person who negotiates an instrument
is defective within the meaning of this Act when he obtained the
instrument, or any signature thereto, by fraud, duress, or fore and fear, or
other unlawful means, or for an illegal consideration, or when he negotiates
it in breach of faith or under such circumstances as amount to a fraud."
BANKING | 05Dec | 36
that the drawer was negligent, the drawee bank was still ordered to pay
damages.
Furthermore, Ford contends the Godofredo rivera was not authorized to
make any representation in its behalf, specifically, to divert the proceeds of
the checks. It adds that Citibank raised the issue of imputed negligence
against Ford for the first time on appeal. Thus, it should not be considered
by this Court.
On this point, jurisprudence regarding the imputed negligence of employer
in a master-servant relationship is instructive. Since a master may be held
for his servant's wrongful act, the law imputes to the master the act of the
servant, and if that act is negligent or wrongful and proximately results in
injury to a third person, the negligence or wrongful conduct is the
negligence or wrongful conduct of the master, for which he is liable.18 The
general rule is that if the master is injured by the negligence of a third
person and by the concuring contributory negligence of his own servant or
agent, the latter's negligence is imputed to his superior and will defeat the
superior's action against the third person, asuming, of course that the
contributory negligence was the proximate cause of the injury of which
complaint is made.19
Accordingly, we need to determine whether or not the action of Godofredo
Rivera, Ford's General Ledger Accountant, and/or Alexis Marindo, his
assistant, was the proximate cause of the loss or damage. AS defined,
proximate cause is that which, in the natural and continuous sequence,
unbroken by any efficient, intervening cause produces the injury and
without the result would not have occurred.20
It appears that although the employees of Ford initiated the transactions
attributable to an organized syndicate, in our view, their actions were not
the proximate cause of encashing the checks payable to the CIR. The
degree of Ford's negligence, if any, could not be characterized as the
proximate cause of the injury to the parties.
The Board of Directors of Ford, we note, did not confirm the request of
Godofredo Rivera to recall Citibank Check No. SN-04867. Rivera's
instruction to replace the said check with PCIBank's Manager's Check was
not in theordinary course of business which could have prompted PCIBank
to validate the same.
As to the preparation of Citibank Checks Nos. SN-10597 and 16508, it was
established that these checks were made payable to the CIR. Both were
crossed checks. These checks were apparently turned around by Ford's
emploees, who were acting on their own personal capacity.
Given these circumstances, the mere fact that the forgery was committed
by a drawer-payor's confidential employee or agent, who by virtue of his
position had unusual facilities for perpertrating the fraud and imposing the
forged paper upon the bank, does notentitle the bank toshift the loss to the
drawer-payor, in the absence of some circumstance raising estoppel against
the drawer.21 This rule likewise applies to the checks fraudulently
negotiated or diverted by the confidential employees who hold them in their
possession.
With respect to the negligence of PCIBank in the payment of the three
checks involved, separately, the trial courts found variations between the
negotiation of Citibank Check No. SN-04867 and the misapplication of total
proceeds of Checks SN-10597 and 16508. Therefore, we have to scrutinize,
separately, PCIBank's share of negligence when the syndicate achieved its
ultimate agenda of stealing the proceeds of these checks.
G.R. Nos. 121413 and 121479
Citibank Check No. SN-04867 was deposited at PCIBank through its Ermita
Branch. It was coursed through the ordinary banking transaction, sent to
Central Clearing with the indorsement at the back "all prior indorsements
and/or lack of indorsements guaranteed," and was presented to Citibank for
payment. Thereafter PCIBank, instead of remitting the proceeds to the CIR,
prepared two of its Manager's checks and enabled the syndicate to encash
the same.
On record, PCIBank failed to verify the authority of Mr. Rivera to negotiate
the checks. The neglect of PCIBank employees to verify whether his letter
requesting for the replacement of the Citibank Check No. SN-04867 was
duly authorized, showed lack of care and prudence required in the
circumstances.
Furthermore, it was admitted that PCIBank is authorized to collect the
payment of taxpayers in behalf of the BIR. As an agent of BIR, PCIBank is
duty bound to consult its principal regarding the unwarranted instructions
given by the payor or its agent. As aptly stated by the trial court, to wit:
"xxx. Since the questioned crossed check was deposited with IBAA [now
PCIBank], which claimed to be a depository/collecting bank of BIR, it has
the responsibility to make sure that the check in question is deposited in
Payee's account only.
xxx
xxx
xxx
As agent of the BIR (the payee of the check), defendant IBAA should
receive instructions only from its principal BIR and not from any other
person especially so when that person is not known to the defendant. It is
BANKING | 05Dec | 37
very imprudent on the part of the defendant IBAA to just rely on the
alleged telephone call of the one Godofredo Rivera and in his signature
considering that the plaintiff is not a client of the defendant IBAA."
It is a well-settled rule that the relationship between the payee or holder of
commercial paper and the bank to which it is sent for collection is, in the
absence of an argreement to the contrary, that of principal and agent.22 A
bank which receives such paper for collection is the agent of the payee or
holder.23
Even considering arguendo, that the diversion of the amount of a check
payable to the collecting bank in behalf of the designated payee may be
allowed, still such diversion must be properly authorized by the payor.
Otherwise stated, the diversion can be justified only by proof of authority
from the drawer, or that the drawer has clothed his agent with apparent
authority to receive the proceeds of such check.
Citibank further argues that PCI Bank's clearing stamp appearing at the
back of the questioned checks stating that ALL PRIOR INDORSEMENTS
AND/OR LACK OF INDORSEMENTS GURANTEED should render PCIBank
liable because it made it pass through the clearing house and therefore
Citibank had no other option but to pay it. Thus, Citibank had no other
option but to pay it. Thus, Citibank assets that the proximate cause of
Ford's injury is the gross negligence of PCIBank. Since the questione
dcrossed check was deposited with PCIBank, which claimed to be a
depository/collecting bank of the BIR, it had the responsibility to make sure
that the check in questions is deposited in Payee's account only.
Indeed, the crossing of the check with the phrase "Payee's Account Only," is
a warning that the check should be deposited only in the account of the
CIR. Thus, it is the duty of the collecting bank PCIBank to ascertain that the
check be deposited in payee's account only. Therefore, it is the collecting
bank (PCIBank) which is bound to scruninize the check and to know its
depositors before it could make the clearing indorsement "all prior
indorsements and/or lack of indorsement guaranteed".
In Banco de Oro Savings and Mortgage Bank vs. Equitable Banking
Corporation,24 we ruled:
"Anent petitioner's liability on said instruments, this court is in full accord
with the ruling of the PCHC's Board of Directors that:
'In presenting the checks for clearing and for payment, the defendant made
an express guarantee on the validity of "all prior endorsements." Thus,
stamped at the back of the checks are the defedant's clear warranty: ALL
PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED.
Without such warranty, plaintiff would not have paid on the checks.'
BANKING | 05Dec | 38
checks were sufficiently funded and (3) the endorsement of the Payee or
lack thereof was guaranteed by PCI Bank (formerly IBAA), thus, it has the
obligation to honor and pay the same.
For its part, Ford contends that Citibank as the drawee bank owes to Ford
an absolute and contractual duty to pay the proceeds of the subject check
only to the payee thereof, the CIR. Citing Section 6232 of the Negotiable
Instruments Law, Ford argues that by accepting the instrument, the
acceptro which is Citibank engages that it will pay according to the tenor of
its acceptance, and that it will pay only to the payee, (the CIR), considering
the fact that here the check was crossed with annotation "Payees Account
Only."
As ruled by the Court of Appeals, Citibank must likewise answer for the
damages incurred by Ford on Citibank Checks Numbers SN 10597 and
16508, because of the contractual relationship existing between the two.
Citibank, as the drawee bank breached its contractual obligation with Ford
and such degree of culpability contributed to the damage caused to the
latter. On this score, we agree with the respondent court's ruling.
Citibank should have scrutinized Citibank Check Numbers SN 10597 and
16508 before paying the amount of the proceeds thereof to the collecting
bank of the BIR. One thing is clear from the record: the clearing stamps at
the back of Citibank Check Nos. SN 10597 and 16508 do not bear any
initials. Citibank failed to notice and verify the absence of the clearing
stamps. Had this been duly examined, the switching of the worthless
checks to Citibank Check Nos. 10597 and 16508 would have been
discovered in time. For this reason, Citibank had indeed failed to perform
what was incumbent upon it, which is to ensure that the amount of the
checks should be paid only to its designated payee. The fact that the
drawee bank did not discover the irregularity seasonably, in our view,
consitutes negligence in carrying out the bank's duty to its depositors. The
point is that as a business affected with public interest and because of the
nature of its functions, 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.33
Thus, invoking the doctrine of comparative negligence, we are of the view
that both PCIBank and Citibank failed in their respective obligations and
both were negligent in the selection and supervision of their employees
resulting in the encashment of Citibank Check Nos. SN 10597 AND 16508.
Thus, we are constrained to hold them equally liable for the loss of the
proceeds of said checks issued by Ford in favor of the CIR.
Time and again, we have stressed that banking business is so impressed
with public interest where the trust and confidence of the public in general
is of paramount umportance such that the appropriate standard of diligence
BANKING | 05Dec | 39
BANKING | 05Dec | 40
On October 13, 1966 and December 12, 1966, petitioner made a time
deposit, for one year with 6% interest, of One Hundred Fifty Thousand
Pesos (P150,000.00) with the respondent Overseas Bank of Manila. 3
Concepcion Maneja also made a time deposit, for one year with 6-%
interest, on March 6, 1967, of Two Hundred Thousand Pesos (P200,000.00)
with the same respondent Overseas Bank of Manila. 4
BANKING | 05Dec | 41
By the very nature of the claims and causes of action against respondents,
they in reality are recovery of time deposits plus interest from respondent
Overseas Bank of Manila, and recovery of damages against respondent
Central Bank for its alleged failure to strictly supervise the acts of the other
respondent Bank and protect the interests of its depositors by virtue of the
constructive trust created when respondent Central Bank required the other
respondent to increase its collaterals for its overdrafts said emergency
loans, said collaterals allegedly acquired through the use of depositors
money. These claims shoud be ventilated in the Court of First Instance of
proper jurisdiction as We already pointed out when this Court denied
petitioner's motion to intervene in G.R. No. L-29352. Claims of these nature
are not proper in actions for mandamus and prohibition as there is no
shown clear abuse of discretion by the Central Bank in its exercise of
supervision over the other respondent Overseas Bank of Manila, and if
there was, petitioner here is not the proper party to raise that question, but
rather the Overseas Bank of Manila, as it did in G.R. No. L-29352. Neither is
there anything to prohibit in this case, since the questioned acts of the
respondent Central Bank (the acts of dissolving and liquidating the
Overseas Bank of Manila), which petitioner here intends to use as his basis
for claims of damages against respondent Central Bank, had been
accomplished a long time ago.
Furthermore, both parties overlooked one fundamental principle in the
nature of bank deposits when the petitioner claimed that there should be
created a constructive trust in his favor when the respondent Overseas
Bank of Manila increased its collaterals in favor of respondent Central Bank
for the former's overdrafts and emergency loans, since these collaterals
were acquired by the use of depositors' money.
Bank deposits are in the nature of irregular deposits. They are really loans
because they earn interest. All kinds of bank deposits, whether fixed,
savings, or current are to be treated as loans and are to be covered by the
law on loans. 14 Current and savings deposit are loans to a bank because it
can use the same. The petitioner here in making time deposits that earn
interests with respondent Overseas Bank of Manila was in reality a creditor
of the respondent Bank and not a depositor. The respondent Bank was in
turn a debtor of petitioner. Failure of he respondent Bank to honor the time
deposit is failure to pay s obligation as a debtor and not a breach of trust
arising from depositary's failure to return the subject matter of the deposit
WHEREFORE, the petition is dismissed for lack of merit, with costs against
petitioner.
SO ORDERED.
Antonio, Abad Santos, JJ., concur.
BANKING | 05Dec | 42
Separate Opinions
Separate Opinions
AQUINO, J., concurring:
The petitioner prayed that the Central Bank be ordered to pay his time
deposits of P350,000, plus interests, which he could not recover from the
distressed Overseas Bank of Manila, and to declare all the assets assigned
or mortgaged by that bank and the Ramos group to the Central Bank as
trust properties for the benefit of the petitioner and other depositors.
The petitioner has no causes of action agianst the Central Bank to obtain
those reliefs. They cannot be granted in petitioner's instant original actions
in this Court for mandamus and prohibition. It is not the Central Bank's
ministerial duty to pay petitioner's time deposits or to hold the mortgaged
properties in trust for the depositors of the Overseas Bank of Manila. The
petitioner has no cause of action for prohibition, a remedy usually available
against any tribunal, board, corporation or person exercising judicial or
ministerial functions.
Since the Overseas Bank of Manila was found to be insolvent and the
Superintendent of Banks was ordered to take over its assets preparatory to
its liquidation under section 29 of Republic Act No. 265 (p. 197, Rollo,
Manifestation of September 19, 1973), petitioner's remedy is to file his
claim in the liquidating proceeding (Central Bank vs. Morfe, L-38427, March
12, 1975, 63 SCRA 114; Hernandez vs. Rural Bank of Lucena, Inc., L29791, January 10, 1978, 81 SCRA 75).
BANKING | 05Dec | 43
JESUS
B.
x--------------------x
G.R. No. 128184
BANKING | 05Dec | 44
Lot 23-B and Lot 23-C for which TCT Nos. 14414, 14415 and 14416,
respectively,11 were issued. Joselito posthaste sold Lot 23-A to Lilian
Toundjis who, pursuant to a Contract to Sell executed on March 23,
1990,12 undertook to pay Joselito the P.5 Million balance of the P2.5 Million
purchase price once she is placed in possession of a fenced-off property.
And, for shares of stock, Joselito assigned on February 26, 1991, the other
two (2) lots, i.e., Lot 23-B and Lot 23-C to Century Realty and Development
Corporation ("Century Realty") which, after securing TCT Nos. 34390 and
34391 therefor, mortgaged13 the same to Premiere Development Bank,
Inc. ("Premiere Bank") to secure a P2.5 Million loan.
Clashing claims of ownership first came to a head when, sometime in May
1990, Liberato G. Yambao and his agents forcibly prevented Joselitos hired
hands from concrete-fencing the subject property. The police and eventually
the National Bureau of Investigation (NBI) entered into the picture.
In the meantime, Yambao, Rodriquez and Morales as pro indiviso buyers of
Lot No. 23, caused the annotation on December 17, 1990, January 16,
1991 and February 15, 1991 of their respective adverse claims on Joselitos
TCT Nos. 14414, 14415 and 14416. They then filed with the Regional Trial
Court at Quezon City suit against Joselito, Century Realty and Premiere
Bank for quieting of title and annulment of said defendants fake titles with
prayer for damages.
In their amended complaint,14 docketed as Civil Case No. Q-92-8455 and
raffled to Branch 88 of the court, Yambao, Rodriguez and Morales alleged,
inter alia, the following:
1. That Joselito, taking advantage of the 1988 burning of the Quezon City
Hall, and "using an impostor, who pretended to be Vicente Garaygay, by
means of fraud, deceit, and unlawful manipulation succeeded in
administratively reconstituting the aforesaid property (sic) in 1990 on the
basis of an alleged owners copy, which on its face is patently fake and
spurious and fake title bearing [TCT] No. 9780 (693)".
2. That a reconstituted title secured by means of fraud, deceit, or other
machinations is void ab initio under Section 11 of Republic Act (R.A.) 6732;
3. That after causing the reconstitution of the title, Joselito "acted fast to
consummate his scheme of depriving the plaintiffs of their ownership . . . of
the [disputed] land by the following successive acts", referring to Joselitos
act of securing title in his name, subdividing Lot No. 23 and securing titles
to and disposing of the subdivided lots;
4. That they (Yambao, Rodriguez and Morales) filed their separate adverse
claims and caused the same to be annotated at the back of Joselitos TCT
Nos. 14414, 14415 and 14416; that while the adverse claim of Rodriquez
BANKING | 05Dec | 45
BANKING | 05Dec | 46
whether or not the same court erred in finding Garaygay of Rizals owners
copy, TCT No. 9780, instead of the Garaygay of Cebus copy, TCT No. 9780
(693), as the authentic title covering Lot 23.
Petitioners urge reversal on the submission that, unlike Garaygay of Cebu
who came forward and took the witness stand, the identity of Garaygay of
Rizal - who they stressed at every turn had not been presented to testify has not been established. Albeit they do not say so, the inference of their
posture is that an impostor has taken the identity of Vicente T. Garaygay.
Corollarily, they also contend that the authenticity of the impostor
Garaygays adverted owners copy of TCT No. 9780 has remained unproven.
The desired reversal cannot be granted.
Both defining documents, Exhibit "1" and Exhibit "B", appear to have been
issued by the appropriate Registry of Deeds and as such would ordinarily
enjoy the guarantees flowing from the legal presumption of regularity of
issuance.27 But how and precisely when the legal aberration occurred
where two (2) owners duplicate certificates ended up in the hands of two
(2) distinct persons, complete strangers to each other, are questions which
the records do not provide clear answer. It may not be idle to speculate,
though, that fraud or other improper manipulations had been employed
along the way, with likely the willing assistance of land registry official/s, to
secure what for the nonce may be tagged as the other title. Consistent with
the presumption of regularity of issuance, however, the authenticity of one
copy has to be recognized. And necessarily, one of the two (2) outstanding
owners copies has to be struck down as wrongly issued, if not plainly
spurious, under the governing Torrens system of land registration. For, a
piece of land cannot plausibly be covered at the same time, under the same
concept of ownership, by two (2) outstanding certificates of title, each
having the same validity, force and effect. One has to be spurious, or at
least one has to prevail over the other.28 Else, the ideal sought to be
achieved by the Torrens system would be illusory. As it were, the Torrens
system of land registration aims to obviate possible conflicts of title by
giving the public the right to rely upon the face of the Torrens certificate
and to dispense, as a rule, with the necessity of inquiring further;29 on the
part of the registered owner, the system gives him complete peace of mind
that he would be secured in his ownership as long as he has not voluntarily
disposed of any right over the covered property.30
The categorical conclusion of the Court of Appeals confirmatory of that of
the trial court is that Exhibit "B" is genuine and that Garaygay of Rizal is a
real person. On the other hand, Exhibit "1" was adjudged spurious. These
factual determinations as a matter of long and sound appellate practice
must be accorded great weight, and, as rule, should not be disturbed on
appeal,31 save for the most compelling and cogent reasons,32 like when
BANKING | 05Dec | 47
such factual findings were drawn from a vacuum, or, in fine, reached
arbitrarily.33
To be sure, arbitrariness cannot contextually be imputed on the appellate
court. Its finding that Garaygay of Rizal is an authentic person, once
residing in and a registered voter of Angono, Rizal has adequate evidentiary
support in his voters ID, the COMELEC and barangay certifications
aforementioned and the testimony of an occupant of Lot 23. And for
whatever it is worth, Garaygay of Cebu no less testified that there are three
(3) Vicente T. Garaygay in the Philippines.34 The reality that the private
respondents failed to put Garaygay of Rizal on the witness box to identify
his copy of the title and defend his erstwhile ownership of Lot 23 may
perhaps support petitioners claim about his being fictitious if his
whereabouts during the trial, if still alive then, was known. But, as found by
the appellate court, "Yambao never heard from or about Garaygay of Rizal"
after they have executed the Deed of Absolute Sale (Exh. "A", supra) on
February 11, 1986.
Petitioners attribution of error on the part of the appellate courts declaring
Garaygay of Rizal as owner of the disputed parcel of land is untenable. It
cannot be overemphasized that the possessor-owner of the authentic copy
of TCT No. 9780 was necessary the real owner of Lot 23. That possessory
distinction happened to belong to Garaygay of Rizal.
Moreover, facts and reasonable inferences drawn therefrom point to Exhibit
"1" as being spurious, necessarily leaving Exhibit "B" as the authentic
duplicate copy. For starters, there is the appearance and physical condition
of the owners copies in question which, if properly evaluated in the light of
attendant circumstances, would help in determining which is genuine and
which is sham.35 For, the condition and physical appearance of a document
would, to borrow from Junquera, reveal, albeit silently, "the naked truth,
hiding nothing, forgetting nothing and exaggerating nothing." As aptly
observed by the appellate court, rationalizing its conclusion adverted to
above, Exhibit "B" has no defect, except for its partly being torn.
Respondents explanation for the defective state of Exhibit "B", as related to
them by Garaygay of Rizal, i.e., it was due to exposure of the document to
the elements, like rain, following his evacuation from Manila to a small nipa
hut in Angono, Rizal during the Japanese occupation,36 merited approval
from the trial court and the Court of Appeals. Both courts, being in a better
position to pass upon the credibility of petitioners witness and appreciate
his testimony respecting the less than usual appearance of Exhibit "B", their
findings command the respect of this Court.
Lest it be overlooked, what might be considered as defects in Garaygay of
Cebus copy are, at bottom, the combined effects thereon of the passage of
time and the elements. Standing alone, these defects do not, in our view,
undermine the integrity of the document.
However, unlike Exhibit "B", Exhibit "1" contained entries and other
uncommon markings or features which could not have existed without
human intervention. Although any one of them may perhaps not be
appreciable in isolation, these features and/or markings, taken together,
indeed put the integrity of Exhibit "1" under heavy cloud and indeed cast
doubt on its genuineness.
The irregularities listed in the appealed decision may be summed up in the
following wise:
1. Two (2) Victory stamps issued after liberation were strangely pasted on
the seal of Garaygay of Cebus title Exhibit "1" - when such stamps were
not yet in existence when such title was entered in the Registry of Deeds of
Manila on June 14, 1944;
2. Exhibit "1" was prepared on "Judicial Form No. 109-D Revised June
1945", which came into circulation after June 14, 1944;
3. Exhibit "1" bears the handwritten figure "9780" in ink above the
typewritten number "693". There is no initial to suggest that the
handwritten number "9780 over the typewritten title number "693" was
officially authorized;
4. The first letter "Y" in the surname "Garaygay" in Exhibit "1" was inserted
in ink. In contrast, there is no such insertion in Exhibit "B"; and
5. Exhibit "1" carries the annotation "subject to further disposition by the
government with respect to real estate transactions consummated during
the Japanese regime, and subject to the provisions of Sec. 4, Rule 74 of the
New Rules of Court".37 Such annotation is supposed to have been
contemporaneously made on the date of the issuance of the title in 1944.
Yet, in what appears to be an anomalous instance, advertence is made to
"transactions consummated during the Japanese regime" and to "Rule 74 of
the Rules of Court", logically implying, as aptly observed by the Court of
Appeals, that the annotation was entered after liberation and also after
1964 when the New Rules of Court came into effect.
Almost as if it were an afterthought, petitioners explained that the Victory
stamps could have been pasted, the 1945 revised judicial form utilized, and
the annotations referred to in item # (5) entered when the TCT of Garaygay
of Cebu was reissued. Anent the number "9780" appearing in ink, the
proffered explanation was that the handwritten "9780" was a mere
provisional marking.
The foregoing explanations are, at best speculative, thus correctly struck
down by the appellate court. And unfortunately, Garaygay of Cebu, the best
BANKING | 05Dec | 48
person to shed light on the foregoing unusual situations and help the
limping case of the petitioners, could not himself offer an explanation.
Petitioners insistence that the inscription on Garaygay of Cebus copy of the
deed of mortgage and the discharge of mortgage he constituted over Lot 23
in favor of Meralco Employees Savings and Loan Association proves the
authenticity of the latters owner duplicate is valid to a point. But, to
suggest that such inscription could not have been possible were his title
spurious is altogether a different matter. We need not cite cases
memorialized in books of jurisprudence where land dealings are annotated
on reconstituted certificates secured thru fraud or otherwise issued
irregularly. Stated a little differently, an annotation of what is otherwise a
bona-fide land transaction is not a peremptory argument against the
spurious character, if that be the case, of the document on which it is
annotated.
In the same token, the payment by Garaygay of Cebu of land taxes on Lot
23 does not also necessary detract from the spurious nature of his title,
Exhibit "1". After all, any one can pay real estate taxes on a given property
without being quizzed by the local treasury whether or not the payor owns
the real property in question. This is not to say of course that tax receipts
are evidence of ownership, since they are not, albeit they are good indicia
of possession in the concept of owner, for no one would ordinarily be paying
taxes for a property not in his actual or at least constructive possession.38
Other than paying taxes from 1949 to 199039 (mistakenly stated by
respondent court as from 1949 to 1960), however, Garaygay of Cebu and
this holds true for his nephew Joselito - did not appear before the current
stand-off to have exercised dominion over Lot 23. For one, it has not been
shown that Garaygay of Cebu was at any time in possession of the property
in question, unlike his namesake from Rizal who managed to place the
property under the care of certain individuals who built semi-permanent
structure-dwelling houses thereon without so much of a protest from
Garaygay of Cebu or his nephew Joselito after the latter purportedly bought
the property. For another, neither Garaygay of Cebu nor his nephew Joselito
ever instituted any action to eject or recover possession from the occupants
of Lot 23. This passivity bespeaks strongly against their claim of ownership.
It has been said that a partys failure to raise a restraining arm or a shout
of dissent to anothers possession for an unreasonably long period is simply
contrary to his claim of ownership.40 Not lost on this Court are
circumstances noted by the trial court which negatively reflect on Garaygay
of Cebus and his nephews claim of ownership. Some excerpts of what the
trial court wrote:
"On its face, Exh. "5" [the original copy of the deed of sale between
Garaygay and his nephew] was notarized by one Armando Pulgado.
However, there are certifications by both the Bureau of National Archives
BANKING | 05Dec | 49
application for reconstitution, and those officers in the LRA who followed it
up and who thereafter subdivided the land into three lots for easier sale,
those at the NBI who tried to persuade Yambao and Morales to settle the
dispute . . . are apparently part of the joint venture or stand to profit from
it"
This brings us to the core of Toundjis and Premiere Banks petitions. The
first asserts the rights of a purchaser and the other, that of a mortgagee, in
good faith and for value of Lot 23, a status respectively denied them by the
appellate court.
The rule that a subsequent declaration of a title as null and void is not a
ground for nullifying the contractual right of a purchaser, rmortgagee or
other transferees in good faith, with the exceptions thereto, is well-settled.
Where the certificate of title is in the name of the seller or mortgagor, the
innocent purchaser or mortgagee for value has the right to rely on what
appears on the certificate without inquiring further.41 In the absence of
anything to excite or arouse suspicion, or except when the party concerned
had actual knowledge of facts or circumstances that should impel a
reasonably cautious person to make such further inquiry, said purchaser or
mortgagee is without obligation to look beyond the certificate and
investigate the title of the seller or mortgagor. Thus, where innocent third
persons, relying on the correctness of the certificate, acquire rights over the
property as buyer or mortgagee, the subsequent declaration of nullity of
title is not a ground for nullifying the right of such buyer or mortgagee.42
Tested by the above norm, may Toundjis be considered, as she has claimed,
an innocent purchaser for value, meaning one who buys or acquires, for
valuable consideration, a piece of land of another without notice that some
other person has a right to, or interest in, such property at the time of
purchase, or before he has notice of the claim or interest of some other
persons in the property.43
The Court of Appeals rejected the claim of Toundjis, and rightly so.
A study of the record shows that TCT 14414 covering Lot. 23-A that
Toundjis contracted to buy from Joselito carried an annotation that it was
administratively reconstituted. Records also indicate that Toundjis knew at
the time of the sale that Joselito did not have possession of the lot
inasmuch as she agreed to pay the balance of the purchase price as soon
as the seller can fence off the property and surrender physical possession
thereof to her.
Even for these two (2) reasons alone, which should have placed Toundjis on
guard respecting Joselitos title, her claim of being a bona fide purchaser for
value must fail. The rejection, therefore, by the Court of Appeals of such
claim is correct. Likewise acceptable is the appellate courts holding, citing
BANKING | 05Dec | 50
This Court need not belabor the effects on A.M. P-91-593 of the appealed
decision of the Court of Appeals, as hereby affirmed.
WHEREFORE, the instant petitions are DENIED and the impugned Decision
of the Court of Appeals AFFIRMED.
Costs against petitioners.
SO ORDERED.
BANKING | 05Dec | 51
FIRST DIVISION
[G.R. No. L-53194. March 14, 1988.]
car. Santos however removed and stole a check from his check book
without the knowledge and consent of private Respondent. No doubt private
respondent cannot be considered negligent under the circumstances of the
case.
DECISION
SYLLABUS
GANCAYCO, J.:
1.
MERCANTILE LAW; NEGOTIABLE INSTRUMENTS; CHECKS; BANKS
PRIME DUTY IS TO ASCERTAIN GENUINENESS OF SIGNATURE OF DRAWER
OR DEPOSITOR. The prime duty of a bank is to ascertain the
genuineness of the signature of the drawer or the depositor on the check
being encashed. It is expected to use reasonable business prudence in
accepting and cashing a check presented to it.
2.
REMEDIAL LAW; EVIDENCE; FINDINGS OF FACTS OF THE TRIAL
COURT, CONCLUSIVE. In this case the findings of facts of the court a quo
are conclusive. The trial court found that a comparison of the signature on
the forged check and the sample signatures of private respondent show
marked differences as the graceful lines in the sample signature which is
completely different from those of the signature on the forged check.
Indeed the NBI handwriting expert Estelita Santiago Agnes whom the trial
court considered to be an "unbiased scientific expert" indicated the marked
differences between the signature of private respondent on the sample
signatures and the questioned signature. Notwithstanding the testimony of
Col. Fernandez, witness for petitioner, advancing the opinion that the
questioned signature appears to be genuine, the trial court by merely
examining the pictorial report presented by said witness, found a marked
difference in the second "c" in Francisco as written on the questioned
signature as compared to the sample signatures, and the separation
between the "s" and the "c" in the questioned signature while they are
connected in the sample signatures. Obviously, petitioner was negligent in
encashing said forged check without carefully examining the signature
which shows marked variation from the genuine signature of private
Respondent.
3.
MERCANTILE
LAW;
NEGOTIABLE
INSTRUMENTS;
CHECKS;
NEGLIGENCE ON THE PART OF THE DRAWER TO ABSOLVE BANK FROM
LIABILITY ON FORGED CHECK, ABSENT. In reference to the allegation of
the petitioner that it is the negligence of private respondent that is the
cause of the loss which he suffered, the trial court held otherwise. Private
respondent trusted Ernesto Santos as a classmate and a friend. He brought
him along in his car to the bank and he left his personal belongings in the
BANKING | 05Dec | 52
In this case the findings of facts of the court a quo are conclusive. The trial
court found that a comparison of the signature on the forged check and the
sample signatures of private respondent show marked differences as the
graceful lines in the sample signature which is completely different from
those of the signature on the forged check. Indeed the NBI handwriting
expert Estelita Santiago Agnes whom the trial court considered to be an
"unbiased scientific expert" indicated the marked differences between the
signature of private respondent on the sample signatures and the
questioned signature. Notwithstanding the testimony of Col. Fernandez,
witness for petitioner, advancing the opinion that the questioned signature
appears to be genuine, the trial court by merely examining the pictorial
report presented by said witness, found a marked difference in the second
"c" in Francisco as written on the questioned signature as compared to the
sample signatures, and the separation between the "s" and the "c" in the
questioned signature while they are connected in the sample signatures. 2
Obviously, petitioner was negligent in encashing said forged check without
carefully examining the signature which shows marked variation from the
genuine signature of private Respondent.
In reference to the allegation of the petitioner that it is the negligence of
private respondent that is the cause of the loss which he suffered, the trial
court held:jgc:chanrobles.com.ph
"The act of plaintiff in leaving his checkbook in the car while he went out for
a short while can not be considered negligence sufficient to excuse the
defendant bank from its own negligence. It should be borne in mind that
when defendant left his car, Ernesto Santos, a long time classmate and
friend remained in the same. Defendant could not have been expected to
know that the said Ernesto Santos would remove a check from his
checkbook. Defendant had trust in his classmate and friend. He had no
reason to suspect that the latter would breach that trust."cralaw virtua1aw
library
We agree.
Private respondent trustee Ernesto Santos as a classmate and a friend. He
brought him along in his car to the bank and he left his personal belongings
in the car. Santos however removed and stole a check from his check book
without the knowledge and consent of private Respondent. No doubt private
respondent cannot be considered negligent under the circumstances of the
case.
WHEREFORE, the petition is DISMISSED for lack of merit with costs against
petitioner.
SO ORDERED.
BANKING | 05Dec | 53
FIRST DIVISION
[G.R. No. 138569. September 11, 2003.]
THE CONSOLIDATED BANK and TRUST CORPORATION, Petitioner, v.
COURT OF APPEALS and L.C. DIAZ and COMPANY, CPAs,
Respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review of the Decision 1 of the Court of Appeals
dated 27 October 1998 and its Resolution dated 11 May 1999. The assailed
decision reversed the Decision 2 of the Regional Trial Court of Manila,
Branch 8, absolving petitioner Consolidated. Bank and Trust Corporation,
now known as Solidbank Corporation ("Solidbank"), of any liability. The
questioned resolution of the appellate court denied the motion for
reconsideration of Solidbank but modified the decision by deleting the
award of exemplary damages, attorneys fees, expenses of litigation and
cost of suit.chanrob1es virtua1 1aw 1ibrary
The Facts
Solidbank is a domestic banking corporation organized and existing under
Philippine laws. Private respondent L.C. Diaz and Company, CPAs ("L.C.
Diaz"), is a professional partnership engaged in the practice of accounting.
Sometime in March 1976, L.C. Diaz opened a savings account with
Solidbank, designated as Savings Account No. S/A 200-16872-6.
On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya
("Macaraya"), filled up a savings (cash) deposit slip for P990 and a savings
(checks) deposit slip for P50. Macaraya instructed the messenger of L.C.
Diaz, Ismael Calapre ("Calapre"), to deposit the money with Solidbank.
Macaraya also gave Calapre the Solidbank passbook.
Calapre went to Solidbank and presented to Teller No. 6 the two deposit
slips and the passbook. The teller acknowledged receipt of the deposit by
returning to Calapre the duplicate copies of the two deposit slips. Teller No.
6 stamped the deposit slips with the words "DUPLICATE" and "SAVING
TELLER 6 SOLIDBANK HEAD OFFICE." Since the transaction took time and
Calapre had to make another deposit for L.C. Diaz with Allied Bank, he left
the passbook with Solidbank. Calapre then went to Allied Bank. When
Calapre returned to Solidbank to retrieve the passbook, Teller No. 6
informed him that "somebody got the passbook. 3 Calapre went back to
L.C. Diaz and reported the incident to Macaraya.
Macaraya immediately prepared a deposit slip in duplicate copies with a
check of P200,000. Macaraya, together with Calapre, went to Solidbank and
presented to Teller No. 6 the deposit slip and check. The teller stamped the
words "DUPLICATE" and "SAVING TELLER 6 SOLIDBANK HEAD OFFICE" on
the duplicate copy of the deposit slip. When Macaraya asked for the
passbook, Teller No. 6 told Macaraya that someone got the passbook but
she could not remember to whom she gave the passbook. When Macaraya
asked Teller No. 6 if Calapre got the passbook, Teller No. 6 answered that
someone shorter than Calapre got the passbook. Calapre was then standing
beside Macaraya.
Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the
deposit of a check for P90,000 drawn on Philippine Banking Corporation
("PBC"). This PBC check of L.C. Diaz was a check that it had "long closed."
4 PBC subsequently dishonored the check because of insufficient funds and
because the signature in the check differed from PBCs specimen signature.
Failing to get back the passbook, Macaraya went back to her office and
reported the matter to the Personnel Manager of L.C. Diaz, Emmanuel
Alvarez.
The following day, 15 August 1991, L.C. Diaz through its Chief Executive
Officer, Luis C. Diaz ("Diaz"), called up Solidbank to stop any transaction
using the same passbook until L.C. Diaz could open a new account. 5 On
the same day, Diaz formally wrote Solidbank to make the same request. It
was also on the same day that L.C. Diaz learned of the unauthorized
withdrawal the day before, 14 August 1991, of P300,000 from its savings
account. The withdrawal slip for the P300,000 bore the signatures of the
authorized signatories of L.C. Diaz, namely Diaz and Rustico L. Murillo. The
signatories, however, denied signing the withdrawal slip. A certain Noel
Tamayo received the P300,000.cralaw : red
In an Information 6 dated 5 September 1991, L.C. Diaz charged its
messenger, Emerano Ilagan ("Ilagan") and one Roscon Verdazola with
Estafa through Falsification of Commercial Document. The Regional Trial
Court of Manila dismissed the criminal case after the City Prosecutor filed a
Motion to Dismiss on 4 August 1992.
On 24 August 1992, L.C. Diaz through its counsel demanded from
Solidbank the return of its money. Solidbank refused.
BANKING | 05Dec | 54
questioned transaction was "now out of the lock and key and presumptively
ready for a business transaction." 11
Solidbank did not have any participation in the custody and care of the
passbook. The trial court believed that Solidbanks act of allowing the
L.C. Diaz then appealed 8 to the Court of Appeals. On 27 October 1998, the withdrawal of P300,000 was not the direct and proximate cause of the loss.
Court of Appeals issued its Decision reversing the decision of the trial court. The trial court held that L.C. Diazs negligence caused the unauthorized
withdrawal. Three facts establish L.C. Diazs negligence: (1) the possession
On 11 May 1999, the Court of Appeals issued its Resolution denying the of the passbook by a person other than the depositor L.C. Diaz; (2) the
motion for reconsideration of Solidbank. The appellate court, however, presentation of a signed withdrawal receipt by an unauthorized person; and
modified its decision by deleting the award of exemplary damages and (3) the possession by an unauthorized person of a PBC check "long closed"
attorneys fees.
by L.C. Diaz, which check was deposited on the day of the fraudulent
withdrawal.
The Ruling of the Trial Court
The trial court debunked L.C. Diazs contention that Solidbank did not follow
In absolving Solidbank, the trial court applied the rules on savings account the precautionary procedures observed by the two parties whenever L.C.
written on the passbook. The rules state that "possession of this book shall Diaz withdrew significant amounts from its account. L.C. Diaz claimed that
raise the presumption of ownership and any payment or payments made by a letter must accompany withdrawals of more than P20,000. The letter
the bank upon the production of the said book and entry therein of the must request Solidbank to allow the withdrawal and convert the amount to
withdrawal shall have the same effect as if made to the depositor a managers check. The bearer must also have a letter authorizing him to
personally." 9
withdraw the same amount. Another person driving a car must accompany
the bearer so that he would not walk from Solidbank to the office in making
At the time of the withdrawal, a certain Noel Tamayo was not only in the withdrawal. The trial court pointed out that L.C. Diaz disregarded these
possession of the passbook, he also presented a withdrawal slip with the precautions in its past withdrawal. On 16 July 1991, L.C. Diaz withdrew
signatures of the authorized signatories of L.C. Diaz. The specimen P82,554 without any separate letter of authorization or any communication
signatures of these persons were in the signature cards. The teller stamped with Solidbank that the money be converted into a managers check.
the withdrawal slip with the words "Saving Teller No. 5." The teller then
passed on the withdrawal slip to Genere Manuel ("Manuel") for The trial court further justified the dismissal of the complaint by holding
authentication. Manuel verified the signatures on the withdrawal slip. The that the case was a last ditch effort of L.C. Diaz to recover P300,000 after
withdrawal slip was then given to another officer who compared the the dismissal of the criminal case against Ilagan.
signatures on the withdrawal slip with the specimen on the signature cards.
The trial court concluded that Solidbank acted with care and observed the The dispositive portion of the decision of the trial court reads:chanrob1es
rules on savings account when it allowed the withdrawal of P300,000 from virtual 1aw library
the savings account of L.C. Diaz.
IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING
The trial court pointed out that the burden of proof now shifted to L.C. Diaz the complaint.
to prove that the signatures on the withdrawal slip were forged. The trial
court admonished L.C. Diaz for not offering in evidence the National Bureau The Court further renders judgment in favor of defendant bank pursuant to
of Investigation ("NBI") report on the authenticity of the signatures on the its counterclaim the amount of Thirty Thousand Pesos (P30,000.00) as
withdrawal slip for P300,000. The trial court believed that L.C. Diaz did not attorneys fees.
offer this evidence because it is derogatory to its action.
With costs against plaintiff.
Another provision of the rules on savings account states that the depositor
must keep the passbook "under lock and key." 10 When another person SO ORDERED. 12
presents the passbook for withdrawal prior to Solidbanks receipt of the
notice of loss of the passbook, that person is considered as the owner of The Ruling of the Court of Appeals
the passbook. The trial court ruled that the passbook presented during the
BANKING | 05Dec | 55
The Court of Appeals ruled that Solidbanks negligence was the proximate
cause of the unauthorized withdrawal of P300,000 from the savings account
of L.C. Diaz. The appellate court reached this conclusion after applying the
provision of the Civil Code on quasi-delict, to wit:chanrob1es virtual 1aw
library
Article 2176.
Whoever by act or
there being fault or negligence, is
Such fault or negligence, if there
between the parties, is called a
provisions of this chapter.
1.
Ordering defendant-appellee Consolidated Bank and Trust
Corporation. to pay plaintiff-appellant the sum of Three Hundred Thousand
Pesos (P300,000.00), with interest thereon at the rate of 12% per annum
from the date of filing of the complaint until paid, the sum of P20,000.00 as
exemplary damages, and P20,000.00 as attorneys fees and expenses of
omission causes damage to another, litigation as well as the cost of suit; and
obliged to pay for the damage done.
is no pre-existing contractual relation 2.
Ordering the dismissal of defendant-appellees counterclaim in the
quasi-delict and is governed by the amount of P30,000.00 as attorneys fees.
SO ORDERED. 13
The appellate court held that the three elements of a quasi-delict are
present in this case, namely: (a) damages suffered by the plaintiff; (b) fault
or negligence of the defendant, or some other person for whose acts he
must respond; and (c) the connection of cause and effect between the fault
or negligence of the defendant and the damage incurred by the plaintiff.
The Court of Appeals pointed out that the teller of Solidbank who received
the withdrawal slip for P300,000 allowed the withdrawal without making the
necessary inquiry. The appellate court stated that the teller, who was not
presented by Solidbank during trial, should have called up the depositor
because the money to be withdrawn was a significant amount. Had the
teller called up L.C. Diaz, Solidbank would have known that the withdrawal
was unauthorized. The teller did not even verify the identity of the impostor
who made the withdrawal. Thus, the appellate court found Solidbank liable
for its negligence in the selection and supervision of its employees.
The appellate court ruled that while L.C. Diaz was also negligent in
entrusting its deposits to its messenger and its messenger in leaving the
passbook with the teller, Solidbank could not escape liability because of the
doctrine of "last clear chance." Solidbank could have averted the injury
suffered by L.C. Diaz had it called up L.C. Diaz to verify the withdrawal.
The appellate court ruled that the degree of diligence required from
Solidbank is more than that of a good father of a family. The business and
functions of banks are affected with public interest. Banks are obligated to
treat the accounts of their depositors with meticulous care, always having in
mind the fiduciary nature of their relationship with their clients. The Court
of Appeals found Solidbank remiss in its duty, violating its fiduciary
relationship with L.C. Diaz.
I.
THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER
BANK SHOULD SUFFER THE LOSS BECAUSE ITS TELLER SHOULD HAVE
FIRST CALLED PRIVATE RESPONDENT BY TELEPHONE BEFORE IT ALLOWED
THE WITHDRAWAL OF P300,000.00 TO RESPONDENTS MESSENGER
EMERANO ILAGAN, SINCE THERE IS NO AGREEMENT BETWEEN THE
of
the
Court
of
Appeals
The Issues
Solidbank seeks the review of the decision and resolution of the Court of
Appeals on these grounds:chanrob1es virtual 1aw library
BANKING | 05Dec | 56
BANKING | 05Dec | 57
Solidbank failed to discharge its burden. Solidbank did not present to the
trial court Teller No. 6, the teller with whom Calapre left the passbook and
who was supposed to return the passbook to him. The record does not
indicate that Teller No. 6 verified the identity of the person who retrieved
the passbook. Solidbank also failed to adduce in evidence its standard
procedure in verifying the identity of the person retrieving the passbook, if
there is such a procedure, and that Teller No. 6 implemented this procedure
in the present case.
Solidbank is bound by the negligence of its employees under the principle of
respondeat superior or command responsibility. The defense of exercising
the required diligence in the selection and supervision of employees is not a
complete
defense
in
culpa
contractual,
unlike
in
culpa
aquiliana.25cralaw:red
The bank must not only exercise "high standards of integrity and
performance," it must also insure that its employees do likewise because
this is the only way to insure that the bank will comply with its fiduciary
duty. Solidbank failed to present the teller who had the duty to return to
Calapre the passbook, and thus failed to prove that this teller exercised the
"high standards of integrity and performance" required of Solidbanks
employees.chanrob1es virtua1 1aw 1ibrary
Proximate Cause of the Unauthorized Withdrawal
Another point of disagreement between the trial and appellate courts is the
proximate cause of the unauthorized withdrawal. The trial court believed
that L.C. Diazs negligence in not securing its passbook under lock and key
was the proximate cause that allowed the impostor to withdraw the
P300,000. For the appellate court, the proximate cause was the tellers
negligence in processing the withdrawal without first verifying with L.C.
Diaz. We do not agree with either court.
Proximate cause is that cause which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury and
without which the result would not have occurred. 26 Proximate cause is
determined by the facts of each case upon mixed considerations of logic,
common sense, policy and precedent. 27
L.C. Diaz was not at fault that the passbook landed in the hands of the
impostor. Solidbank was in possession of the passbook while it was
processing the deposit. After completion of the transaction, Solidbank had
the contractual obligation to return the passbook only to Calapre, the
authorized representative of L.C. Diaz. Solidbank failed to fulfill its
contractual obligation because it gave the passbook to another person.
BANKING | 05Dec | 58
We uphold the finding of the trial and appellate courts that a certain Noel
Tamayo withdrew the P300,000. The Court is not a trier of facts. We find no
justifiable reason to reverse the factual finding of the trial court and the
Court of Appeals. The tellers who processed the deposit of the P90,000
check and the withdrawal of the P300,000 were not presented during trial
to substantiate Solidbanks claim that Ilagan deposited the check and made
the questioned withdrawal. Moreover, the entry quoted by Solidbank does
not categorically state that Ilagan presented the withdrawal slip and the
passbook.
L.C. Diaz refutes Solidbanks contention by pointing out that the person
who withdrew the P300,000 was a certain Noel Tamayo. Both the trial and
appellate courts stated that this Noel Tamayo presented the passbook with
the withdrawal slip.
BANKING | 05Dec | 59
courts may reduce the award of damages. In this case, L.C. Diaz was guilty
of contributory negligence in allowing a withdrawal slip signed by its
authorized signatories to fall into the hands of an impostor. Thus, the
liability of Solidbank should be reduced.
In Philippine Bank of Commerce v. Court of Appeals, 33 where the Court
held the depositor guilty of contributory negligence, we allocated the
damages between the depositor and the bank on a 40-60 ratio. Applying
the same ruling to this case, we hold that L.C. Diaz must shoulder 40% of
the actual damages awarded by the appellate court. Solidbank must pay he
other 60% of the actual damages.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with
MODIFICATION. Petitioner Solidbank Corporation shall pay private
respondent L.C. Diaz and Company, CPAs only 60% of the actual damages
awarded by the Court of Appeals. The remaining 40% of the actual
damages shall be borne by private respondent L.C. Diaz and Company,
CPAs. Proportionate costs.chanrob1es virtua1 1aw 1ibrary
SO ORDERED.
BANKING | 05Dec | 60
SECOND DIVISION
G.R. No. 208293, December 10, 2014
PHILIPPINE NATIONAL BANK, PETITIONER, VS. CARMELITA S.
SANTOS, REYME L. SANTOS, ANGEL L. SANTOS, NONENG S. DIANCO,
ET AL., RESPONDENTS.
[G.R. No. 208295]
LINA B. AGUILAR, PETITIONER, VS. CARMELITA S. SANTOS, REYME
L. SANTOS, ANGEL L. SANTOS, BUENVENIDO L. SANTOS, ET AL.,
RESPONDENTS.
DECISION
LEONEN, J.:
The standard of diligence required of banks is higher than the degree of
diligence of a good father of a family.
Respondents are children of Angel C. Santos who died on March 21, 1991.
[1]
Sometime in May 1996, respondents discovered that their father
maintained a premium savings account with Philippine National Bank (PNB),
Sta. Elena-Marikina City Branch.[2] As of July 14, 1996, the deposit
amounted to P1,759,082.63.[3] Later, respondents would discover that
their father also had a time deposit of P1,000,000.00 with PNB.[4]
Respondents went to PNB to withdraw their father's deposit.[5]
Lina B. Aguilar, the Branch Manager of PNB-Sta. Elena-Marikina City Branch,
required them to submit the following: "(1) original or certified true copy of
the Death Certificate of Angel C. Santos; (2) certificate of payment of, or
exemption from, estate tax issued by the Bureau of Internal Revenue
(BIR); (3) Deed of Extrajudicial Settlement; (4) Publisher's Affidavit of
publication of the Deed of Extrajudicial Settlement; and (5) Surety bond
effective for two (2) years and in an amount equal to the balance of the
deposit to be withdrawn."[6]
By April 26, 1998, respondents had already obtained the necessary
documents.[7] They tried to withdraw the deposit.[8] However, Aguilar
informed them that the deposit had already "been released to a certain
Bernardito Manimbo (Manimbo) on April 1, 1997."[9] An amount of
PI,882,002.05 was released upon presentation of: (a) an affidavit of selfadjudication purportedly executed by one of the respondents, Reyme L.
BANKING | 05Dec | 61
Aguilar contended that she was not negligent and should not have been
made jointly and severally liable with PNB.[42] She merely implemented
PNB's Legal Department's directive to release the deposit to Manimbo.[43]
PNB argued that it was not negligent.[44] The release of the deposit to
Manimbo was pursuant to an existing policy.[45] Moreover, the documents
submitted by Manimbo were more substantial than those submitted by
respondents.[46] Respondents could have avoided the incident "had they
accomplished the required documents immediately."[47]
In the decision[48] promulgated on July 25, 2013, the Court of Appeals
sustained the trial court's finding that there was only one account.[49]
Angel C. Santos could not have possibly opened the premium savings
account in 1994 since he already died in 1991.[50] The Court of Appeals
also held that PNB and Aguilar were negligent in handling the deposit.[51]
The deposit amount was released to Manimbo who did not present all the
requirements, particularly the Bureau of Internal Revenue (BIR)
certification that estate taxes had already been paid.[52] They should also
not have honored the affidavit of self-adjudication.[53]
The Court of Appeals ruled that Aguilar could not escape liability by pointing
her finger at PNB's Legal Department.[54] As the Bank Manager, she should
have given the Legal Department all the necessary information that must
be known in order to protect both the depositors' and the bank's interests.
[55]
The Court of Appeals removed the award of exemplary damages, upon
finding that there was no malice or bad faith.[56]
The Court of Appeals considered the deposit as an ordinary loan by the
bank from Angel C. Santos or his heirs.[57] Therefore, the deposit was a
forbearance which should earn an interest of 12% per annum.[58] The
dispositive portion of the Court of Appeals' decision reads:
WHEREFORE, premises considered, the assailed decision of the court a quo
dated February 22, 2011 is AFFIRMED with the MODIFICATIONS in that the
rate of interest shall be twelve percent (12%) per annum computed from
the filing of the case until fully satisfied. The interest due shall further earn
an interest of 12% per annum to be computed from the date of the filing of
the complaint until fully paid. Meanwhile, the award of exemplary damages
is DELETED.
SO ORDERED.[59]
PNB and Aguilar filed their separate petitions for review of the Court of
Appeals' July 25, 2013 decision.[60]
We resolve the following issues:
BANKING | 05Dec | 62
ART. 1163. Every person obliged to give something is also obliged to take
care of it with the proper diligence of a good father of a family, unless the
law or the stipulation of the parties requires another standard of care.
ART. 1173. The fault or negligence of the obligor consists in the omission of
that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and of the
place. When negligence shows bad faith, the provisions of articles 1171 and
2201, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in
the performance, that which is expected of a good father of a family shall
be required. (Emphasis supplied)
"Diligence of a good father of a family" is the standard of diligence expected
of, among others, usufructuaries,[76] passengers of common carriers,[77]
agents,[78] depositaries,[79] pledgees,[80] officious managers,[81] and
persons deemed by law as responsible for the acts of others.[82] "The
diligence of a good father of a family requires only that diligence which an
ordinary prudent man would exercise with regard to his own property."[83]
Other industries, because of their nature, are bound by law to observe
higher standards of diligence. Common carriers, for example, must observe
"extraordinary diligence in the vigilance over the goods and for the safety of
[their] passengers"[84] because it is considered a business affected with
public interest. "Extraordinary diligence" with respect to passenger safety is
further qualified as "carrying the passengers safely as far as human care
and foresight can provide, using the utmost diligence of very cautious
persons, with a due regard for all the circumstances."[85]
Similar to common carriers, banking is a business that is impressed with
public interest. It affects economies and plays a significant role in
businesses and commerce.[86] The public reposes its faith and confidence
upon banks, such that "even the humble wage-earner has not hesitated to
entrust his life's savings to the bank of his choice, knowing that they will be
safe in its custody and will even earn some interest for him."[87] This is
why we have recognized the fiduciary nature of the banks' functions, and
attached a special standard of diligence for the exercise of their functions.
In Simex International (Manila), Inc. v. Court of Appeals,[88] this court
described the nature of banks' functions and the attitude expected of banks
in handling their depositors' accounts, thus:
In every case, the depositor expects the bank to treat his account with the
utmost fidelity, whether such account consists only of a few hundred pesos
or of millions. . . .
The point is that as a business affected with public interest and because of
the nature of its functions, the bank is under obligation to treat the
BANKING | 05Dec | 63
accounts of its depositors with meticulous care, always having in mind the
fiduciary nature of their relationship.[89] (Emphasis supplied)
The fiduciary nature of banking is affirmed in Republic Act No. 8791 or The
General Banking Law, thus:
SEC. 2. Declaration of Policy. The State recognizes the vital role of banks
in providing an environment conducive to the sustained development of the
national economy and the fiduciary nature of banking that requires high
standards of integrity and performance. In furtherance thereof, the State
shall promote and maintain a stable and efficient banking and financial
system that is globally competitive, dynamic and responsive to the
demands of a developing economy. (Emphasis supplied)
In The Consolidated Bank and Trust Corporation v. Court of Appeals,[90]
this court explained the meaning of fiduciary relationship and the standard
of diligence assumed by banks:
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.[91] (Emphasis supplied, citation omitted)
Petitioners PNB and Aguilar's treatment of Angel C. Santos' account is
inconsistent with the high standard of diligence required of banks. They
accepted Manimbo's representations despite knowledge of the existence of
circumstances that should have raised doubts on such representations. As a
result, Angel C. Santos' deposit was given to a person stranger to him.
Petitioner PNB pointed out that since petitioner Aguilar assumed office as
PNB-Sta. Elena-Marikina City Branch Manager only five (5) years from
Angel C. Santos' death, she was not in the position to know that
respondents were the heirs of Angel C. Santos.[92] She could not have
accepted the unsigned and unnotarized extrajudicial settlement deed that
respondents had first showed her.[93] She was not competent to make a
conclusion whether that deed was genuine.[94] Neither could petitioners
PNB and Aguilar pass judgment on a letter from respondents' lawyer stating
that respondents were the nine heirs of Angel C. Santos.[95]
Petitioners PNB and Aguilar's negligence is not based on their failure to
accept respondents' documents as evidence of their right to claim Angel C.
Santos' deposit. Rather, it is based on their failure to exercise the diligence
required of banks when they accepted the fraudulent representations of
Manimbo.
Petitioners PNB and Aguilar disregarded their own requirements for the
release of the deposit to persons claiming to be heirs of a deceased
depositor. When respondents asked for the release of Angel C. Santos'
BANKING | 05Dec | 64
unless a certification from the Commissioner that the taxes fixed in this
Title and due thereon have been paid is shown.
If a bank has knowledge of the death of a person who maintained a hank
deposit account alone, or jointly with another, it shall not allow any
withdrawal from the said deposit account, unless the Commissioner has
certified that the taxes imposed thereon by this Title have been paid;
Provided, however, That the administrator of the estate or any one of the
heirs of the decedent may upon authorization by the Commissioner of
Internal Revenue, withdraw an amount not exceeding P10,000 without the
said certification. For this purpose, all withdrawal slips shall contain a
statement to the effect that all of the joint depositors are still living at the
time of withdrawal by any one of the joint depositors and such statement
shall be under oath by the said depositors.[99] (Emphasis supplied)
This provision was reproduced in Section 97 of the 1997 National Internal
Revenue Code, thus:
SEC. 97. Payment of Tax Antecedent to the Transfer of Shares, Bonds or
Rights. There shall not be transferred to any new owner in the books of
any corporation, sociedad anonima, partnership, business, or industry
organized or established in the Philippines any share, obligation, bond or
right by way of gift inter vivos or mortis causa, legacy or inheritance, unless
a certification from the Commissioner that the taxes fixed in this Title and
due thereon have been paid is shown.
During the trial, petitioner PNB's counsel only reasoned that the photocopy
of the death certificate was also submitted with other documents, which led
him to no other conclusion than that Angel C. Santos was already dead.
[109] On petitioners PNB and Aguilar's reliance special power of attorney
allegedly executed by Reyme L. Santos, Aguilar admitted that she did not
contact Reyme L. Santos for verification. Her reason was that Reyme L.
Santos was not their client. Therefore, they had no obligation to do so.
[110]
Petitioner PNB is a bank from which a degree of diligence higher than that
of a good father of a family is expected. Petitioner PNB and its manager,
petitioner Aguilar, failed to meet even the standard of diligence of a good
father of a family. Their actions and inactions constitute gross negligence. It
BANKING | 05Dec | 65
is for this reason that we sustain the trial court's and the Court of Appeals'
rulings that petitioners PNB and Aguilar are solidarity liable with each other.
[111]
For the same reason, we sustain the award for moral damages. Petitioners
PNB and Aguilar's gross negligence deprived Angel C. Santos' heirs what is
rightfully theirs. Respondents also testified that they experienced anger and
embarrassment when petitioners PNB and Aguilar refused to release Angel
C. Santos' deposit.[112] "The bank's negligence was the result of lack of
due care and caution required of managers and employees of a firm
engaged in so sensitive and demanding business as banking."[113]
Exemplary damages should also be awarded. "The law allows the grant of
exemplary damages by way of example for the public good. The public
relies on the banks' sworn profession of diligence and meticulousness in
giving irreproachable service. The level of meticulousness must be
maintained at all times by the banking sector."[114]
Since exemplary damages are awarded and since respondents were
compelled to litigate to protect their interests,[115] the award of attorney's
fees is also proper.
The Court of Appeals' award of interest should be modified to 12% from
demand on April 26, 1998 until June 30, 2013, and 6% from July 1, 2013
until fully paid. In Nacar v. Gallery Frames:[116]
Thus, from the foregoing, in the absence of an express stipulation as to the
rate of interest that would govern the parties, the rate of legal interest for
loans or forbearance of any money. . . shall no longer be twelve percent
(12%) per annum. . . but will now be six percent (6%) per annum effective
July 1, 2013. It should be noted, nonetheless, that. . . the twelve percent
(12%) per annum legal interest shall apply only until June 30, 2013. Come
July 1, 2013 the new rate of six percent (6%) per annum shall be the
prevailing rate of interest when applicable.
....
When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 6% per annum to be
computed from default, i.e., from judicial or extrajudicial demand. . .
....
When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 6% per annum from such
finality until its satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance of credit.[117]
WHEREFORE, the Court of Appeals' decision dated July 25, 2013 is
AFFIRMED with the MODIFICATIONS in that petitioners Philippine National
Bank and Lina B. Aguilar are ordered solidarity liable to pay respondents
P100,000.00 as exemplary damages. Further, the interest rate for the
amount of P1,882,002.05, representing the face value of PNB Manager's
Check No. AF-974686B is modified to 12% from April 26, 1998 until June
30, 2013, and 6% from July 1, 2013 until satisfaction. All monetary awards
shall then earn interest at the rate of 6% per annum from finality of the
decision until full satisfaction.
SO ORDERED.
BANKING | 05Dec | 66
BANKING | 05Dec | 67
BANKING | 05Dec | 68
check was carefully examined by the CA which correctly found that Check
No. 275100 was postdated to May 30, 1992 and not May 3, 1992.
The principle is well established that this Court is not a trier of facts.
Therefore, in an appeal by certiorari under Rule 45 of the Rules of Court,
only questions of law may be raised. The resolution of factual issues is the
function of the lower courts whose findings on these matters are received
with respect and are, as a rule, binding on this Court. However, this rule is
subject to certain exceptions. One of these is when the findings of the
appellate court are contrary to those of the trial court.12 Due to the
divergence of the findings of the CA and the RTC, We shall re-examine the
facts and evidence presented before the lower courts.
The RTC ruled that:
xxxx
The issue to be resolved in this case is whether or not the date of PCIB
Check No. 275100 is May 3, 1992 as contended by the defendant, or May
30, 1992 as claimed by the plaintiff. The date of the check is written as
follows 5/3/0/92. From the manner by which the date of the check is
written, the Court cannot really make a pronouncement as to whether the
true date of the check is May 3 or May 30, 1992, without inquiring into the
background facts leading to the issuance of said check.
According to the plaintiff, the check was issued to Sulpicio Lines in payment
of bill of lading nos. 15, 16 and 17. An examination of bill of lading no. 15,
however, shows that the same was issued, not in favor of plaintiff but in
favor of Coca Cola Bottlers Philippines, Inc. Bill of Lading No. 16 is issued in
favor of Suson Lumber and not to plaintiff. Likewise, Bill of Lading No. 17
shows that it was issued to Jazz Cola and not to plaintiff. Furthermore, the
receipt for the payment of the freight for the shipments reflected in these
three bills of lading shows that the freight was paid by Coca Cola Bottlers
Philippines, Inc. and not by plaintiff.
Moreover, the said receipt shows that it was paid in cash and not by check.
From the foregoing, the evidence on record does not support the claim of
the plaintiff that Check No. 275100 was issued in payment of bills of lading
nos. 15, 16 and 17.
Hence, the conclusion of the Court is that the date of the check was May 3,
1992 and not May 30, 1992.13
xxxx
In fine, the RTC concluded that the check was dated May 3, 1992 and not
May 30, 1992, because the same check was not issued to pay for Bills of
Lading Nos. 15, 16 and 17, as respondent claims. The trial court's
conclusion is preposterous and illogical. The purpose for the issuance of the
check has no logical connection with the date of the check. Besides, the
trial court need not look into the purpose for which the check was issued. A
reading of Check No. 27510014 would readily show that it was dated May
30, 1992. As correctly observed by the CA:
On the first issue, we agree with appellant that appellee Bank apparently
erred in misappreciating the date of Check No. 275100. We have carefully
examined the check in question (Exh. DDDD) and we are convinced that it
was indeed postdated to May 30, 1992 and not May 3, 1992 as urged by
appellee. The date written on the check clearly appears as "5/30/1992"
(Exh. DDDD-4). The first bar (/) which separates the numbers "5" and "30"
and the second bar (/) which further separates the number "30" from the
year 1992 appear to have been done in heavy, well-defined and bold
strokes, clearly indicating the date of the check as "5/30/1992" which
obviously means May 30, 1992. On the other hand, the alleged bar (/)
which appellee points out as allegedly separating the numbers "3" and "0,"
thereby leading it to read the date as May 3, 1992, is not actually a bar or a
slant but appears to be more of an unintentional marking or line done with
a very light stroke. The presence of the figure "0" after the number "3" is
quite significant. In fact, a close examination thereof would unerringly show
that the said number zero or "0" is connected to the preceeding number
"3." In other words, the drawer of the check wrote the figures "30" in one
continuous stroke, thereby contradicting appellees theory that the number
"3" is separated from the figure "0" by a bar. Besides, appellees theory that
the date of the check is May 3, 1992 is clearly untenable considering the
presence of the figure "0" after "3" and another bar before the year 1992.
And if we were to accept appellees theory that what we find to be an
unintentional mark or line between the figures "3" and "0" is a bar
separating the two numbers, the date of the check would then appear as
"5/3/0/1992, which is simply absurd. Hence, we cannot go along with
appellees theory which will lead us to an absurd result. It is therefore our
conclusion that the check was postdated to May 30, 1992 and appellee
Bank or its personnel erred in debiting the amount of the check from
appellants account even before the checks due date. Undoubtedly, had not
appellee bank prematurely debited the amount of the check from
appellants account before its due date, the two other checks (Exhs. LLLL
and GGGG) successively dated May 9, 1992 and May 16, 1992 which were
paid by appellant to ASELCO and ANECO, respectively, would not have been
dishonored and the said payees would not have disconnected their supply of
electric power to appellants sawmills, and the latter would not have
suffered losses.
The law imposes on banks high standards in view of the fiduciary nature of
banking. Section 2 of R.A. 879115 decrees:
BANKING | 05Dec | 69
With respect to the third issue, petitioner submits that respondent's way of
writing the date on Check No. 275100 was the proximate cause of the
dishonor of his three other checks. Contrary to petitioners view, the Court
finds that its negligence is the proximate cause of respondents loss.
This refer (sic) to PCIB Check No. 275097 dated May 16, 1992 in the
amount of P6,472.01 payable to your goodselves issued by Mr. Arcelito B.
Tan (MANWOOD Industries) which was returned by PCIB Mandaue Branch
for insufficiency of funds.
Please be advised that the return of the aforesaid check was a result of an
earlier negotiation to PCIB-Mandaue Branch through a deposit made on May
14, 1992 with SOLIDBANK Carbon Branch, or through Central Bank clearing
via Philippine Clearing House Corporation facilities, of a postdated check
which ironically and without bad faith passed undetected through several
eyes from the payee of the check down to the depository bank and finally
the drawee bank (PCIB) the aforesaid Check No. 275097 issued to you
would have been honored because it would have been sufficiently funded at
the time it was negotiated. It should be emphasized, however, that Mr.
Arcelito B. Tan was in no way responsible for the dishonor of said PCIB
Check No. 275097.
The bank on which the check is drawn, known as the drawee bank, is under
strict liability to pay to the order of the payee in accordance with the
BANKING | 05Dec | 70
We hope that the foregoing will sufficiently explain the circumstances of the
dishonor of PCIB Check No. 275097 and would clear the name and credit of
Mr. Arcelito Tan from any misimpressions which may have resulted from the
dishonor of said check.
Thank you.
xxxx
Although petitioner failed to specify in the letter the other details of this
"postdated check," which passed undetected from the eyes of the payee
down to the petitioner drawee bank, the Court finds that petitioner was
evidently referring to no other than Check No. 275100 which was deposited
to Solidbank, and was postdated May 30, 1992. As correctly found by the
CA:
In the aforequoted letter of its Manager, appellee Bank expressly
acknowledged that Check No. 275097 (Exh. GGGG) which appellant paid to
ANECO "was sufficiently funded at the time it was negotiated," but it was
dishonored as a "result of an earlier negotiation to PCIB-Mandaue Branch
through a deposit made on May 14, 1992 with SOLIDBANK xxx xxx xxx of a
postdated check which xxx xxx passed undetected." He further admitted
that "Mr. Arcelito B. Tan was in no way responsible for the dishonor of said
PCIB Check No. 275097." Needless to state, since appellee's Manager has
cleared appellant of any fault in the dishonor of the ANECO check, it
[necessarily] follows that responsibility therefor or fault for the dishonor of
the check should fall on appellee bank. Appellee's attempt to extricate itself
from its inadvertence must therefore fail in the face of its Manager's explicit
acknowledgment of responsibility for the inadvertent dishonor of the ANECO
check.23
Evidently, the bank's negligence was the result of lack of due care required
of its managers and employees in handling the accounts of its clients.
Petitioner was negligent in the selection and supervision of its employees.
In Citibank, N.A. v. Cabamongan,24 the Court ruled:
x x x Banks handle daily transactions involving millions of pesos. By the
very nature of their works the degree of responsibility, care and
trustworthiness expected of their employees and officials is far greater than
those of ordinary clerks and employees. Banks are expected to exercise the
highest degree of diligence in the selection and supervision of their
employees.
We now resolve the question on the award of actual, moral and exemplary
damages, as well as attorney's fees by the CA to the respondent.
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