SECOND DIVISION Undertaking, they nevertheless maintained that these documents were never

intended by the parties to be legal, valid and binding but a mere subterfuge to
G.R. No. 128703, December 18, 2000 conceal the loan of P390,000.00 with usurious interests.

TEODORO BAAS,[*] C. G. DIZON CONSTRUCTION, INC., AND CENEN DIZON, Defendants claimed that since ASIA PACIFIC could not directly engage in banking
PETITIONERS, VS. ASIA PACIFIC FINANCE CORPORATION,[1] SUBSTITUTED business, it proposed to them a scheme wherein plaintiff ASIA PACIFIC could
BY INTERNATIONAL CORPORATE BANK NOW KNOWN AS UNION BANK OF extend a loan to them without violating banking laws: first, Cenen Dizon would
THE PHILIPPINES, RESPONDENT. secure a promissory note from Teodoro Baas with a face value of P390,000.00
payable in installments; second, ASIA PACIFIC would then make it appear that the
DECISION promissory note was sold to it by Cenen Dizon with the 14% usurious interest on the
loan or P54,000.00 discounted and collected in advance by ASIA PACIFIC; and,
BELLOSILLO, J.: lastly, Cenen Dizon would provide sufficient collateral to answer for the loan in case
of default in payment and execute a continuing guaranty to assure continuous and
C. G. DIZON CONSTRUCTION INC. and CENEN DIZON in this petition for review prompt payment of the loan. Defendants also alleged that out of the loan of
seek the reversal of the 24 July 1996 Decision of the Court of Appeals dismissing P390,000.00 defendants actually received only P329,185.00 after ASIA PACIFIC
their appeal for lack of merit and affirming in toto the decision of the trial court deducted the discounted interest, service handling charges, insurance premium,
holding them liable to Asia Pacific Finance Corporation in the amount of P87,637.50 registration and notarial fees.
at 14% interest per annum in addition to attorney's fees and costs of suit, as well as
its 21 March 1997 Resolution denying reconsideration thereof.[2] Sometime in October 1980 Cenen Dizon informed ASIA PACIFIC that he would be
delayed in meeting his monthly amortization on account of business reverses and
On 20 March 1981 Asia Pacific Finance Corporation (ASIA PACIFIC for short) filed promised to pay instead in February 1981. Cenen Dizon made good his promise
a complaint for a sum of money with prayer for a writ of replevin against Teodoro and tendered payment to ASIA PACIFIC in an amount equivalent to two (2) monthly
Baas, C. G. Dizon Construction and Cenen Dizon. Sometime in August 1980 amortizations. But ASIA PACIFIC attempted to impose a 3% interest for every
Teodoro Baas executed a Promissory Note in favor of C. G. Dizon Construction month of delay, which he flatly refused to pay for being usurious.
whereby for value received he promised to pay to the order of C. G. Dizon
Construction the sum of P390,000.00 in installments of "P32,500.00 every 25th day Afterwards, ASIA PACIFIC allegedly made a verbal proposal to Cenen Dizon to
of the month starting from September 25, 1980 up to August 25, 1981."[3] surrender to it the ownership of the two (2) bulldozer crawler tractors and, in turn,
the latter would treat the former's account as closed and the loan fully paid. Cenen
Later, C. G. Dizon Construction endorsed with recourse the Promissory Note to Dizon supposedly agreed and accepted the offer. Defendants averred that the value
ASIA PACIFIC, and to secure payment thereof, C. G. Dizon Construction, through of the bulldozer crawler tractors was more than adequate to cover their obligation to
its corporate officers, Cenen Dizon, President, and Juliette B. Dizon, Vice President ASIA PACIFIC.
and Treasurer, executed a Deed of Chattel Mortgage covering three (3) heavy
equipment units of Caterpillar Bulldozer Crawler Tractors with Model Nos. D8-14A, Meanwhile, on 21 April 1981 the trial court issued a writ of replevin against
D8-2U and D8H in favor of ASIA PACIFIC.[4] Moreover, Cenen Dizon executed on defendant C. G. Dizon Construction for the surrender of the bulldozer crawler
25 August 1980 a Continuing Undertaking wherein he bound himself to pay the tractors subject of the Deed of Chattel Mortgage. Of the three (3) bulldozer crawler
obligation jointly and severally with C. G. Dizon Construction.[5] tractors, only two (2) were actually turned over by defendants - D8-14A and D8-2U -
which units were subsequently foreclosed by ASIA PACIFIC to satisfy the obligation.
In compliance with the provisions of the Promissory Note, C. G. Dizon Construction D8-14A was sold for P120,000.00 and D8-2U for P60,000.00 both to ASIA PACIFIC
made the following installment payments to ASIA PACIFIC: P32,500.00 on 25 as the highest bidder.
September 1980, P32,500.00 on 27 October 1980 and P65,000.00 on 27 February
1981, or a total of P130,000.00. Thereafter, however, C. G. Dizon Construction During the pendency of the case, defendant Teodoro Baas passed away, and on
defaulted in the payment of the remaining installments, prompting ASIA PACIFIC to motion of the remaining defendants, the trial court dismissed the case against him.
send a Statement of Account to Cenen Dizon for the unpaid balance of P267,737.50 On the other hand, ASIA PACIFIC was substituted as party plaintiff by International
inclusive of interests and charges, and P66,909.38 representing attorney's fees. As Corporate Bank after the disputed Promissory Note was assigned and/or transferred
the demand was unheeded, ASIA PACIFIC sued Teodoro Baas, C. G. Dizon by ASIA PACIFIC to International Corporate Bank. Later, International Corporate
Construction and Cenen Dizon. Bank merged with Union Bank of the Philippines. As the surviving entity after the
merger, and having succeeded to all the rights and interests of International
While defendants (herein petitioners) admitted the genuineness and due execution Corporate Bank in this case, Union Bank of the Philippines was substituted as a
of the Promissory Note, the Deed of Chattel Mortgage and the Continuing party in lieu of International Corporate Bank.[6]
1
On 25 September 1992 the Regional Trial Court ruled in favor of ASIA PACIFIC Sec. 2. Only entities duly authorized by the Monetary Board of the Central Bank
holding the defendants jointly and severally liable for the unpaid balance of the may engage in the lending of funds obtained from the public through the receipt of
obligation under the Promissory Note in the amount of P87,637.50 at 14% interest deposits of any kind, and all entities regularly conducting such operations shall be
per annum, and attorney's fees equivalent to 25% of the monetary award.[7] considered as banking institutions and shall be subject to the provisions of this Act,
of the Central Bank Act, and of other pertinent laws (underscoring supplied).
On 24 July 1996 the Court of Appeals affirmed in toto the decision of the trial court
thus - Indubitably, what is prohibited by law is for investment companies to lend funds
obtained from the public through receipts of deposit, which is a function of banking
Defendant-appellants' contention that the instruments were executed merely as a institutions. But here, the funds supposedly "lent" to petitioners have not been
subterfuge to skirt banking laws is an untenable defense. If that were so then they shown to have been obtained from the public by way of deposits, hence, the
too were parties to the illegal scheme. Why should they now be allowed to take inapplicability of banking laws.
advantage of their own knavery to escape the liabilities that their own chicanery
created? On petitioners' submission that the true intention of the parties was to enter into a
contract of loan, we have examined the Promissory Note and failed to discern
Defendant-appellants also want us to believe their story that there was an anything therein that would support such theory. On the contrary, we find the terms
agreement between them and the plaintiff-appellee that if the former would deliver and conditions of the instrument clear, free from any ambiguity, and expressive of
their 2 bulldozer crawler tractors to the latter, the defendant-appellants' obligation the real intent and agreement of the parties. We quote the pertinent portions of the
would fully be extinguished. Again, nothing but the word that comes out between the Promissory Note
teeth supports such story. Why did they not write down such an important
agreement? Is it believable that seasoned businessmen such as the defendant- - FOR VALUE RECEIVED, I/We, hereby promise to pay to the order of C.G. Dizon
appellant Cenen G. Dizon and the other officers of the appellant corporation would Construction, Inc. the sum of THREE HUNDRED NINETY THOUSAND ONLY
deliver the bulldozers without a receipt of acquittance from the plaintiff-appellee x x (P390,000.00), Philippine Currency in the following manner:
x x In our book, that is not credible.
P32,500.00 due every 25th of the month starting from September 25, 1980 up to
The pivotal issues raised are: (a) Whether the disputed transaction between August 25, 1981.
petitioners and ASIA PACIFIC violated banking laws, hence, null and void; and (b)
Whether the surrender of the bulldozer crawler tractors to respondent resulted in the I/We agree that if any of the said installments is not paid as and when it respectively
extinguishment of petitioners' obligation. falls due, all the installments covered hereby and not paid as yet shall forthwith
become due and payable at the option of the holder of this note with interest at the
On the first issue, petitioners insist that ASIA PACIFIC was organized as an rate of 14% per annum on each unpaid installment until fully paid.
investment house which could not engage in the lending of funds obtained from the
public through receipt of deposits. The disputed Promissory Note, Deed of Chattel If any amount due on this note is not paid at its maturity and this note is placed in
Mortgage and Continuing Undertaking were not intended to be valid and binding on the hands of an attorney for collection, I/We agree to pay in addition to the
the parties as they were merely devices to conceal their real intention which was to aggregate of the principal amount and interest due, a sum equivalent to TEN
enter into a contract of loan in violation of banking laws. PERCENT (10%) thereof as Attorney's fees, in case no action is filed, otherwise, the
sum will be equivalent to TWENTY FIVE (25%) of the said principal amount and
We reject the argument. An investment company refers to any issuer which is or interest due x x x x
holds itself out as being engaged or proposes to engage primarily in the business of
investing, reinvesting or trading in securities.[8] As defined in Sec. 2, par. (a), of the Makati, Metro Manila, August 25, 1980.
Revised Securities Act,[9] securities "shall include x x x x commercial papers
evidencing indebtedness of any person, financial or non-financial entity, irrespective (Sgd) Teodoro Baas
of maturity, issued, endorsed, sold, transferred or in any manner conveyed to ENDORSED TO ASIA PACIFIC FINANCE CORPORATION
another with or without recourse, such as promissory notes x x x x" Clearly, the WITH RECOURSE, C.G. DIZON CONSTRUCTION, INC.
transaction between petitioners and respondent was one involving not a loan but
purchase of receivables at a discount, well within the purview of "investing, By: (Sgd.) Cenen Dizon
reinvesting or trading in securities" which an investment company, like ASIA (Sgd.) Juliette B. Dizon
PACIFIC, is authorized to perform and does not constitute a violation of the General President
Banking Act.[10] Moreover, Sec. 2 of the General Banking Act provides in part - VP/Treasurer
2
Likewise, the Deed of Chattel Mortgage and Continuing Undertaking were duly There was no seizure order. Atty. Carag during that time said if I surrender the two
acknowledged before a notary public and, as such, have in their favor the equipment, we might finally close a deal if the equipment would come up to the
presumption of regularity. To contradict them there must be clear, convincing and balance of the loan. So I voluntarily surrendered, I pulled them from the job site and
more than merely preponderant evidence. In the instant case, the records do not returned them to APCOR x x x x
show even a preponderance of evidence in favor of petitioners' claim that the Deed Q:
of Chattel Mortgage and Continuing Undertaking were never intended by the parties You mentioned a certain Atty. Carag, who is he?
to be legal, valid and binding. Notarial documents are evidence of the facts in clear A:
and unequivocal manner therein expressed.[11] He was the former legal counsel of APCOR. They were handling cases. In fact, I
talked with Atty. Carag, we have a verbal agreement if I surrender the equipment it
Interestingly, petitioners' assertions were based mainly on the self-serving testimony might suffice to pay off the debt so I did just that (underscoring ours).[13]
of Cenen Dizon, and not on any other independent evidence. His testimony is not In other words, there was no binding and perfected contract between petitioners and
only unconvincing, as found by the trial court and the Court of Appeals, but also self- respondent regarding the settlement of the obligation, but only a conditional one, a
defeating in light of the documents presented by respondent, i.e., Promissory Note, mere conjecture in fact, depending on whether the value of the tractors to be
Deed of Chattel Mortgage and Continuing Undertaking, the accuracy, correctness surrendered would equal the balance of the loan plus interests. And since the
and due execution of which were admitted by petitioners. Oral evidence certainly bulldozer crawler tractors were sold at the foreclosure sale for only P180,000.00,[14]
cannot prevail over the written agreements of the parties. The courts need only rely which was not enough to cover the unpaid balance of P267,637.50, petitioners are
on the faces of the written contracts to determine their true intention on the principle still liable for the deficiency.
that when the parties have reduced their agreements in writing, it is presumed that
they have made the writings the only repositories and memorials of their true Barring therefore a showing that the findings complained of are totally devoid of
agreement. support in the records, or that they are so glaringly erroneous as to constitute
serious abuse of discretion, we see no valid reason to discard them. More so in this
The second issue deals with a question of fact. We have ruled often enough that it is case where the findings of both the trial court and the appellate court coincide with
not the function of this Court to analyze and weigh the evidence all over again, its each other on the matter.
jurisdiction being limited to reviewing errors of law that might have been committed
by the lower court.[12] At any rate, while we are not a trier of facts, hence, not With regard to the computation of petitioners' liability, the records show that
required as a rule to look into the factual bases of the assailed decision of the Court petitioners actually paid to respondent a total sum of P130,000.00 in addition to the
of Appeals, we did so just the same in this case if only to satisfy petitioners that we P180,000.00 proceeds realized from the sale of the bulldozer crawler tractors at
have carefully studied and evaluated the case, all too mindful of the tenacity and public auction. Deducting these amounts from the principal obligation of
vigor with which the parties, through their respective counsel, have pursued this P390,000.00 leaves a balance of P80,000.00, to which must be added P7,637.50
case for nineteen (19) years. accrued interests and charges as of 20 March 1981, or a total unpaid balance of
P87,637.50 for which petitioners are jointly and severally liable. Furthermore, the
Petitioners contend that the parties already had a verbal understanding wherein unpaid balance should earn 14% interest per annum as stipulated in the Promissory
ASIA PACIFIC actually agreed to consider petitioners' account closed and the Note, computed from 20 March 1981 until fully paid.
principal obligation fully paid in exchange for the ownership of the two (2) bulldozer
crawler tractors. On the amount of attorney's fees which under the Promissory Note is equivalent to
25% of the principal obligation and interests due, it is not, strictly speaking, the
We are not persuaded. Again, other than the bare allegations of petitioners, the attorney's fees recoverable as between the attorney and his client regulated by the
records are bereft of any evidence of the supposed agreement. As correctly Rules of Court. Rather, the attorney's fees here are in the nature of liquidated
observed by the Court of Appeals, it is unbelievable that the parties entirely damages and the stipulation therefor is aptly called a penal clause. It has been said
neglected to write down such an important agreement. Equally incredulous is the that so long as such stipulation does not contravene the law, morals and public
fact that petitioner Cenen Dizon, a seasoned businessman, readily consented to order, it is strictly binding upon the obligor. It is the litigant, not the counsel, who is
deliver the bulldozers to respondent without a corresponding receipt of acquittance. the judgment creditor entitled to enforce the judgment by execution.[15]
Indeed, even the testimony of petitioner Cenen Dizon himself negates the supposed
verbal understanding between the parties - Nevertheless, it appears that petitioners' failure to fully comply with their part of the
bargain was not motivated by ill will or malice, but due to financial distress
Q: occasioned by legitimate business reverses. Petitioners in fact paid a total of
You said and is it not a fact that you surrendered the bulldozers to APCOR by virtue P130,000.00 in three (3) installments, and even went to the extent of voluntarily
of the seizure order? turning over to respondent their heavy equipment consisting of two (2) bulldozer
A: crawler tractors, all in a bona fide effort to settle their indebtedness in full. Article
3
1229 of the New Civil Code specifically empowers the judge to equitably reduce the
civil penalty when the principal obligation has been partly or irregularly complied
with. Upon the foregoing premise, we hold that the reduction of the attorney's fees
from 25% to 15% of the unpaid principal plus interests is in order.

Finally, while we empathize with petitioners, we cannot close our eyes to the
overriding considerations of the law on obligations and contracts which must be
upheld and honored at all times. Petitioners have undoubtedly benefited from the
transaction; they cannot now be allowed to impugn its validity and legality to escape
the fulfillment of a valid and binding obligation.

WHEREFORE, no reversible error having been committed by the Court of Appeals,

its assailed Decision of 24 July 1996 and its Resolution of 21 March 1997 are
AFFIRMED. Accordingly, petitioners C.G. Construction Inc. and Cenen Dizon are
ordered jointly and severally to pay respondent Asia Pacific Finance Corporation,
substituted by International Corporate Bank (now known as Union Bank of the
Philippines), P87,637.50 representing the unpaid balance on the Promissory Note,
with interest at fourteen percent (14%) per annum computed from 20 March 1981
until fully paid, and fifteen percent (15%) of the principal obligation and interests due
by way of attorney's fees. Costs against petitioners.

SO ORDERED.

4
 FIRST DIVISION RTC) on August 21, 2003.[15] Petitioner essentially asserted that JAPRL was guilty
of fraud because it (JAPRL) altered and falsified its financial statements.[16]
G.R. No. 179901, April 14, 2008
The Makati RTC subsequently denied the application (for the issuance of a writ of
BANCO DE ORO-EPCI, INC.,* PETITIONER, VS. JAPRL DEVELOPMENT preliminary attachment) for lack of merit as petitioner was unable to substantiate its
CORPORATION, RAPID FORMING CORPORATION AND JOSE U. AROLLADO, allegations. Nevertheless, it ordered the service of summons on respondents.[17]
RESPONDENTS. Pursuant to the said order, summonses were issued against respondents and were
served upon them.
DECISION
Respondents moved to dismiss the complaint due to an allegedly invalid service of
CORONA, J.: summons.[18] Because the officer's return stated that an "administrative assistant"
had received the summons,[19] JAPRL and RFC argued that Section 11, Rule 14 of
This petition for review on certiorari[1] seeks to set aside the decision[2] of the Court the Rules of Court[20] contained an exclusive list of persons on whom summons
of Appeals (CA) in CA-G.R. SP No. 95659 and its resolution[3] denying against a corporation must be served.[21] An "administrative assistant" was not one
reconsideration. of them. Arollado, on the other hand, cited Section 6, Rule 14 thereof[22] which
mandated personal service of summons on an individual defendant.[23]
After evaluating the financial statements of respondent JAPRL Development
Corporation (JAPRL) for fiscal years 1998, 1999 and 2000,[4] petitioner Banco de The Makati RTC, in its October 10, 2005 order,[24] noted that because corporate
Oro-EPCI, Inc. extended credit facilities to it amounting to P230,000,000[5] on officers are often busy, summonses to corporations are usually received only by
March 28, 2003. Respondents Rapid Forming Corporation (RFC) and Jose U. administrative assistants or secretaries of corporate officers in the regular course of
Arollado acted as JAPRL's sureties. business. Hence, it denied the motion for lack of merit.

Despite its seemingly strong financial position, JAPRL defaulted in the payment of Respondents moved for reconsideration[25] but withdrew it before the Makati RTC
four trust receipts soon after the approval of its loan.[6] Petitioner later learned from could resolve the matter.[26]
MRM Management, JAPRL's financial adviser, that JAPRL had altered and falsified
its financial statements. It allegedly bloated its sales revenues to post a big income RTC SEC Case No. 68-2008-C
from operations for the concerned fiscal years to project itself as a viable
investment.[7] The information alarmed petitioner. Citing relevant provisions of the On February 20, 2006, JAPRL (and its subsidiary, RFC) filed a petition for
Trust Receipt Agreement,[8] it demanded immediate payment of JAPRL's rehabilitation in the RTC of Calamba, Laguna, Branch 34 (Calamba RTC). Finding
outstanding obligations amounting to P194,493,388.98.[9] JAPRL's petition sufficient in form and in substance, the Calamba RTC issued a
stay order[27] on March 13, 2006.
SP Proc. No. Q-03-064
In view of the said order, respondents hastily moved to suspend the proceedings in
On August 30, 2003, JAPRL (and its subsidiary, RFC) filed a petition for Civil Case No. 03-991 pending in the Makati RTC.[28]
rehabilitation in the Regional Trial Court (RTC) of Quezon City, Branch 90 (Quezon
City RTC).[10] It disclosed that it had been experiencing a decline in sales for the On July 7, 2006, the Makati RTC granted the motion with regard to JAPRL and RFC
three preceding years and a staggering loss in 2002.[11] but ordered Arollado to file an answer. It ruled that, because he was jointly and
solidarily liable with JAPRL and RFC, the proceedings against him should
Because the petition was sufficient in form and substance, a stay order[12] was continue.[29] Respondents moved for reconsideration[30] but it was denied.[31]
issued on September 28, 2003.[13] However, the proposed rehabilitation plan for
JAPRL and RFC was eventually rejected by the Quezon City RTC in an order dated On August 11, 2006, respondents filed a petition for certiorari[32] in the CA alleging
May 9, 2005.[14] that the Makati RTC committed grave abuse of discretion in issuing the October 10,
2005 and July 7, 2006 orders.[33] They asserted that the court did not acquire
Civil Case No. 03-991 jurisdiction over their persons due to defective service of summons. Thus, the
Makati RTC could not hear the complaint for sum of money.[34]
Because JAPRL ignored its demand for payment, petitioner filed a complaint for
sum of money with an application for the issuance of a writ of preliminary In its June 7, 2007 decision, the CA held that because the summonses were served
attachment against respondents in the RTC of Makati City, Branch 145 (Makati on a mere administrative assistant, the Makati RTC never acquired jurisdiction over
respondents. Thus, it granted the petition.[35]
5
 Banks operate (and earn income) by extending credit facilities financed primarily by
Petitioner moved for reconsideration but it was denied.[36] Hence, this petition. deposits from the public.[48] They plough back the bulk of said deposits into the
economy in the form of loans.[49] Since banks deal with the public's money, their
Petitioner asserts that respondents maliciously evaded the service of summonses to viability depends largely on their ability to return those deposits on demand. For this
prevent the Makati RTC from acquiring jurisdiction over their persons. Furthermore, reason, banking is undeniably imbued with public interest. Consequently, much
they employed bad faith to delay proceedings by cunningly exploiting procedural importance is given to sound lending practices and good corporate governance.[50]
technicalities to avoid the payment of their obligations.[37]
Protecting the integrity of the banking system has become, by large, the
We grant the petition. responsibility of banks. The role of the public, particularly individual borrowers, has
not been emphasized. Nevertheless, we are not unaware of the rampant and
Respondents, in their petition for certiorari in the CA, questioned the jurisdiction of unscrupulous practice of obtaining loans without intending to pay the same.
the Makati RTC over their persons (i.e., whether or not the service of summons was
validly made). Therefore, it was only the October 10, 2005 order of the said trial In this case, petitioner alleged that JAPRL fraudulently altered and falsified its
court which they in effect assailed.[38] However, because they withdrew their financial statements in order to obtain its credit facilities. Considering the amount of
motion for reconsideration of the said order, it became final. Moreover, the petition petitioner's exposure in JAPRL, justice and fairness dictate that the Makati RTC
was filed 10 months and 1 day after the assailed order was issued by the Makati hear whether or not respondents indeed committed fraud in securing the credit
RTC,[39] way past the 60 days allowed by the Rules of Court. For these reasons, accomodation.
the said petition should have been dismissed outright by the CA.
A finding of fraud will change the whole picture. In this event, petitioner can use the
More importantly, when respondents moved for the suspension of proceedings in finding of fraud to move for the dismissal of the rehabilitation case in the Calamba
Civil Case No. 03-991 before the Makati RTC (on the basis of the March 13, 2006 RTC.
order of the Calamba RTC), they waived whatever defect there was in the service of
summons and were deemed to have submitted themselves voluntarily to the The protective remedy of rehabilitation was never intended to be a refuge of a
jurisdiction of the Makati RTC.[40] debtor guilty of fraud.

We withhold judgment for the moment on the July 7, 2006 order of the Makati RTC
suspending the proceedings in Civil Case No. 03-991 insofar as JAPRL and RFC
are concerned. Under the Interim Rules of Procedure on Corporate Rehabilitation, a
stay order defers all actions or claims against the corporation seeking
rehabilitation[41] from the date of its issuance until the dismissal of the petition or
termination of the rehabilitation proceedings.[42]
Meanwhile, the Makati RTC should proceed to hear Civil Case No. 03-991 against
the three respondents guided by Section 40 of the General Banking Law which
states:
Section 40. Requirement for Grant of Loans or Other Credit Accommodations.
Before granting a loan or other credit accommodation, a bank must ascertain that
the debtor is capable of fulfilling his commitments to the bank.

The Makati RTC may proceed to hear Civil Case No. 03-991 only against Arollado if Towards this end, a bank may demand from its credit applicants a statement of their
there is no ground to go after JAPRL and RFC (as will later be discussed). A assets and liabilities and of their income and expenditures and such information as
creditor can demand payment from the surety solidarily liable with the corporation may be prescribed by law or by rules and regulations of the Monetary Board to
seeking rehabilitation.[43] enable the bank to properly evaluate the credit application which includes the
corresponding financial statements submitted for taxation purposes to the Bureau of
Respondents abused procedural technicalities (albeit unsuccessfully) for the sole Internal Revenue. Should such statements prove to be false or incorrect in any
purpose of preventing, or at least delaying, the collection of their legitimate material detail, the bank may terminate any loan or credit accommodation granted
obligations. Their reprehensible scheme impeded the speedy dispensation of on the basis of said statements and shall have the right to demand immediate
justice. More importantly, however, considering the amount involved, respondents repayment or liquidation of the obligation.
utterly disregarded the significance of a stable and efficient banking system to the
national economy.[44] In formulating the rules and regulations under this Section, the Monetary Board shall
recognize the peculiar characteristics of microfinancing, such as cash flow-based
Banks are entities engaged in the lending of funds obtained through deposits[45] lending to the basic sectors that are not covered by traditional collateral. (emphasis
from the public.[46] They borrow the public's excess money (i.e., deposits) and lend supplied)
out the same.[47] Banks therefore redistribute wealth in the economy by channeling Under this provision, banks have the right to annul any credit accommodation or
idle savings to profitable investments. loan, and demand the immediate payment thereof, from borrowers proven to be

6
guilty of fraud. Petitioner would then be entitled to the immediate payment of
P194,493,388.98 and other appropriate damages.[51]

Finally, considering that respondents failed to pay the four trust receipts, the Makati
City Prosecutor should investigate whether or not there is probable cause to indict
respondents for violation of Section 13 of the Trust Receipts Law.[52]

ACCORDINGLY, the petition is hereby GRANTED. The June 7, 2007 decision and
August 31, 2007 resolution of the Court of Appeals in CA-G.R. SP No. 95659 are
REVERSED and SET ASIDE.

The Regional Trial Court of Makati City, Branch 145 is ordered to proceed
expeditiously with the trial of Civil Case No. 03-991 with regard to respondent Jose
U. Arollado, and the other respondents if warranted.

SO ORDERED.

7
 THIRD DIVISION said amount, PhP2,134,635.87 was placed by Citibank in a Long-Term Commercial
Paper (LTCP), a debt instrument that paid a high interest, issued by the corporation
G.R. No. 156335, November 28, 2007 Camella and Palmera Homes (C P Homes).[10] The rest of the money was placed
in two PRPN accounts, in trust for each of Amalia's two children.[11]
SPOUSES RAUL AND AMALIA PANLILIO, PETITIONERS, VS. CITIBANK, N.A.,
RESPONDENT. Allegations differ between petitioners and respondent as to whether Amalia
instructed Lee to place the money in the LTCP of C P Homes.[12]
DECISION
An LTCP is an evidence of indebtedness, with a maturity period of more than 365
AUSTRIA-MARTINEZ, J.: days, issued by a corporation to any person or entity.[13] It is in effect a loan
obtained by a corporation (as borrower) from the investing public (as lender)[14] and
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of is one of many instruments that investment banks can legally buy on behalf of their
Court, seeking to reverse the Decision[1] of the Court of Appeals (CA) dated May clients, upon the latter's express instructions, for investment purposes.[15] LTCPs'
28, 2002 in CA-G.R. CV No. 66649 and its Resolution of December 11, 2002, which attraction is that they usually have higher yields than most investment instruments.
reversed and set aside the Decision of the Regional Trial Court (RTC) of Makati In the case of the LTCP issued by C P Homes, the gross interest rate was 16.25%
City. per annum at the time Amalia made her investment.[16]

The case originated as a Complaint[2] for a sum of money and damages, filed with On November 28, 1997, the day she made the PhP3million investment, Amalia
the RTC of Makati City on March 2, 1999, by the spouses Raul and Amalia Panlilio signed the following documents: a Directional Investment Management Agreement
(petitioners) against Citibank N.A. (respondent). (DIMA),[17] Term Investment Application (TIA),[18] and Directional Letter/Specific
Instructions.[19] Key features of the DIMA and the Directional Letter are provisions
The factual antecedents are as follows: that essentially clear Citibank of any obligation to guarantee the principal and
interest of the investment, absent fraud or negligence on the latter's part. The
On October 10, 1997, petitioner Amalia Panlilio (Amalia) visited respondent's Makati provisions likewise state that all risks are to be assumed by the investor (petitioner).
City office and deposited one million pesos (PhP1 million) in the bank's "Citihi"
account, a fixed-term savings account with a higher-than-average interest.[3] On the As to the amount invested, only PhP2,134,635.87 out of the PhP3 million brought by
same day, Amalia also opened a current or checking account with respondent, to Amalia was placed in the LTCP since, according to Lee, this was the only amount of
which interest earnings of the Citihi account were to be credited.[4] Respondent LTCP then available.[20] According to Lee, the balance of the PhP3 million was
assigned one of its employees, Jinky Suzara Lee (Lee), to personally transact with placed in two PRPN accounts, each one in trust for Amalia's two children, per her
Amalia and to handle the accounts.[5] instructions.[21]

Amalia opened the accounts as ITF or "in trust for" accounts, as they were intended Following this investment, respondent claims to have regularly sent confirmations of
to benefit her minor children, Alejandro King Aguilar and Fe Emanuelle C. Panlilio, investment (COIs) to petitioners.[22] A COI is a one-page, computer generated
in case she would meet an untimely death.[6] To open these accounts, Amalia document informing the customer of the investment earlier made with the bank. The
signed two documents: a Relationship Opening Form (ROF)[7] and an Investor first of these COIs was received by petitioners on or about December 9, 1997, as
Profiling and Suitability Questionnaire (Questionnaire).[8] admitted by Amalia, which is around a week after the investment was made.[23]
Respondent claims that other succeeding COIs were sent to and received by
Amalia's initial intention was to invest the money in a Citibank product called the petitioners.
Peso Repriceable Promissory Note (PRPN), a product which had a higher interest.
However, as the PRPN was not available that day, Amalia put her money in the Amalia claims to have called Lee as soon as she received the first COI in December
Citihi savings account.[9] 1997, and demanded that the investment in LTCP be withdrawn and placed in a
PRPN.[24] Respondent, however, denies this, claiming that Amalia merely called to
More than a month later, or on November 28, 1997, Amalia phoned Citibank saying clarify provisions in the COI and did not demand a withdrawal.[25]
she wanted to place an investment, this time in the amount of three million pesos
(PhP3 million). Again, she spoke with Lee, the bank employee, who introduced her On August 6, 1998, petitioners met with respondent's other employee, Lizza Colet,
to Citibank's various investment offerings. After the phone conversation, apparently to preterminate the LTCP and their other investments. Petitioners were told that as
decided on where to invest the money, Amalia went to Citibank bringing a PCIBank to the LTCP, liquidation could be made only if there is a willing buyer, a prospect
check in the amount of three million pesos (PhP3 million). During the visit, Amalia which could be difficult at that time because of the economic crisis. Still, petitioners
instructed Lee on what to do with the PhP3 million. Later, she learned that out of the signed three sets of Sales Order Slip to sell the LTCP and left these with Colet.[26]
8
 newspapers reported that Ayala Land, Inc. was cancelling plans to invest in C P
On August 18, 1998, Amalia, through counsel, sent her first formal, written demand Homes.
to respondent "for a withdrawal of her investment as soon as possible."[27] The
same was followed by another letter dated September 7, 1998, which reiterated the The rest of respondent's Answer denied (1) that it convinced Amalia not to liquidate
same demands.[28] In answer to the letters, respondent noted that the investment or "withdraw" her investment or to ignore the contents of the COI; (2) that it assured
had a 2003 maturity, was not a deposit, and thus, its return to the investor was not Amalia that the investment could be easily or quickly "withdrawn" or sold; (3) that it
guaranteed by respondent; however, it added that the LTCP may be sold prior to misrepresented that C P was an Ayala company, implying that C P had secure
maturity and had in fact been put up for sale, but such sale was "subject to the finances; and (4) that respondent had been unfaithful to and in breach of its
availability of buyers in the secondary market."[29] At that time, respondent was not contractual obligations.
able to find a buyer for the LTCP. As this response did not satisfy petitioners, Amalia
again wrote respondent, this time a final demand letter dated September 21, 1998, After trial, the RTC rendered its Decision,[34] dated February 16, 2000, the
asking for a reconsideration and a return of the money she invested.[30] In reply, dispositive portion of which states:
respondent wrote a letter dated October 12, 1998 stating that despite efforts to sell The foregoing considered, the court hereby rules in favor of plaintiffs and order
the LTCP, no willing buyers were found and that even if a buyer would come later, defendant to pay:
the price would be lower than Amalia's original investment.[31] The sum of PhP2,134,635.87 representing the actual amount deposited by plaintiffs
with defendant plus interest corresponding to time deposit during the time material
Thus, petitioners filed with the RTC their complaint against respondent for a sum of to this action from date of filing of this case until fully paid;
money and damages. The sum of PhP300,000.00 representing moral damages;
The sum of PhP100,000.00 representing attorney's fees;
The Complaint[32] essentially demanded a return of the investment, alleging that Costs.
Amalia never instructed respondent's employee Lee to invest the money in an
LTCP; and that far from what Lee executed, Amalia's instructions were to invest the SO ORDERED.[35]
money in a "trust account" with an "interest of around 16.25% with a term of 91 The RTC upheld all the allegations of petitioners and concluded that Amalia never
days." Further, petitioners alleged that it was only later, or on December 8, 1997, instructed Citibank to invest the money in an LTCP. Thus, the RTC found Citibank in
when Amalia received the first confirmation of investment (COI) from respondent, violation of its contractual and fiduciary duties and held it liable to return the money
that she and her husband learned of Lee's infidelity to her orders. The COI allegedly invested by petitioners plus damages.
informed petitioners that the money was placed in an LTCP of C P Homes with a
maturity in 2003, and that the investment was not guaranteed by respondent. Respondent appealed to the CA.
Petitioners also claimed that as soon as Amalia received the COI, she immediately
called Lee; however, the latter allegedly convinced her to ignore the COI, that C P On appeal, in its Decision promulgated on May 28, 2002, the CA reversed the
Homes was an Ayala company, that the investment was secure, and that it could be Decision of the RTC, thus:
easily "withdrawn"; hence, Amalia decided not to immediately "withdraw" the WHEREFORE, premises considered, the assailed decision dated 16 February 2000
investment. Several months later, or on August 6, 1998, petitioners allegedly wanted is REVERSED and SET ASIDE and a new one entered DISMISSING Civil Case No.
to "withdraw" the investment to buy a property; however, they failed to do so, since 99-500.[36]
respondent told them the LTCP had not yet matured, and that no buyers were The CA held that with respect to the amount of PhP2,134,635.87, the account
willing to buy it. Hence, they sent various demand letters to respondent, asking for a opened by Amalia was an investment management account; as a result, the money
return of their money; and when these went unheeded, they filed the complaint. invested was the sole and exclusive obligation of C P Homes, the issuer of the
LTCP, and was not guaranteed or insured by herein respondent Citibank;[37] that
In its Answer,[33] respondent admitted that, indeed, Amalia was its client and that Amalia opened such an account as evidenced by the documents she executed with
she invested the amounts stated in the complaint. However, respondent disputed Citibank, namely, the Directional Investment Management Agreement (DIMA), Term
the claim that Amalia opened a "trust account" with a "request for an interest rate of Investment Application (TIA), and Directional Letter/Specific Instructions, which were
around 16.25% with a term of 91 days;" instead, respondent presented documents all dated November 28, 1997, the day Amalia brought the money to Citibank.
stating that Amalia opened a "directional investment management account," with Further, the CA brushed aside petitioners' arguments that Amalia failed to
investments to be made in C P Homes' LTCP with a 2003 maturity. Respondent understand the true nature of the LTCP investment, and that she failed to read the
disputed allegations that it violated petitioners' express instructions. Respondent documents as they were written in fine print. The CA ruled that petitioners could not
likewise denied that Amalia, upon her receipt of the COI, immediately called seek the court's aid to extricate them from their contractual obligations. Citing
respondent and protested the investment in LTCP, its 2003 maturity and Citibank's jurisprudence, the CA held that the courts protected only those who were innocent
lack of guarantee. According to respondent, no such protest was made and victims of fraud, and not those who simply made bad bargains or exercised unwise
petitioners actually decided to liquidate their investment only months later, after the judgment.
9
 under Article 1330 of the same Code, she cannot deny absent any evidence of
On petitioners' motion for reconsideration, the CA reiterated its ruling and denied the mistake, violence, intimidation, undue influence or fraud.[48]
motion in a Resolution[38] dated December 11, 2002.
As the documents have the effect of law, an examination is in order to reveal what
Thus, the instant petition which raises issues, summarized as follows: (1) whether underlies petitioners' zeal to exclude these from consideration.
petitioners are bound by the terms and conditions of the Directional Investment
Management Agreement (DIMA), Term Investment Application (TIA), Directional Under the DIMA, the following provisions appear:
Letter/Specific Instructions, and Confirmations of Investment (COIs); (2) and Nature of Agreement - THIS AGREEMENT IS AN AGENCY AND NOT A TRUST
whether petitioners are entitled to take back the money they invested from AGREEMENT. AS SUCH, THE PRINCIPAL SHALL AT ALL TIMES RETAIN LEGAL
respondent bank; or stated differently, whether respondent is obliged to return the TITLE TO THE FUNDS AND PROPERTIES SUBJECT OF THE ARRANGEMENT.
money to petitioners upon their demand prior to maturity. THIS AGREEMENT IS FOR FINANCIAL RETURN AND FOR THE APPRECIATION
OF ASSETS OF THE ACCOUNT. THIS AGREEMENT DOES NOT GUARANTEE A
Petitioners contend that they are not bound by the terms and conditions of the YIELD, RETURN OR INCOME BY THE INVESTMENT MANAGER. AS SUCH,
DIMA, Directional Letter and COIs because these were inconsistent with the TIA PAST PERFORMANCE OF THE ACCOUNT IS NOT A GUARANTY OF FUTURE
and other documents they signed.[39] Further, they claim that the DIMA and the PERFORMANCE AND THE INCOME OF INVESTMENTS CAN FALL AS WELL AS
Directional letter were signed in blank or contained unauthorized intercalations by RISE DEPENDING ON PREVAILING MARKET CONDITIONS.
Citibank.[40] Petitioners argue that contrary to the contents of the documents, they
did not instruct Citibank to invest in an LTCP or to put their money in such high-risk, IT IS UNDERSTOOD THAT THIS INVESTMENT MANAGEMENT AGREEMENT IS
long-term instruments.[41] NOT COVERED BY THE PHILIPPINE DEPOSIT INSURANCE CORPORATION
(PDIC) AND THAT LOSSES, IF ANY, SHALL BE FOR THE ACCOUNT OF THE
The Court notes the factual nature of the questions raised in the petition. Although PRINCIPAL. (Underscoring supplied.)
the general rule is that only questions of law are entertained by the Court in petitions
for review on certiorari,[42] as the Court is not tasked to repeat the lower courts' x x x x
analysis or weighing of evidence,[43] there are instances when the Court may Exemption from Liability. - In the absence of fraud, bad faith, or gross or willful
resolve factual issues, such as (1) when the trial court misconstrued facts and negligence on the part of the INVESTMENT MANAGER or any person acting in its
circumstances of substance which if considered would alter the outcome of the behalf, the INVESTMENT MANAGER shall not be liable for any loss or damage to
case;[44] and (2) when the findings of facts of the CA and the trial court differ.[45] the Portfolio arising out of or in connection with any act done or omitted or caused to
be done or omitted by the INVESTMENT MANAGER pursuant to the terms and
In the instant case, the CA completely reversed the findings of facts of the trial court conditions herein agreed upon, and pursuant to and in accordance with the written
on the ground that the RTC failed to appreciate certain facts and circumstances. instructions of the PRINCIPAL to carry out the powers, duties and purposes for
Thus, applying the standing jurisprudence on the matter,[46] the Court proceeded to which this Agreement is executed. The PRINCIPAL will hold the INVESTMENT
examine the evidence on record. MANAGER free and harmless from any liability, claim, damage or fiduciary
responsibility that may arise from any investment made pursuant to this Agreement
The Court's Ruling and to such letters or instructions under Paragraph 3 hereof due to the default,
bankruptcy or insolvency of the Borrower/Issuer or the Broker/Dealer handling the
The Court finds no merit in the petition. After a careful examination of the records, transaction and or their failure in any manner to comply with any of their obligations
the Court affirms the CA's ruling for being more in accord with the facts and under the aforesaid transactions, it being the PRINCIPAL'S understanding and
evidence on record. intention that the investments/reinvestments under this account shall be strictly for
his/its account and risk except as indicated above.
On the first issue of whether petitioners are bound by the terms and conditions of The INVESTMENT MANAGER shall manage the Portfolio with the skill, care,
the DIMA, TIA, Directional Letter and COIs, the Court holds in the affirmative and prudence, and diligence necessary under the prevailing circumstances that a good
finds for respondent. father of the family, acting in a like capacity and familiar with such matters, would
exercise in the conduct of an enterprise of like character and with similar aims.
The DIMA, Directional Letter and COIs are evidence of the contract between the (Underscoring supplied.)
parties and are binding on them, following Article 1159 of the Civil Code which
states that contracts have the force of law between the parties and must be x x x x
complied with in good faith.[47] In particular, petitioner Amalia affixed her signatures Withdrawal of Income/Principal - Subject to availability of funds and taking into
on the DIMA, Directional Letter and TIA, a clear evidence of her consent which, consideration the commitment of this account to third parties, the PRINCIPAL may
withdraw the income/principal of the Portfolio or portion thereof upon request or
10
application thereof from the Bank. The INVESTMENT MANAGER shall not be
required to inquire as to the income/principal so withdrawn from the Portfolio. Any
income of the Portfolio not withdrawn shall be accumulated and added to the
principal of the Portfolio for further investment and reinvestment.[49] (Underscoring
supplied.)
Under the Directional Letter, which constituted petitioners' instructions to
respondent, the following provisions are found:
In the absence of fraud, bad faith or gross or willful negligence on your part or any
person acting in your behalf, you shall not be held liable for any loss or damage
arising out of or in connection with any act done or performed or caused to be done
or performed by you pursuant to the terms and conditions of our Agreement. I/We
shall hold you free and harmless from any liability, claim, damage, or fiduciary
responsibility that may arise from this investment made pursuant to the foregoing
due to the default, bankruptcy or insolvency of the Borrower/Issuer, or the
Broker/Dealer handling the aforesaid transactions/s, it being our intention and
understanding that the investment/reinvestment under these transaction/s shall be
strictly for my/our account and risk.
In case of default of the Borrower/Issuers, we hereby authorize you at your sole
option, to terminate the investment/s therein and deliver to us the securities/loan
documents then constituting the assets of my/our DIMA/trust account with you for
me/us to undertake the necessary legal action to collect and/or recover from the
borrower/issuers.[50] (Underscoring supplied.)
The documents, characterized by the quoted provisions, generally extricate
respondent from liability in case the investment is lost. Accordingly, petitioners
assumed all risks and the task of collecting from the borrower/issuer C P Homes.
In addition to the DIMA and Directional Letter, respondent also sent petitioners the
COIs on a regular basis, the first of which was received by petitioners on December
9, 1997. The COIs have the following provisions in common:
xxxx
NATURE OF TRANSACTION INVESTMENT IN LTCP
NAME OF BORROWER/ISSUER C&P HOMES
xxxx
TENOR 91 DAYS
xxxx
MATURITY DATE
11/05/03
xxxx
OTHERS REPRICEABLE EVERY 91 DAYS
PURSUANT TO THE BANGKO SENTRAL REGULATIONS, THE PRINCIPAL AND
INTEREST OF YOUR INVESTMENT ARE OBLIGATIONS OF THE BORROWER (d) Upon prior approval of the Monetary Board, act as managing agent, adviser,
AND NOT OF THE BANK. YOUR INVESTMENT IS NOT A DEPOSIT AND IS NOT consultant or administrator of investment management/ advisory/consultancy
GUARANTEED BY CITIBANK N.A. accounts.
xxxx
Please examine this Confirmation and notify us in writing within seven (7) days from
receipt hereof of any deviation from your prior conformity to the investment. If no
notice is received by us within this period, this Confirmation shall be deemed correct
and approved by you, and we shall be released and discharged as to all items,
particulars, matters and things set forth in this Confirmation.[51]
Petitioners admit receiving only the first COI on December 8, 1997.[52] The
evidence on record, however, supports respondent's contentions that petitioners
received the three other COIs on February 12, 1998,[53] May 14, 1998,[54] and
August 14, 1998,[55] before petitioners' first demand letter dated August 18,
1998.[56]
The DIMA, Directional Letter, TIA and COIs, read together, establish the agreement
between the parties as an investment management agreement, which created a
principal-agent relationship between petitioners as principals and respondent as
agent for investment purposes. The agreement is not a trust or an ordinary bank
deposit; hence, no trustor-trustee-beneficiary or even borrower-lender relationship
existed between petitioners and respondent with respect to the DIMA account.
Respondent purchased the LTCPs only as agent of petitioners; thus, the latter
assumed all obligations or inherent risks entailed by the transaction under Article
1910 of the Civil Code, which provides:
Article 1910. The principal must comply with all the obligations which the agent may
have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is not
bound except when he ratifies it expressly or tacitly.
The transaction is perfectly legal, as investment management activities may be
exercised by a banking institution, pursuant to Republic Act No. 337 or the General
Banking Act of 1948, as amended, which was the law then in effect. Section 72 of
said Act provides:
Sec. 72. In addition to the operations specifically authorized elsewhere in this Act,
banking institutions other than building and loan associations may perform the
following services:
(a) Receive in custody funds, documents, and valuable objects, and rent safety
deposit boxes for the safeguarding of such effects;
(b) Act as financial agent and buy and sell, by order of and for the account of their
customers, shares, evidences of indebtedness and all types of securities;
(c) Make collections and payments for the account of others and perform such other
services for their customers as are not incompatible with banking business.
11

The banks shall perform the services permitted under subsections (a), (b) and (c) of
this section as depositories or as agents. Accordingly, they shall keep the funds,
securities and other effects which they thus receive duly separated and apart from
the bank's own assets and liabilities.
The Monetary Board may regulate the operations authorized by this section in order
to insure that said operations do not endanger the interests of the depositors and
other creditors of the banks. (Emphasis supplied.)
while Section 74 prohibits banks from guaranteeing obligations of any person, thus:
Sec. 74. No bank or banking institution shall enter, directly, or indirectly into any
contract of guaranty or suretyship, or shall guarantee the interest or principal of any
obligation of any person, copartnership, association, corporation or other entity. The
provisions of this section shall, however, not apply to the following: (a) borrowing of
money by banking institution through the rediscounting of receivables; (b)
acceptance of drafts or bills of exchange (c) certification of checks; (d) transactions
involving the release of documents attached to items received for collection; (e)
letters of credit transaction, including stand-by arrangements; (f) repurchase
agreements; (g) shipside bonds; (h) ordinary guarantees or indorsements in favor of
foreign creditors where the principal obligation involves loans and credits extended
directly by foreign investment purposes; and (i) other transactions which the
Monetary Board may, by regulation, define or specify as not covered by the
prohibition. (Emphasis supplied.)
Nothing also taints the legality of the LTCP bought in behalf of petitioners. C P
Homes' LTCP was duly registered with the Securities and Exchange Commission
while the issuer was accredited by the Philippine Trust Committee.[57]
The evidence also sustains respondent's claim that its trust department handled the
account only because it was the department tasked to oversee the trust, and other
fiduciary and investment management services of the bank.[58] Contrary to
petitioners' claim, this did not mean that petitioners opened a "trust account." This is
consistent with Bangko Sentral ng Pilipinas (BSP) regulations, specifically the
Manual of Regulations for Banks (MORB), which groups a bank's trust, and other
fiduciary and investment management activities under the same set of regulations,
to wit:
PART FOUR: TRUST, OTHER FIDUCIARY BUSINESS AND INVESTMENT
MANAGEMENT ACTIVITIES
xxxx
Sec. X402 Scope of Regulations. These regulations shall govern the grant of
authority to and the management, administration and conduct of trust, other
fiduciary business and investment management activities (as these terms are
defined in Sec. X403) of banks. The regulations are divided into three (3)
Sub-Parts where:
A.
Trust and Other Fiduciary Business shall apply to banks authorized to engage in
trust and other fiduciary business including investment management activities;
B.
Investment Management Activities shall apply to banks without trust authority but
with authority to engage in investment management activities; and
C. General Provisions shall apply to both.
xxxx
Sec. X403 Definitions. For purposes of regulating the operations of trust and other
fiduciary business and investment management activities, unless the context clearly
connotes otherwise, the following shall have the meaning indicated.
a.
Trust business shall refer to any activity resulting from a trustor-trustee relationship
(trusteeship) involving the appointment of a trustee by a trustor for the
administration, holding, management of funds and/or properties of the trustor by the
trustee for the use, benefit or advantage of the trustor or of others called
beneficiaries.
b.
Other fiduciary business shall refer to any activity of a trust-licensed bank resulting
from a contract or agreement whereby the bank binds itself to render services or to
act in a representative capacity such as in an agency, guardianship,
administratorship of wills, properties and estates, executorship, receivership, and
other similar services which do not create or result in a trusteeship. It shall exclude
collecting or paying agency arrangements and similar fiduciary services which are
inherent in the use of the facilities of the other operating departments of said bank.
Investment management activities, which are considered as among other fiduciary
business, shall be separately defined in the succeeding item to highlight its being a
major source of fiduciary business.
c.
Investment management activity shall refer to any activity resulting from a contract
or agreement primarily for financial return whereby the bank (the investment
manager) binds itself to handle or manage investible funds or any investment
portfolio in a representative capacity as financial or managing agent, adviser,
consultant or administrator of financial or investment management, advisory,
consultancy or any similar arrangement which does not create or result in a
trusteeship.(Emphasis supplied.)
The Court finds no proof to sustain petitioners' contention that the DIMA and
Directional Letter contradict other papers on record, or were signed in blank, or had
unauthorized intercalations.[59] Petitioners themselves admit that Amalia signed the
DIMA and the Directional Letter, which bars them from disowning the contract on
the belated claim that she signed it in blank or did not read it first because of the
"fine print."[60] On the contrary, the evidence does not support these latter
allegations, and it is highly improbable that someone fairly educated and with
investment experience would sign a document in blank or without reading it first.[61]
Petitioners owned various businesses and were clients of other banks, which omits
12
the possibility of such carelessness.[62] Even more damning for petitioners is that, consented to the conditions, so printed, especially if there are a number of such
on record, Amalia admitted that it was not her habit to sign in blank and that the conditions in fine print, as in this case.
contents of the documents were explained to her before she signed.[63] However, Sweet Lines[72] further expounded that the validity and/or enforceability
of contracts of adhesion will have to be determined by the peculiar circumstances
Testimonial evidence and the complaint itself contained allegations that petitioners' obtaining in each case and the nature of the conditions or terms sought to be
reason for transferring their money from local banks to respondent is because it is enforced.[73] Thus, while any ambiguity, obscurity or doubt in a contract of adhesion
safer to do so,[64] a clear indicia of their intelligence and keen business sense is construed or resolved strictly against the party who prepared it,[74] it is also
which they could not have easily surrendered upon meeting with respondent. equally obvious that in a case where no such ambiguity, obscurity or doubt exists,
no such construction is warranted. This was the case in the DIMA and the
Nothing irregular or illegal attends the execution or construction of the DIMA and the Directional Letter signed by Amalia in the instant controversy.
Directional Letter, as their provisions merely conform with BSP regulations
governing these types of transactions. Specifically, the MORB mandates that The parties to this case only disagree on whether petitioners were properly informed
investment managers act as agents, not as trustees, of the investor;[65] that the of the contents of the documents. But as earlier stated, petitioners were free to read
investment manager is prohibited from guaranteeing returns on the funds or and study the contents of the papers before signing them, without compulsion to
properties;[66] that a written document should state that the account is not covered sign immediately or even days after, as indeed the parties were even free not to
by the PDIC; and that losses are to be borne by clients.[67] That these legal sign the documents at all. Unlike in Sweet Lines, where the plaintiffs had no choice
requirements were communicated to petitioners is evident in Amalia's signatures on but to take the services of monopolistic transport companies during rush hours, in
the documents and in testimony to this effect.[68] the instant case, petitioners were under no such pressure; petitioners were free to
invest anytime and through any of the dozens of local and foreign banks in the
As to the allegation that the documents were in "fine print," the Court notes that market.
although the print may have looked smaller than average, they were nevertheless of
the same size throughout the documents, so that no part or provision is hidden from In addition, it has been held that contracts of adhesion are not necessarily voidable.
the reader. The Court also takes judicial notice that the print is no smaller than those The Court has consistently held that contracts of adhesion, wherein one party
found in similar contracts in common usage, such as insurance, mortgage, sales imposes a ready-made form of contract on the other, are contracts not entirely
contracts and even ordinary bank deposit contracts. In the documents in question, prohibited, since the one who adheres to the contract is in reality free to reject it
the provisions hurtful to petitioners' cause were likewise in no smaller print than the entirely; if he adheres, he gives his
rest of the document, as indeed they were even highlighted either in bold or in all
caps. This disposes of the argument that they were designed to hide their damaging consent.[75] It is the rule that these contracts are upheld unless they are in the
nature to the signatory.[69] The conclusion is that the print is readable and should nature of a patently lopsided deal where blind adherence is not justified by other
not have prevented petitioners from studying the papers before their signing. factual circumstances.[76]
Considering petitioners' social stature, the nature of the transaction and the amount
of money involved, the Court presumes that petitioners exercised adequate care Petitioners insist that other documents Amalia signed -- that is, the ROF,[77]
and diligence in studying the contract prior to its execution.[70] Questionnaire[78] and TIA[79] -- contradict the DIMA and Directional Letter.
Specifically, they argue that under the ROF and the Questionnaire, they manifested
In Sweet Lines, Inc. v. Teves,[71] the Court pronounced the general rule regarding an intent to invest only in a time deposit in the medium term of over a year to three
contracts of adhesion, thus: years, with no risk on the capital, or with returns in line with a time deposit.[80]
x x x there are certain contracts almost all the provisions of which have been drafted However, this contention is belied by the evidence and testimony on record.
only by one party, usually a corporation. Such contracts are called contracts of Respondent explains that investors fill up the ROF and Questionnaire only when
adhesion, because the only participation of the other party is the signing of his they first visit the bank and only for the account they first opened,[81] as confirmed
signature or his `adhesion' thereto. Insurance contracts, bills of lading, contracts of by the evidence on record and the fact that there were no subsequent ROFs and
sale of lots on the installment plan fall into this category. Questionnaires presented by petitioners.

x x x it is drafted only by one party, usually the corporation, and is sought to be The ROF and Questionnaire were filled up when the PhP1 million "Citihi" savings
accepted or adhered to by the other party x x x who cannot change the same and account was opened by Amalia on October 10, 1997, during her first visit to the
who are thus made to adhere hereto on the `take it or leave it' basis. bank. When Amalia returned more than a month later on November 28, 1997, a
change in her investment attitude occurred in that she wanted to invest an even
x x x it is hardly just and proper to expect the passengers to examine their tickets bigger amount (PhP3 million) and her interest had shifted to high-yield but riskier
received from crowded/congested counters, more often than not during rush hours, long-term instruments like PRPNs and LTCPs. When Amalia proceeded to sign new
for conditions that may be printed thereon, much less charge them with having documents like the DIMA and the Directional Letter for the LTCP investment,
13
despite their obviously different contents from those she was used to signing for
ordinary deposits, she essentially confirmed that she knew what she was agreeing
to and that it was different from all her previous transactions. Dear Sir:

In addition, even the ROF and Questionnaire signed by Amalia during the first visit
contained provisions that clearly contradict petitioners' claims. The ROF contained THIS IS TO AUTHORIZE CITIBANK, N. A. TO: ( ) open ( ) rollover
the following:
I/We declare the above information to be correct. I/We hereby acknowledge to have ( ) rollover w/ added funds
received, read, understood and agree to be bound by the general terms and
conditions applicable and governing my/our account/s and/or investment/s which ( ) rollover w/ payout
appear in a separate brochure/manual as well as separate documents relative to
said account/s and/or investment/s. Said terms and conditions shall likewise apply Ref. No._____
to all our existing and future account/s and/or investment/s with Citibank. I/We
hereby further authorize Citibank to open additional account/s and/or investment/s in
the future with the same account title as contained in this relationship opening form [ ] Peso Time Depositories [ ] Dollar TD [ ] Confirmation of Sale
subject to the rules governing the aforementioned account/s and/or investment/s [ ] NNPN TD [ ] Multicurrency [ ] CITIHI-Yielder
and the terms and conditions therein or herein. I/We agree to notify you in writing of
any change in the information supplied in this relationship opening form.[82] TRUST
(Emphasis supplied.)
while the Questionnaire had the following provisions:
I am aware that investment products are not bank deposits or other obligations of, or NEW ADDED FUNDS WILL COME FROM:
guaranteed or insured by Citibank N.A., Citicorp or their affiliates. I am aware that ( ) debit my/our account no.__________ for P/$________________
the principal and interest of my investments are obligations of the borrower/issuer. ( ) Check No.___________________ for P/$________________
They are subject to risk and possible loss of principal. Past performance is not ( ) Cash deposit__________________ for P/$________________
indicative of future performance. In addition, investments are not covered by the
Philippine Deposit Insurance Corporation (PDIC) or the Federal Deposit Insurance
Corporation (FDIC).[83] IN THE AMOUNT AND TERMS SPECIFIED AS FOLLOWS:
which do not need further elaboration on the matter.

Petitioners contend that the Term Investment Application (TIA), viz:
TERM INVESTMENT APPLICATION
MAKATI Date 1/28/97
Branch and Service Area
TITLE OF ACCOUNT
__________________________________________
PANLILIO, AMALIA
_______________________________
ALEJANDRO KING AGUILAR
_______________________________
EMMANUELLE PANLILIO___________________
_______________________________
Address___________________________________
For corporations, c/o_________________________
No.________________________
PRINCIPAL/Money In P/$ 3,000,000 Value 11/28/97
MATURITY AMOUNT/Par Value P/$__________ Maturity Date
INTEREST RATE around 16.25% Term 91 days [84]
(Emphasis supplied.)
clearly contradicts the DIMA, Directional Letter and COIs.
Petitioners insist that the amount PhP3 million in the TIA does not tally with the
actual value of the investment which appeared on the first COI, which was
PhP2,134,635.87. Petitioners add that the TIA's interest rate of "around 16.25%"
CIF Keys with the term "91 days" contradicts the COI's interest rate of 16.95% with a tenor of
ITF_____________________ 75 days repriceable after 91 days.[85] Further, petitioners claim that the word
"TRUST" inscribed on the TIA obviously meant that they opened a trust account,
FE_____________ and not any other account.[86]
The explanation of respondent is plausible. Only PhP2,134,635.87 out of the PhP3
million was placed in the LTCP since this was the only amount of LTCP then
available, while the balance was placed in two PRPN accounts, each one in trust for
Amalia's two children, upon her instructions.[87] The disparity in the interest rate is
Tel. also explained by the fact that the 16.95% rate placed in the COI is gross and not
net interest,[88] and that it is subject to repricing every 91 days.
14
 already on trial.[96] When petitioners finally contested the contract months after its
The Court gives credence to respondent's explanation that the word "TRUST" signing, it was suspiciously during the time when newspaper reports came out that
appearing on the TIA simply means that the account is to be handled by the bank's C P Homes' stock had plunged in value and that Ayala Land was withdrawing its
trust department, which handles not only the trust business but also the other offer to invest in the company.[97] The connection is too obvious to ignore. It is
fiduciary business and investment management activities of the bank, while the reasonable to conclude that petitioners' repudiation of the agreement was nothing
"ITF" or "in trust for" appearing on the other documents only signifies that the money more than an afterthought, a reaction to the negative events in the market and an
was invested by Amalia in trust for her two children, a device that she uses even in effort to flee from a losing investment.
her ordinary deposit accounts with other banks.[89] The ITF device allows the
children to obtain the money without need of paying estate taxes in case Amalia Anent the second issue, whether petitioners are entitled to recover from respondent
meets a premature death.[90] However, it creates a trustee-beneficiary relationship the amount of PhP2,134,635.87 invested under the LTCP, the Court agrees with the
only between Amalia and her children, and not between Amalia, her children, and CA in dismissing the complaint filed by petitioners.
Citibank.
Petitioners may not seek a return of their investment directly from respondent at or
All the documents signed by Amalia, including the DIMA and Directional Letter, prior to maturity. As earlier explained, the investment is not a deposit and is not
show that her agreement with respondent is one of agency, and not a trust. guaranteed by respondent. Absent any fraud or bad faith, the recourse of petitioners
in the LTCP is solely against the issuer, C P Homes, and only upon maturity. The
The DIMA, TIA, Directional Letter and COIs, viewed altogether, establish without DIMA states, thus:
doubt the transaction between the parties, that on November 28, 1997, with PhP3 Withdrawal of Income/Principal - Subject to availability of funds and taking into
million in tow, Amalia opened an investment management account with respondent, consideration the commitment of this account to third parties, the PRINCIPAL may
under which she instructed the latter as her agent to invest the bulk of the money in withdraw the income/principal of the Portfolio or portion thereof upon request or
LTCP. application thereof from the Bank. The INVESTMENT MANAGER shall not be
required to inquire as to the income/principal so withdrawn from the Portfolio. Any
Aside from their bare allegations, evidence that supports petitioners' contentions income of the Portfolio not withdrawn shall be accumulated and added to the
that no such deal took place, or that the agreement was different, simply does not principal of the Portfolio for further investment and reinvestment.[98] (Emphasis
exist in the records. supplied.)
It is clear that since the money is committed to C P Homes via LTCP for five years,
Petitioners were experienced and intelligent enough to be able to demand and sign or until 2003, petitioners may not seek its recovery from respondent prior to the
a different document to signify their real intention; but no such document exists. lapse of this period. Petitioners must wait and meanwhile just be content with
Thus, petitioners' acts and omissions negate their allegations that they were receiving their interest regularly. If petitioners want the immediate return of their
essentially defrauded by the bank. investment before the maturity date, their only way is to find a willing buyer to
purchase the LTCP at an agreed price, or to go directly against the issuer C P
Petitioners had other chances to protest respondent's alleged disregard of their Homes, not against the respondent.
instructions. The COIs sent by respondent to petitioners encapsulate the spirit of the
DIMA and Directional Letter, with the proviso that should there be any deviations The nature of the DIMA and the other documents signed by the parties calls for this
from petitioners' instructions, they may inform respondent in writing within seven condition. The DIMA states that respondent is a mere agent of petitioners and that
days. Assuming arguendo that respondent violated the instructions, petitioners did losses from both the principal and interest of the investment are strictly on
not file a single timely written protest, however, despite their admission that they petitioners' account. Meanwhile, the Directional Letter clearly states that the
received the first COI on December 8, 1997.[91] It took eight months for petitioners investment is to be made in an LTCP which, by definition, has a term of more than
to formally demand the return of their investment through their counsel in a letter 365 days.[99] Prior to the expiry of the term, which in the case of the C P Homes
dated August 18, 1998.[92] The letter, however, did not even contest the placement LTCP is five years, petitioners may not claim back their investment, especially not
of the money in an LTCP, but merely its maturity in the year 2003. Prior to the letter, from respondent bank.
it has been shown that petitioners had received COIs on February 12, 1998,[93]
May 14, 1998,[94] and August 14, 1998,[95] and in between, petitioners never Having bound themselves under the contract as earlier discussed, petitioners are
demanded a return of the money they invested. governed by its provisions. Petitioners as principals in an agency relationship are
solely obliged to observe the solemnity of the transaction entered into by the agent
Petitioners' acts and omissions strongly indicate that they in fact conformed to the on their behalf, absent any proof that the latter acted beyond its authority.[100]
agreement in the months after the signing. In that period, they were receiving their Concomitant to this obligation is that the principal also assumes the risks that may
bank statements and earning interest from the investment, as in fact, C P Homes arise from the transaction.[101] Indeed, as in the instant case, bank regulations
under the LTCP continuously paid interest even up to the time the instant case was prohibit banks from guaranteeing profits or the principal in an investment
15
management account.[102] Hence, the CA correctly dismissed petitioners' complaint
against respondent.

WHEREFORE, the Petition is DENIED. For lack of evidence, the Decision of the
Court of Appeals dated dated May 28, 2002 and its Resolution of December 11,
2002, are AFFIRMED.

Costs against the petitioners.

SO ORDERED.

16
 SECOND DIVISION to the order of the 20th Asian Racing Conference Secretariat of Sydney, Australia,
and addressed to Westpac-Sydney as the drawee bank.
G.R. No. 118492, August 15, 2001
On August 10, 1988, upon due presentment of the foreign exchange demand draft,
GREGORIO H. REYES AND CONSUELO PUYAT-REYES, PETITIONERS, VS. denominated as FXDD No. 209968, the same was dishonored, with the notice of
THE HON. COURT OF APPEALS AND FAR EAST BANK AND TRUST COMPANY, dishonor stating the following: xxx No account held with Westpac. Meanwhile, on
RESPONDENTS. August 16, 1988, Westpac-New York sent a cable to respondent bank informing the
latter that its dollar account in the sum of One Thousand Six Hundred Ten
DECISION Australian Dollars (AU$1,610.00) was debited. On August 19, 1988, in response to
PRCIs complaint about the dishonor of the said foreign exchange demand draft,
DE LEON, JR., J.: respondent bank informed Westpac-Sydney of the issuance of the said demand
draft FXDD No. 209968, drawn against the Westpac-Sydney and informing the latter
Before us is a petition for review of the Decision[1] dated July 22, 1994 and to be reimbursed from the respondent banks dollar account in Westpac-New York.
Resolution[2] dated December 29, 1994 of the Court of Appeals[3] affirming with The respondent bank on the same day likewise informed Westpac-New York
modification the Decision[4] dated November 12, 1992 of the Regional Trial Court of requesting the latter to honor the reimbursement claim of Westpac-Sydney. On
Makati, Metro Manila, Branch 64, which dismissed the complaint for damages of September 14, 1988, upon its second presentment for payment, FXDD No. 209968
petitioners spouses Gregorio H. Reyes and Consuelo Puyat-Reyes against was again dishonored by Westpac-Sydney for the same reason, that is, that the
respondent Far East Bank and Trust Company. respondent bank has no deposit dollar account with the drawee Westpac-Sydney.

The undisputed facts of the case are as follows: 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
In view of the 20th Asian Racing Conference then scheduled to be held in racing conference. When petitioner Gregorio H. Reyes arrived in Sydney in the
September, 1988 in Sydney, Australia, the Philippine Racing Club, Inc. (PRCI, for morning of September 18, 1988, he went directly to the lobby of Hotel Regent
brevity) sent four (4) delegates to the said conference. Petitioner Gregorio H. Reyes, Sydney to register as a conference delegate. At the registration desk, in the
as vice-president for finance, racing manager, treasurer, and director of PRCI, sent presence of other delegates from various member countries, he was told by a lady
Godofredo Reyes, the clubs chief cashier, to the respondent bank to apply for a member of the conference secretariat that he could not register because the foreign
foreign exchange demand draft in Australian dollars. 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
Godofredo went to respondent banks Buendia Branch in Makati City to apply for a who were also registering. Feeling terribly embarrassed and humiliated, petitioner
demand draft in the amount One Thousand Six Hundred Ten Australian Dollars Gregorio H. Reyes asked the lady member of the conference secretariat that he be
(AU$1,610.00) payable to the order of the 20th Asian Racing Conference shown the subject foreign exchange demand draft that had been dishonored as well
Secretariat of Sydney, Australia. He was attended to by respondent banks assistant as the covering letter after which he promised that he would pay the registration
cashier, Mr. Yasis, who at first denied the application for the reason that respondent fees in cash. In the meantime he demanded that he be given his name plate and
bank did not have an Australian dollar account in any bank in Sydney. Godofredo conference kit. The lady member of the conference secretariat relented and gave
asked if there could be a way for respondent bank to accommodate PRCIs urgent him his name plate and conference kit. It was only two (2) days later, or on
need to remit Australian dollars to Sydney. Yasis of respondent bank then informed September 20, 1988, that he was given the dishonored demand draft and a covering
Godofredo of a roundabout way of effecting the requested remittance to Sydney letter. It was then that he actually paid in cash the registration fees as he had earlier
thus: the respondent bank would draw a demand draft against Westpac Bank in promised.
Sydney, Australia (Westpac-Sydney for brevity) and have the latter reimburse itself
from the U.S. dollar account of the respondent in Westpac Bank in New York, U.S.A
Meanwhile, on September 19, 1988, petitioner Consuelo Puyat-Reyes arrived in
(Westpac-New York for brevity). This arrangement has been customarily resorted to
Sydney. She too was embarrassed and humiliated at the registration desk of the
since the 1960s and the procedure has proven to be problem-free. PRCI and the conference secretariat when she was told in the presence and within the hearing of
petitioner Gregorio H. Reyes, acting through Godofredo, agreed to this arrangement
other delegates that she could not be registered due to the dishonor of the subject
or approach in order to effect the urgent transfer of Australian dollars payable to the
foreign exchange demand draft. She felt herself trembling and unable to look at the
Secretariat of the 20th Asian Racing Conference. people around her. Fortunately, she saw her husband coming toward her. He saved
the situation for her by telling the secretariat member that he had already arranged
On July 28, 1988, the respondent bank approved the said application of PRCI and for the payment of the registration fees in cash once he was shown the dishonored
issued Foreign Exchange Demand Draft (FXDD) No. 209968 in the sum applied for, demand draft. Only then was petitioner Puyat-Reyes given her name plate and
that is, One Thousand Six Hundred Ten Australian Dollars (AU$1,610.00), payable conference kit.
17
 wide association used by almost all banks and is known to be the most reliable
At the time the incident took place, petitioner Consuelo Puyat-Reyes was a member mode of communication in the international banking business. Besides, the above
of the House of Representatives representing the lone Congressional District of procedure, with the Bank as drawer and Westpac-Sydney as drawee, and with
Makati, Metro Manila. She has been an officer of the Manila Banking Corporation Westpac-New York as the reimbursement Bank had been in place since 1960s and
and was cited by Archbishop Jaime Cardinal Sin as the top lady banker of the year there was no reason for the Bank to suspect that this particular demand draft would
in connection with her conferment of the Pro-Ecclesia et Pontifice Award. She has not be honored by Westpac-Sydney.
also been awarded a plaque of appreciation from the Philippine Tuberculosis
Society for her extraordinary service as the Societys campaign chairman for the From the evidence, it appears that the root cause of the miscommunications of the
ninth (9th) consecutive year. Banks SWIFT message is the erroneous decoding on the part of Westpac-Sydney
of the Banks SWIFT message as an MT799 format. However, a closer look at the
On November 23, 1988, the petitioners filed in the Regional Trial Court of Makati, Banks Exhs. 6 and 7 would show that despite what appears to be an asterisk
Metro Manila, a complaint for damages, docketed as Civil Case No. 88-2468, written over the figure before 99, the figure can still be distinctly seen as a number
against the respondent bank due to the dishonor of the said foreign exchange 1 and not number 7, to the effect that Westpac-Sydney was responsible for the
demand draft issued by the respondent bank. The petitioners claim that as a result dishonor and not the Bank.
of the dishonor of the said demand draft, they were exposed to unnecessary shock,
social humiliation, and deep mental anguish in a foreign country, and in the Moreover, it is not said asterisk that caused the misleading on the part of the
presence of an international audience. Westpac-Sydney of the numbers 1 to 7, since Exhs. 6 and 7 are just
documentary copies of the cable message sent to Westpac-Sydney. Hence, if there
On November 12, 1992, the trial court rendered judgment in favor of the defendant was mistake committed by Westpac-Sydney in decoding the cable message which
(respondent bank) and against the plaintiffs (herein petitioners), the dispositive caused the Banks message to be sent to the wrong department, the mistake was
portion of which states: Westpacs, not the Banks. The Bank had done what an ordinary prudent person is
required to do in the particular situation, although appellants expect the Bank to
WHEREFORE, judgment is hereby rendered in favor of the defendant, dismissing have done more. The Bank having done everything necessary or usual in the
plaintiffs complaint, and ordering plaintiffs to pay to defendant, on its counterclaim, ordinary course of banking transaction, it cannot be held liable for any
the amount of P50,000.00, as reasonable attorneys fees. Costs against the plaintiff. embarrassment and corresponding damage that appellants may have incurred.[7]

SO ORDERED.[5] xxx xxx xxx

The petitioners appealed the decision of the trial court to the Court of Appeals. On Hence, this petition, anchored on the following assignment of errors:
July 22, 1994, the appellate court affirmed the decision of the trial court but in effect
deleted the award of attorneys fees to the defendant (herein respondent bank) and I
the pronouncement as to the costs. The decretal portion of the decision of the
appellate court states: THE HONORABLE COURT OF APPEALS ERRED IN FINDING PRIVATE
RESPONDENT NOT NEGLIGENT BY ERRONEOUSLY APPLYING THE
WHEREFORE, the judgment appealed from, insofar as it dismisses plaintiffs STANDARD OF DILIGENCE OF AN ORDINARY PRUDENT PERSON WHEN IN
complaint, is hereby AFFIRMED, but is hereby REVERSED and SET ASIDE in all TRUTH A HIGHER DEGREE OF DILIGENCE IS IMPOSED BY LAW UPON THE
other respect. No special pronouncement as to costs. BANKS.

SO ORDERED.[6] II

According to the appellate court, there is no basis to hold the respondent bank liable THE HONORABLE COURT OF APPEALS ERRED IN ABSOLVING PRIVATE
for damages for the reason that it exerted every effort for the subject foreign RESPONDENT FROM LIABILITY BY OVERLOOKING THE FACT THAT THE
exchange demand draft to be honored. The appellate court found and declared that: DISHONOR OF THE DEMAND DRAFT WAS A BREACH OF PRIVATE
RESPONDENTS WARRANTY AS THE DRAWER THEREOF.
xxx xxx xxx
III
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 THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT AS
was no miscommunication between it and Westpac-New York. SWIFT is a world SHOWN OVERWHELMINGLY BY THE EVIDENCE, THE DISHONOR OF THE
18
DEMAND DRAFT WAS DUE TO PRIVATE RESPONDENTS NEGLIGENCE AND Indeed, the line of a 7 is in a slanting position while the line of a 1 is in a
NOT THE DRAWEE BANK.[8] horizontal position. Thus, the number 1 in MT199 cannot be construed as 7.[11]

The petitioners contend that due to the fiduciary nature of the relationship between
the respondent bank and its clients, the respondent bank should have exercised a
higher degree of diligence than that expected of an ordinary prudent person in the
handling of its affairs as in the case at bar. The appellate court, according to
petitioners, erred in applying the standard of diligence of an ordinary prudent person
only. Petitioners also claim that the respondent bank violated Section 61 of the
Negotiable Instruments Law[9] which provides the warranty of a drawer that xxx on
due presentment, the instrument will be accepted or paid, or both, according to its
tenor xxx. Thus, the petitioners argue that respondent bank should be held liable
for damages for violation of this warranty. The petitioners pray this Court to re-
examine the facts to cite certain instances of negligence.
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 account[12] 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]

It is our view and we hold that there is no reversible error in the decision of the With these established facts, we now determine the degree of diligence that banks
appellate court. are required to exert in their commercial dealings. In Philippine Bank of Commerce
v. Court of Appeals[15] upholding a long standing doctrine, we ruled that the degree
Section 1 of Rule 45 of the Revised Rules of Court provides that (T)he petition (for of diligence required of banks, is more than that of a good father of a family where
review) shall raise only questions of law which must be distinctly set forth. Thus, we the fiduciary nature of their relationship with their depositors is concerned. In other
have ruled that factual findings of the Court of Appeals are conclusive on the parties words banks are duty bound to treat the deposit accounts of their depositors with
and not reviewable by this Court and they carry even more weight when the Court the highest degree of care. But the said ruling applies only to cases where banks act
of Appeals affirms the factual findings of the trial court.[10] 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
The courts a quo found that respondent bank did not misrepresent that it was banks in commercial transactions that do not involve their fiduciary relationship with
maintaining a deposit account with Westpac-Sydney. Respondent banks assistant their depositors.
cashier explained to Godofredo Reyes, representating PRCI and petitioner Gregorio
H. Reyes, how the transfer of Australian dollars would be effected through Westpac- Considering the foregoing, the respondent bank was not required to exert more than
New York where the respondent bank has a dollar account to Westpac-Sydney the diligence of a good father of a family in regard to the sale and issuance of the
where the subject foreign exchange demand draft (FXDD No. 209968) could be subject foreign exchange demand draft. The case at bar does not involve the
encashed by the payee, the 20th Asian Racing Conference Secretatriat. PRCI and handling of petitioners deposit, if any, with the respondent bank. Instead, the
its Vice-President for finance, petitioner Gregorio H. Reyes, through their said relationship involved was that of a buyer and seller, that is, between the respondent
representative, agreed to that arrangement or procedure. In other words, the bank as the seller of the subject foreign exchange demand draft, and PRCI as the
petitioners are estopped from denying the said arrangement or procedure. Similar buyer of the same, with the 20th Asian Racing Conference Secretariat in Sydney,
arrangements have been a long standing practice in banking to facilitate Australia as the payee thereof. As earlier mentioned, the said foreign exchange
international commercial transactions. In fact, the SWIFT cable message sent by demand draft was intended for the payment of the registration fees of the petitioners
respondent bank to the drawee bank, Westpac-Sydney, stated that it may claim as delegates of the PRCI to the 20th Asian Racing Conference in Sydney.
reimbursement from its New York branch, Westpac-New York where respondent
bank has a deposit dollar account. 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
The facts as found by the courts a quo show that respondent bank did not cause an reading of its cable message to Westpac-Sydney by an employee of the latter could
erroneous transmittal of its SWIFT cable message to Westpac-Sydney. It was the not have been foreseen by the respondent bank. Being unaware that its employee
erroneous decoding of the cable message on the part of Westpac-Sydney that erroneously read the said cable message, Westpac-Sydney merely stated that the
caused the dishonor of the subject foreign exchange demand draft. An employee of respondent bank has no deposit account with it to cover for the amount of One
Westpac-Sydney in Sydney, Australia mistakenly read the printed figures in the Thousand Six Hundred Ten Australian Dollar (AU$1610.00) indicated in the foreign
SWIFT cable message of respondent bank as MT799 instead of as MT199. As a exchange demand draft. Thus, the respondent bank had the impression that
result, Westpac-Sydney construed the said cable message as a format for a letter of Westpac-New York had not yet made available the amount for reimbursement to
credit, and not for a demand draft. The appellate court correctly found that the Westpac-Sydney despite the fact that respondent bank has a sufficient deposit
figure before 99 can still be distinctly seen as a number 1 and not number 7. dollar account with Westpac-New York. That was the reason why the respondent
19
bank had to re-confirm and repeatedly notify Westpac-New York to debit its
(respondent banks) deposit dollar account with it and to transfer or credit the
corresponding amount to Westpac-Sydney 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.

20
 FIRST DIVISION cards were also missing.[14] It was only then that the Cabamongan spouses
realized that their passports and bank deposit certificates were lost.[15]
G.R. NO. 146918, May 02, 2006
Through various overseas calls, the Cabamongan spouses informed Citibank, thru
CITIBANK, N.A., PETITIONER, PRESENT: VS. SPOUSES LUIS AND CARMELITA San Pedro, that Carmelita was in the United States and did not preterminate their
CABAMONGAN AND THEIR SONS LUIS CABAMONGAN, JR. AND LITO deposit and that the person who did so was an impostor who could have also been
CABAMONGAN, RESPONDENTS. involved in the break-in of their California residence. San Pedro told the spouses to
submit the necessary documents to support their claim but Citibank concluded
DECISION nonetheless that Carmelita indeed preterminated her deposit. In a letter dated
September 16, 1994, the Cabamongan spouses, through counsel, made a formal
AUSTRIA-MARTINEZ, J.: demand upon Citibank for payment of their preterminated deposit in the amount of
$55,216.69 with legal interests.[16] In a letter dated November 28, 1994, Citibank,
Before the Court is a petition for review on certiorari of the Decision[1] dated through counsel, refused the Cabamongan spouses' demand for payment, asserting
January 26, 2001 and the Resolution[2] dated July 30, 2001 of the Court of Appeals that the subject deposit was released to Carmelita upon proper identification and
(CA) in CA-G.R. CV No. 59033. verification.[17]

The factual background of the case is as follows: On January 27, 1995, the Cabamongan spouses filed a complaint against Citibank
before the Regional Trial Court of Makati for Specific Performance with Damages,
On August 16, 1993, spouses Luis and Carmelita Cabamongan opened a joint docketed as Civil Case No 95-163 and raffled to Branch 150 (RTC).[18]
"and/or" foreign currency time deposit in trust for their sons Luis, Jr. and Lito at the
Citibank, N.A., Makati branch, with Reference No. 60-22214372, in the amount of In its Answer dated April 20, 1995, Citibank insists that it was not negligent of its
$55,216.69 for a term of 182 days or until February 14, 1994, at 2.5625 per cent duties since the subject deposit was released to Carmelita only upon proper
interest per annum.[3] Prior to maturity, or on November 10, 1993, a person identification and verification.[19]
claiming to be Carmelita went to the Makati branch and pre-terminated the said
foreign currency time deposit by presenting a passport, a Bank of America Versatele At the pre-trial conference the parties failed to arrive at an amicable settlement.[20]
Card, an ATM card and a Mabuhay Credit Card.[4] She filled up the necessary Thus, trial on the merits ensued.
forms for pre-termination of deposits with the assistance of Account Officer Yeye
San Pedro. While the transaction was being processed, she was casually For the plaintiffs, the Cabamongan spouses themselves and Florenda G. Negre,
interviewed by San Pedro about her personal circumstances and investment Documents Examiner II of the Philippine National Police (PNP) Crime Laboratory in
plans.[5] Since the said person failed to surrender the original Certificate of Deposit, Camp Crame, Quezon City, testified. The Cabamongan spouses, in essence,
she had to execute a notarized release and waiver document in favor of Citibank, testified that Carmelita could not have preterminated the deposit account since she
pursuant to Citibank's internal procedure, before the money was released to her.[6] was in California at the time of the incident.[21] Negre testified that an examination
The release and waiver document[7] was not notarized on that same day but the of the questioned signature and the samples of the standard signatures of Carmelita
money was nonetheless given to the person withdrawing.[8] The transaction lasted submitted in the RTC showed a significant divergence. She concluded that they
for about 40 minutes.[9] were not written by one and the same person.[22]

After said person left, San Pedro realized that she left behind an identification
card.[10] Thus, San Pedro called up Carmelita's listed address at No. 48 Ranger
Street, Moonwalk Village, Las Pinas, Metro Manila on the same day to have the
card picked up.[11] Marites, the wife of Lito, received San Pedro's call and was
stunned by the news that Carmelita preterminated her foreign currency time deposit
because Carmelita was in the United States at that time.[12] The Cabamongan
spouses work and reside in California. Marites made an overseas call to Carmelita
to inform her about what happened.[13] The Cabamongan spouses were shocked at
the news. It seems that sometime between June 10 and 16, 1993, an unidentified
person broke in at the couple's residence at No. 3268 Baldwin Park Boulevard,
Baldwin Park, California. Initially, they reported that only Carmelita's jewelry box was
missing, but later on, they discovered that other items, such as their passports, bank
deposit certificates, including the subject foreign currency deposit, and identification
For the respondent, Citibank presented San Pedro and Cris Cabalatungan, Vice-
President and In-Charge of Security and Management Division. Both San Pedro and
Cabalatungan testified that proper bank procedure was followed and the deposit
was released to Carmelita only upon proper identification and verification.[23]
On July 1, 1997, the RTC rendered a decision in favor of the Cabamongan spouses
and against Citibank, the dispositive portion of which reads, thus:
WHEREFORE, premises considered, defendant Citibank, N.A., is hereby ordered to
pay the plaintiffs the following:
1) the principal amount of their Foreign Currency Deposit (Reference No.
6022214372) amounting to $55,216.69 or its Phil. Currency equivalent plus interests
from August 16, 1993 until fully paid;
21
 SO ORDERED.[28]
2) Moral damages of P50,000.00; Dissatisfied, Citibank filed an appeal with the CA, docketed as CA-G.R. CV No.
59033.[29] On January 26, 2001, the CA rendered a decision sustaining the finding
3) Attorney's fees of P50,000.00; and of the RTC that Citibank was negligent, ratiocinating in this wise:
In the instant case, it is beyond dispute that the subject foreign currency deposit was
4) Cost of suit. pre-terminated on 10 November 1993. But Carmelita Cabamongan, who works as a
nursing aid (sic) at the Sierra View Care Center in Baldwin Park, California, had
SO ORDERED.[24] shown through her Certificate of Employment and her Daily Time Record from the
[sic] January to December 1993 that she was in the United States at the time of the
The RTC reasoned that: incident.

xxx Citibank, N.A., committed negligence resulting to the undue suffering of the Defendant Citibank, N.A., however, insists that Carmelita was the one who pre-
plaintiffs. The forgery of the signatures of plaintiff Carmelita Cabamongan on the terminated the deposit despite claims to the contrary. Its basis for saying so is the
questioned documents has been categorically established by the handwriting fact that the person who made the transaction on the incident mentioned presented
expert. xxx Defendant bank was clearly remiss in its duty and obligations to treat a valid passport and three (3) other identification cards. The attending account
plaintiff's account with the highest degree of care, considering the nature of their officer examined these documents and even interviewed said person. She was
relationship. Banks are under the obligation to treat the accounts of their depositors satisfied that the person presenting the documents was indeed Carmelita
with meticulous care. This is the reason for their established procedure of requiring Cabamongan. However, such conclusion is belied by these following circumstances.
several specimen signatures and recent picture from potential depositors. For every
transaction, the depositor's signature is passed upon by personnel to check and First, the said person did not present the certificate of deposit issued to Carmelita
countercheck possible irregularities and therefore must bear the blame when they Cabamongan. This would not have been an insurmountable obstacle as the bank, in
fail to detect the forgery or discrepancy.[25] the absence of such certificate, allows the termination of the deposit for as long as
Despite the favorable decision, the Cabamongan spouses filed on October 1, 1997 the depositor executes a notarized release and waiver document in favor of the
a motion to partially reconsider the decision by praying for an increase of the bank. However, this simple procedure was not followed by the bank, as it terminated
amount of the damages awarded.[26] Citibank opposed the motion.[27] On the deposit and actually delivered the money to the impostor without having the said
November 19, 1997, the RTC granted the motion for partial reconsideration and document notarized on the flimsy excuse that another department of the bank was
amended the dispositive portion of the decision as follows: in charge of notarization. The said procedure was obviously for the protection of the
From the foregoing, and considering all the evidence laid down by the parties, the bank but it deliberately ignored such precaution. At the very least, the conduct of the
dispositive portion of the court's decision dated July 1, 1997 is hereby amended bank amounts to negligence.
and/or modified to read as follows:
Second, in the internal memorandum of Account Officer Yeye San Pedro regarding
WHEREFORE, defendant Citibank, N.A., is hereby ordered to pay the plaintiffs the the incident, she reported that upon comparing the authentic signatures of Carmelita
following: Cabamongan on file with the bank with the signatures made by the person claiming
to be Cabamongan on the documents required for the termination of the deposit,
1) the principal amount of their foreign currency deposit (Reference No. she noticed that one letter in the latter [sic] signatures was different from that in the
6022214372) amounting to $55,216.69 or its Philippine currency equivalent (at the standard signatures. She requested said person to sign again and scrutinized the
time of its actual payment or execution) plus legal interest from Aug. 16, 1993 until identification cards presented. Presumably, San Pedro was satisfied with the
fully paid. second set of signatures made as she eventually authorized the termination of the
deposit. However, upon examination of the signatures made during the incident by
2) moral damages in the amount of P200,000.00; the Philippine National Police (PNP) Crime Laboratory, the said signatures turned
out to be forgeries. As the qualifications of Document Examiner Florenda Negre
3) exemplary damages in the amount of P100,000.00; were established and she satisfactorily testified on her findings during the trial, we
have no reason to doubt the validity of her findings. Again, the bank's negligence is
4) attorney's fees of P100,000.00; patent. San Pedro was able to detect discrepancies in the signatures but she did not
exercise additional precautions to ascertain the identity of the person she was
5) litigation expenses of P200,000.00; dealing with. In fact, the entire transaction took only 40 minutes to complete despite
the anomalous situation. Undoubtedly, the bank could have done a better job.
6) cost of suit.

22
Third, as the bank had on file pictures of its depositors, it is inconceivable how bank
employees could have been duped by an impostor. San Pedro admitted in her
testimony that the woman she dealt with did not resemble the pictures appearing on
the identification cards presented but San Pedro still went on with the sensitive
transaction. She did not mind such disturbing anomaly because she was convinced
of the validity of the passport. She also considered as decisive the fact that the
impostor had a mole on her face in the same way that the person in the pictures on
the identification cards had a mole. These explanations do not account for the
disparity between the pictures and the actual appearance of the impostor. That said
person was allowed to withdraw the money anyway is beyond belief.
From 16 September 1994 until full payment, the amount of $55,216.69 shall earn
interest at the legal rate of 12% per annum, and;
The award of moral damages is reduced to P50,000.00.[33]
Dissatisfied, both parties filed separate petitions for review on certiorari with this
Court. The Cabamongan spouses' petition, docketed as G.R. No. 149234, was
denied by the Court per its Resolution dated October 17, 2001.[34] On the other
hand, Citibank's petition was given due course by the Court per Resolution dated
December 10, 2001 and the parties were required to submit their respective
memoranda.[35]

The above circumstances point to the bank's clear negligence. Bank transactions
pass through a successive [sic] of bank personnel, whose duty is to check and
countercheck transactions for possible errors. While a bank is not expected to be
infallible, it must bear the blame for failing to discover mistakes of its employees
despite established bank procedure involving a battery of personnel designed to
minimize if not eliminate errors. In the instant case, Yeye San Pedro, the employee
who primarily dealt with the impostor, did not follow bank procedure when she did
not have the waiver document notarized. She also openly courted disaster by
ignoring discrepancies between the actual appearance of the impostor and the
pictures she presented, as well as the disparities between the signatures made
during the transaction and those on file with the bank. But even if San Pedro was
negligent, why must the other employees in the hierarchy of the bank's work flow
allow such thing to pass unnoticed and unrectified?[30]
The CA, however, disagreed with the damages awarded by the RTC. It held that,
insofar as the date from which legal interest of 12% is to run, it should be counted
from September 16, 1994 when extrajudicial demand was made. As to moral
damages, the CA reduced it to P100,000.00 and deleted the awards of exemplary
damages and litigation expenses. Thus, the dispositive portion of the CA decision
reads:
WHEREFORE, the decision of the trial court dated 01 July 1997, and its order dated
19 November 1997, are hereby AFFIRMED with the MODIFICATION that the legal
interest for actual damages awarded in the amount of $55,216.69 shall run from 16
September 1994; exemplary damages amounting to P100,000.00 and litigation
expenses amounting to P200,000.00 are deleted; and moral damages is reduced to
P100,000.00.
Citibank poses the following errors for resolution:
THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND GRAVELY
ABUSED ITS DISCRETION IN UPHOLDING THE LOWER COURT'S DECISION
WHICH IS NOT BASED ON CLEAR EVIDENCE BUT ON GRAVE
MISAPPREHENSION OF FACTS.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN UPHOLDING
THE DECISION OF THE TRIAL COURT AWARDING MORAL DAMAGES WHEN
IN FACT THERE IS NO BASIS IN LAW AND FACT FOR SAID AWARD.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING THAT
THE PRINCIPAL AMOUNT OF US$55,216.69 SHOULD EARN INTEREST AT THE
RATE OF 12% PER ANNUM FROM 16 SEPTEMBER 1994 UNTIL FULL
PAYMENT.[36]
Anent the first ground, Citibank contends that the CA erred in affirming the RTC's
finding that it was negligent since the said courts failed to appreciate the extra
diligence of a good father of a family exercised by Citibank thru San Pedro.
As to the second ground, Citibank argues that the Cabamongan spouses are not
entitled to moral damages since moral damages can be awarded only in cases of
breach of contract where the bank has acted willfully, fraudulently or in bad faith. It
submits that it has not been shown in this case that Citibank acted willfully,
fraudulently or in bad faith and mere negligence, even if the Cabamongan spouses
suffered mental anguish or serious anxiety on account thereof, is not a ground for
awarding moral damages.

Costs against defendant. On the third ground, Citibank avers that the interest rate should not be 12% but the
stipulated rate of 2.5625% per annum. It adds that there is no basis to pay the
SO ORDERED.[31] interest rate of 12% per annum from September 16, 1994 until full payment because
The Cabamongan spouses filed a motion for partial reconsideration on the matter of as of said date there was no legal ground yet for the Cabamongan spouses to
the award of damages in the decision.[32] On July 30, 2001, the demand payment of the principal and it is only after a final judgment is issued
declaring that Citibank is obliged to return the principal amount of US$55,216.69
CA granted in part said motion and modified its decision as follows: when the right to demand payment starts and legal interest starts to run.
The actual damages in amount of $55,216.69, representing the amount of
appellees' foreign currency time deposit shall earn an interest of 2.5625% for the On the other hand, the Cabamongan spouses contend that Citibank's negligence
period 16 August 1993 to 14 February 1994, as stipulated in the contract; has been established by evidence. As to the interest rate, they submit that the
stipulated interest of 2.5635% should apply for the 182-day contract period from
August 16, 1993 to February 14, 1993; thereafter, 12% should apply. They further
23
contend that the RTC's award of exemplary damages of P100,000.00 should be
maintained. They submit that the CA erred in treating the award of litigation
expenses as lawyer's fees since they have shown that they incurred actual
expenses in litigating their claim against Citibank. They also contend that the CA
erred in reducing the award of moral damages in view of the degree of mental
anguish and emotional fears, anxieties and nervousness suffered by them.[37]
Subsequently, Citibank, thru a new counsel, submitted a Supplemental
Memorandum,[38] wherein it posits that, assuming that it was negligent, the
Cabamongan spouses were guilty of contributory negligence since they failed to
notify Citibank that they had migrated to the United States and were residents
thereat and after having been victims of a burglary, they should have immediately
assessed their loss and informed Citibank of the disappearance of the bank
certificate, their passports and other identification cards, then the fraud would not
have been perpetuated and the losses avoided. It further argues that since the
Cabamongan spouses are guilty of contributory negligence, the doctrine of last clear
chance is inapplicable.
are expected to exercise the highest degree of diligence in the selection and
supervision of their employees.[48]
The Court agrees with the observation of the CA that Citibank, thru Account Officer
San Pedro, openly courted disaster when despite noticing discrepancies in the
signature and photograph of the person claiming to be Carmelita and the failure to
surrender the original certificate of time deposit, the pretermination of the account
was allowed. Even the waiver document was not notarized, a procedure meant to
protect the bank. For not observing the degree of diligence required of banking
institutions, whose business is impressed with public interest, Citibank is liable for
damages.
As to the interest rate, Citibank avers that the claim of the Cabamongan spouses
does not constitute a loan or forbearance of money and therefore, the interest rate
of 6%, not 12%, applies.
The Court does not agree.

Citibank's assertion that the Cabamongan spouses are guilty of contributory The time deposit subject matter of herein petition is a simple loan. The provisions of
negligence and non-application of the doctrine of last clear chance cannot pass the New Civil Code on simple loan govern the contract between a bank and its
muster since these contentions were raised for the first time only in their depositor. Specifically, Article 1980 thereof categorically provides that ". . . savings .
Supplemental Memorandum. Indeed, the records show that said contention were . . deposits of money in banks and similar institutions shall be governed by the
neither pleaded in the petition for review and the memorandum nor in Citibank's provisions concerning simple loan." Thus, the relationship between a bank and its
Answer to the complaint or in its appellant's brief filed with the CA. To consider the depositor is that of a debtor-creditor, the depositor being the creditor as it lends the
alleged facts and arguments raised belatedly in a supplemental pleading to herein bank money, and the bank is the debtor which agrees to pay the depositor on
petition for review at this very late stage in the proceedings would amount to demand.
trampling on the basic principles of fair play, justice and due process.[39]
The applicable interest rate on the actual damages of $55,216.69, should be in
The Court has repeatedly emphasized that, since the banking business is accordance with the guidelines set forth in Eastern Shipping Lines, Inc. v. Court of
impressed with public interest, of paramount importance thereto is the trust and Appeals[49] to wit:
confidence of the public in general. Consequently, the highest degree of When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
diligence[40] is expected,[41] and high standards of integrity and performance are delicts or quasi-delicts is breached, the contravenor can be held liable for damages.
even required, of it.[42] By the nature of its functions, a bank is "under obligation to The provisions under Title XVIII on "Damages" of the Civil Code govern in
treat the accounts of its depositors with meticulous care,[43] always having in mind determining the measure of recoverable damages.
the fiduciary nature of their relationship."[44]
With regard particularly to an award of interest, in the concept of actual and
In this case, it has been sufficiently shown that the signatures of Carmelita in the compensatory damages, the rate of interest, as well as the accrual thereof, is
forms for pretermination of deposits are forgeries. Citibank, with its signature imposed, as follows:
verification procedure, failed to detect the forgery. Its negligence consisted in the
omission of that degree of diligence required of banks. The Court has held that a When the obligation is breached, and it consists in the payment of a sum of money,
bank is "bound to know the signatures of its customers; and if it pays a forged i.e., a loan or forbearance of money, the interest due should be that which may have
check, it must be considered as making the payment out of its own funds, and been stipulated in writing. Furthermore, the interest due shall itself earn legal
cannot ordinarily charge the amount so paid to the account of the depositor whose interest from the time it is judicially demanded. In the absence of stipulation, the rate
name was forged."[45] Such principle equally applies here. of interest shall be 12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Citibank cannot label its negligence as mere mistake or human error. Banks handle Code.
daily transactions involving millions of pesos.[46] By the very nature of their works
the degree of responsibility, care and trustworthiness expected of their employees When an obligation, not constituting a loan or forbearance of money, is breached,
and officials is far greater than those of ordinary clerks and employees.[47] Banks an interest on the amount of damages awarded may be imposed at the discretion of
24
the court at the rate of 6% per annum. No interest, however, shall be adjudged on Article 2208 of the New Civil Code enumerates the instances where such may be
unliquidated claims or damages except when or until the demand can be awarded and, in all cases, it must be reasonable, just and equitable if the same
established with reasonable certainty. Accordingly, where the demand is established were to be granted. Attorney's fees as part of damages are not meant to enrich the
with reasonable certainty, the interest shall begin to run from the time the claim is winning party at the expense of the losing litigant. They are not awarded every time
made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty a party prevails in a suit because of the policy that no premium should be placed on
cannot be so reasonably established at the time the demand is made, the interest the right to litigate.[55] The award of attorney's fees is the exception rather than the
shall begin to run only from the date the judgment of the court is made (at which general rule. As such, it is necessary for the court to make findings of facts and law
time the quantification of damages may be deemed to have been reasonably that would bring the case within the exception and justify the grant of such award.
ascertained). The actual base for the computation of legal interest shall, in any case, The matter of attorney's fees cannot be mentioned only in the dispositive portion of
be on the amount finally adjudged. the decision.[56] They must be clearly explained and justified by the trial court in the
body of its decision. Consequently, the award of attorney's fees should be deleted.
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 WHEREFORE, the instant petition is PARTIALLY GRANTED. The assailed Decision
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, and Resolution are AFFIRMED with MODIFICATIONS, as follows:
this interim period being deemed to be by then an equivalent to a forbearance of 1. The interest shall be computed as follows:
credit.[50] The actual damages in principal amount of $55,216.69, representing the amount of
Thus, in a loan or forbearance of money, the interest due should be that stipulated foreign currency time deposit shall earn interest at the stipulated rate of 2.5625% for
in writing, and in the absence thereof, the rate shall be 12% per annum counted the period August 16, 1993 to February 14, 1994;
from the time of demand. Accordingly, the stipulated interest rate of 2.562% per
annum shall apply for the 182-day contract period from August 16, 1993 to February From February 15, 1994 to September 15, 1994, the principal amount of $55,216.69
14, 1994. For the period from the date of extra-judicial demand, September 16, and the interest earned as of February 14, 1994 shall earn interest at the rate then
1994, until full payment, the rate of 12% shall apply. As for the intervening period prevailing granted by Citibank;
between February 15, 1994 to September 15, 1994, the rate of interest then
prevailing granted by Citibank shall apply since the time deposit provided for roll From September 16, 1994 until full payment, the principal amount of $55,216.69
over upon maturity of the principal and interest.[51] and the interest earned as of September 15, 1994, shall earn interest at the legal
rate of 12% per annum;
As to moral damages, in culpa contractual or breach of contract, as in the case 2. The award of attorney's fees is DELETED.
before the Court, moral damages are recoverable only if the defendant has acted No pronouncement as to costs.
fraudulently or in bad faith,[52] or is found guilty of gross negligence amounting to
bad faith, or in wanton disregard of his contractual obligations.[53] The act of SO ORDERED.
Citibank's employee in allowing the pretermination of Cabamongan spouses'
account despite the noted discrepancies in Carmelita's signature and photograph,
the absence of the original certificate of time deposit and the lack of notarized
waiver dormant, constitutes gross negligence amounting to bad faith under Article
2220 of the Civil Code.

There is no hard-and-fast rule in the determination of what would be a fair amount of

moral damages since each case must be governed by its own peculiar facts. The
yardstick should be that it is not palpably and scandalously excessive.[54] The
amount of P50,000.00 awarded by the CA is reasonable and just. Moreover, said
award is deemed final and executory insofar as respondents are concerned
considering that their petition for review had been denied by the Court in its final and
executory Resolution dated October 17, 2001 in G.R. No. 149234.

Finally, Citibank contends that the award of attorney's fees should be deleted since
such award appears only in the dispositive portion of the decision of the RTC and
the latter failed to elaborate, explain and justify the same.

25
 SECOND DIVISION
Citytrust thereafter filed before the Regional Trial Court (RTC) of Manila a complaint
G.R. No. 141835, February 04, 2009 for recovery of sum of money with damages against petitioner which it alleged erred
in encashing the checks and in charging the proceeds thereof to its account, despite
CENTRAL BANK OF THE PHILIPPINES, PETITIONER, VS. CITYTRUST the lack of authority of "Rosauro C. Cayabyab."
BANKING CORPORATION, RESPONDENT.
By Decision[1] of November 13, 1991, Branch 32 of the RTC of Manila found both
DECISION Citytrust and petitioner negligent and accordingly held them equally liable for the
loss. Both parties appealed to the Court of Appeals which, by Decision[2] dated July
CARPIO MORALES, J.: 16, 1999, affirmed the trial court's decision, it holding that both parties contributed
equally to the fraudulent encashment of the checks, hence, they should equally
Pursuant to Republic Act No. 625, the old Central Bank Law, respondent Citytrust share the loss in consonance with Article 2179[3] vis a vis Article 1172[4] of the Civil
Banking Corporation (Citytrust), formerly Feati Bank, maintained a demand deposit Code.
account with petitioner Central Bank of the Philippines, now Bangko Sentral ng
Pilipinas. In arriving at its Decision, the appellate court noted that while "Citytrust failed to take
adequate precautionary measures to prevent the fraudulent encashment of its
As required, Citytrust furnished petitioner with the names and corresponding checks," petitioner was not entirely blame-free in light of its failure to verify the
signatures of five of its officers authorized to sign checks and serve as drawers and signature of Citytrust's agent authorized to receive payment.
indorsers for its account. And it provided petitioner with the list and corresponding
signatures of its roving tellers authorized to withdraw, sign receipts and perform Brushing aside petitioner's contention that it cannot be sued, the appellate court
other transactions on its behalf. Petitioner later issued security identification cards to held that petitioner's Charter specifically clothes it with the power to sue and be
the roving tellers one of whom was "Rounceval Flores" (Flores). sued.

On July 15, 1977, Flores presented for payment to petitioner's Senior Teller Also brushing aside petitioner's assertion that Citytrust's reservation of the filing of a
Iluminada dela Cruz (Iluminada) two Citytrust checks of even date, payable to separate civil action against Flores precluded Citytrust from filing the civil action
Citytrust, one in the amount of P850,000 and the other in the amount of P900,000, against it, the appellate court held that the "action for the recovery of sum of money
both of which were signed and indorsed by Citytrust's authorized signatory-drawers. is separate and distinct and is grounded on a separate cause of action from that of
the criminal case for estafa."
After the checks were certified by petitioner's Accounting Department, Iluminada
verified them, prepared the cash transfer slip on which she affixed her signature, Hence, the present appeal, petitioner maintaining that Flores having been an
stamped the checks with the notation "Received Payment" and asked Flores to, as authorized roving teller, Citytrust is bound by his acts. Also maintaining that it was
he did, sign on the space above such notation. Instead of signing his name, not negligent in releasing the proceeds of the checks to Flores, the failure of its teller
however, Flores signed as "Rosauro C. Cayabyab" - a fact Iluminada failed to to properly verify his signature notwithstanding, petitioner contends that verification
notice. could be dispensed with, Flores having been known to be an authorized roving teller
of Citytrust who had had numerous transactions with it (petitioner) on its (Citytrust's)
Iluminada thereupon sent the cash transfer slip and checks to petitioner's Cash behalf for five years prior to the questioned transaction.
Department where an officer verified and compared the drawers' signatures on the
checks against their specimen signatures provided by Citytrust, and finding the Attributing negligence solely to Citytrust, petitioner harps on Citytrust's allowing
same in order, approved the cash transfer slip and paid the corresponding amounts Flores to steal the checks and failing to timely cancel them; allowing Flores to wear
to Flores. Petitioner then debited the amount of the checks totaling P1,750,000 from the issued identification card issued by it (petitioner); failing to report Flores'
Citytrust's demand deposit account. absence from work on the day of the incident; and failing to explain the
circumstances surrounding the supposed theft and cancellation of the checks.
More than a year and nine months later, Citytrust, by letter dated April 23, 1979,
alleging that the checks were already cancelled because they were stolen, Drawing attention to Citytrust's considerable delay in demanding the restoration of
demanded petitioner to restore the amounts covered thereby to its demand deposit the proceeds of the checks, petitioners argue that, assuming arguendo that its teller
account. Petitioner did not heed the demand, however. was negligent, Citytrust's negligence, which preceded that committed by the teller,
was the proximate cause of the loss or fraud.
Citytrust later filed a complaint for estafa, with reservation on the filing of a separate
civil action, against Flores. Flores was convicted. The petition is bereft of merit.
26
 discovered the loss/theft and/or subsequent encashment, their proceeds or part
Petitioner's teller Iluminada did not verify Flores' signature on the flimsy excuse that thereof could have been recovered.
Flores had had previous transactions with it for a number of years. That
circumstance did not excuse the teller from focusing attention to or at least glancing In line with the ruling in Consolidated Bank, the Court deems it proper to allocate the
at Flores as he was signing, and to satisfy herself that the signature he had just loss between petitioner and Citytrust on a 60-40 ratio.
affixed matched that of his specimen signature. Had she done that, she would have
readily been put on notice that Flores was affixing, not his but a fictitious signature.
WHEREFORE, the assailed Court of Appeals Decision of July 16, 1999 is hereby
AFFIRMED with MODIFICATION, in that petitioner and Citytrust should bear the
Given that petitioner is the government body mandated to supervise and regulate loss on a 60-40 ratio.
banking and other financial institutions, this Court's ruling in Consolidated Bank and
Trust Corporation v. Court of Appeals[5] illumines: SO ORDERED.
The contract between the bank and its depositor is governed by the provisions of
the Civil Code on simple loan. Article 1980 of the Civil Code expressly provides that
"x x x savings x x x deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loan." There is a debtor-creditor
relationship between the bank and its depositor. The bank is the debtor and the
depositor is the creditor. The depositor lends the bank money and the bank agrees
to pay the depositor on demand. The savings deposit agreement between the bank
and the depositor is the contract that determines the rights and obligations of the
parties.

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

This fiduciary relationship means that the bank's obligation to observe "high
standards of integrity and performance" is deemed written into every deposit
agreement between a bank and its depositor. The fiduciary nature of banking
requires banks to assume a degree of diligence higher than that of a good father of
a family. Article 1172 of the Civil Code states that the degree of diligence required of
an obligor is that prescribed by law or contract, and absent such stipulation then the
diligence of a good father of a family. Section 2 of RA 8791 prescribes the statutory
diligence required from banks - that banks must observe "high standards of integrity
and performance" in servicing their depositors. Although RA 8791 took effect almost
nine years after the unauthorized withdrawal of the P300,000 from L.C. Diaz's
savings account, jurisprudence at the time of the withdrawal already imposed on
banks the same high standard of diligence required under RA No. 8791. (Emphasis
supplied)
Citytrust's failure to timely examine its account, cancel the checks and notify
petitioner of their alleged loss/theft should mitigate petitioner's liability, in
accordance with Article 2179 of the Civil Code which provides that if the plaintiff's
negligence was only contributory, the immediate and proximate cause of the injury
being the defendant's lack of due care, the plaintiff may recover damages, but the
courts shall mitigate the damages to be awarded. For had Citytrust timely
27
 FIRST DIVISION Guaria Corporation demanded the release of the balance of the loan, but DBP
refused. Instead, DBP directly paid some suppliers of Guaria Corporation over the
G.R. No. 160758, January 15, 2014 latters objection. DBP found upon inspection of the resort project, its developments
and improvements that Guaria Corporation had not completed the construction
DEVELOPMENT BANK OF THE PHILIPPINES, PETITIONER, VS. GUARIA works.[7] In a letter dated February 27, 1978,[8] and a telegram dated June 9,
AGRICULTURAL AND REALTY DEVELOPMENT CORPORATION, 1978,[9] DBP thus demanded that Guaria Corporation expedite the completion of
RESPONDENT. the project, and warned that it would initiate foreclosure proceedings should Guaria
Corporation not do so.[10]
DECISION
Unsatisfied with the non-action and objection of Guaria Corporation, DBP initiated
BERSAMIN, J.: extrajudicial foreclosure proceedings. A notice of foreclosure sale was sent to
Guaria Corporation. The notice was eventually published, leading the clients and
The foreclosure of a mortgage prior to the mortgagors default on the principal patrons of Guaria Corporation to think that its business operation had slowed
obligation is premature, and should be undone for being void and ineffectual. The down, and that its resort had already closed.[11]
mortgagee who has been meanwhile given possession of the mortgaged property
by virtue of a writ of possession issued to it as the purchaser at the foreclosure sale On January 6, 1979, Guaria Corporation sued DBP in the RTC to demand specific
may be required to restore the possession of the property to the mortgagor and to performance of the latters obligations under the loan agreement, and to stop the
pay reasonable rent for the use of the property during the intervening period. foreclosure of the mortgages (Civil Case No. 12707).[12] However, DBP moved for
The Case the dismissal of the complaint, stating that the mortgaged properties had already
been sold to satisfy the obligation of Guaria Corporation at a public auction held on
In this appeal, Development Bank of the Philippines (DBP) seeks the reversal of the January 15, 1979 at the Costa Mario Resort Beach Resort in Oton, Iloilo.[13] Due to
adverse decision promulgated on March 26, 2003 in C.A.-G.R. CV No. 59491,[1] this, Guaria Corporation amended the complaint on February 6, 1979[14] to seek
whereby the Court of Appeals (CA) upheld the judgment rendered on January 6, the nullification of the foreclosure proceedings and the cancellation of the certificate
1998[2] by the Regional Trial Court, Branch 25, in Iloilo City (RTC) annulling the of sale. DBP filed its answer on December 17, 1979,[15] and trial followed upon the
extra-judicial foreclosure of the real estate and chattel mortgages at the instance of termination of the pre-trial without any agreement being reached by the parties.[16]
DBP because the debtor-mortgagor, Guaria Agricultural and Realty Development
Corporation (Guaria Corporation), had not yet defaulted on its obligations in favor In the meantime, DBP applied for the issuance of a writ of possession by the RTC.
of DBP. At first, the RTC denied the application but later granted it upon DBPs motion for
reconsideration. Aggrieved, Guaria Corporation assailed the granting of the
Antecedents application before the CA on certiorari (C.A.-G.R. No. 12670-SP entitled Guaria
Agricultural and Realty Development Corporation v. Development Bank of the
In July 1976, Guaria Corporation applied for a loan from DBP to finance the Philippines). After the CA dismissed the petition for certiorari, DBP sought the
development of its resort complex situated in Trapiche, Oton, Iloilo. The loan, in the implementation of the order for the issuance of the writ of possession. Over Guaria
amount of P3,387,000.00, was approved on August 5, 1976.[3] Guaria Corporation Corporations opposition, the RTC issued the writ of possession on June 16,
executed a promissory note that would be due on November 3, 1988.[4] On October 1982.[17]
5, 1976, Guaria Corporation executed a real estate mortgage over several real
properties in favor of DBP as security for the repayment of the loan. On May 17, Judgment of the RTC
1977, Guaria Corporation executed a chattel mortgage over the personal
properties existing at the resort complex and those yet to be acquired out of the On January 6, 1998, the RTC rendered its judgment in Civil Case No. 12707,
proceeds of the loan, also to secure the performance of the obligation.[5] Prior to the disposing as follows:
release of the loan, DBP required Guaria Corporation to put up a cash equity of
P1,470,951.00 for the construction of the buildings and other improvements on the WHEREFORE, premises considered, the court hereby resolves that the extra-
resort complex. judicial sales of the mortgaged properties of the plaintiff by the Office of the
Provincial Sheriff of Iloilo on January 15, 1979 are null and void, so with the
The loan was released in several instalments, and Guaria Corporation used the consequent issuance of certificates of sale to the defendant of said properties, the
proceeds to defray the cost of additional improvements in the resort complex. In all, registration thereof with the Registry of Deeds and the issuance of the transfer
the amount released totalled P3,003,617.49, from which DBP withheld P148,102.98 certificates of title involving the real property in its name.
as interest.[6]

28
It is also resolved that defendant give back to the plaintiff or its representative the
actual possession and enjoyment of all the properties foreclosed and possessed by THE TRIAL COURT ERRED IN AWARDING ATTORNEYS FEES AGAINST DBP
it. To pay the plaintiff the reasonable rental for the use of its beach resort during the WHICH MERELY EXERCISED ITS RIGHTS UNDER THE MORTGAGE
period starting from the time it (defendant) took over its occupation and use up to CONTRACT.[19]
the time possession is actually restored to the plaintiff.
In its decision promulgated on March 26, 2003,[20] however, the CA sustained the
And, on the part of the plaintiff, to pay the defendant the loan it obtained as soon as RTCs judgment but deleted the award of attorneys fees, decreeing:
it takes possession and management of the beach resort and resume its business
operation. WHEREFORE, in view of the foregoing, the Decision dated January 6, 1998,
rendered by the Regional Trial Court of Iloilo City, Branch 25 in Civil Case No.
Furthermore, defendant is ordered to pay plaintiffs attorneys fee of P50,000.00. 12707 for Specific Performance with Preliminary Injunction is hereby AFFIRMED
with MODIFICATION, in that the award for attorneys fees is deleted.
So ORDERED.[18]
SO ORDERED.[21]
Decision of the CA
DBP timely filed a motion for reconsideration, but the CA denied its motion on
On appeal (C.A.-G.R. CV No. 59491), DBP challenged the judgment of the RTC, October 9, 2003.
and insisted that:
Hence, this appeal by DBP.
I
Issues
THE TRIAL COURT ERRED AND COMMITTED REVERSIBLE ERROR IN
DECLARING DBPS FORECLOSURE OF THE MORTGAGED PROPERTIES AS DBP submits the following issues for consideration, namely:
INVALID AND UNCALLED FOR.
WHETHER OR NOT THE DECISION OF THE COURT OF APPEALS DATED
II MARCH 26, 2003 AND ITS RESOLUTION DATED OCTOBER 9, DENYING
PETITIONERS MOTION FOR RECONSIDERATION WERE ISSUED IN
THE TRIAL COURT GRIEVOUSLY ERRED IN HOLDING THE GROUNDS ACCORDANCE WITH LAW, PREVAILING JURISPRUDENTIAL DECISION AND
INVOKED BY DBP TO JUSTIFY FORECLOSURE AS NOT SUFFICIENT. ON SUPPORTED BY EVIDENCE;
THE CONTRARY, THE MORTGAGE WAS FORECLOSED BY EXPRESS
AUTHORITY OF PARAGRAPH NO. 4 OF THE MORTGAGE CONTRACT AND WHETHER OR NOT THE HONORABLE COURT OF APPEALS ADHERED TO
SECTION 2 OF P.D. 385 IN ADDITION TO THE QUESTIONED PAR. NO. 26 THE USUAL COURSE OF JUDICIAL PROCEEDINGS IN DECIDING C.A.-G.R. CV
PRINTED AT THE BACK OF THE FIRST PAGE OF THE MORTGAGE CONRACT. NO. 59491 AND THEREFORE IN ACCORDANCE WITH THE LAW OF THE CASE
DOCTRINE.[22]
III
Ruling
THE TRIAL COURT ERRED IN HOLDING THE SALES OF THE MORTGAGED
PROPERTIES TO DBP AS INVALID UNDER ARTICLES 2113 AND 2141 OF THE The appeal lacks merit.
CIVIL CODE.
1.
IV
Findings of the CA were supported by the evidence as well as by law and
THE TRIAL COURT GRAVELY ERRED AND COMMITTED [REVERSIBLE] jurisprudence
ERROR IN ORDERING DBP TO RETURN TO PLAINTIFF THE ACTUAL
POSSESSION AND ENJOYMENT OF ALL THE FORECLOSED PROPERTIES DBP submits that the loan had been granted under its supervised credit financing
AND TO PAY PLAINTIFF REASONABLE RENTAL FOR THE USE OF THE scheme for the development of a beach resort, and the releases of the proceeds
FORECLOSED BEACH RESORT. would be subject to conditions that included the verification of the progress of works
in the project to forestall diversion of the loan proceeds; and that under Stipulation
V No. 26 of the mortgage contract, further loan releases would be terminated and the
29
account would be considered due and demandable in the event of a deviation from
the purpose of the loan,[23] including the failure to put up the required equity and
the diversion of the loan proceeds to other purposes.[24] It assails the declaration
by the CA that Guaria Corporation had not yet been in default in its obligations
despite violations of the terms of the mortgage contract securing the promissory
note.
Guaria Corporation counters that it did not violate the terms of the promissory note
and the mortgage contracts because DBP had fully collected the interest
notwithstanding that the principal obligation did not yet fall due and become
demandable.[25]
The submissions of DBP lack merit and substance.
The agreement between DBP and Guaria Corporation was a loan. Under the law,
a loan requires the delivery of money or any other consumable object by one party
to another who acquires ownership thereof, on the condition that the same amount
or quality shall be paid.[26] Loan is a reciprocal obligation, as it arises from the
same cause where one party is the creditor, and the other the debtor.[27] The
obligation of one party in a reciprocal obligation is dependent upon the obligation of
the other, and the performance should ideally be simultaneous. This means that in a x x x x
loan, the creditor should release the full loan amount and the debtor repays it when
it becomes due and demandable.[28]
In its assailed decision, the CA found and held thusly:
xxxx
x x x It is undisputed that appellee obtained a loan from appellant, and as security,
executed real estate and chattel mortgages. However, it was never established that
appellee was already in default. Appellant, in a telegram to the appellee reminded
the latter to make good on its construction works, otherwise, it would foreclose the
mortgage it executed. It did not mention that appellee was already in default. The
records show that appellant did not make any demand for payment of the
promissory note. It appears that the basis of the foreclosure was not a default on the
loan but appellees failure to complete the project in accordance with appellants
standards. In fact, appellant refused to release the remaining balance of the
approved loan after it found that the improvements introduced by appellee were
below appellants expectations.
The loan agreement between the parties is a reciprocal obligation. Appellant in the
instant case bound itself to grant appellee the loan amount of P3,387,000.00
condition on appellees payment of the amount when it falls due. Furthermore, the
loan was evidenced by the promissory note which was secured by real estate
mortgage over several properties and additional chattel mortgage. Reciprocal
obligations are those which arise from the same cause, and in which each party is a
debtor and a creditor of the other, such that the obligation of one is dependent upon
the obligation of the other (Areola vs. Court of Appeals, 236 SCRA 643). They are to
be performed simultaneously such that the performance of one is conditioned upon
the simultaneous fulfilment of the other (Jaime Ong vs. Court of Appeals, 310 SCRA
1). The promise of appellee to pay the loan upon due date as well as to execute
sufficient security for said loan by way of mortgage gave rise to a reciprocal
obligation on the part of appellant to release the entire approved loan amount. Thus,
appellees are entitled to receive the total loan amount as agreed upon and not an
incomplete amount.
The appellant did not release the total amount of the approved loan. Appellant
therefore could not have made a demand for payment of the loan since it had yet to
fulfil its own obligation. Moreover, the fact that appellee was not yet in default
rendered the foreclosure proceedings premature and improper.
The properties which stood as security for the loan were foreclosed without any
demand having been made on the principal obligation. For an obligation to become
due, there must generally be a demand. Default generally begins from the moment
the creditor demands the performance of the obligation. Without such demand,
judicial or extrajudicial, the effects of default will not arise (Namarco vs. Federation
of United Namarco Distributors, Inc., 49 SCRA 238; Borje vs. CFI of Misamis
Occidental, 88 SCRA 576).
Appellant also admitted in its brief that it indeed failed to release the full amount of
the approved loan. As a consequence, the real estate mortgage of appellee
becomes unenforceable, as it cannot be entirely foreclosed to satisfy appellees total
debt to appellant (Central Bank of the Philippines vs. Court of Appeals, 139 SCRA
46).
Since the foreclosure proceedings were premature and unenforceable, it only
follows that appellee is still entitled to possession of the foreclosed properties.
However, appellant took possession of the same by virtue of a writ of possession
issued in its favor during the pendency of the case. Thus, the trial court correctly
ruled when it ordered appellant to return actual possession of the subject properties
to appellee or its representative and to pay appellee reasonable rents.
However, the award for attorneys fees is deleted. As a rule, the award of attorneys
fees is the exception rather than the rule and counsels fees are not to be awarded
every time a party wins a suit. Attorneys fees cannot be recovered as part of
damages because of the policy that no premium should be placed on the right to
litigate (Pimentel vs. Court of Appeals, et al., 307 SCRA 38).[29]
xxxx
We uphold the CA.
To start with, considering that the CA thereby affirmed the factual findings of the
RTC, the Court is bound to uphold such findings, for it is axiomatic that the trial
courts factual findings as affirmed by the CA are binding on appeal due to the Court
not being a trier of facts.
30
 stipulations of its agreement with Guaria Corporation, lest it erodes such public
Secondly, by its failure to release the proceeds of the loan in their entirety, DBP had confidence. Yet, DBP failed in its duty to exercise the highest degree of diligence by
no right yet to exact on Guaria Corporation the latters compliance with its own prematurely foreclosing the mortgages and unwarrantedly causing the foreclosure
obligation under the loan. Indeed, if a party in a reciprocal contract like a loan does sale of the mortgaged properties despite Guaria Corporation not being yet in
not perform its obligation, the other party cannot be obliged to perform what is default. DBP wrongly relied on Stipulation No. 26 as its basis to accelerate the
expected of it while the others obligation remains unfulfilled.[30] In other words, the obligation of Guaria Corporation, for the stipulation was relevant to an Omnibus
latter party does not incur delay.[31] Agricultural Loan, to Guaria Corporations loan which was intended for a project
other than agricultural in nature.
Still, DBP called upon Guaria Corporation to make good on the construction works
pursuant to the acceleration clause written in the mortgage contract (i.e., Stipulation Even so, Guaria Corporation did not elevate the actionability of DBPs negligence
No. 26),[32] or else it would foreclose the mortgages. to the CA, and did not also appeal the CAs deletion of the award of attorneys fees
allowed by the RTC. With the decision of the CA consequently becoming final and
DBPs actuations were legally unfounded. It is true that loans are often secured by a immutable as to Guaria Corporation, we will not delve any further on DBPs
mortgage constituted on real or personal property to protect the creditors interest in actionable actuations.
case of the default of the debtor. By its nature, however, a mortgage remains an
accessory contract dependent on the principal obligation,[33] such that enforcement 2.
of the mortgage contract will depend on whether or not there has been a violation of
the principal obligation. While a creditor and a debtor could regulate the order in The doctrine of law of the case did not apply herein
which they should comply with their reciprocal obligations, it is presupposed that in a
loan the lender should perform its obligation the release of the full loan amount DBP insists that the decision of the CA in C.A.-G.R. No. 12670-SP already
before it could demand that the borrower repay the loaned amount. In other words, constituted the law of the case. Hence, the CA could not decide the appeal in C.A.-
Guaria Corporation would not incur in delay before DBP fully performed its G.R. CV No. 59491 differently.
reciprocal obligation.[34]
Guaria Corporation counters that the ruling in C.A.-G.R. No. 12670-SP did not
Considering that it had yet to release the entire proceeds of the loan, DBP could not constitute the law of the case because C.A.-G.R. No. 12670-SP concerned the
yet make an effective demand for payment upon Guaria Corporation to perform its issue of possession by DBP as the winning bidder in the foreclosure sale, and had
obligation under the loan. According to Development Bank of the Philippines v. no bearing whatsoever to the legal issues presented in C.A.-G.R. CV No. 59491.
Licuanan,[35] it would only be when a demand to pay had been made and was
subsequently refused that a borrower could be considered in default, and the lender Law of the case has been defined as the opinion delivered on a former appeal, and
could obtain the right to collect the debt or to foreclose the mortgage. Hence, means, more specifically, that whatever is once irrevocably established as the
Guaria Corporation would not be in default without the demand. controlling legal rule of decision between the same parties in the same case
continues to be the law of the case, whether correct on general principles or not, so
Assuming that DBP could already exact from the latter its compliance with the loan long as the facts on which such decision was predicated continue to be the facts of
agreement, the letter dated February 27, 1978 that DBP sent would still not be the case before the court.[40]
regarded as a demand to render Guaria Corporation in default under the principal
contract because DBP was only thereby requesting the latter to put up the The concept of law of the case is well explained in Mangold v. Bacon,[41] an
deficiency in the value of improvements.[36] American case, thusly:

Under the circumstances, DBPs foreclosure of the mortgage and the sale of the The general rule, nakedly and boldly put, is that legal conclusions announced on a
mortgaged properties at its instance were premature, and, therefore, void and first appeal, whether on the general law or the law as applied to the concrete facts,
ineffectual.[37] not only prescribe the duty and limit the power of the trial court to strict obedience
and conformity thereto, but they become and remain the law of the case in all other
Being a banking institution, DBP owed it to Guaria Corporation to exercise the steps below or above on subsequent appeal. The rule is grounded on convenience,
highest degree of diligence, as well as to observe the high standards of integrity and experience, and reason. Without the rule there would be no end to criticism,
performance in all its transactions because its business was imbued with public reagitation, reexamination, and reformulation. In short, there would be endless
interest.[38] The high standards were also necessary to ensure public confidence in litigation. It would be intolerable if parties litigants were allowed to speculate on
the banking system, for, according to Philippine National Bank v. Pike:[39] The changes in the personnel of a court, or on the chance of our rewriting propositions
stability of banks largely depends on the confidence of the people in the honesty once gravely ruled on solemn argument and handed down as the law of a given
and efficiency of banks. Thus, DBP had to act with great care in applying the case. An itch to reopen questions foreclosed on a first appeal would result in the
31
foolishness of the inquisitive youth who pulled up his corn to see how it grew. Courts
are allowed, if they so choose, to act like ordinary sensible persons. The SO ORDERED.
administration of justice is a practical affair. The rule is a practical and a good one of
frequent and beneficial use.

The doctrine of law of the case simply means, therefore, that when an appellate
court has once declared the law in a case, its declaration continues to be the law of
that case even on a subsequent appeal, notwithstanding that the rule thus laid down
may have been reversed in other cases.[42] For practical considerations, indeed,
once the appellate court has issued a pronouncement on a point that was presented
to it with full opportunity to be heard having been accorded to the parties, the
pronouncement should be regarded as the law of the case and should not be
reopened on remand of the case to determine other issues of the case, like
damages.[43] But the law of the case, as the name implies, concerns only legal
questions or issues thereby adjudicated in the former appeal.

The foregoing understanding of the concept of the law of the case exposes DBPs
insistence to be unwarranted.

To start with, the ex parte proceeding on DBPs application for the issuance of the
writ of possession was entirely independent from the judicial demand for specific
performance herein. In fact, C.A.-G.R. No. 12670-SP, being the interlocutory appeal
concerning the issuance of the writ of possession while the main case was pending,
was not at all intertwined with any legal issue properly raised and litigated in C.A.-
G.R. CV No. 59491, which was the appeal to determine whether or not DBPs
foreclosure was valid and effectual. And, secondly, the ruling in C.A.-G.R. No.
12670-SP did not settle any question of law involved herein because this case for
specific performance was not a continuation of C.A.-G.R. No. 12670-SP (which was
limited to the propriety of the issuance of the writ of possession in favor of DBP),
and vice versa.

3.

Guaria Corporation is legally entitled to the restoration of the possession of the

resort complex and payment of reasonable rentals by DBP

Having found and pronounced that the extrajudicial foreclosure by DBP was
premature, and that the ensuing foreclosure sale was void and ineffectual, the Court
affirms the order for the restoration of possession to Guaria Corporation and the
payment of reasonable rentals for the use of the resort. The CA properly held that
the premature and invalid foreclosure had unjustly dispossessed Guaria
Corporation of its properties. Consequently, the restoration of possession and the
payment of reasonable rentals were in accordance with Article 561 of the Civil
Code, which expressly states that one who recovers, according to law, possession
unjustly lost shall be deemed for all purposes which may redound to his benefit to
have enjoyed it without interruption.

WHEREFORE, the Court AFFIRMS the decision promulgated on March 26, 2003;
and ORDERS the petitioner to pay the costs of suit.
32
 FIRST DIVISION 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
G.R. No. 138569, September 11, 2003 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
THE CONSOLIDATED BANK AND TRUST CORPORATION, PETITIONER, VS. passbook. When Macaraya asked Teller No. 6 if Calapre got the passbook, Teller
COURT OF APPEALS AND L.C. DIAZ AND COMPANY, CPA'S, RESPONDENTS. No. 6 answered that someone shorter than Calapre got the passbook. Calapre was
then standing beside Macaraya.
DECISION
Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the
CARPIO, J.: 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
The Case subsequently dishonored the check because of insufficient funds and because the
signature in the check differed from PBC's specimen signature. Failing to get back
Before us is a petition for review of the Decision[1] of the Court of Appeals dated 27 the passbook, Macaraya went back to her office and reported the matter to the
October 1998 and its Resolution dated 11 May 1999. The assailed decision Personnel Manager of L.C. Diaz, Emmanuel Alvarez.
reversed the Decision[2] of the Regional Trial Court of Manila, Branch 8, absolving
petitioner Consolidated Bank and Trust Corporation, now known as Solidbank The following day, 15 August 1991, L.C. Diaz through its Chief Executive Officer,
Corporation ("Solidbank"), of any liability. The questioned resolution of the appellate Luis C. Diaz ("Diaz"), called up Solidbank to stop any transaction using the same
court denied the motion for reconsideration of Solidbank but modified the decision passbook until L.C. Diaz could open a new account.[5] On the same day, Diaz
by deleting the award of exemplary damages, attorney's fees, expenses of litigation formally wrote Solidbank to make the same request. It was also on the same day
and cost of suit. 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
The Facts 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
Solidbank is a domestic banking corporation organized and existing under Philippine certain Noel Tamayo received the P300,000.
laws. Private respondent L.C. Diaz and Company, CPA's ("L.C. Diaz"), is a
professional partnership engaged in the practice of accounting. In an Information[6] dated 5 September 1991, L.C. Diaz charged its messenger,
Emerano Ilagan ("Ilagan") and one Roscon Verdazola with Estafa through
Sometime in March 1976, L.C. Diaz opened a savings account with Solidbank, Falsification of Commercial Document. The Regional Trial Court of Manila dismissed
designated as Savings Account No. S/A 200-16872-6. the criminal case after the City Prosecutor filed a Motion to Dismiss on 4 August
1992.
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) On 24 August 1992, L.C. Diaz through its counsel demanded from Solidbank the
deposit slip for P50. Macaraya instructed the messenger of L.C. Diaz, Ismael return of its money. Solidbank refused.
Calapre ("Calapre"), to deposit the money with Solidbank. Macaraya also gave
Calapre the Solidbank passbook. On 25 August 1992, L.C. Diaz filed a Complaint[7] for Recovery of a Sum of Money
against Solidbank with the Regional Trial Court of Manila, Branch 8. After trial, the
Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and trial court rendered on 28 December 1994 a decision absolving Solidbank and
the passbook. The teller acknowledged receipt of the deposit by returning to dismissing the complaint.
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 L.C. Diaz then appealed[8] to the Court of Appeals. On 27 October 1998, the Court
HEAD OFFICE." Since the transaction took time and Calapre had to make another of Appeals issued its Decision reversing the decision of the trial court.
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 On 11 May 1999, the Court of Appeals issued its Resolution denying the motion for
passbook, Teller No. 6 informed him that "somebody got the passbook."[3] Calapre reconsideration of Solidbank. The appellate court, however, modified its decision by
went back to L.C. Diaz and reported the incident to Macaraya. deleting the award of exemplary damages and attorney's fees.

Macaraya immediately prepared a deposit slip in duplicate copies with a check of The Ruling of the Trial Court
P200,000. Macaraya, together with Calapre, went to Solidbank and presented to
33
In absolving Solidbank, the trial court applied the rules on savings account written
on the passbook. The rules state that "possession of this book shall raise the
presumption of ownership and any payment or payments made by the bank upon
the production of the said book and entry therein of the withdrawal shall have the
same effect as if made to the depositor personally."[9]
At the time of the withdrawal, a certain Noel Tamayo was not only in possession of
the passbook, he also presented a withdrawal slip with the signatures of the
authorized signatories of L.C. Diaz. The specimen signatures of these persons
were in the signature cards. The teller stamped the withdrawal slip with the words
"Saving Teller No. 5." The teller then passed on the withdrawal slip to Genere
Manuel ("Manuel") for authentication. Manuel verified the signatures on the
withdrawal slip. The withdrawal slip was then given to another officer who compared
the signatures on the withdrawal slip with the specimen on the signature cards. The
trial court concluded that Solidbank acted with care and observed the rules on
savings account when it allowed the withdrawal of P300,000 from the savings
account of L.C. Diaz.
Solidbank to the office in making the withdrawal. The trial court pointed out that L.C.
Diaz disregarded these precautions in its past withdrawal. On 16 July 1991, L.C.
Diaz withdrew P82,554 without any separate letter of authorization or any
communication with Solidbank that the money be converted into a manager's check.
The trial court further justified the dismissal of the complaint by holding that the case
was a last ditch effort of L.C. Diaz to recover P300,000 after the dismissal of the
criminal case against Ilagan.
The dispositive portion of the decision of the trial court reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING the
complaint.
The Court further renders judgment in favor of defendant bank pursuant to its
counterclaim the amount of Thirty Thousand Pesos (P30,000.00) as attorney's fees.
With costs against plaintiff.

The trial court pointed out that the burden of proof now shifted to L.C. Diaz to prove SO ORDERED.[12]
that the signatures on the withdrawal slip were forged. The trial court admonished The Ruling of the Court of Appeals
L.C. Diaz for not offering in evidence the National Bureau of Investigation ("NBI")
report on the authenticity of the signatures on the withdrawal slip for P300,000. The The Court of Appeals ruled that Solidbank's negligence was the proximate cause of
trial court believed that L.C. Diaz did not offer this evidence because it is derogatory the unauthorized withdrawal of P300,000 from the savings account of L.C. Diaz.
to its action. The appellate court reached this conclusion after applying the provision of the Civil
Code on quasi-delict, to wit:
Another provision of the rules on savings account states that the depositor must Article 2176. Whoever by act or omission causes damage to another, there being
keep the passbook "under lock and key."[10] When another person presents the fault or negligence, is obliged to pay for the damage done. Such fault or negligence,
passbook for withdrawal prior to Solidbank's receipt of the notice of loss of the if there is no pre-existing contractual relation between the parties, is called a quasi-
passbook, that person is considered as the owner of the passbook. The trial court delict and is governed by the provisions of this chapter.
ruled that the passbook presented during the questioned transaction was "now out The appellate court held that the three elements of a quasi-delict are present in this
of the lock and key and presumptively ready for a business transaction."[11] 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
Solidbank did not have any participation in the custody and care of the passbook. connection of cause and effect between the fault or negligence of the defendant and
The trial court believed that Solidbank's act of allowing the withdrawal of P300,000 the damage incurred by the plaintiff.
was not the direct and proximate cause of the loss. The trial court held that L.C.
Diaz's negligence caused the unauthorized withdrawal. Three facts establish L.C. The Court of Appeals pointed out that the teller of Solidbank who received the
Diaz's negligence: (1) the possession of the passbook by a person other than the withdrawal slip for P300,000 allowed the withdrawal without making the necessary
depositor L.C. Diaz; (2) the presentation of a signed withdrawal receipt by an inquiry. The appellate court stated that the teller, who was not presented by
unauthorized person; and (3) the possession by an unauthorized person of a PBC Solidbank during trial, should have called up the depositor because the money to be
check "long closed" by L.C. Diaz, which check was deposited on the day of the withdrawn was a significant amount. Had the teller called up L.C. Diaz, Solidbank
fraudulent withdrawal. 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
The trial court debunked L.C. Diaz's contention that Solidbank did not follow the court found Solidbank liable for its negligence in the selection and supervision of its
precautionary procedures observed by the two parties whenever L.C. Diaz withdrew employees.
significant amounts from its account. L.C. Diaz claimed that a letter must
accompany withdrawals of more than P20,000. The letter must request Solidbank The appellate court ruled that while L.C. Diaz was also negligent in entrusting its
to allow the withdrawal and convert the amount to a manager's check. The bearer deposits to its messenger and its messenger in leaving the passbook with the teller,
must also have a letter authorizing him to withdraw the same amount. Another Solidbank could not escape liability because of the doctrine of "last clear chance."
person driving a car must accompany the bearer so that he would not walk from
34
Solidbank could have averted the injury suffered by L.C. Diaz had it called up L.C. OPERATION OF THE SAVINGS ACCOUNT, NOR IS THERE ANY BANKING LAW,
Diaz to verify the withdrawal. WHICH MANDATES THAT A BANK TELLER SHOULD FIRST CALL UP THE
DEPOSITOR BEFORE ALLOWING A WITHDRAWAL OF A BIG AMOUNT IN A
The appellate court ruled that the degree of diligence required from Solidbank is SAVINGS ACCOUNT.
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 THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF LAST
depositors with meticulous care, always having in mind the fiduciary nature of their CLEAR CHANCE AND IN HOLDING THAT PETITIONER BANK'S TELLER HAD
relationship with their clients. The Court of Appeals found Solidbank remiss in its THE LAST OPPORTUNITY TO WITHHOLD THE WITHDRAWAL WHEN IT IS
duty, violating its fiduciary relationship with L.C. Diaz. UNDISPUTED THAT THE TWO SIGNATURES OF RESPONDENT ON THE
WITHDRAWAL SLIP ARE GENUINE AND PRIVATE RESPONDENT'S PASSBOOK
The dispositive portion of the decision of the Court of Appeals reads: WAS DULY PRESENTED, AND CONTRARIWISE RESPONDENT WAS
WHEREFORE, premises considered, the decision appealed from is hereby NEGLIGENT IN THE SELECTION AND SUPERVISION OF ITS MESSENGER
REVERSED and a new one entered. EMERANO ILAGAN, AND IN THE SAFEKEEPING OF ITS CHECKS AND OTHER
Ordering defendant-appellee Consolidated Bank and Trust Corporation to pay FINANCIAL DOCUMENTS.
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 THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE INSTANT CASE
until paid, the sum of P20,000.00 as exemplary damages, and P20,000.00 as IS A LAST DITCH EFFORT OF PRIVATE RESPONDENT TO RECOVER ITS
attorney's fees and expenses of litigation as well as the cost of suit; and P300,000.00 AFTER FAILING IN ITS EFFORTS TO RECOVER THE SAME FROM
ITS EMPLOYEE EMERANO ILAGAN.
Ordering the dismissal of defendant-appellee's counterclaim in the amount of
P30,000.00 as attorney's fees. THE COURT OF APPEALS ERRED IN NOT MITIGATING THE DAMAGES
SO ORDERED.[13] AWARDED AGAINST PETITIONER UNDER ARTICLE 2197 OF THE CIVIL CODE,
Acting on the motion for reconsideration of Solidbank, the appellate court affirmed NOTWITHSTANDING ITS FINDING THAT PETITIONER BANK'S NEGLIGENCE
its decision but modified the award of damages. The appellate court deleted the WAS ONLY CONTRIBUTORY.[16]
award of exemplary damages and attorney's fees. Invoking Article 2231[14] of the The Ruling of the Court
Civil Code, the appellate court ruled that exemplary damages could be granted if the
defendant acted with gross negligence. Since Solidbank was guilty of simple The petition is partly meritorious.
negligence only, the award of exemplary damages was not justified. Consequently,
the award of attorney's fees was also disallowed pursuant to Article 2208 of the Civil Solidbank's Fiduciary Duty under the Law
Code. The expenses of litigation and cost of suit were also not imposed on
Solidbank. The rulings of the trial court and the Court of Appeals conflict on the application of
the law. The trial court pinned the liability on L.C. Diaz based on the provisions of
The dispositive portion of the Resolution reads as follows: the rules on savings account, a recognition of the contractual relationship between
WHEREFORE, foregoing considered, our decision dated October 27, 1998 is Solidbank and L.C. Diaz, the latter being a depositor of the former. On the other
affirmed with modification by deleting the award of exemplary damages and hand, the Court of Appeals applied the law on quasi-delict to determine who
attorney's fees, expenses of litigation and cost of suit. between the two parties was ultimately negligent. The law on quasi-delict or culpa
aquiliana is generally applicable when there is no pre-existing contractual
SO ORDERED.[15] relationship between the parties.
Hence, this petition.
We hold that Solidbank is liable for breach of contract due to negligence, or culpa
The Issues contractual.

Solidbank seeks the review of the decision and resolution of the Court of Appeals on
these grounds:
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 RESPONDENT'S MESSENGER EMERANO
ILAGAN, SINCE THERE IS NO AGREEMENT BETWEEN THE PARTIES IN THE
The contract between the bank and its depositor is governed by the provisions of
the Civil Code on simple loan.[17] Article 1980 of the Civil Code expressly provides
that "x x x savings x x x deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loan." There is a debtor-creditor
relationship between the bank and its depositor. The bank is the debtor and the
depositor is the creditor. The depositor lends the bank money and the bank agrees
to pay the depositor on demand. The savings deposit agreement between the bank
35
and the depositor is the contract that determines the rights and obligations of the Calapre left the passbook with Solidbank because the "transaction took time" and he
parties. had to go to Allied Bank for another transaction. The passbook was still in the
hands of the employees of Solidbank for the processing of the deposit when
The law imposes on banks high standards in view of the fiduciary nature of banking. Calapre left Solidbank. Solidbank's rules on savings account require that the
Section 2 of Republic Act No. 8791 ("RA 8791"),[18] which took effect on 13 June "deposit book should be carefully guarded by the depositor and kept under lock and
2000, declares that the State recognizes the "fiduciary nature of banking that key, if possible." When the passbook is in the possession of Solidbank's tellers
requires high standards of integrity and performance."[19] This new provision in the during withdrawals, the law imposes on Solidbank and its tellers an even higher
general banking law, introduced in 2000, is a statutory affirmation of Supreme Court degree of diligence in safeguarding the passbook.
decisions, starting with the 1990 case of Simex International v. Court of Appeals,[20]
holding that "the bank is under obligation to treat the accounts of its depositors with Likewise, Solidbank's tellers must exercise a high degree of diligence in insuring
meticulous care, always having in mind the fiduciary nature of their relationship."[21] that they return the passbook only to the depositor or his authorized representative.
The tellers know, or should know, that the rules on savings account provide that any
This fiduciary relationship means that the bank's obligation to observe "high person in possession of the passbook is presumptively its owner. If the tellers give
standards of integrity and performance" is deemed written into every deposit the passbook to the wrong person, they would be clothing that person presumptive
agreement between a bank and its depositor. The fiduciary nature of banking ownership of the passbook, facilitating unauthorized withdrawals by that person.
requires banks to assume a degree of diligence higher than that of a good father of For failing to return the passbook to Calapre, the authorized representative of L.C.
a family. Article 1172 of the Civil Code states that the degree of diligence required Diaz, Solidbank and Teller No. 6 presumptively failed to observe such high degree
of an obligor is that prescribed by law or contract, and absent such stipulation then of diligence in safeguarding the passbook, and in insuring its return to the party
the diligence of a good father of a family.[22] Section 2 of RA 8791 prescribes the authorized to receive the same.
statutory diligence required from banks - that banks must observe "high standards of
integrity and performance" in servicing their depositors. Although RA 8791 took In culpa contractual, once the plaintiff proves a breach of contract, there is a
effect almost nine years after the unauthorized withdrawal of the P300,000 from L.C. presumption that the defendant was at fault or negligent. The burden is on the
Diaz's savings account, jurisprudence[23] at the time of the withdrawal already defendant to prove that he was not at fault or negligent. In contrast, in culpa
imposed on banks the same high standard of diligence required under RA No. 8791. aquiliana the plaintiff has the burden of proving that the defendant was negligent. In
the present case, L.C. Diaz has established that Solidbank breached its contractual
However, the fiduciary nature of a bank-depositor relationship does not convert the obligation to return the passbook only to the authorized representative of L.C. Diaz.
contract between the bank and its depositors from a simple loan to a trust There is thus a presumption that Solidbank was at fault and its teller was negligent
agreement, whether express or implied. Failure by the bank to pay the depositor is in not returning the passbook to Calapre. The burden was on Solidbank to prove
failure to pay a simple loan, and not a breach of trust.[24] The law simply imposes that there was no negligence on its part or its employees.
on the bank a higher standard of integrity and performance in complying with its
obligations under the contract of simple loan, beyond those required of non-bank Solidbank failed to discharge its burden. Solidbank did not present to the trial court
debtors under a similar contract of simple loan. 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 fiduciary nature of banking does not convert a simple loan into a trust the identity of the person who retrieved the passbook. Solidbank also failed to
agreement because banks do not accept deposits to enrich depositors but to earn adduce in evidence its standard procedure in verifying the identity of the person
money for themselves. The law allows banks to offer the lowest possible interest retrieving the passbook, if there is such a procedure, and that Teller No. 6
rate to depositors while charging the highest possible interest rate on their own implemented this procedure in the present case.
borrowers. The interest spread or differential belongs to the bank and not to the
depositors who are not cestui que trust of banks. If depositors are cestui que trust Solidbank is bound by the negligence of its employees under the principle of
of banks, then the interest spread or income belongs to the depositors, a situation respondeat superior or command responsibility. The defense of exercising the
that Congress certainly did not intend in enacting Section 2 of RA 8791. required diligence in the selection and supervision of employees is not a complete
defense in culpa contractual, unlike in culpa aquiliana.[25]
Solidbank's Breach of its Contractual Obligation
The bank must not only exercise "high standards of integrity and performance," it
Article 1172 of the Civil Code provides that "responsibility arising from negligence in must also insure that its employees do likewise because this is the only way to
the performance of every kind of obligation is demandable." For breach of the insure that the bank will comply with its fiduciary duty. Solidbank failed to present
savings deposit agreement due to negligence, or culpa contractual, the bank is the teller who had the duty to return to Calapre the passbook, and thus failed to
liable to its depositor. prove that this teller exercised the "high standards of integrity and performance"
required of Solidbank's employees.
36
 withdrawal of a much bigger amount of money. The appellate court thus erred when
Proximate Cause of the Unauthorized Withdrawal it imposed on Solidbank the duty to call up L.C. Diaz to confirm the withdrawal when
no law requires this from banks and when the teller had no reason to be suspicious
Another point of disagreement between the trial and appellate courts is the of the transaction.
proximate cause of the unauthorized withdrawal. The trial court believed that L.C.
Diaz's negligence in not securing its passbook under lock and key was the Solidbank continues to foist the defense that Ilagan made the withdrawal. Solidbank
proximate cause that allowed the impostor to withdraw the P300,000. For the claims that since Ilagan was also a messenger of L.C. Diaz, he was familiar with its
appellate court, the proximate cause was the teller's negligence in processing the teller so that there was no more need for the teller to verify the withdrawal.
withdrawal without first verifying with L.C. Diaz. We do not agree with either court. Solidbank relies on the following statements in the Booking and Information Sheet of
Emerano Ilagan:
Proximate cause is that cause which, in natural and continuous sequence, unbroken xxx Ilagan also had with him (before the withdrawal) a forged check of PBC and
by any efficient intervening cause, produces the injury and without which the result indicated the amount of P90,000 which he deposited in favor of L.C. Diaz and
would not have occurred.[26] Proximate cause is determined by the facts of each Company. After successfully withdrawing this large sum of money, accused Ilagan
case upon mixed considerations of logic, common sense, policy and precedent.[27] gave alias Rey (Noel Tamayo) his share of the loot. Ilagan then hired a taxicab in
the amount of P1,000 to transport him (Ilagan) to his home province at Bauan,
L.C. Diaz was not at fault that the passbook landed in the hands of the impostor. Batangas. Ilagan extravagantly and lavishly spent his money but a big part of his
Solidbank was in possession of the passbook while it was processing the deposit. loot was wasted in cockfight and horse racing. Ilagan was apprehended and meekly
After completion of the transaction, Solidbank had the contractual obligation to admitted his guilt.[28] (Emphasis supplied.)
return the passbook only to Calapre, the authorized representative of L.C. Diaz. L.C. Diaz refutes Solidbank's contention by pointing out that the person who
Solidbank failed to fulfill its contractual obligation because it gave the passbook to withdrew the P300,000 was a certain Noel Tamayo. Both the trial and appellate
another person. courts stated that this Noel Tamayo presented the passbook with the withdrawal
slip.
Solidbank's failure to return the passbook to Calapre made possible the withdrawal
of the P300,000 by the impostor who took possession of the passbook. Under We uphold the finding of the trial and appellate courts that a certain Noel Tamayo
Solidbank's rules on savings account, mere possession of the passbook raises the withdrew the P300,000. The Court is not a trier of facts. We find no justifiable
presumption of ownership. It was the negligent act of Solidbank's Teller No. 6 that reason to reverse the factual finding of the trial court and the Court of Appeals. The
gave the impostor presumptive ownership of the passbook. Had the passbook not tellers who processed the deposit of the P90,000 check and the withdrawal of the
fallen into the hands of the impostor, the loss of P300,000 would not have P300,000 were not presented during trial to substantiate Solidbank's claim that
happened. Thus, the proximate cause of the unauthorized withdrawal was Ilagan deposited the check and made the questioned withdrawal. Moreover, the
Solidbank's negligence in not returning the passbook to Calapre. entry quoted by Solidbank does not categorically state that Ilagan presented the
withdrawal slip and the passbook.
We do not subscribe to the appellate court's theory that the proximate cause of the
unauthorized withdrawal was the teller's failure to call up L.C. Diaz to verify the Doctrine of Last Clear Chance
withdrawal. Solidbank did not have the duty to call up L.C. Diaz to confirm the
withdrawal. There is no arrangement between Solidbank and L.C. Diaz to this effect. The doctrine of last clear chance states that where both parties are negligent but the
Even the agreement between Solidbank and L.C. Diaz pertaining to measures that negligent act of one is appreciably later than that of the other, or where it is
the parties must observe whenever withdrawals of large amounts are made does impossible to determine whose fault or negligence caused the loss, the one who
not direct Solidbank to call up L.C. Diaz. had the last clear opportunity to avoid the loss but failed to do so, is chargeable with
the loss.[29] Stated differently, the antecedent negligence of the plaintiff does not
There is no law mandating banks to call up their clients whenever their preclude him from recovering damages caused by the supervening negligence of
representatives withdraw significant amounts from their accounts. L.C. Diaz the defendant, who had the last fair chance to prevent the impending harm by the
therefore had the burden to prove that it is the usual practice of Solidbank to call up exercise of due diligence.[30]
its clients to verify a withdrawal of a large amount of money. L.C. Diaz failed to do
so. We do not apply the doctrine of last clear chance to the present case. Solidbank is
liable for breach of contract due to negligence in the performance of its contractual
Teller No. 5 who processed the withdrawal could not have been put on guard to obligation to L.C. Diaz. This is a case of culpa contractual, where neither the
verify the withdrawal. Prior to the withdrawal of P300,000, the impostor deposited contributory negligence of the plaintiff nor his last clear chance to avoid the loss,
with Teller No. 6 the P90,000 PBC check, which later bounced. The impostor would exonerate the defendant from liability.[31] Such contributory negligence or
apparently deposited a large amount of money to deflect suspicion from the
37
last clear chance by the plaintiff merely serves to reduce the recovery of damages
by the plaintiff but does not exculpate the defendant from his breach of contract.[32]

Mitigated Damages

Under Article 1172, "liability (for culpa contractual) may be regulated by the courts,
according to the circumstances." This means that if the defendant exercised the
proper diligence in the selection and supervision of its employee, or if the plaintiff
was guilty of contributory negligence, then the 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 the 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, CPA's 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, CPA's. Proportionate costs. SO
ORDERED.

38
 EN BANC Any modifications in the maximum interest rates permitted for the borrowing or
lending operations of the banks shall apply only to future operations and not to
G.R. No. 192986, January 15, 2013 those made prior to the date on which the modification becomes effective.

ADVOCATES FOR TRUTH IN LENDING, INC. AND EDUARDO B. OLAGUER,
PETITIONERS, VS. BANGKO SENTRAL MONETARY BOARD, REPRESENTED
BY ITS CHAIRMAN, GOVERNOR ARMANDO M. TETANGCO, JR., AND ITS
INCUMBENT MEMBERS: JUANITA D. AMATONG, ALFREDO C. ANTONIO,
PETER FAVILA, NELLY F. VILLAFUERTE, IGNACIO R. BUNYE AND CESAR V.
PURISIMA, RESPONDENTS.
DECISION
REYES, J.:
In order to avoid possible evasion of maximum interest rates set by the Monetary
Board, the Board may also fix the maximum rates that banks may pay to or collect
from their customers in the form of commissions, discounts, charges, fees or
payments of any sort. (Underlining ours)
On March 17, 1980, the Usury Law was amended by Presidential Decree (P.D.) No.
1684, giving the CB-MB authority to prescribe different maximum rates of interest
which may be imposed for a loan or renewal thereof or the forbearance of any
money, goods or credits, provided that the changes are effected gradually and
announced in advance. Thus, Section 1-a of Act No. 2655 now reads:

Petitioners, claiming that they are raising issues of transcendental importance to the Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate
public, filed directly with this Court this Petition for Certiorari under Rule 65 of the or rates of interest for the loan or renewal thereof or the forbearance of any money,
1997 Rules of Court, seeking to declare that the Bangko Sentral ng Pilipinas goods or credits, and to change such rate or rates whenever warranted by prevailing
Monetary Board (BSP-MB), replacing the Central Bank Monetary Board (CB-MB) by economic and social conditions: Provided, That changes in such rate or rates may
virtue of Republic Act (R.A.) No. 7653, has no authority to continue enforcing be effected gradually on scheduled dates announced in advance.
Central Bank Circular No. 905,[1] issued by the CB-MB in 1982, which suspended
Act No. 2655, or the Usury Law of 1916. In the exercise of the authority herein granted the Monetary Board may prescribe
higher maximum rates for loans of low priority, such as consumer loans or renewals
Factual Antecedents thereof as well as such loans made by pawnshops, finance companies and other
similar credit institutions although the rates prescribed for these institutions need not
Petitioner Advocates for Truth in Lending, Inc. (AFTIL) is a non- profit, non-stock necessarily be uniform. The Monetary Board is also authorized to prescribe different
corporation organized to engage in pro bono concerns and activities relating to maximum rate or rates for different types of borrowings, including deposits and
money lending issues. It was incorporated on July 9, 2010,[2] and a month later, it deposit substitutes, or loans of financial intermediaries. (Underlining and emphasis
filed this petition, joined by its founder and president, Eduardo B. Olaguer, suing as ours)
a taxpayer and a citizen.
In its Resolution No. 2224 dated December 3, 1982,[3] the CB-MB issued CB
R.A. No. 265, which created the Central Bank (CB) of the Philippines on June 15, Circular No. 905, Series of 1982, effective on January 1, 1983. Section 1 of the
1948, empowered the CB-MB to, among others, set the maximum interest rates Circular, under its General Provisions, removed the ceilings on interest rates on
which banks may charge for all types of loans and other credit operations, within loans or forbearance of any money, goods or credits, to wit:
limits prescribed by the Usury Law. Section 109 of R.A. No. 265 reads:
Sec. 1. The rate of interest, including commissions, premiums, fees and other
Sec. 109. Interest Rates, Commissions and Charges. The Monetary Board may charges, on a loan or forbearance of any money, goods, or credits, regardless of
fix the maximum rates of interest which banks may pay on deposits and on other maturity and whether secured or unsecured, that may be charged or collected by
obligations. any person, whether natural or juridical, shall not be subject to any ceiling
prescribed under or pursuant to the Usury Law, as amended. (Underscoring and
The Monetary Board may, within the limits prescribed in the Usury Law fix the emphasis ours)
maximum rates of interest which banks may charge for different types of loans and
for any other credit operations, or may fix the maximum differences which may exist The Circular then went on to amend Books I to IV of the CBs Manual of
between the interest or rediscount rates of the Central Bank and the rates which the Regulations for Banks and Other Financial Intermediaries (Manual of Regulations)
banks may charge their customers if the respective credit documents are not to lose by removing the applicable ceilings on specific interest rates. Thus, Sections 5, 9
their eligibility for rediscount or advances in the Central Bank. and 10 of CB Circular No. 905 amended Book I, Subsections 1303, 1349, 1388.1 of
the Manual of Regulations, by removing the ceilings for interest and other charges,
commissions, premiums, and fees applicable to commercial banks; Sections 12 and
17 removed the interest ceilings for thrift banks (Book II, Subsections 2303, 2349);
39
Sections 19 and 21 removed the ceilings applicable to rural banks (Book III, showing that in February 1998 the banks prime lending rates, or interests on loans
Subsection 3152.3-c); and, Sections 26, 28, 30 and 32 removed the ceilings for non- to their best borrowers, ranged from 26% to 31%.
bank financial intermediaries (Book IV, Subsections 4303Q.1 to 4303Q.9, 4303N.1,
4303P).[4] Petitioners contend that under Section 1-a of Act No. 2655, as amended by P.D. No.
1684, the CB-MB was authorized only to prescribe or set the maximum rates of
On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653 interest for a loan or renewal thereof or for the forbearance of any money, goods or
establishing the Bangko Sentral ng Pilipinas (BSP) to replace the CB. The repealing credits, and to change such rates whenever warranted by prevailing economic and
clause thereof, Section 135, reads: social conditions, the changes to be effected gradually and on scheduled dates; that
nothing in P.D. No. 1684 authorized the CB-MB to lift or suspend the limits of
Sec. 135. Repealing Clause. Except as may be provided for in Sections 46 and interest on all credit transactions, when it issued CB Circular No. 905. They further
132 of this Act, Republic Act No. 265, as amended, the provisions of any other law, insist that under Section 109 of R.A. No. 265, the authority of the CB-MB was clearly
special charters, rule or regulation issued pursuant to said Republic Act No. 265, as only to fix the banks maximum rates of interest, but always within the limits
amended, or parts thereof, which may be inconsistent with the provisions of this Act prescribed by the Usury Law.
are hereby repealed. Presidential Decree No. 1792 is likewise repealed.
Thus, according to petitioners, CB Circular No. 905, which was promulgated without
Petition for Certiorari the benefit of any prior public hearing, is void because it violated Article 5 of the
New Civil Code, which provides that Acts executed against the provisions of
To justify their skipping the hierarchy of courts and going directly to this Court to mandatory or prohibitory laws shall be void, except when the law itself authorizes
secure a writ of certiorari, petitioners contend that the transcendental importance of their validity.
their Petition can readily be seen in the issues raised therein, to wit:
They further claim that just weeks after the issuance of CB Circular No. 905, the
a) benchmark 91-day Treasury bills (T-bills),[13] then known as Jobo bills[14] shot up
Whether under R.A. No. 265 and/or P.D. No. 1684, the CB-MB had the statutory or to 40% per annum, as a result. The banks immediately followed suit and re-priced
constitutional authority to prescribe the maximum rates of interest for all kinds of their loans to rates which were even higher than those of the Jobo bills. Petitioners
credit transactions and forbearance of money, goods or credit beyond the limits thus assert that CB Circular No. 905 is also unconstitutional in light of Section 1 of
prescribed in the Usury Law; the Bill of Rights, which commands that no person shall be deprived of life, liberty
b) or property without due process of law, nor shall any person be denied the equal
If so, whether the CB-MB exceeded its authority when it issued CB Circular No. 905, protection of the laws.
which removed all interest ceilings and thus suspended Act No. 2655 as regards
usurious interest rates; Finally, petitioners point out that R.A. No. 7653 did not re-enact a provision similar to
c) Section 109 of R.A. No. 265, and therefore, in view of the repealing clause in
Whether under R.A. No. 7653, the new BSP-MB may continue to enforce CB Section 135 of R.A. No. 7653, the BSP-MB has been stripped of the power either to
Circular No. 905.[5] prescribe the maximum rates of interest which banks may charge for different kinds
of loans and credit transactions, or to suspend Act No. 2655 and continue enforcing
Petitioners attached to their petition copies of several Senate Bills and Resolutions CB Circular No. 905.
of the 10th Congress, which held its sessions from 1995 to 1998, calling for
investigations by the Senate Committee on Banks and Financial Institutions into Ruling
alleged unconscionable commercial rates of interest imposed by these entities.
Senate Bill (SB) Nos. 37[6] and 1860,[7] filed by Senator Vicente C. Sotto III and the The petition must fail.
late Senator Blas F. Ople, respectively, sought to amend Act No. 2655 by fixing the
rates of interest on loans and forbearance of credit; Philippine Senate Resolution A. The Petition is procedurally infirm.
(SR) No. 1053,[8] 1073[9] and 1102,[10] filed by Senators Ramon B. Magsaysay,
Jr., Gregorio B. Honasan and Franklin M. Drilon, respectively, urged the aforesaid The decision on whether or not to accept a petition for certiorari, as well as to grant
Senate Committee to investigate ways to curb the high commercial interest rates due course thereto, is addressed to the sound discretion of the court.[15] A petition
then obtaining in the country; Senator Ernesto Maceda filed SB No. 1151 to prohibit for certiorari being an extraordinary remedy, the party seeking to avail of the same
the collection of more than two months of advance interest on any loan of money; must strictly observe the procedural rules laid down by law, and non-observance
and Senator Raul Roco filed SR No. 1144[11] seeking an investigation into an thereof may not be brushed aside as mere technicality.[16]
alleged cartel of commercial banks, called Club 1821, reportedly behind the
regime of high interest rates. The petitioners also attached news clippings[12]
40
As provided in Section 1 of Rule 65, a writ of certiorari is directed against a tribunal
exercising judicial or quasi-judicial functions.[17] Judicial functions are exercised by In the 1993 case of Joya v. Presidential Commission on Good Government,[25] it
a body or officer clothed with authority to determine what the law is and what the was held that no question involving the constitutionality or validity of a law or
legal rights of the parties are with respect to the matter in controversy. Quasi-judicial governmental act may be heard and decided by the court unless there is
function is a term that applies to the action or discretion of public administrative compliance with the legal requisites for judicial inquiry, namely: (a) that the question
officers or bodies given the authority to investigate facts or ascertain the existence must be raised by the proper party; (b) that there must be an actual case or
of facts, hold hearings, and draw conclusions from them as a basis for their official controversy; (c) that the question must be raised at the earliest possible opportunity;
action using discretion of a judicial nature.[18] and (d) that the decision on the constitutional or legal question must be necessary to
the determination of the case itself.
The CB-MB (now BSP-MB) was created to perform executive functions with respect
to the establishment, operation or liquidation of banking and credit institutions, and In Prof. David v. Pres. Macapagal-Arroyo,[26] the Court summarized the
branches and agencies thereof.[19] It does not perform judicial or quasi-judicial requirements before taxpayers, voters, concerned citizens, and legislators can be
functions. Certainly, the issuance of CB Circular No. 905 was done in the exercise accorded a standing to sue, viz:
of an executive function. Certiorari will not lie in the instant case.[20]
(1) the cases involve constitutional issues;
B. Petitioners have no locus standi to file the Petition (2) for taxpayers, there must be a claim of illegal disbursement of public funds or
that the tax measure is unconstitutional;
Locus standi is defined as a right of appearance in a court of justice on a given (3) for voters, there must be a showing of obvious interest in the validity of the
question. In private suits, Section 2, Rule 3 of the 1997 Rules of Civil Procedure election law in question;
provides that every action must be prosecuted or defended in the name of the real (4) for concerned citizens, there must be a showing that the issues raised are of
party in interest, who is the party who stands to be benefited or injured by the transcendental importance which must be settled early; and (5) for legislators, there
judgment in the suit or the party entitled to the avails of the suit. Succinctly put, a must be a claim that the official action complained of infringes upon their
partys standing is based on his own right to the relief sought.[21] prerogatives as legislators.

Even in public interest cases such as this petition, the Court has generally adopted While the Court may have shown in recent decisions a certain toughening in its
the direct injury test that the person who impugns the validity of a statute must attitude concerning the question of legal standing, it has nonetheless always made
have a personal and substantial interest in the case such that he has sustained, or an exception where the transcendental importance of the issues has been
will sustain direct injury as a result.[22] Thus, while petitioners assert a public right
established, notwithstanding the petitioners failure to show a direct injury.[27] In
to assail CB Circular No. 905 as an illegal executive action, it is nonetheless CREBA v. ERC,[28] the Court set out the following instructive guides as
required of them to make out a sufficient interest in the vindication of the public determinants on whether a matter is of transcendental importance, namely: (1) the
order and the securing of relief. It is significant that in this petition, the petitioners do
character of the funds or other assets involved in the case; (2) the presence of a
not allege that they sustained any personal injury from the issuance of CB Circular clear case of disregard of a constitutional or statutory prohibition by the public
No. 905. respondent agency or instrumentality of the government; and (3) the lack of any
other party with a more direct and specific interest in the questions being raised.
Petitioners also do not claim that public funds were being misused in the Further, the Court stated in Anak Mindanao Party-List Group v. The Executive
enforcement of CB Circular No. 905. In Kilosbayan, Inc. v. Morato,[23] involving the Secretary[29] that the rule on standing will not be waived where these determinants
on-line lottery contract of the PCSO, there was no allegation that public funds were are not established.
being misspent, which according to the Court would have made the action a public
one, and justify relaxation of the requirement that an action must be prosecuted in In the instant case, there is no allegation of misuse of public funds in the
the name of the real party-in-interest. The Court held, moreover, that the status of implementation of CB Circular No. 905. Neither were borrowers who were actually
Kilosbayan as a peoples organization did not give it the requisite personality to affected by the suspension of the Usury Law joined in this petition. Absent any
question the validity of the contract. Thus: showing of transcendental importance, the petition must fail.

Petitioners do not in fact show what particularized interest they have for bringing this
suit. It does not detract from the high regard for petitioners as civic leaders to say
that their interest falls short of that required to maintain an action under the Rule 3,
Sec. 2.[24]
C. The Petition raises no issues of transcendental importance.
More importantly, the Court notes that the instant petition adverted to the regime of
high interest rates which obtained at least 15 years ago, when the banks prime
lending rates ranged from 26% to 31%,[30] or even 29 years ago, when the 91-day
Jobo bills reached 40% per annum. In contrast, according to the BSP, in the first two
(2) months of 2012 the bank lending rates averaged 5.91%, which implies that the
banks prime lending rates were lower; moreover, deposit interests on savings and
41
long-term deposits have also gone very low, averaging 1.75% and 1.62%, 42% on October 25, 1984. The Supreme Court invalidated the rate increases made
respectively.[31] by the PNB and upheld the 12% interest imposed by the CA, in this wise:

Judging from the most recent auctions of T-bills, the savings rates must be P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to
approaching 0%. In the auctions held on November 12, 2012, the rates of 3-month, stipulate freely regarding any subsequent adjustment in the interest rate that shall
6-month and 1-year T-bills have dropped to 0.150%, 0.450% and 0.680%, accrue on a loan or forbearance of money, goods or credits. In fine, they can agree
respectively.[32] According to Manila Bulletin, this very low interest regime has been to adjust, upward or downward, the interest previously stipulated. x x x.[45]
attributed to high liquidity and strong investor demand amid positive economic
indicators of the country.[33] Thus, according to the Court, by lifting the interest ceiling, CB Circular No. 905
merely upheld the parties freedom of contract to agree freely on the rate of interest.
While the Court acknowledges that cases of transcendental importance demand It cited Article 1306 of the New Civil Code, under which the contracting parties may
that they be settled promptly and definitely, brushing aside, if we must, technicalities establish such stipulations, clauses, terms and conditions as they may deem
of procedure,[34] the delay of at least 15 years in the filing of the instant petition has convenient, provided they are not contrary to law, morals, good customs, public
actually rendered moot and academic the issues it now raises. order, or public policy.

For its part, BSP-MB maintains that the petitioners allegations of constitutional and E. The BSP-MB has authority to enforce CB Circular No. 905.
statutory violations of CB Circular No. 905 are really mere challenges made by
petitioners concerning the wisdom of the Circular. It explains that it was in view of Section 1 of CB Circular No. 905 provides that The rate of interest, including
the global economic downturn in the early 1980s that the executive department commissions, premiums, fees and other charges, on a loan or forbearance of any
through the CB-MB had to formulate policies to achieve economic recovery, and money, goods, or credits, regardless of maturity and whether secured or unsecured,
among these policies was the establishment of a market-oriented interest rate that may be charged or collected by any person, whether natural or juridical, shall
structure which would require the removal of the government-imposed interest rate not be subject to any ceiling prescribed under or pursuant to the Usury Law, as
ceilings.[35] amended. It does not purport to suspend the Usury Law only as it applies to banks,
but to all lenders.
D. The CB-MB merely suspended the effectivity of the Usury Law when it issued CB
Circular No. 905. Petitioners contend that, granting that the CB had power to suspend the Usury
Law, the new BSP-MB did not retain this power of its predecessor, in view of
The power of the CB to effectively suspend the Usury Law pursuant to P.D. No. Section 135 of R.A. No. 7653, which expressly repealed R.A. No. 265. The
1684 has long been recognized and upheld in many cases. As the Court explained petitioners point out that R.A. No. 7653 did not reenact a provision similar to Section
in the landmark case of Medel v. CA,[36] citing several cases, CB Circular No. 905 109 of R.A. No. 265.
did not repeal nor in anyway amend the Usury Law but simply suspended the
latters effectivity;[37] that a [CB] Circular cannot repeal a law, [for] only a law can A closer perusal shows that Section 109 of R.A. No. 265 covered only loans
repeal another law;[38] that by virtue of CB Circular No. 905, the Usury Law has extended by banks, whereas under Section 1-a of the Usury Law, as amended, the
been rendered ineffective;[39] and Usury has been legally non-existent in our BSP-MB may prescribe the maximum rate or rates of interest for all loans or
jurisdiction. Interest can now be charged as lender and borrower may agree renewals thereof or the forbearance of any money, goods or credits, including those
upon.[40] for loans of low priority such as consumer loans, as well as such loans made by
pawnshops, finance companies and similar credit institutions. It even authorizes the
In First Metro Investment Corp. v. Este Del Sol Mountain Reserve, Inc.[41] cited in BSP-MB to prescribe different maximum rate or rates for different types of
DBP v. Perez,[42] we also belied the contention that the CB was engaged in self- borrowings, including deposits and deposit substitutes, or loans of financial
legislation. Thus: intermediaries.

Central Bank Circular No. 905 did not repeal nor in any way amend the Usury Law Act No. 2655, an earlier law, is much broader in scope, whereas R.A. No. 265, now
but simply suspended the latters effectivity. The illegality of usury is wholly the R.A. No. 7653, merely supplemented it as it concerns loans by banks and other
creature of legislation. A Central Bank Circular cannot repeal a law. Only a law can financial institutions. Had R.A. No. 7653 been intended to repeal Section 1-a of Act
repeal another law. x x x.[43] No. 2655, it would have so stated in unequivocal terms.

In PNB v. Court of Appeals,[44] an escalation clause in a loan agreement authorized Moreover, the rule is settled that repeals by implication are not favored, because
the PNB to unilaterally increase the rate of interest to 25% per annum, plus a laws are presumed to be passed with deliberation and full knowledge of all laws
penalty of 6% per annum on past dues, then to 30% on October 15, 1984, and to existing pertaining to the subject.[46] An implied repeal is predicated upon the
42
condition that a substantial conflict or repugnancy is found between the new and 2. When an obligation, not constituting a loan or forbearance of money, is breached,
prior laws. Thus, in the absence of an express repeal, a subsequent law cannot be an interest on the amount of damages awarded may be imposed at the discretion of
construed as repealing a prior law unless an irreconcilable inconsistency and the court at the rate of 6% per annum. No interest, however, shall be adjudged on
repugnancy exists in the terms of the new and old laws.[47] We find no such conflict unliquidated claims or damages except when or until the demand can be
between the provisions of Act 2655 and R.A. No. 7653. established with reasonable certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time the claim is
F. The lifting of the ceilings for interest rates does not authorize stipulations made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
charging excessive, unconscionable, and iniquitous interest. cannot be so reasonably established at the time the demand is made, the interest
shall begin to run only from the date the judgment of the court is made (at which
It is settled that nothing in CB Circular No. 905 grants lenders a carte blanche time the quantification of damages may be deemed to have been reasonably
authority to raise interest rates to levels which will either enslave their borrowers or ascertained). The actual base for the computation of legal interest shall, in any case,
lead to a hemorrhaging of their assets.[48] As held in Castro v. Tan:[49] be on the amount finally adjudged.

The imposition of an unconscionable rate of interest on a money debt, even if
knowingly and voluntarily assumed, is immoral and unjust. It is tantamount to a
repugnant spoliation and an iniquitous deprivation of property, repulsive to the
common sense of man. It has no support in law, in principles of justice, or in the
human conscience nor is there any reason whatsoever which may justify such
imposition as righteous and as one that may be sustained within the sphere of
public or private morals.[50]
Stipulations authorizing iniquitous or unconscionable interests have been invariably
struck down for being contrary to morals, if not against the law.[51] Indeed, under
Article 1409 of the Civil Code, these contracts are deemed inexistent and void ab
initio, and therefore cannot be ratified, nor may the right to set up their illegality as a
defense be waived.
Nonetheless, the nullity of the stipulation of usurious interest does not affect the
lenders right to recover the principal of a loan, nor affect the other terms thereof.[52]
Thus, in a usurious loan with mortgage, the right to foreclose the mortgage subsists,
and this right can be exercised by the creditor upon failure by the debtor to pay the
debt due. The debt due is considered as without the stipulated excessive interest,
and a legal interest of 12% per annum will be added in place of the excessive
interest formerly imposed,[53] following the guidelines laid down in the landmark
case of Eastern Shipping Lines, Inc. v. Court of Appeals,[54] regarding the manner
of computing legal interest:
3. 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 12% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit.[55] (Citations omitted)
The foregoing rules were further clarified in Sunga-Chan v. Court of Appeals,[56] as
follows:
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if
proper, and the applicable rate, as follows: The 12% per annum rate under CB
Circular No. 416 shall apply only to loans or forbearance of money, goods, or
credits, as well as to judgments involving such loan or forbearance of money,
goods, or credit, while the 6% per annum under Art. 2209 of the Civil Code applies
"when the transaction involves the payment of indemnities in the concept of damage
arising from the breach or a delay in the performance of obligations in general," with
the application of both rates reckoned "from the time the complaint was tiled until the
[adjudged] amount is fully paid." In either instance, the reckoning period for the
commencement of the running of the legal interest shall be subject to the condition
"that the courts are vested with discretion, depending on the equities of each case,
on the award of interest."[57] (Citations omitted)
WHEREFORE, premises considered, the Petition for certiorari is DISMISSED.

II. With regard particularly to an award of interest in the concept of actual and SO ORDERED.
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:

1. 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 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of
the Civil Code.

43
 SECOND DIVISION
After the arraignment, both the prosecution and accused Go took part in the pre-trial
G.R. No. 178429, October 23, 2009 conference where the marking of the voluminous evidence for the parties was
accomplished. After the completion of the marking, the trial court ordered the parties
SECOND DIVISION JOSE C. GO, PETITIONER, VS. BANGKO SENTRAL NG to proceed to trial on the merits.
PILIPINAS, RESPONDENT.
Before the trial could commence, however, Go filed on February 26, 2003[7] a
DECISION motion to quash the Information, which motion Go amended on March 1, 2003.[8]
Go claimed that the Information was defective, as the facts charged therein do not
BRION, J.: constitute an offense under Section 83 of RA 337 which states:

Through the present petition for review on certiorari,[1] petitioner Jose C. Go (Go) No director or officer of any banking institution shall either directly or indirectly, for
assails the October 26, 2006 decision[2] of the Court of Appeals (CA) in CA-G.R. himself or as the representative or agent of another, borrow any of the deposits of
SP No. 79149, as well as its June 4, 2007 resolution.[3] The CA decision and funds of such banks, nor shall he become a guarantor, indorser, or surety for loans
resolution annulled and set aside the May 20, 2003[4] and June 30, 2003[5] orders from such bank, to others, or in any manner be an obligor for money borrowed from
of the Regional Trial Court (RTC), Branch 26, Manila which granted Go's motion to the bank or loaned by it, except with the written approval of the majority of the
quash the Information filed against him. directors of the bank, excluding the director concerned. Any such approval shall be
entered upon the records of the corporation and a copy of such entry shall be
THE FACTS transmitted forthwith to the appropriate supervising department. The office of any
director or officer of a bank who violates the provisions of this section shall
On August 20, 1999, an Information[6] for violation of Section 83 of Republic Act No. immediately become vacant and the director or officer shall be punished by
337 (RA 337) or the General Banking Act, as amended by Presidential Decree No. imprisonment of not less than one year nor more than ten years and by a fine of not
1795, was filed against Go before the RTC. The charge reads: less than one thousand nor more than ten thousand pesos.

That on or about and during the period comprised between June 27, 1996 and
September 15, 1997, inclusive, in the City of Manila, Philippines, the said accused,
being then the Director and the President and Chief Executive Officer of the Orient
Commercial Banking Corporation (Orient Bank), a commercial banking institution
created, organized and existing under Philippines laws, with its main branch located
at C.M. Recto Avenue, this City, and taking advantage of his position as such
officer/director of the said bank, did then and there wilfully, unlawfully and knowingly
borrow, either directly or indirectly, for himself or as the representative of his other
related companies, the deposits or funds of the said banking institution and/or
become a guarantor, indorser or obligor for loans from the said bank to others, by
then and there using said borrowed deposits/funds of the said bank in facilitating
and granting and/or caused the facilitating and granting of credit lines/loans and,
among others, to the New Zealand Accounts loans in the total amount of TWO
BILLION AND SEVEN HUNDRED FIFTY-FOUR MILLION NINE HUNDRED FIVE
THOUSAND AND EIGHT HUNDRED FIFTY-SEVEN AND 0/100 PESOS, Philippine
Currency, said accused knowing fully well that the same has been done by him
without the written approval of the majority of the Board of Directors of said Orient
Bank and which approval the said accused deliberately failed to obtain and enter the
same upon the records of said banking institution and to transmit a copy of which to
the supervising department of the said bank, as required by the General Banking
Act.
CONTRARY TO LAW. [Emphasis supplied.]
On May 28, 2001, Go pleaded not guilty to the offense charged.
The Monetary Board may regulate the amount of credit accommodations that may
be extended, directly or indirectly, by banking institutions to their directors, officers,
or stockholders. However, the outstanding credit accommodations which a bank
may extend to each of its stockholders owning two percent (2%) or more of the
subscribed capital stock, its directors, or its officers, shall be limited to an amount
equivalent to the respective outstanding deposits and book value of the paid-in
capital contribution in the bank. Provided, however, that loans and advances to
officers in the form of fringe benefits granted in accordance with rules and
regulations as may be prescribed by Monetary Board shall not be subject to the
preceding limitation. (As amended by PD 1795)
In addition to the conditions established in the preceding paragraph, no director or a
building and loan association shall engage in any of the operations mentioned in
said paragraphs, except upon the pledge of shares of the association having a total
withdrawal value greater than the amount borrowed. (As amended by PD 1795)
In support of his motion to quash, Go averred that based on the facts alleged in the
Information, he was being prosecuted for borrowing the deposits or funds of the
Orient Bank and/or acting as a guarantor, indorser or obligor for the bank's loans to
other persons. The use of the word "and/or" meant that he was charged for being
either a borrower or a guarantor, or for being both a borrower and guarantor. Go
claimed that the charge was not only vague, but also did not constitute an offense.
He posited that Section 83 of RA 337 penalized only directors and officers of
banking institutions who acted either as borrower or as guarantor, but not as both.
44
Go further pointed out that the Information failed to state that his alleged act of
borrowing and/or guarantying was not among the exceptions provided for in the law.
According to Go, the second paragraph of Section 83 allowed banks to extend credit
accommodations to their directors, officers, and stockholders, provided it is "limited
to an amount equivalent to the respective outstanding deposits and book value of
the paid-in capital contribution in the bank." Extending credit accommodations to
bank directors, officers, and stockholders is not per se prohibited, unless the amount
exceeds the legal limit. Since the Information failed to state that the amount he
purportedly borrowed and/or guarantied was beyond the limit set by law, Go insisted
that the acts so charged did not constitute an offense.
Repeating his arguments in his motion to quash, Go reads Section 83 of RA 337 as
penalizing a director or officer of a banking institution for either borrowing the
deposits or funds of the bank, or guaranteeing or indorsing loans to others, but not
for assuming both capacities. He claimed that the prosecution's shotgun approach in
alleging that he acted as borrower and/or guarantor rendered the Information highly
defective for failure to specify with certainty the specific act or omission complained
of. To petitioner Go, the prosecution's approach was a clear violation of his
constitutional right to be informed of the nature and cause of the accusation against
him.

Finding Go's contentions persuasive, the RTC granted Go's motion to quash the Additionally, Go reiterates his claim that credit accommodations by banks to their
Information on May 20, 2003. It denied on June 30, 2003 the motion for directors and officers are legal and valid, provided that these are limited to their
reconsideration filed by the prosecution. outstanding deposits and book value of the paid-in capital contribution in the bank.
The failure to state that he borrowed deposits and/or guaranteed loans beyond this
The prosecution did not accept the RTC ruling and filed a petition for certiorari to limit rendered the Information defective. He thus asks the Court to reverse the CA
question it before the CA. The Information, the prosecution claimed, was sufficient. decision to reinstate the criminal charge.
The word "and/or" did not materially affect the validity of the Information, as it merely
stated a mode of committing the crime penalized under Section 83 of RA 337. In its Comment,[11] the prosecution raises the same defenses against Go's
Moreover, the prosecution asserted that the second paragraph of Section 83 contentions. It insists on the sufficiency of the allegations in the Information and
(referring to the credit accommodation limit) cannot be interpreted as an exception prays for the denial of Go's petition.
to what the first paragraph provided. The second paragraph only sets borrowing
limits that, if violated, render the bank, not the director-borrower, liable. A violation of THE COURT'S RULING
the second paragraph of Section 83 - under which Go is being prosecuted - is
therefore separate and distinct from a violation of the first paragraph. Thus, the The Court does not find the petition meritorious and accordingly denies it.
prosecution prayed that the orders of the RTC quashing the Information be set aside
and the criminal case against Go be reinstated. The Accused's Right to be Informed

On October 26, 2006, the CA rendered the assailed decision granting the
prosecution's petition for certiorari.[9] The CA declared that the RTC misread the
law when it decided to quash the Information against Go. It explained that the
allegation that Go acted either as a borrower or a guarantor or as both borrower and
guarantor merely set forth the different modes by which the offense was committed.
It did not necessarily mean that Go acted both as borrower and guarantor for the
same loan at the same time. It agreed with the prosecution's stand that the second
paragraph of Section 83 of RA 337 is not an exception to the first paragraph. Thus,
the failure of the Information to state that the amount of the loan Go borrowed or
guaranteed exceeded the legal limits was, to the CA, an irrelevant issue. For these
reasons, the CA annulled and set aside the RTC's orders and ordered the
reinstatement of the criminal charge against Go. After the CA's denial of his motion
for reconsideration,[10] Go filed the present appeal by certiorari.
THE PETITION
In his petition, Go alleges that the appellate court legally erred in overturning the trial
court's orders. He insists that the Information failed to allege the acts or omissions
complained of with sufficient particularity to enable him to know the offense being
charged; to allow him to properly prepare his defense; and likewise to allow the
court to render proper judgment.
Under the Constitution, a person who stands charged of a criminal offense has the
right to be informed of the nature and cause of the accusation against him.[12] The
Rules of Court, in implementing the right, specifically require that the acts or
omissions complained of as constituting the offense, including the qualifying and
aggravating circumstances, must be stated in ordinary and concise language, not
necessarily in the language used in the statute, but in terms sufficient to enable a
person of common understanding to know what offense is being charged and the
attendant qualifying and aggravating circumstances present, so that the accused
can properly defend himself and the court can pronounce judgment.[13] To broaden
the scope of the right, the Rules authorize the quashal, upon motion of the accused,
of an Information that fails to allege the acts constituting the offense.[14]
Jurisprudence has laid down the fundamental test in appreciating a motion to quash
an Information grounded on the insufficiency of the facts alleged therein. We stated
in People v. Romualdez[15] that:
The determinative test in appreciating a motion to quash xxx is the sufficiency of the
averments in the information, that is, whether the facts alleged, if hypothetically
admitted, would establish the essential elements of the offense as defined by law
without considering matters aliunde. As Section 6, Rule 110 of the Rules of Criminal
Procedure requires, the information only needs to state the ultimate facts; the
evidentiary and other details can be provided during the trial.
45
 officer concerned becomes an obligor of the bank against whom the obligation is
To restate the rule, an Information only needs to state the ultimate facts constituting juridically demandable.
the offense, not the finer details of why and how the illegal acts alleged amounted to
undue injury or damage - matters that are appropriate for the trial. [Emphasis The language of the law is broad enough to encompass either act of borrowing or
supplied] guaranteeing, or both. While the first paragraph of Section 83 is penal in nature, and
by principle should be strictly construed in favor of the accused, the Court is
The facts and circumstances necessary to be included in the Information are unwilling to adopt a liberal construction that would defeat the legislature's intent in
determined by reference to the definition and elements of the specific crimes. The enacting the statute. The objective of the law should allow for a reasonable flexibility
Information must allege clearly and accurately the elements of the crime in its construction. Section 83 of RA 337, as well as other banking laws adopting the
charged.[16] same prohibition,[17] was enacted to ensure that loans by banks and similar
financial institutions to their own directors, officers, and stockholders are above
Elements of Violation of board.[18] Banks were not created for the benefit of their directors and officers; they
Section 83 of RA 337 cannot use the assets of the bank for their own benefit, except as may be permitted
by law. Congress has thus deemed it essential to impose restrictions on borrowings
Under Section 83, RA 337, the following elements must be present to constitute a by bank directors and officers in order to protect the public, especially the
violation of its first paragraph: depositors.[19] Hence, when the law prohibits directors and officers of banking
institutions from becoming in any manner an obligor of the bank (unless with the
the offender is a director or officer of any banking institution; approval of the board), the terms of the prohibition shall be the standards to be
applied to directors' transactions such as those involved in the present case.
2. the offender, either directly or indirectly, for himself or as representative or agent
of another, performs any of the following acts: Credit accommodation limit is not an
exception nor is it an element of the
offense
he borrows any of the deposits or funds of such bank; or
Contrary to Go's claims, the second paragraph of Section 83, RA 337 does not
he becomes a guarantor, indorser, or surety for loans from such bank to others, or provide for an exception to a violation of the first paragraph thereof, nor does it
constitute as an element of the offense charged. Section 83 of RA 337 actually
c. he becomes in any manner an obligor for money borrowed from bank or loaned imposes three restrictions: approval, reportorial, and ceiling requirements.
by it;
The approval requirement (found in the first sentence of the first paragraph of the
the offender has performed any of such acts without the written approval of the law) refers to the written approval of the majority of the bank's board of directors
majority of the directors of the bank, excluding the offender, as the director required before bank directors and officers can in any manner be an obligor for
concerned. money borrowed from or loaned by the bank. Failure to secure the approval renders
the bank director or officer concerned liable for prosecution and, upon conviction,
A simple reading of the above elements easily rejects Go's contention that the law subjects him to the penalty provided in the third sentence of first paragraph of
penalizes a bank director or officer only either for borrowing the bank's deposits or Section 83.
funds or for guarantying loans by the bank, but not for acting in both capacities. The
essence of the crime is becoming an obligor of the bank without securing the The reportorial requirement, on the other hand, mandates that any such approval
necessary written approval of the majority of the bank's directors. should be entered upon the records of the corporation, and a copy of the entry be
transmitted to the appropriate supervising department. The reportorial requirement
The second element merely lists down the various modes of committing the offense. is addressed to the bank itself, which, upon its failure to do so, subjects it to quo
The third mode, by declaring that "[no director or officer of any banking institution warranto proceedings under Section 87 of RA 337.[20]
shall xxx] in any manner be an obligor for money borrowed from the bank or loaned
by it," in fact serves a catch-all phrase that covers any situation when a director or The ceiling requirement under the second paragraph of Section 83 regulates the
officer of the bank becomes its obligor. The prohibition is directed against a bank amount of credit accommodations that banks may extend to their directors or
director or officer who becomes in any manner an obligor for money borrowed from officers by limiting these to an amount equivalent to the respective outstanding
or loaned by the bank without the written approval of the majority of the bank's deposits and book value of the paid-in capital contribution in the bank. Again, this is
board of directors. To make a distinction between the act of borrowing and a requirement directed at the bank. In this light, a prosecution for violation of the first
guarantying is therefore unnecessary because in either situation, the director or paragraph of Section 83, such as the one involved here, does not require an
46
allegation that the loan exceeded the legal limit. Even if the loan involved is below
the legal limit, a written approval by the majority of the bank's directors is still
required; otherwise, the bank director or officer who becomes an obligor of the bank
is liable. Compliance with the ceiling requirement does not dispense with the
approval requirement.

Evidently, the failure to observe the three requirements under Section 83 paves the
way for the prosecution of three different offenses, each with its own set of
elements. A successful indictment for failing to comply with the approval
requirement will not necessitate proof that the other two were likewise not observed.

Rules of Court allow amendment of insufficient Information

Assuming that the facts charged in the Information do not constitute an offense, we
find it erroneous for the RTC to immediately order the dismissal of the Information,
without giving the prosecution a chance to amend it. Section 4 of Rule 117 states:

SEC. 4. Amendment of complaint or information.--If the motion to quash is based on

an alleged defect of the complaint or information which can be cured by
amendment, the court shall order that an amendment be made.

If it is based on the ground that the facts charged do not constitute an offense, the
prosecution shall be given by the court an opportunity to correct the defect by
amendment. The motion shall be granted if the prosecution fails to make the
amendment, or the complaint or information still suffers from the same defect
despite the amendment. [Emphasis supplied]

Although an Information may be defective because the facts charged do not

constitute an offense, the dismissal of the case will not necessarily follow. The Rules
specifically require that the prosecution should be given a chance to correct the
defect; the court can order the dismissal only upon the prosecution's failure to do so.
The RTC's failure to provide the prosecution this opportunity twice[21] constitutes an
arbitrary exercise of power that was correctly addressed by the CA through the
certiorari petition. This defect in the RTC's action on the case, while not central to
the issue before us, strengthens our conclusion that this criminal case should be
resolved through full-blown trial on the merits.

WHEREFORE, we DENY the petitioner's petition for review on certiorari and

AFFIRM the decision of the Court of Appeals in CA-G.R. SP No. 79149,
promulgated on October 26, 2006, as well as its resolution of June 4, 2007. The
Regional Trial Court, Branch 26, Manila is directed to PROCEED with the hearing of
Criminal Case No. 99-178551. Costs against the petitioner.

SO ORDERED.

47
 EN BANC temporary restraining order or a writ of preliminary injunction has been issued
against the public respondent. Rule 65, Section 7 of the Rules of Court so provides:
G.R. NO. 166859, June 26, 2006 SECTION 7. Expediting proceedings; injunctive relief. The court in which the
petition [for Certiorari, Prohibition and Mandamus] is filed may issue orders
REPUBLIC OF THE PHILIPPINES, PETITIONER, VS. SANDIGANBAYAN (FIRST expediting the proceedings, and it may also grant a temporary restraining order or a
DIVISION), EDUARDO M. COJUANGCO, JR., AGRICULTURAL CONSULTANCY writ of preliminary injunction for the preservation of the rights of the parties pending
SERVICES, INC., ARCHIPELAGO REALTY CORP., BALENTE RANCH, INC., such proceedings. The petition shall not interrupt the course of the principal case
BLACK STALLON RANCH, INC., CHRISTENSEN PLANTATION COMPANY, unless a temporary restraining order or a writ of preliminary injunction has been
DISCOVERY REALTY CORP., DREAM PASTURES, INC., ECHO RANCH, INC., issued against the public respondent from further proceeding in the case.
FAR EAST RANCH, INC., FILSOV SHIPPING COMPANY, INC., FIRST UNITED (Emphasis and underscoring supplied)
TRANSPORT, INC., HABAGAT REALTY DEVELOPMENT, INC., KALAWAKAN The burden is thus on the petitioner in a petition for Certiorari, Prohibition and
RESORTS, INC., KAUNLARAN AGRICULTURAL CORP., LABAYUG AIR Mandamus to show that there is a meritorious ground for the issuance of a
TERMINALS, INC., LANDAIR INTERNATIONAL MARKETING CORP., LHL temporary restraining order or writ of preliminary injunction for the purpose of
CATTLE CORPORATION, LUCENA OIL FACTORY, INC., MEADOW LARK suspending the proceedings before the public respondent.[1] Essential for granting
PLANTATIONS, INC., METROPLEX COMMODITIES, INC., MISTY MOUNTAIN injunctive relief is the existence of an urgent necessity for the writ in order to prevent
AGRICULTURAL CORP., NORTHEAST CONTRACT TRADERS, INC., serious damage.[2]
NORTHERN CARRIERS CORPORATION, OCEANSIDE MARITIME
ENTERPRISES, INC., ORO VERDE SERVICES, INC., PASTORAL FARMS, INC., The Court finds that petitioner has failed to discharge the burden. The ground on
PCY OIL MANUFACTURING CORP., PHILIPPINE TECHNOLOGIES, INC., which it bases its urgent motion is the alleged futility of proceeding with the trial of
PRIMAVERA FARMS, INC., PUNONG-BAYAN HOUSING DEVELOPMENT the case. This assertion, however, is speculative, anchored on the mere
CORP., PURA ELECTRIC COMPANY INC., RADIO AUDIENCE DEVELOPERS supposition that the petition would be decided in its favor.
INTEGRATED ORGANIZATION, INC., RADYO PILIPINO CORPORATION,
RANCHO GRANDE, INC., REDDEE DEVELOPERS, INC., SAN ESTEBAN There is thus, in this case, a marked absence of any urgent necessity for the
DEVELOPMENT CORP., SILVER LEAF PLANTATIONS, INC., SOUTHERN issuance of a temporary restraining order or writ of preliminary injunction.
SERVICE TRADERS, INC., SOUTHERN STAR CATTLE CORP., SPADE ONE
RESORTS CORP., UNEXPLORED LAND DEVELOPERS, INC., VERDANT It is gathered though that even prior to the filing of the instant motion, public
PLANTATATIONS, INC., VESTA AGRICULTURAL CORP. AND WINGS RESORTS respondent suspended the proceedings in the civil case, the absence of any
CORPORATION, RESPONDENTS. temporary restraining order or writ of preliminary injunction from this Court
notwithstanding. Thus, petitioner brought to this Court's attention private
RESOLUTION respondents' insistence to have the civil case set for trial by public respondent, citing
private respondents' filing of a "Motion Reiterating Motion to Set Case for Trial"
CARPIO MORALES, J.: dated June 27, 2005, "Second Motion Reiterating Motion to Set Case for Trial"
dated October 26, 2005, and "Manifestation and Motion Reiterating Motion to Set
For resolution is the Urgent Motion for Issuance of Temporary Restraining Order Case for Trial" dated December 8, 2005.[3]
and/or Writ of Preliminary Injunction which was filed by petitioner, Republic of the
Philippines, during the pendency of its Petition for Certiorari before this Court The earlier quoted Section 7 of Rule 65 provides the general rule that the mere
challenging the denial by public respondent, the Sandiganbayan, of its Motion for pendency of a special civil action for Certiorari commenced in relation to a case
Partial Summary Judgment in Civil Case No. 0033-F (the civil case). pending before a lower court or court of origin does not stay the proceedings therein
in the absence of a writ of preliminary injunction or temporary restraining order.[4]
In support of its present urgent motion, petitioner pleads that the issue it raised in its
Petition for Certiorari whether public respondent committed grave abuse of There are of course instances where even if there is no writ of preliminary injunction
discretion in denying its Motion for Partial Summary Judgment must first be or temporary restraining order issued by a higher court, it would be proper for a
resolved, as a continuation of the proceedings in the civil case by public respondent lower court or court of origin to suspend its proceedings on the precept of judicial
might be rendered unnecessary in the event that its Petition before this Court is courtesy. As this Court explained in Eternal Gardens Memorial Park v. Court of
resolved in its favor. Appeals:[5]
Although this Court did not issue any restraining order against the Intermediate
The mere elevation of an interlocutory matter to this Court through a petition for Appellate Court to prevent it from taking any action with regard to its resolutions
Certiorari under Rule 65 of the Rules of Court, like in the present case, does not by respectively granting respondents' motion to expunge from the records the
itself merit a suspension of the proceedings before a public respondent, unless a petitioner's motion to dismiss and denying the latter's motion to reconsider such
48
order, upon learning of the petition, the appellate court should have refrained from
ruling thereon because its jurisdiction was necessarily limited upon the filing of a
petition for certiorari with this Court questioning the propriety of the issuance of the
above-mentioned resolutions. Due respect for the Supreme Court and practical and
ethical considerations should have prompted the appellate court to wait for the final
determination of the petition before taking cognizance of the case and trying to
render moot exactly what was before this court x x x (Emphasis and underscoring
supplied)
A reading of Eternal Gardens Memorial Park shows that the appellate court's failure
to observe judicial courtesy which was frowned upon by this Court lay in its recall of
its (the appellate court's) Orders expunging from the records the Motion to Dismiss
filed by the therein petitioner, which Orders were the orders being questioned before
this Court via a petition for Certiorari and Mandamus. Such act of the appellate
court tended to render moot and academic the said petition. No parity of
circumstances obtains in the present case, however, where merely setting the case
for trial would not have the effect of rendering the present petition moot.

This Court explained, however, that the rule on "judicial courtesy" applies where
"there is a strong probability that the issues before the higher court would be
rendered moot and moribund as a result of the continuation of the proceedings in
the lower court [or court of origin]".[6]

A final word. This Court takes notice that in most cases where its interlocutory
orders are challenged before this Court, public respondent, Sandiganbayan,
suspends proceedings in the cases in which these assailed interlocutory orders are
issued despite the non-issuance by this Court of a temporary restraining order or
writ of preliminary injunction and the absence of a strong probability that the issues
raised before this Court would be rendered moot by a continuation of the
proceedings before it (Sandiganbayan).

WHEREFORE, the URGENT MOTION FOR ISSUANCE OF TEMPORARY

RESTRAINING ORDER AND/OR WRIT OF PRELIMINARY INJUNCTION filed by
petitioner REPUBLIC OF THE PHILIPPINES is DENIED.

The SANDIGANBAYAN is, however, ORDERED, in light of the foregoing

discussion, to continue the proceedings in Civil Case No. 0033-F, as well as in all
other cases where its interlocutory orders are on challenge before this Court but no
Temporary Restraining Order or Writ of Preliminary Injunction has been issued and
there is no strong probability that the issues raised before this Court would be
rendered moot and moribund.

SO ORDERED.

49
 EN BANC Date of Decisions = Aug. 18, 1998

G.R. No. 189871, August 13, 2013 a) 1/24/97 to 2/5/98 = 12.36 mos.
P196.00/day x 12.36 mos.
= P62,986.56
DARIO NACAR, PETITIONER, VS. GALLERY FRAMES AND/OR FELIPE
BORDEY, JR., RESPONDENTS. b) 2/6/98 to 8/18/98 = 6.4 months
Prevailing Rate per day = P62,986.00
DECISION P198.00 x 26 days x 6.4 mos. = P32,947.20
TOTAL
PERALTA, J.: = P95.933.76

This is a petition for review on certiorari assailing the Decision[1] dated September x x x x
23, 2008 of the Court of Appeals (CA) in CA-G.R. SP No. 98591, and the
Resolution[2] dated October 9, 2009 denying petitioners motion for reconsideration. WHEREFORE, premises considered, judgment is hereby rendered finding
respondents guilty of constructive dismissal and are therefore, ordered:
The factual antecedents are undisputed. To pay jointly and severally the complainant the amount of sixty-two thousand nine
hundred eighty-six pesos and 56/100 (P62,986.56) Pesos representing his
Petitioner Dario Nacar filed a complaint for constructive dismissal before the separation pay;
Arbitration Branch of the National Labor Relations Commission (NLRC) against
respondents Gallery Frames (GF) and/or Felipe Bordey, Jr., docketed as NLRC To pay jointly and severally the complainant the amount of nine (sic) five thousand
NCR Case No. 01-00519-97. nine hundred thirty-three and 36/100 (P95,933.36) representing his backwages; and

On October 15, 1998, the Labor Arbiter rendered a Decision[3] in favor of petitioner
and found that he was dismissed from employment without a valid or just cause.
Thus, petitioner was awarded backwages and separation pay in lieu of
reinstatement in the amount of P158,919.92. The dispositive portion of the decision,
reads:
With the foregoing, we find and so rule that respondents failed to discharge the
burden of showing that complainant was dismissed from employment for a just or
valid cause. All the more, it is clear from the records that complainant was never
afforded due process before he was terminated. As such, we are perforce
constrained to grant complainants prayer for the payments of separation pay in lieu
of reinstatement to his former position, considering the strained relationship
between the parties, and his apparent reluctance to be reinstated, computed only up
to promulgation of this decision as follows:
SEPARATION PAY
All other claims are hereby dismissed for lack of merit.
SO ORDERED.[4]
Respondents appealed to the NLRC, but it was dismissed for lack of merit in the
Resolution[5] dated February 29, 2000. Accordingly, the NLRC sustained the
decision of the Labor Arbiter. Respondents filed a motion for reconsideration, but it
was denied.[6]
Dissatisfied, respondents filed a Petition for Review on Certiorari before the CA. On
August 24, 2000, the CA issued a Resolution dismissing the petition. Respondents
filed a Motion for Reconsideration, but it was likewise denied in a Resolution dated
May 8, 2001.[7]
Respondents then sought relief before the Supreme Court, docketed as G.R. No.
151332. Finding no reversible error on the part of the CA, this Court denied the
petition in the Resolution dated April 17, 2002.[8]

Date Hired = August 1990 An Entry of Judgment was later issued certifying that the resolution became final
Rate = P198/day and executory on May 27, 2002.[9] The case was, thereafter, referred back to the
Date of Decision = Aug. 18, 1998 Labor Arbiter. A pre-execution conference was consequently scheduled, but
Length of Service = 8 yrs. & 1 month respondents failed to appear.[10]
P198.00 x 26 days x 8 months
= P41,184.00 On November 5, 2002, petitioner filed a Motion for Correct Computation, praying
that his backwages be computed from the date of his dismissal on January 24, 1997
BACKWAGES up to the finality of the Resolution of the Supreme Court on May 27, 2002.[11] Upon
recomputation, the Computation and Examination Unit of the NLRC arrived at an
Date Dismissed = January 24, 1997 updated amount in the sum of P471,320.31.[12]
Rate per day = P196.00
50
On December 2, 2002, a Writ of Execution[13] was issued by the Labor Arbiter
ordering the Sheriff to collect from respondents the total amount of P471,320.31. Aggrieved, petitioner then sought recourse before the CA, docketed as CA-G.R. SP
Respondents filed a Motion to Quash Writ of Execution, arguing, among other No. 98591.
things, that since the Labor Arbiter awarded separation pay of P62,986.56 and
limited backwages of P95,933.36, no more recomputation is required to be made of On September 23, 2008, the CA rendered a Decision[24] denying the petition. The
the said awards. They claimed that after the decision becomes final and executory, CA opined that since petitioner no longer appealed the October 15, 1998 Decision
the same cannot be altered or amended anymore.[14] On January 13, 2003, the of the Labor Arbiter, which already became final and executory, a belated correction
Labor Arbiter issued an Order[15] denying the motion. Thus, an Alias Writ of thereof is no longer allowed. The CA stated that there is nothing left to be done
Execution[16] was issued on January 14, 2003. except to enforce the said judgment. Consequently, it can no longer be modified in
any respect, except to correct clerical errors or mistakes.
Respondents again appealed before the NLRC, which on June 30, 2003 issued a
Resolution[17] granting the appeal in favor of the respondents and ordered the Petitioner filed a Motion for Reconsideration, but it was denied in the Resolution[25]
recomputation of the judgment award. dated October 9, 2009.

On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of
the NLRC to be final and executory. Consequently, another pre-execution
conference was held, but respondents failed to appear on time. Meanwhile,
petitioner moved that an Alias Writ of Execution be issued to enforce the earlier
recomputed judgment award in the sum of P471,320.31.[18]
The records of the case were again forwarded to the Computation and Examination
Unit for recomputation, where the judgment award of petitioner was reassessed to
be in the total amount of only P147,560.19.
Petitioner then moved that a writ of execution be issued ordering respondents to pay
him the original amount as determined by the Labor Arbiter in his Decision dated
October 15, 1998, pending the final computation of his backwages and separation
pay.
On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to satisfy
the judgment award that was due to petitioner in the amount of P147,560.19, which
petitioner eventually received.
Petitioner then filed a Manifestation and Motion praying for the re-computation of the
monetary award to include the appropriate interests.[19]
Hence, the petition assigning the lone error:
I
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY
ERRED, COMMITTED GRAVE ABUSE OF DISCRETION AND DECIDED
CONTRARY TO LAW IN UPHOLDING THE QUESTIONED RESOLUTIONS OF
THE NLRC WHICH, IN TURN, SUSTAINED THE MAY 10, 2005 ORDER OF
LABOR ARBITER MAGAT MAKING THE DISPOSITIVE PORTION OF THE
OCTOBER 15, 1998 DECISION OF LABOR ARBITER LUSTRIA SUBSERVIENT
TO AN OPINION EXPRESSED IN THE BODY OF THE SAME DECISION.[26]
Petitioner argues that notwithstanding the fact that there was a computation of
backwages in the Labor Arbiters decision, the same is not final until reinstatement
is made or until finality of the decision, in case of an award of separation pay.
Petitioner maintains that considering that the October 15, 1998 decision of the Labor
Arbiter did not become final and executory until the April 17, 2002 Resolution of the
Supreme Court in G.R. No. 151332 was entered in the Book of Entries on May 27,
2002, the reckoning point for the computation of the backwages and separation pay
should be on May 27, 2002 and not when the decision of the Labor Arbiter was
rendered on October 15, 1998. Further, petitioner posits that he is also entitled to
the payment of interest from the finality of the decision until full payment by the
respondents.

On May 10, 2005, the Labor Arbiter issued an Order[20] granting the motion, but On their part, respondents assert that since only separation pay and limited
only up to the amount of P11,459.73. The Labor Arbiter reasoned that it is the backwages were awarded to petitioner by the October 15, 1998 decision of the
October 15, 1998 Decision that should be enforced considering that it was the one Labor Arbiter, no more recomputation is required to be made of said awards.
that became final and executory. However, the Labor Arbiter reasoned that since Respondents insist that since the decision clearly stated that the separation pay and
the decision states that the separation pay and backwages are computed only up to backwages are computed only up to [the] promulgation of this decision, and
the promulgation of the said decision, it is the amount of P158,919.92 that should be
considering that petitioner no longer appealed the decision, petitioner is only entitled
executed. Thus, since petitioner already received P147,560.19, he is only entitled to
to the award as computed by the Labor Arbiter in the total amount of P158,919.92.
the balance of P11,459.73. Respondents added that it was only during the execution proceedings that the
petitioner questioned the award, long after the decision had become final and
Petitioner then appealed before the NLRC,[21] which appeal was denied by the executory. Respondents contend that to allow the further recomputation of the
NLRC in its Resolution[22] dated September 27, 2006. Petitioner filed a Motion for backwages to be awarded to petitioner at this point of the proceedings would
Reconsideration, but it was likewise denied in the Resolution[23] dated January 31, substantially vary the decision of the Labor Arbiter as it violates the rule on
2007. immutability of judgments.
51
 terms of the computation itself, and no question would have arisen had the parties
The petition is meritorious. terminated the case and implemented the decision at that point.

The instant case is similar to the case of Session Delights Ice Cream and Fast However, the petitioner disagreed with the labor arbiter's findings on all counts - i.e.,
Foods v. Court of Appeals (Sixth Division),[27] wherein the issue submitted to the on the finding of illegality as well as on all the consequent awards made. Hence, the
Court for resolution was the propriety of the computation of the awards made, and petitioner appealed the case to the NLRC which, in turn, affirmed the labor arbiter's
whether this violated the principle of immutability of judgment. Like in the present decision. By law, the NLRC decision is final, reviewable only by the CA on
case, it was a distinct feature of the judgment of the Labor Arbiter in the above-cited jurisdictional grounds.
case that the decision already provided for the computation of the payable
separation pay and backwages due and did not further order the computation of the The petitioner appropriately sought to nullify the NLRC decision on jurisdictional
monetary awards up to the time of the finality of the judgment. Also in Session grounds through a timely filed Rule 65 petition for certiorari. The CA decision,
Delights, the dismissed employee failed to appeal the decision of the labor arbiter. finding that NLRC exceeded its authority in affirming the payment of 13th month pay
The Court clarified, thus: and indemnity, lapsed to finality and was subsequently returned to the labor arbiter
In concrete terms, the question is whether a re-computation in the course of of origin for execution.
execution of the labor arbiter's original computation of the awards made, pegged as
of the time the decision was rendered and confirmed with modification by a final CA It was at this point that the present case arose. Focusing on the core illegal
decision, is legally proper. The question is posed, given that the petitioner did not dismissal portion of the original labor arbiter's decision, the implementing labor
immediately pay the awards stated in the original labor arbiter's decision; it delayed arbiter ordered the award re-computed; he apparently read the figures originally
payment because it continued with the litigation until final judgment at the CA level. ordered to be paid to be the computation due had the case been terminated and
implemented at the labor arbiter's level. Thus, the labor arbiter re-computed the
A source of misunderstanding in implementing the final decision in this case award to include the separation pay and the backwages due up to the finality of the
proceeds from the way the original labor arbiter framed his decision. The decision CA decision that fully terminated the case on the merits. Unfortunately, the labor
consists essentially of two parts. arbiter's approved computation went beyond the finality of the CA decision (July 29,
2003) and included as well the payment for awards the final CA decision had
The first is that part of the decision that cannot now be disputed because it has been deleted - specifically, the proportionate 13th month pay and the indemnity awards.
confirmed with finality. This is the finding of the illegality of the dismissal and the Hence, the CA issued the decision now questioned in the present petition.
awards of separation pay in lieu of reinstatement, backwages, attorney's fees, and
legal interests. We see no error in the CA decision confirming that a re-computation is necessary as
it essentially considered the labor arbiter's original decision in accordance with its
The second part is the computation of the awards made. On its face, the basic component parts as we discussed above. To reiterate, the first part contains
computation the labor arbiter made shows that it was time-bound as can be seen the finding of illegality and its monetary consequences; the second part is the
from the figures used in the computation. This part, being merely a computation of computation of the awards or monetary consequences of the illegal dismissal,
what the first part of the decision established and declared, can, by its nature, be re- computed as of the time of the labor arbiter's original decision.[28]
computed. This is the part, too, that the petitioner now posits should no longer be re- Consequently, from the above disquisitions, under the terms of the decision which is
computed because the computation is already in the labor arbiter's decision that the sought to be executed by the petitioner, no essential change is made by a
CA had affirmed. The public and private respondents, on the other hand, posit that a recomputation as this step is a necessary consequence that flows from the nature of
re-computation is necessary because the relief in an illegal dismissal decision goes the illegality of dismissal declared by the Labor Arbiter in that decision.[29] A
all the way up to reinstatement if reinstatement is to be made, or up to the finality of recomputation (or an original computation, if no previous computation has been
the decision, if separation pay is to be given in lieu reinstatement. made) is a part of the law specifically, Article 279 of the Labor Code and the
established jurisprudence on this provision that is read into the decision. By the
That the labor arbiter's decision, at the same time that it found that an illegal nature of an illegal dismissal case, the reliefs continue to add up until full
dismissal had taken place, also made a computation of the award, is satisfaction, as expressed under Article 279 of the Labor Code. The recomputation
understandable in light of Section 3, Rule VIII of the then NLRC Rules of Procedure of the consequences of illegal dismissal upon execution of the decision does not
which requires that a computation be made. This Section in part states: constitute an alteration or amendment of the final decision being implemented. The
[T]he Labor Arbiter of origin, in cases involving monetary awards and at all events, illegal dismissal ruling stands; only the computation of monetary consequences of
as far as practicable, shall embody in any such decision or order the detailed and this dismissal is affected, and this is not a violation of the principle of immutability of
full amount awarded. final judgments.[30]
Clearly implied from this original computation is its currency up to the finality of the
labor arbiter's decision. As we noted above, this implication is apparent from the
52
That the amount respondents shall now pay has greatly increased is a consequence
that it cannot avoid as it is the risk that it ran when it continued to seek recourses
against the Labor Arbiter's decision. Article 279 provides for the consequences of
illegal dismissal in no uncertain terms, qualified only by jurisprudence in its
interpretation of when separation pay in lieu of reinstatement is allowed. When that
happens, the finality of the illegal dismissal decision becomes the reckoning point
instead of the reinstatement that the law decrees. In allowing separation pay, the
final decision effectively declares that the employment relationship ended so that
separation pay and backwages are to be computed up to that point.[31]
Finally, anent the payment of legal interest. In the landmark case of Eastern
Shipping Lines, Inc. v. Court of Appeals,[32] the Court laid down the guidelines
regarding the manner of computing legal interest, to wit:
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. 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 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of
the Civil Code.
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the
following revisions governing the rate of interest in the absence of stipulation in loan
contracts, thereby amending Section 2 of Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money, goods or
credits and the rate allowed in judgments, in the absence of an express contract as
to such rate of interest, shall be six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1[36] of the Manual of Regulations
for Banks and Sections 4305Q.1,[37] 4305S.3[38] and 4303P.1[39] of the Manual of
Regulations for Non-Bank Financial Institutions are hereby amended accordingly.
This Circular shall take effect on 1 July 2013.
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, goods or credits and the rate allowed in judgments shall
no longer be twelve percent (12%) per annum - as reflected in the case of Eastern
Shipping Lines[40] and Subsection X305.1 of the Manual of Regulations for Banks
and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-
Bank Financial Institutions, before its amendment by BSP-MB Circular No. 799 - but
will now be six percent (6%) per annum effective July 1, 2013. It should be noted,
nonetheless, that the new rate could only be applied prospectively and not
retroactively. Consequently, 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.

2. When an obligation, not constituting a loan or forbearance of money, is breached, Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B.
an interest on the amount of damages awarded may be imposed at the discretion of Olaguer v. Bangko Sentral Monetary Board,[41] this Court affirmed the authority of
the court at the rate of 6% per annum. No interest, however, shall be adjudged on the BSP-MB to set interest rates and to issue and enforce Circulars when it ruled
unliquidated claims or damages except when or until the demand can be that the BSP-MB may prescribe the maximum rate or rates of interest for all loans
established with reasonable certainty. Accordingly, where the demand is established or renewals thereof or the forbearance of any money, goods or credits, including
with reasonable certainty, the interest shall begin to run from the time the claim is those for loans of low priority such as consumer loans, as well as such loans made
made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty by pawnshops, finance companies and similar credit institutions. It even authorizes
cannot be so reasonably established at the time the demand is made, the interest the BSP-MB to prescribe different maximum rate or rates for different types of
shall begin to run only from the date the judgment of the court is made (at which borrowings, including deposits and deposit substitutes, or loans of financial
time the quantification of damages may be deemed to have been reasonably intermediaries.
ascertained). The actual base for the computation of legal interest shall, in any case,
be on the amount finally adjudged. Nonetheless, with regard to those judgments that have become final and executory
prior to July 1, 2013, said judgments shall not be disturbed and shall continue to be
3. When the judgment of the court awarding a sum of money becomes final and implemented applying the rate of interest fixed therein.
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, To recapitulate and for future guidance, the guidelines laid down in the case of
this interim period being deemed to be by then an equivalent to a forbearance of Eastern Shipping Lines[42] are accordingly modified to embody BSP-MB Circular
credit.[33] No. 799, as follows:
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in
its Resolution No. 796 dated May 16, 2013, approved the amendment of Section I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
2[34] of Circular No. 905, Series of 1982 and, accordingly, issued Circular No. delicts or quasi-delicts is breached, the contravenor can be held liable for damages.
799,[35] Series of 2013, effective July 1, 2013, the pertinent portion of which reads: The provisions under Title XVIII on Damages of the Civil Code govern in
determining the measure of recoverable damages.

53
II. With regard particularly to an award of interest in the concept of actual and The Labor Arbiter is hereby ORDERED to make another recomputation of the total
compensatory damages, the rate of interest, as well as the accrual thereof, is monetary benefits awarded and due to petitioner in accordance with this Decision.
imposed, as follows:
When the obligation is breached, and it consists in the payment of a sum of money, SO ORDERED.
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 under and subject to the provisions of Article 1169 of the Civil
Code.

When an obligation, not constituting a loan or forbearance of money, is breached,

an interest on the amount of damages awarded may be imposed at the discretion of
the court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages, except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time the claim is
made judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty
cannot be so reasonably established at the time the demand is made, the interest
shall begin to run only from the date the judgment of the court is made (at which
time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case,
be on the amount finally adjudged.

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.
And, in addition to the above, judgments that have become final and executory prior
to July 1, 2013, shall not be disturbed and shall continue to be implemented
applying the rate of interest fixed therein.

WHEREFORE, premises considered, the Decision dated September 23, 2008 of the
Court of Appeals in CA-G.R. SP No. 98591, and the Resolution dated October 9,
2009 are REVERSED and SET ASIDE. Respondents are Ordered to Pay petitioner:

(1) backwages computed from the time petitioner was illegally dismissed on January
24, 1997 up to May 27, 2002, when the Resolution of this Court in G.R. No. 151332
became final and executory;

(2) separation pay computed from August 1990 up to May 27, 2002 at the rate of
one month pay per year of service; and

(3) interest of twelve percent (12%) per annum of the total monetary awards,
computed from May 27, 2002 to June 30, 2013 and six percent (6%) per annum
from July 1, 2013 until their full satisfaction.

54
 FIRST DIVISION Oliver instructed Castro to pay P2 million monthly to PSBank starting on September
3, 1998 so that her credit line for P10 million would be fully paid by January 3, 1999.
April 4, 2016
Beginning September 1998, Castro stopped rendering an accounting for Oliver. The
G.R. No. 214567 latter then demanded the return of her passbook. When Castro showed her the
passbook sometime in late January or early February 1995, she noticed several
DRA. MERCEDES OLIVER, Petitioner, erasures and superimpositions therein. She became very suspicious of the many
vs. erasures pertaining to the December 1998 entries so she requested a copy of her
PHILIPPINE SAVINGS BANK and LILIA CASTRO, Respondents. transaction history register from PSBank.

DECISION When her transaction history register6 was shown to her, Oliver was surprised to
discover that the amount of P4,491,250.00 (estimated at P4.5 million) was entered
MENDOZA, J.: into her account on December 21, 1998. While a total of P7 million was withdrawn
from her account on the same day, Oliver asserted that she neither applied for an
This is a petition for review on certiorari seeking to reverse and set aside the additional loan of P4.5 million nor authorized the withdrawal of P7 million. She also
October 25, 2013 Decision1 and the September 12, 2014 Resolution2 of the Court discovered another loan for P1,396,310.45, acquired on January 5, 1999 and
of Appeals (CA) in CA-G.R. CV No. 95656, which reversed the July 22, 2010 Order3 allegedly issued in connection with the P10 million credit line.
of the Regional Trial Court, Branch 276, Muntinlupa City (RTC) in Civil Case No. 99-
278, a case for injunction and damages. In Olivers passbook, 7 there were no entries from December 17, 1998 to December
27, 1998. The transaction history register, however, showed several transactions on
Petitioner Mercedes Oliver (Oliver) was a depositor of respondent Philippine these very same dates including the crediting of P4.5 million and the debiting of P7
Savings Bank (PSBank) with account number 2812-07991-6. dent Lilia million on December 21, 1998. Oliver then learned that the additional P4.5 million
Castro (Castro) was the Assistant Vice President of the Acting Branch and P1,396,310.45 loans were also secured by the real estate mortgage,8 dated
Manager of PSBank San Pedro, Laguna. January 8, 1998, covering the same property in Ayala Alabang. Oliver received two
collection letters,9 dated May 13, 1999 and June 18, 1999, from PSBank referring to
Olivers Position the non-payment of unpaid loans, to wit: (1) P4,491,250.00 from the additional loan
and (2) P1,396,310.45 from the P10 million credit line.10 In response, Oliver
In her Complaint,4 dated October 5, 1999, Oliver alleged that sometime in 1997, protested that she neither availed of the said loans nor authorized the withdrawal of
she made an initial deposit of P12 million into her PSBank account. During that time, P7 million from her account.11 She also claimed that the P10 million loan from her
Castro convinced her to loan out her deposit as interim or bridge financing for the credit line was already paid in full.12
approved loans of bank borrowers who were waiting for the actual release of their
loan proceeds. On July 14, 1999, a final demand letter13 was sent to Oliver by PSBank, requiring
her to pay the unpaid loans. Oliver, however, still refused to pay. Subsequently,
Under this arrangement, Castro would first show the approved loan documents to Oliver received a notice of sale14 involving the property in Ayala Alabang, issued by
Oliver. Thereafter, Castro would withdraw the amount needed from Olivers account. Notary Public Jose Celestino Torres on September 15, 1999. The said notice
Upon the actual release of the loan by PSBank to the borrower, Castro would then informed her of the impending extra-judicial foreclosure and sale of her house and
charge the rate of 4% a month from the loan proceeds as interim or bridge financing lot to be held on October 21, 1999.
interest. Together with the interest income, the principal amount previously
withdrawn from Olivers bank account would be deposited back to her account. As a result, Oliver filed the subject complaint against PSBank and Castro.
Meanwhile, Castro would earn a commission of 10% from the interest.
Castros Position
Their arrangement went on smoothly for months. Due to the frequency of bank
transactions, Oliver even entrusted her passbook to Castro. Because Oliver earned In her Answer,15 Castro admitted that she and Oliver agreed that the latter would
substantial profit, she was further convinced by Castro to avail of an additional credit lend out money to borrowers at 4% to 5% interest per month provided that the
line in the amount of P10 million. The said credit line was secured by a real estate former would screen them. She also acknowledged having been instructed by Oliver
mortgage on her house and lot in Ayala Alabang covered by Transfer Certificate of to pay the bank P2 million every month to settle the P10 million credit line.
Title (TCT) No. 137796.5 Nonetheless, Castro informed Oliver that the payment thereof was subject to the
availability of funds in her account. She disclosed that she made some alterations
and erasures in Olivers passbook so as to reconcile the passbook with the
55
computer printout of the bank, but denied any attempt to hide the passbook as she
was able to return it sometime in January 1999. Moreover, the trial court stated that Oliver failed to controvert PSBanks allegation
that she had unpaid loan obligations. Thus, it concluded that PSBank had the right
Castro also denied the deceit imputed against her. She asserted that their to foreclose the mortgaged property. The fallo reads:
arrangement was not "interim or bridge financing" inasmuch as the loans were
entirely new and distinct from that granted by PSBank. When Olivers clients WHEREFORE, finding lack of merit, the instant case is hereby DISMISSED.
multiplied, Castro advised her to apply for a credit line of P10 million. The said credit Accordingly, the Writ of Preliminary Injunction is hereby LIFTED and SET ASIDE.
line was first approved in December 1997 with a term of one year.16
SO ORDERED.26
Sometime in August 1998, Castro informed Oliver about the impending expiration of
her credit line. Subsequently, Oliver applied for another loan in the amount of P4.5 Oliver seasonably filed her motion for reconsideration.27 She insisted that the P7
million as evidenced by a promissory note,17 dated December 21, 1998. On million was unlawfully withdrawn. She claimed that what happened in this case was
January 5, 1999, another promissory note18 was executed by Oliver to cover a loan a "cash savings withdrawal" and that there should have been a corresponding
in the amount of P1,396,310.45. withdrawal slip for such transaction. Also, if indeed the P7 million was withdrawn
from her account and was credited to the account of Lim, the deposit slip for his
Castro asserted that, on December 21, 1998, upon Olivers instruction, a total of P7 account should have been presented.
million was withdrawn from the latters account and was then deposited to the
account of one Ben Lim (Lim) on the same date. Lim was a businessman who The RTC Order
borrowed money from Oliver. Castro knew him because he was also a depositor
and borrower of PSBank San Pedro Branch.19 On July 22, 2010, the RTC resolved the motion and issued an order reversing its
earlier decision. According to the RTC, Olivers assertion that the withdrawal was
As to the amount of P1,396,310.45, Castro explained that it was a separate and made without her consent prevailed in the absence of any proof to the contrary. The
personal loan obtained by her from Oliver. To secure the payment of such cash savings withdrawal slips should have been offered in evidence by either
obligation, Castro mortgaged a property located in Camella Homes III in Tunasan, PSBank or Castro to settle the issue of whether the amount of P7 million was
Muntinlupa City. actually withdrawn by Oliver or by her authorized representative or agent.

Castro admitted that on October 19, 1999, she was terminated by PSBank because The RTC also rejected the position of PSBank and Castro that the erasures and
of certain problems regarding client accommodation and loss of confidence.20 alterations in Olivers passbook were made simply to reconcile the same with the
transaction history register of the bank because even after the alleged corrections,
PSBanks Position the said documents still contained different entries. Although Oliver and Lim had
previous transactions, none of them pertained to the P7 million purportedly
In its defense, PSBank averred that Oliver applied for a credit line of P10 million transferred on December 21, 1998.
which was granted by the bank and which secured by a real estate mortgage.
Because Oliver failed to pay the P10 million loan, she obtained another loan in the With regard to PSBank, the RTC stated that it failed to exercise utmost diligence in
amount of P4.5 million, as evidenced by a promissory note. Days later, she again safekeeping Olivers deposit. Had it not been for the unauthorized, withdrawal which
acquired a separate loan amounting to P1,396,310.45 as shown by another was attributable to the bank and Castro, the P4.5 million and the P1,396,310.45
promissory note. Both loans were secured by a real estate mortgage, dated January loans would not have remained outstanding, considering that the improperly
8, 1998, and the proceeds thereof were issued as proved by the release tickets,21 withdrawn P7 million was more than sufficient to discharge those liabilities.28 The
dated December 21, 1998 and January 5, 1999, respectively.22 dispositive portion of the order reads:

The RTC Decision WHEREFORE, premises considered, the Motion for Reconsideration is hereby
GRANTED. The Decision dated March 30, 2010 is hereby reconsidered and set
In its March 30, 2010 Decision,23 the RTC dismissed the complaint and rendered aside. In lieu thereof, a new one is hereby rendered ordering the defendants Lilia
judgment in favor of PSBank and Castro. According to the RTC, PSBank and Castro Castro and Philippine Savings Bank to jointly and solidarily pay plaintiff Dra.
should not be held liable for the loan of P4.5 million and the withdrawal of the P7 Mercedes Oliver, the sums of
million. Castro was able to submit the Debit Credit Memo24 and the Savings
Account Check Deposit Slip25 to prove that there were some previous loan 1. P1,111,850.77 as actual damages;
transactions between Oliver and Lim. Considering that neither PSBank nor Castro
obtained the P7 million, there was no obligation on their part to return the amount. 2. P100,000.00 as moral damages;
56
 II
3. P100,000.00 as attorneys fees; and
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED WHEN IT
4. P100,000.00 as exemplary damages RULED THAT THERE WAS NO EVIDENCE TO PROVE THAT THE SUM OF P7
MILLION WAS DEBITED FROM THE ACCOUNT OF PETITIONER SANS HER
Moreover, the Writ of Preliminary Injunction is hereby made permanent. AUTHORIZATION.

SO ORDERED.29 III

Aggrieved, Castro and PSBank appealed before the CA. WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED WHEN IT
RULED THAT THE RESPONDENTS TREATED THE PETITIONERS ACCOUNT
The CA Decision WITH EXTRAORDINARY DILIGENCE.

On October 25, 2013, the CA granted the appeal. It reversed the July 22, 2010 of
the RTC order and reinstated its March 30, 2010 decision. The appellate court found
no compelling evidence to prove that fraud attended the processing and release of
the P4.5 million loan as well as the withdrawal of P7 million from Olivers account.
The CA found that Oliver admitted signing the loan documents, the promissory
notes and the release tickets pertaining to the obligations that she had contracted
with PSBank. In addition, the CA stated that Oliver also failed to establish her
assertion that she was manipulated and defrauded into signing the said loan
documents.
IV
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED WHEN IT
FAILED TO HOLD THAT THE RESPONDENTS ARE JOINTLY AND SEVERALLY
LIABLE TO THE PETITIONER FOR DAMAGES.31
In her petition for review,32 Oliver insisted that she had no knowledge of any loan
released because she never availed of any new loan from PSBank. Neither the P4.5
million loan nor the cash withdrawal of P7 million was reflected in her passbook.

The CA also found that PSBank exercised extraordinary diligence in handling Oliver further argued that the burden of proving that the withdrawal was made with
Olivers account, thus, the awards of damages were deleted. The dispositive portion her authority would lie on the part of PSBank and Castro. The cash savings
of the CA decision reads: withdrawal slip containing the signature of Oliver should have been presented in
court. While the respondents claimed that the amount withdrawn was lent to Lim,
WHEREFORE, the Appeal is hereby GRANTED. The Order dated 22 July 2010 of the latter was never called to the witness stand as PSBank and Castro opted not to
the Regional Trial Court of Muntinlupa City, Branch 276, is REVERSED and SET present him in court. Castro, aside from her self-serving testimony, failed to present
ASIDE, and another one entered REINSTATING the Decision dated March 30, any concrete proof to show that Oliver indeed lent the withdrawn P7 million cash to
2010, in Civil Case No. 99-278. Lim.

SO ORDERED.30 Finally, Oliver averred that the erasures and alterations in her passbook undeniably
established that Castro manipulated the same to conceal the loan release and the
Oliver filed her motion for reconsideration but the same was denied in the CA cash withdrawal from her account.
Resolution, dated September 12, 2014.
In her Comment,33 Castro countered that the CA had more opportunity and facilities
Hence, this petition. to examine the facts. Hence, there was no reason to depart from the rule that the
findings of fact of the CA were final and conclusive and could not be reviewed on
ISSUES appeal. She asserted that there was no proof that the P7 million was withdrawn
without Olivers authority. She added that Oliver was an astute businesswoman who
I knew her clients and bank deposits and who was knowledgeable of her bank
transactions and was aware of her loaned amounts from the bank.
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN RULING
THAT THE PETITIONER FAILED TO SHOW COMPELLING EVIDENCE TO In its Comment,34 PSBank asserted that the issues and arguments propounded by
PROVE THAT FRAUD ATTENDED THE PROCESSING AND RELEASE OF THE Oliver had been judiciously passed upon. On the stated facts alone, the petition,
LOAN OF P4.5 MILLION AS WELL AS THE WITHDRAWAL OF P7 MILLION which was akin to a motion for reconsideration, should be denied outright for being
PESOS FROM HER ACCOUNT. pro forma.

57
In her Reply,35 Oliver faulted PSBank and Castro for failing to present the cash
withdrawal slip which would show her signature to prove that the money was
withdrawn with her authority. She also reiterated that Lim should have been
presented as a witness to substantiate their defense that he actually received the
amount of P7 million.
The Courts Ruling
The petition is impressed with merit.
the loan documents were forged. Hence, the loan documents were reliable and
these proved that the loans were processed by Castro within the scope of her
authority. As the loans were validly obtained, PSBank correctly stated that Oliver
had incurred a debt of P4.5 million and P1,396,310.45, or a total of P5,888,149.33.
P7 million was
improperly withdrawn;
agent acted beyond her
scope of authority

There was an implied agency Although it was proven that Oliver authorized the loans, in the aggregate amount of
between Oliver and Castro; the P5,888,149.33, there was nothing in the records which proved that she also allowed
loans were properly acquired the withdrawal of P7 million from her bank account. Oliver vehemently denied that
she gave any authority whatsoever to either Castro or PSBank to withdraw the said
A contract of agency may be inferred from all the dealings between Oliver and amount. In her judicial affidavit before the RTC, Castro initially claimed that Oliver
Castro. Agency can be express or implied from the acts of the principal, from his authorized the withdrawal of P7 million from her bank account, to wit:
silence or lack of action, or his failure to repudiate the agency knowing that another
person is acting on his behalf without authority.36 The question of whether an Q: Do you know when was this 4.5 million pesos loan was credited to plaintiffs
agency has been created is ordinarily a question which may be established in the deposit account?
same way as any other fact, either by direct or circumstantial evidence. The
question is ultimately one of intention.37 A: Based on the Transaction Ledge of PS Bank, the 4.5 million pesos was credit to
plaintiffs deposit account on 21 December 21 1998
In this case, Oliver and Castro had a business agreement wherein Oliver would
obtain loans from the bank, through the help of Castro as its branch manager; and Q: What happened after the 4.5 million pesos loan was credited to plaintiffs
after acquiring the loan proceeds, Castro would lend the acquired amount to account?
prospective borrowers who were waiting for the actual release of their loan
proceeds. Oliver would gain 4% to 5% interest per month from the loan proceeds of A: Upon plaintiffs instruction, 7 million was withdrawn from her account including
her borrowers, while Castro would earn a commission of 10% from the interests. her loaned amount to be deposited at Mr. Ben Lims account at PS Bank, San Pedro
Clearly, an agency was formed because Castro bound herself to render some Branch.41
service in representation or on behalf of Oliver, in the furtherance of their business
pursuit.38 [Emphasis Supplied]

For months, the agency between Oliver and Castro benefited both parties. Oliver, During her cross-examination, however, Castro could no longer remember whether
through Castros representations, was able to obtain loans, relend them to Oliver gave her the authority to withdraw the P7 million from her account. The
borrowers, and earn interests; while Castro acquired commissions from the transcript of stenographic notes reads:
transactions. Oliver even gave Castro her passbook to facilitate the transactions.
Q: You said here, your statement here, "Upon Plaintiffs instruction". So, my
Accordingly, the laws on agency apply to their relationship. Article 1881 of the New question is, who did the Plaintiff instruct you, was it you?
Civil Code provides that the agent must act within the scope of his authority. He may
do such acts as may be conducive to the accomplishment of the purpose of the A: I cannot remember, sir.
agency. Thus, as long as the agent acts within the scope of the authority given by
his principal, the actions of the former shall bind the latter. Q: You are not definite? Your statement here it is categorical. Its on page 9 of 17 in
the Judicial Affidavit, the question is "What happened after the 4.5 million Pesos
Oliver claims that the P4.5 million loan, released on December 21, 1998, and the loan was credited to the Plaintiffs account" And your answer was, "Upon Plaintiffs
P1,396,310.45 loan, released on January 5, 1999, were not acquired with her instruction Seven (7) million was withdrawn from her account. My question is, this
consent. Castro and PSBank, on the other hand, countered that these loans were phrase, upon plaintiffs instruction, who did the Plaintiffs (sic) instruct, was it you?
obtained with Olivers full consent. The Court finds that the said loans were acquired
with Olivers authority. The promissory notes39 and the release tickets40 for the A: I cannot remember, sir because I still have other officers other than me, who
said loans bore her signatures. She failed to prove that her signatures appearing on were assisting me during that time, so it could be the instruction even I said upon
58
the instruction of the plaintiff, but I cannot remember if I was the one who received PSBank failed to
the instruction from the plaintiff. It could be other officers of mine during that time, exercise the highest
sir. degree of diligence
required of banking
Q: May I remind you, this is Seven (7) million Pesos? institutions

A: Yes, sir.42 Aside from Castro, PSBank must also be held liable because it failed to exercise
utmost diligence in the improper withdrawal of the P7 million from Olivers bank
[Emphasis Supplied] account.

Verily, Castro, as agent of Oliver and as branch manager of PS Bank, utterly failed In the case of banks, the degree of diligence required is more than that of a good
to secure the authorization of Oliver to withdraw such substantial amount. As a father of a family. Considering the fiduciary nature of their relationship with their
standard banking practice intended precisely to prevent unauthorized and fraudulent depositors, banks are duty bound to treat the accounts of their clients with the
withdrawals, a bank manager must verify with the client-depositor to authenticate highest degree of care. The point is that as a business affected with public interest
and confirm that he or she has validly authorized such withdrawal.43 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
Castros lack of authority to withdraw the P7 million on behalf of Oliver became nature of their relationship.47
more apparent when she altered the passbook to hide such transaction. It must be
remembered that Oliver entrusted her passbook to Castro. In the transaction history In Simex International v. Court of Appeals,48 the Court held that the depositor
register for her account, it was clear that there was a series of dealings from expected the bank to treat his account with the utmost fidelity, whether such account
December 17, 1998 to December 23, 1998. When compared with Olivers consisted only of a few hundred pesos or of millions. The bank must record every
passbook, the latter showed that the next transaction from December 16, 1998 was single transaction accurately, down to the last centavo, and as promptly as possible.
on December 28, 1998. It was also obvious to the naked eye that the December 28, This has to be done if the account is to reflect at any given time the amount of
1998 entry in the passbook was altered. As aptly observed by the RTC, nowhere in money the depositor can dispose of as he sees fit, confident that the bank will
the testimony of Castro could be gathered that she made a detailed, plausible and deliver it as and to whomever he directs. A blunder on the part of the bank, such as
acceptable explanation as to why she had to make numerous corrections in the the dishonor of a check without good reason, can cause the depositor not a little
entries in the passbook.44 Even after the corrections allegedly done to reconcile the embarrassment if not also financial loss and perhaps even civil and criminal
records, the passbook and the transaction history register still contained different litigation.49
entries.
Time and again, the Court has emphasized that the bank is expected to ensure that
Curiously, though she asserts that Oliver obtained a loan of P4.5 million and the depositors funds shall only be given to him or his authorized representative. In
authorized the withdrawal of P7 million,45 Castro could not explain why these Producers Bank of the Phil. v. Court of Appeals,50 the Court held that the usual
transactions were not reflected in the passbook which was in her possession. banking procedure was that withdrawals of savings deposits could only be made by
Bearing in mind that the alleged unauthorized withdrawal happened on December persons whose authorized signatures were in the signature cards on file with the
21, 1998, while Castro was questionably withholding the passbook, the Court is of bank. In the said case, the bank therein allowed an unauthorized person to withdraw
the impression that she manipulated the entries therein to conceal the P7 million from its depositors savings account, thus, it failed to exercise the required diligence
withdrawal. of banks and must be held liable.

Further, Castro claims that Oliver instructed her to withdraw the P7 million from her
With respect to withdrawal slips, the Court declared in Philippine National Bank v.
bank account and to deposit the same in Lims account. Glaringly, Lim was not Pike51 that "[o]rdinarily, banks allow withdrawal by someone who is not the account
presented as a witness to substantiate her defense. Even though she testified thatholder so long as the account holder authorizes his representative to withdraw and
the P7 million transfer from Olivers account to Lims was duly documented, Castroreceive from his account by signing on the space provided particularly for such
never presented a single documentary proof of that specific transaction. transactions, usually found at the back of withdrawal slips." There, the bank violated
its fiduciary duty because it allowed a withdrawal by a representative even though
The Court is convinced that Castro went beyond the scope of her authority in the authorization portion of the withdrawal slip was not signed by the depositor.
withdrawing the P7 million from Olivers bank account. Her flimsy excuse that the
said amount was transferred to the account of a certain Lim deserves scant Finally, in Cagungun v. Planters Development Bank,52 a case very similar to the
consideration. Hence, Castro must be held liable for prejudicing Oliver.46 present one, the depositors therein entrusted their passbook to the bank employees
for some specific transactions. The bank employees went beyond their authority and
59
were able to withdraw from the depositors account without the latters consent. The
bank was held liable therein for the acts of its employees because it failed to ATTY. CORPUS: Yes, Your Honor.54
safeguard the accounts of its depositors.
[Emphasis Supplied]
In the case at bench, it must be determined whether the P7 million was withdrawn
from the bank with the authority of Oliver. As testified to by Castro, every withdrawal Castro, as agent of Oliver, could not produce either the said withdrawal slip
from the bank was duly evidenced by a cash withdrawal slip, a copy of which is allegedly authorizing the withdrawal of the P7 million, her testimony is quoted as
given both to the bank and to its client.53 Contrary to the position of the CA and that follows:
of the respondents, Oliver cannot be required to produce the cash withdrawal slip
for the said transaction because, precisely, she consistently denied giving authority ATTY. DEJARESCO:
to withdraw such amount from her account.
Q: Can you show poof of the withdrawal slip?
Necessarily, the party that must have access to such crucial document would either
be PSBank or Castro. They must present the said cash withdrawal slip, duly signed A: The withdrawal slip.
by Oliver, to prove that the withdrawal of P7 million was indeed sanctioned.
Unfortunately, both PSBank and Castro failed to present the cash withdrawal slip. Q: Im asking you do you have proof?

During the trial, the counsel of PSBank conceded that the cash withdrawal slip for A: None, sir.
the P7 million transaction could not be located, to quote:
Q: You cannot produce in Court in support of your Judicial Affidavit?
ATTY DEJARESCO: Your Honor, excuse me just a comment for the record we
asked for two (2) years, Your Honor to subpoena this from the bank, the bank never A: None.
produce (sic) the withdrawal slip two (2) years (sic), Your Honor, this case was
delayed by the previous Court for two (2) years. Your Honor, no withdrawal slip was Q: And you cannot produce that in Court?
produced by the bank, Your Honor. I would just like to place it on record.
A: As far as the withdrawal slip as for myself, none.55
COURT: Were there subpoenas issued by the bank, was there an order?
[Emphasis Supplied]
ATTY. DEJARESCO: Yes Your Honor, I think the good counsel was the counsel at
that time would you able to confirm that it took us two (2) years to subpoena and From the foregoing, there was a clear showing of PSBanks failure to exercise the
subpoena (sic) this withdrawal slip because there must be an authority to withdraw, degree of diligence that it ought to have exercised in dealing with its clients. It could
and it there is a signature of the plaintiff, we will admit that. not prove that the withdrawal of P7 million was duly authorized by Oliver. As a
banking institution, PSBank was expected to ensure that such substantial amount
ATTY. CORPUZ: I remember having manifested that the withdrawal slip cannot be should only be transacted with the consent and authority of Oliver. PSBank,
located. however, reneged on its fiduciary duty by allowing an encroachment upon its
depositors account without the latters permission. Hence, PSBank must be held
ATTY. DEJARESCO: Lets put that on record, Your Honor. liable for such improper transaction.

ATTY. CORPUS: (sic) I remember having made that manifestation, Your Honor.
PSBank and Castro
failed to discharge their
COURT: Thats the reason why no document was produced in Court by the PS burden and must be held
Bank? solidarily liable

ATTY. CORPUS: (sic) With respect to the withdrawal slip only, Your Honor on The party who alleges a fact has the burden of proving it. Section 1, Rule 131 of the
December 21. Rules of Court defines "burden of proof" as "the duty of a party to present evidence
on the facts in issue necessary to establish his claim or defense by the amount of
ATTY. DEJARESCO: Of that Seven (7) million from the account. evidence required by law." In civil cases, the burden of proof rests upon the plaintiff,
who is required to establish his case by a preponderance of evidence. Once the
COURT: Make that on record.
60
plaintiff establishes his case, the burden of evidence shifts to the defendant, who, in Consequently, PSBanks foreclosure of the real estate mortgage covering the two
turn, bears the burden to establish his defense.56 (2) loans in the total amount of P5,888,149.33 was improper. With PSBank being
found liable to Oliver for P7 million, after offsetting her loans would have PSBank
Here, Oliver alleged that she did not authorize the withdrawal of P7 million from her and Castro still owing her P1,111,850.77, which must be suitably paid in the form of
account. To establish her allegation, Oliver presented the following: (1) the actual damages.
transaction history register which showed the withdrawal of P7 million from her
account on December 21, 1998; (2) the passbook which contained alterations to The award of moral damages must also be upheld. Specifically, in culpa contractual
conceal the withdrawal on December 21, 1998 while in the possession of Castro; or breach of contract, like in the present case, moral damages are recoverable only
and (3) testimonial evidence that she did not allow the withdrawal of the said if the defendant has acted fraudulently or in bad faith, or is found guilty of gross
amount.57 The Court is of the view that Oliver had sufficiently discharged her negligence amounting to bad faith, or in wanton disregard of his contractual
burden in proving that P7 million was withdrawn from her account without her obligations. Verily, the breach must be wanton, reckless, malicious, or in bad faith,
authorization. Hence, the burden was shifted to the respondents to refute the oppressive or abusive.59
allegation of Oliver.
Here, Castro and PSBank were utterly reckless in allowing the withdrawal of a huge
As discussed above, both Castro and PSBank failed to establish the burden of their amount from Oliver's account without her consent.1wphi1 The bank's negligence is
defense. They failed to present proof that Oliver authorized the said transaction. a result of lack of due care and caution required of managers and employees of a
They could have presented either the cash withdrawal slip for the P7 million on firm engaged in a business so sensitive and demanding.60 Hence, the award of
December 21, 1999 or Lims testimony to prove the transfer of funds to the latters Pl00,000.00 as moral damages is warranted.
account, but they did neither. Without an iota of proof to substantiate the validity of
the said transaction, the respondents unlawfully deprived Oliver of her funds. The award of exemplary damages is also proper due to the failure of Castro and
PSBank to prevent the unauthorized withdrawal from Oliver's account. The law
Indeed, the bank should be solidarily liable with its employee for the damages allows the grant of exemplary damages to set an example for public good.61 The
committed to its depositor.58 Under Article 2180 of the Civil Code, employers shall Court, however, finds that the amount of exemplary damages must be decreased to
be held primarily and solidarily liable for damages caused by their employees acting P50,000.00.
within the scope of their assigned tasks.
Finally; the Court agrees with the RTC that Castro and PSBank should be held
Castro, as acting branch manager of PSBank ,was able to facilitate the questionable solidarily liable for attorney's fees. Article 2208 of the Civil Code is clear that
transaction as she was also entrusted with Olivers passbook. In other words, attorney's fees may be recovered when exemplary damages are awarded or when
Castro was the representative of PSBank, and, at the same time, the agent of the plaintiff, through the defendant's act or omission, has been compelled to litigate
Oliver, earning commissions from their transactions. Oddly, PSBank, either with thirds persons. A decreased amount of P50,000.00 attorney's fees should be
consciously or through sheer negligence, allowed the double dealings of its sufficient.
employee with its client. Such carelessness and lack of protection of the depositors
from its own employees led to the unlawful withdrawal of the P7 million from Olivers WHEREFORE, the petition is GRANTED. The October 25, 2013 Decision and the
account. Although Castro was eventually terminated by PSBank because of certain September 12, 2014 Resolution of the Court of Appeals in CA-G.R. CV No. 95656
problems regarding client accommodation and loss of confidence, the damage to are REVERSED and SET ASIDE. The July 22, 2010 Order of the Regional Trial
Oliver had already been done. Thus, both Castro and PSBank must be held Court, Branch 276, Muntinlupa City in Civil Case No. 99-278 is hereby
solidarily liable. REINSTATED with the MODIFICATION that the award of exemplary damages and
attorney's fees be decreased to P50,000.00 each.
Award of damages;
invalid foreclosure All awards shall earn interests at the rate of six percent (6%) per annum from the
finality of this decision.
To recapitulate, the loans of Oliver from PSBank which were secured by real estate
mortages amounted to P5,888,149.33. Finding PSBank and Castro solidarily liable SO ORDERED.
to Oliver in the amount of P7 million because it was improperly withdrawn from her
bank account, the Court agrees with the RTC that had it not been for the said
unauthorized withdrawal, Olivers debts amounting to P5,888,149.33 would have
been satisfied.

61