FIRST DIVISION revenues to post a big income from operations for the concerned fiscal years

to project itself as a viable investment. The information alarmed petitioner.

Citing relevant provisions of the Trust Receipt Agreement, it demanded
BANCO DE ORO-EPCI, INC.,* G.R. No. 179901 immediate payment of JAPRLs outstanding obligations amounting
Petitioner, to P194,493,388.98.
Present: SP PROC. NO. Q-03-064

PUNO, C.J., Chairperson,

CARPIO, On August 30, 2003, JAPRL (and its subsidiary, RFC) filed a petition for
- v e r s u s - CORONA, rehabilitation in the Regional Trial Court (RTC) of Quezon City, Branch 90
AZCUNA** and (Quezon City RTC). It disclosed that it had been experiencing a decline in
LEONARDO-DE CASTRO, JJ. sales for the three preceding years and a staggering loss in 2002.
JAPRL DEVELOPMENT
Because the petition was sufficient in form and substance, a stay order was
CORPORATION, RAPID
issued on September 28, 2003. However, the proposed rehabilitation plan for
FORMING CORPORATION
JAPRL and RFC was eventually rejected by the Quezon City RTC in an order
and JOSE U. AROLLADO,
dated May 9, 2005.
Respondents. Promulgated:

April 14, 2008

CIVIL CASE NO. 03-991
x-----------------------------------------x

DECISION
CORONA, J.:
This petition for review on certiorari seeks to set aside the decision of the
Court of Appeals (CA) in CA-G.R. SP No. 95659 and its resolution denying
reconsideration.
After evaluating the financial statements of respondent JAPRL Development
Corporation (JAPRL) for fiscal years 1998, 1999 and 2000, petitioner Banco de
Oro-EPCI, Inc. extended credit facilities to it amounting to P230,000,000 on
March 28, 2003. Respondents Rapid Forming Corporation (RFC) and Jose U.
Arollado acted as JAPRLs sureties.
Despite its seemingly strong financial position, JAPRL defaulted in the
payment of four trust receipts soon after the approval of its loan. Petitioner
later learned from MRM Management, JAPRLs financial adviser, that JAPRL
had altered and falsified its financial statements. It allegedly bloated its sales
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 attachment against respondents in the RTC of Makati City,
Branch 145 (Makati RTC) on August 21, 2003. Petitioner essentially asserted
that JAPRL was guilty of fraud because it (JAPRL) altered and falsified its
financial statements.
The Makati RTC subsequently denied the application (for the issuance of a
writ of preliminary attachment) for lack of merit as petitioner was unable to
substantiate its allegations. Nevertheless, it ordered the service of summons
on respondents. Pursuant to the said order, summonses were issued against
respondents and were served upon them.
Respondents moved to dismiss the complaint due to an allegedly invalid
service of summons. Because the officers return stated that an administrative
assistant had received the summons, JAPRL and RFC argued that Section 11,
Rule 14 of the Rules of Court contained an exclusive list of persons on whom
summons against a corporation must be served. An administrative assistant
was not one of them. Arollado, on the other hand, cited Section 6, Rule 14
thereof which mandated personal service of summons on an individual
defendant.

1
The Makati RTC, in its October 10, 2005 order, noted that because corporate
officers are often busy, summonses to corporations are usually received only
by administrative assistants or secretaries of corporate officers in the regular
course of business. Hence, it denied the motion for lack of merit.
Respondents moved for reconsideration but withdrew it before the Makati
RTC could resolve the matter.
RTC SEC CASE NO. 68-2008-C
On February 20, 2006, JAPRL (and its subsidiary, RFC) filed a petition for
rehabilitation in the RTC of Calamba, Laguna, Branch 34 (Calamba RTC).
Finding JAPRLs petition sufficient in form and in substance, the Calamba
RTC issued a stay order on March 13, 2006.
In view of the said order, respondents hastily moved to suspend the
proceedings in Civil Case No. 03-991 pending in the Makati RTC.
On July 7, 2006, the Makati RTC granted the motion with regard to JAPRL
and RFC 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 continue. Respondents moved for reconsideration but it
was denied.
On August 11, 2006, respondents filed a petition for certiorari in the CA
alleging that the Makati RTC committed grave abuse of discretion in issuing
the October 10, 2005 and July 7, 2006 orders. They asserted that the court did
not acquire jurisdiction over their persons due to defective service of
summons. Thus, the Makati RTC could not hear the complaint for sum of
money.
In its June 7, 2007 decision, the CA held that because the summonses were
served on a mere administrative assistant, the Makati RTC never acquired
jurisdiction over respondents. Thus, it granted the petition.
Petitioner moved for reconsideration but it was denied. Hence, this petition.
Petitioner asserts that respondents maliciously evaded the service of
summonses to prevent the Makati RTC from acquiring jurisdiction over their
persons. Furthermore, they employed bad faith to delay proceedings by
cunningly exploiting procedural technicalities to avoid the payment of their
obligations.
We grant the petition.
Respondents, in their petition for certiorari in the CA, questioned the
jurisdiction of 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 court which they in effect assailed. However,
because they withdrew their motion for reconsideration of the said order, it
became final. Moreover, the petition was filed 10 months and 1 day after the
assailed order was issued by the Makati RTC, way past the 60 days allowed
by the Rules of Court. For these reasons, the said petition should have been
dismissed outright by the CA.
More importantly, when respondents moved for the suspension of
proceedings in Civil Case No. 03-991 before the Makati RTC (on the basis of
the March 13, 2006 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 jurisdiction of the Makati RTC.
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 from the date of its issuance until the
dismissal of the petition or termination of the rehabilitation proceedings.
The Makati RTC may proceed to hear Civil Case No. 03-991 only against
Arollado if there is no ground to go after JAPRL and RFC (as will later be
discussed). A creditor can demand payment from the surety solidarily liable
with the corporation seeking rehabilitation.
Respondents abused procedural technicalities (albeit unsuccessfully) for the
sole purpose of preventing, or at least delaying, the collection of their
legitimate obligations. Their reprehensible scheme impeded the speedy
dispensation of justice. More importantly, however, considering the amount
involved, respondents utterly disregarded the significance of a stable and
efficient banking system to the national economy.
Banks are entities engaged in the lending of funds obtained through
deposits from the public. They borrow the publics excess money
(i.e.,deposits) and lend out the same. Banks therefore redistribute wealth in
the economy by channeling idle savings to profitable investments.
2
Banks operate (and earn income) by extending credit facilities financed
primarily by deposits from the public. They plough back the bulk of said
deposits into the economy in the form of loans. Since banks deal with the
publics money, their viability depends largely on their ability to return those
deposits on demand. For this reason, banking is undeniably imbued with
public interest. Consequently, much importance is given to sound lending
practices and good corporate governance.
Protecting the integrity of the banking system has become, by large, the
responsibility of banks. The role of the public, particularly individual
borrowers, has not been emphasized. Nevertheless, we are not unaware of
the rampant and unscrupulous practice of obtaining loans without intending
to pay the same.
In this case, petitioner alleged that JAPRL fraudulently altered and falsified
its financial statements in order to obtain its credit facilities. Considering the
amount of petitioners exposure in JAPRL, justice and fairness dictate that the
Makati RTC hear whether or not respondents indeed committed fraud in
securing the credit accomodation.
A finding of fraud will change the whole picture. In this event, petitioner can
use the finding of fraud to move for the dismissal of the rehabilitation case in
the Calamba RTC.
The protective remedy of rehabilitation was never intended to be a refuge of
a debtor guilty of fraud.
terminate any loan or credit accommodation granted on the basis of said
statements and shall have the right to demand immediate repayment or
liquidation of the obligation.
In formulating the rules and regulations under this Section, the Monetary
Board shall recognize the peculiar characteristics of microfinancing, such as
cash flow-based lending to the basic sectors that are not covered by
traditional collateral. (emphasis supplied)
Under this provision, banks have the right to annul any credit
accommodation or loan, and demand the immediate payment thereof, from
borrowers proven to be guilty of fraud. Petitioner would then be entitled to
the immediate payment of P194,493,388.98 and other appropriate damages.
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.
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.

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.

Towards this end, a bank may demand from its credit applicants a statement
of their assets and liabilities and of their income and expenditures and such
information as may be prescribed by law or by rules and regulations of the
Monetary Board to enable the bank to properly evaluate the credit
application which includes the corresponding financial statements submitted
for taxation purposes to the Bureau of Internal Revenue. Should such
statements prove to be false or incorrect in any material detail, the bank may
3
[G.R. No. 128703. October 18, 2000]
TEODORO BAAS,* C. G. DIZON CONSTRUCTION, INC., and CENEN
DIZON, petitioners, vs. ASIA PACIFIC FINANCE
CORPORATION, substituted by INTERNATIONAL CORPORATE
BANK now known as UNION BANK OF THE PHILIPPINES, respondent.
DECISION
BELLOSILLO, J.:
C. G. DIZON CONSTRUCTION INC. and CENEN DIZON in this petition
for review seek the reversal of the 24 July 1996 Decision of the Court of
Appeals dismissing their appeal for lack of merit and affirming in toto the
decision of the trial court holding them liable to Asia Pacific Finance
Corporation in the amount of P87,637.50 at 14% interest per annum in
addition toattorney's fees and costs of suit, as well as its 21 March 1997
Resolution denying reconsideration thereof.
On 20 March 1981 Asia Pacific Finance Corporation (ASIA PACIFIC for
short) filed a complaint for a sum of money with prayer for a writ of replevin
against Teodoro Baas, C. G. Dizon Construction and Cenen Dizon. Sometime
in August 1980 Teodoro Baas executed a Promissory Note in favor of C. G.
Dizon Construction 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 of the month starting from September 25, 1980 up
to August 25, 1981."
Later, C. G. Dizon Construction endorsed with recourse the Promissory
Note to ASIA PACIFIC, and to secure payment thereof, C. G. Dizon
Construction, through its corporate officers, Cenen Dizon, President, and
Juliette B. Dizon, Vice President and Treasurer, executed a Deed of Chattel
Mortgage covering three (3) heavy equipment units of Caterpillar Bulldozer
Crawler Tractors with Model Nos. D8-14A, D8-2U and D8H in favor of ASIA
PACIFIC. Moreover, Cenen Dizon executed on 25 August 1980 a Continuing
Undertaking wherein he bound himself to pay the obligation jointly and
severally with C. G. Dizon Construction.
In compliance with the provisions of the Promissory Note, C. G. Dizon
Construction made the following installment payments to ASIA
PACIFIC: P32,500.00 on 25 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 defaulted in the payment of the
remaining installments, prompting ASIA PACIFIC to send a Statement of
Account to Cenen Dizon for the unpaid balance of P267,737.50 inclusive of
interests and charges, and P66,909.38 representing attorney's fees. As the
demand was unheeded, ASIA PACIFIC sued Teodoro Baas, C. G. Dizon
Construction and Cenen Dizon.
While defendants (herein petitioners) admitted the genuineness and due
execution of the Promissory Note, the Deed of Chattel Mortgage and
the Continuing Undertaking, they nevertheless maintained that these
documents were never intended by the parties to be legal, valid and binding
but a mere subterfuge to conceal the loan of P390,000.00 with usurious
interests.
Defendants claimed that since ASIA PACIFIC could not directly engage in
banking business, it proposed to them a scheme wherein plaintiff ASIA
PACIFIC could extend a loan to them without violating banking laws: first,
Cenen Dizon would 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 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, 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
prompt payment of the loan. Defendants also alleged that out of the loan
of P390,000.00 defendants actually received only P329,185.00 after ASIA
PACIFIC deducted the discounted interest, service handling charges,
insurance premium, registration and notarial fees.
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 promised to pay instead in February 1981. Cenen
Dizon made good his promise and tendered payment to ASIA PACIFIC in an
amount equivalent to two (2) monthly amortizations. But ASIA PACIFIC
attempted to impose a 3% interest for every month of delay, which he flatly
refused to pay for being usurious.
Afterwards, ASIA PACIFIC allegedly made a verbal proposal to Cenen
Dizon to 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 Dizon supposedly agreed and accepted the
offer. Defendants averred that the value of the bulldozer crawler tractors was
more than adequate to cover their obligation to ASIA PACIFIC.
Meanwhile, on 21 April 1981 the trial court issued a writ of replevin against
defendant C. G. Dizon Construction for the surrender of the bulldozer
crawler tractors subject of the Deed of Chattel Mortgage. Of the three (3)
bulldozer crawler 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. D8-14A was sold for P120,000.00
and D8-2U for P60,000.00 both to ASIA PACIFIC as the highest bidder.
During the pendency of the case, defendant Teodoro Baas passed away, and
on motion of the remaining defendants, the trial court dismissed the case
against him. On the other hand, ASIA PACIFIC was substituted as party
plaintiff by International Corporate Bank after the disputed Promissory
Note was assigned and/or transferred by ASIA PACIFIC to International
4
Corporate Bank. Later, International Corporate 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 Corporate Bank in
this case, Union Bank of the Philippines was substituted as a party in lieu of
International Corporate Bank.
On 25 September 1992 the Regional Trial Court ruled in favor of ASIA
PACIFIC holding the defendants jointly and severally liable for the unpaid
balance of the obligation under thePromissory Note in the amount
of P87,637.50 at 14% interest per annum, and attorney's fees equivalent to
25% of the monetary award.
On 24 July 1996 the Court of Appeals affirmed in toto the decision of the trial
court thus -
Defendant-appellants' contention that the instruments were executed merely
as a subterfuge to skirt banking laws is an untenable defense. If that were so
then they too were parties to the illegal scheme. Why should they now be
allowed to take advantage of their own knavery to escape the liabilities that
their own chicanery created?
Defendant-appellants also want us to believe their story that there was an
agreement between them and the plaintiff-appellee that if the former would
deliver their 2 bulldozer crawler tractors to the latter, the defendant-
appellants' obligation would fully be extinguished. Again, nothing but the
word that comes out between the teeth supports such story. Why did they
not write down such an important agreement? Is it believable that seasoned
businessmen such as the defendant-appellant Cenen G. Dizon and the other
officers of the appellant corporation would deliver the bulldozers without a
receipt of acquittance from the plaintiff-appellee x x x x In our book, that is
not credible.
The pivotal issues raised are: (a) Whether the disputed transaction between
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 extinguishment of petitioners' obligation.
On the first issue, petitioners insist that ASIA PACIFIC was organized as an
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 Mortgage and Continuing Undertaking were not
intended to be valid and binding on the parties as they were merely devices
to conceal their real intention which was to enter into a contract of loan in
violation of banking laws.
We reject the argument. An investment company refers to any issuer which
is or holds itself out as being engaged or proposes to engage primarily in the
business of investing, reinvesting or trading in securities. As defined in Sec.
2, par. (a), of the Revised Securities Act, securities "shall include x x x x
commercial papers evidencing indebtedness of any person, financial or non-
financial entity, irrespective of maturity, issued, endorsed, sold, transferred
or in any manner conveyed to another with or without recourse, such
as promissory notes x x x x" Clearly, the transaction between petitioners
and respondent was one involving not a loan but purchase of receivables at a
discount, well within the purview of "investing, reinvesting or trading in
securities" which an investment company, like ASIA PACIFIC, is authorized
to perform and does not constitute a violation of the General Banking
Act. Moreover, Sec. 2 of the General Banking Act provides in part -
Sec. 2. Only entities duly authorized by the Monetary Board of the Central
Bank may engage in the lending of funds obtained from the public through
the receipt of deposits of any kind, and all entities regularly conducting such
operations shall be 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).
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 institutions. But here, the funds supposedly "lent" to
petitioners have not been shown to have been obtained from the public by
way of deposits, hence, the inapplicability of banking laws.
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 anything therein that would support such theory. On the contrary,
we find the terms and conditions of the instrument clear, free from any
ambiguity, and expressive of the real intent and agreement of the parties.We
quote the pertinent portions of the Promissory Note -
FOR VALUE RECEIVED, I/We, hereby promise to pay to the order of C.G.
Dizon Construction, Inc. the sum of THREE HUNDRED NINETY
THOUSAND ONLY (P390,000.00), Philippine Currency in the following
manner:
P32,500.00 due every 25th of the month starting from September 25, 1980 up
to August 25, 1981.
I/We agree that if any of the said installments is not paid as and when it
respectively 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 rate of 14% per annum on each unpaid installment
until fully paid.
If any amount due on this note is not paid at its maturity and this note is
placed in the hands of an attorney for collection, I/We agree to pay in
addition to the aggregate of the principal amount and interest due, a sum
equivalent to TEN 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 interest due x x x x
Makati, Metro Manila, August 25, 1980.
5
(Sgd) Teodoro Baas
ENDORSED TO ASIA PACIFIC FINANCE CORPORATION WITH
RECOURSE, C.G. DIZON CONSTRUCTION, INC.
By: (Sgd.) Cenen Dizon (Sgd.) Juliette B. Dizon
President VP/Treasurer
Likewise, the Deed of Chattel Mortgage and Continuing Undertaking were
duly acknowledged before a notary public and, as such, have in their favor
the presumption of regularity. To contradict them there must be clear,
convincing and more than merely preponderant evidence. In the instant case,
the records do not show even a preponderance of evidence in favor of
petitioners' claim that the Deed of Chattel Mortgage and Continuing
Undertaking were never intended by the parties to be legal, valid and
binding. Notarial documents are evidence of the facts in clear and
unequivocal manner therein expressed.
Interestingly, petitioners' assertions were based mainly on the self-serving
testimony of Cenen Dizon, and not on any other independent evidence. His
testimony is not only unconvincing, as found by the trial court and the Court
of Appeals, but also self-defeating in light of the documents presented by
respondent, i.e., Promissory Note, Deed of Chattel Mortgage and Continuing
Undertaking, the accuracy, correctness and due execution of which were
admitted by petitioners. Oral evidence certainly cannot prevail over the
written agreements of the parties. The courts need only rely on the faces of
the written contracts to determine their true intention on the principle 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 agreement.
The second issue deals with a question of fact. We have ruled often enough
that it is not the function of this Court to analyze and weigh the evidence all
over again, its jurisdiction being limited to reviewing errors of law that
might have been committed by the lower court. At any rate, while we are not
a trier of facts, hence, not required as a rule to look into the factual bases of
the assailed decision of the Court of Appeals, we did so just the same in this
case if only to satisfy petitioners that we have carefully studied and
evaluated the case, all too mindful of the tenacity and vigor with which the
parties, through their respective counsel, have pursued this case for nineteen
(19) years.
Petitioners contend that the parties already had a verbal understanding
wherein ASIA PACIFIC actually agreed to consider petitioners' account
closed and the principal obligation fully paid in exchange for the ownership
of the two (2) bulldozer crawler tractors.
We are not persuaded. Again, other than the bare allegations of petitioners,
the records are bereft of any evidence of the supposed agreement. As
correctly observed by the Court of Appeals, it is unbelievable that the parties
entirely neglected to write down such an important agreement. Equally
incredulous is the fact that petitioner Cenen Dizon, a seasoned businessman,
readily consented to deliver the bulldozers to respondent without a
corresponding receipt of acquittance. Indeed, even the testimony of
petitioner Cenen Dizon himself negates the supposed verbal understanding
between the parties -
Q: You said and is it not a fact that you surrendered the bulldozers to
APCOR by virtue of the seizure order?
A: There was no seizure order. Atty. Carag during that time said if I
surrender the two equipment, we might finally close a deal if the equipment
would come up to the balance of the loan. So I voluntarily surrendered, I
pulled them from the job site and returned them to APCOR x x x x
Q: You mentioned a certain Atty. Carag, who is he?
A: 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 might suffice to pay off the debt so I did just that (underscoring
ours).
In other words, there was no binding and perfected contract between
petitioners and respondent regarding the settlement of the obligation, but
only a conditional one, a mere conjecture in fact, depending on whether the
value of the tractors to be surrendered would equal the balance of the loan
plus interests. And since the bulldozer crawler tractors were sold at the
foreclosure sale for only P180,000.00, which was not enough to cover the
unpaid balance of P267,637.50, petitioners are still liable for the deficiency.
Barring therefore a showing that the findings complained of are totally
devoid of 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 case where the findings of both the trial court and the
appellate court coincide with each other on the matter.
With regard to the computation of petitioners' liability, the records show that
petitioners actually paid to respondent a total sum of P130,000.00 in addition
to the P180,000.00 proceeds realized from the sale of the bulldozer crawler
tractors at public auction. Deducting these amounts from the principal
obligation of P390,000.00 leaves a balance of P80,000.00, to which must be
added P7,637.50 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 unpaid balance should earn 14% interest per annum
as stipulated in the Promissory Note, computed from 20 March 1981 until
fully paid.
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 attorney's fees recoverable as between the attorney and
his client regulated by the Rules of Court. Rather, the attorney's fees here are
6
in the nature of liquidated damages and the stipulation therefor is aptly
called a penal clause. It has been said that so long as such stipulation does
not contravene the law, morals and public order, it is strictly binding upon
the obligor. It is the litigant, not the counsel, who is the judgment creditor
entitled to enforce the judgment by execution.
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 occasioned by legitimate business reverses. Petitioners in
fact paid a total of P130,000.00 in three (3) installments, and even went to the
extent of voluntarily turning over to respondent their heavy equipment
consisting of two (2) bulldozer crawler tractors, all in a bona fide effort to
settle their indebtedness in full. Article 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.

7
 A. CLASSIFICATIONS AND POWERS OF BANKS b. For the borrower’s own account shall refer to the assumption of liability in
Section X101 Classifications, Powers and Scope of Authorities of one’s own capacity and not in representation, or as an agent or trustee, of
Banks. another.
The following are the classifications, powers and scope of authorities of c. Purchasing of receivables or other
banks, as well as the prerequisites for the grant of banking authorities. obligations shall refer to the acquisition of claims collectible in money,
including
a. Classifications of banks. interbank borrowings or borrowings between FIs, or of acquisition of
Banks are classified into the following subject to the power of the securities,
Monetary Board to create other classes or kinds of banks: of any amount and maturity, from domestic or foreign sources.
(1) Universal banks (UBs); d. Relending shall refer to the extension of loans by an institution with
(2) Commercial banks (KBs); antecedent
(3) Thrift banks (TBs), as defined in Republic Act (R.A.) No. 7906, which borrowing transactions. Relending shall be presumed, in the absence of
shall be composed of: (a) savings and mortgage banks, (b) stock savings express stipulations, when the institution is regularly engaged in lending.
and loan associations, and (c) private development banks; e. Regularly engaged in lending shall refer to the practice of extending loans,
(4) Rural banks (RBs), as defined in R. A. No. 7353; advances, discounts or rediscounts as a matter of business, as distinguished
(5) Cooperative banks (Coop Banks); and from
(6) Islamic banks (IBs), as defined in R.A. No. 6848. isolated lending transactions.

Sec. X234 Scope of Quasi-Banking Functions.

The following rules and regulations shall govern the quasi-banking

operations of banks.

§ X234.1 Elements of quasi-banking.

The essential elements of quasi-banking are:
a. Borrowing funds for the borrower’s own account;
b. Twenty (20) or more lenders at any one (1) time;
c. Methods of borrowing are issuance, endorsement, or acceptance of debt
instruments of any kind, other than deposits, such as acceptances,
promissory notes, participations, certificates of assignments or similar
instruments with recourse, trust certificates, repurchase agreements, and
such other instruments as the Monetary Board may determine; and
d. The purpose of which is (1) relending, or (2) purchasing receivables or
other
obligations.

§ X234.2 Definition of terms and phrases. The following terms and phrases
shall be understood as follows:

a. Borrowing shall refer to all forms of obtaining or raising funds through

any of the
methods and for any of the purposes provided in Subsec. X234.1 whether the
borrower’s liability thereby is treated as real or contingent.
8
SECOND DIVISION managers check to RCBC. Thereafter, the check was returned back and forth
between the two banks, resulting in automatic debits and credits in each
SECURITY BANK AND TRUST COMPANY, G.R. No. 170984 banks clearing balance.
Petitioner, On February 13, 1981, RCBC filed a complaint for damages against SBTC
Present: with the then Court of First Instance of Rizal, Branch XXII. Said case was
docketed as Civil Case No. 1081 and later transferred to the Regional Trial
- versus - QUISUMBING, Acting C.J., Court (RTC) of Makati City, Branch 143.
Chairperson, Meanwhile, following the rules of the Philippine Clearing House, RCBC and
CORONA,* SBTC stopped returning the checks to each other. By way of a temporary
RIZAL COMMERCIAL BANKING CARPIO MORALES, arrangement pending resolution of the case, the P8-million check was
CORPORATION, TINGA, and equally divided between, and credited to, RCBC and SBTC.
Respondent. LEONARDO-DE CASTRO,** JJ.On May 9, 2000, the RTC of Makati City, Branch 143, rendered a Decision in
x-------------------------x favor of RCBC. The dispositive portion of the decision reads:
PREMISES CONSIDERED, the Court renders judgment in favor of plaintiff
RIZAL COMMERCIAL BANKING G.R. No. 170987
[RCBC] and finds defendant SBTC justly liable to [RCBC] and sentences
CORPORATION,
[SBTC] to pay [RCBC] the amount of:
Petitioner,
1. PhP4,000,000.00 as and for actual damages;
2. PhP100,000.00 as and for attorneys fees; and,
3. the costs.
- versus -
Promulgated: SO ORDERED.
On appeal, the Court of Appeals affirmed with modification the above
SECURITY BANK AND TRUST COMPANY, January 30, 2009 Decision, to wit:
Respondent. WHEREFORE, the appealed Decision
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x is AFFIRMED with MODIFICATION. Appellant Security Bank and Trust Co.
DECISION shall pay appellee Rizal Commercial Banking Corporation not only the
QUISUMBING, Acting C.J.: principal amount of P4,000,000.00 but also interest thereon at (6%) per
Before us are opposing parties petitions for review of the annum covering appellees unearned income on interest computed from the
Decision dated March 29, 2005 and Resolution dated December 12, 2005 of time of filing of the complaint on February 13, 1981 to the date of finality of
the Court of Appeals in CA-G.R. CV No. 67387. The two petitions are herein this Decision. For lack of factual and legal basis, the award of attorneys fees
consolidated as they stem from the same set of factual circumstances. is DELETED.
The facts, as found by the trial and appellate courts, are as follows: SO ORDERED.
On January 9, 1981, Security Bank and Trust Company (SBTC) issued a Now for our resolution are the opposing parties petitions for review on
managers check for P8 million, payable to CASH, as proceeds of the loan certiorari of the abovecited decision. On its part, SBTC alleges the following
granted to Guidon Construction and Development Corporation (GCDC). On to support its petition:
the same day, the P8-million check, along with other checks, was deposited I.
by Continental Manufacturing Corporation (CMC) in its Current Account THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN
No. 0109-022888 with Rizal Commercial Banking Corporation REFUSING TO APPLY THE LAW BECAUSE, IN ITS OPINION, TO DO SO
(RCBC). Immediately, RCBC honored the P8-million check and allowed WOULD RESULT IN AN INJUSTICE.
CMC to withdraw the same. II.
On the next banking day, January 12, 1981, GCDC issued a Stop Payment THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN
Order to SBTC, claiming that the P8-million check was released to a third HOLDING THAT TO DETERMINE WHETHER OR NOT A BANK IS A
party by mistake.Consequently, SBTC dishonored and returned the HOLDER IN DUE COURSE, ONLY THE NEGOTIABLE INSTRUMENTS

9
LAW NEED BE APPLIED TO THE EXCLUSION OF CENTRAL BANK
RULES AND REGULATIONS.
III.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING
TO NOTE THAT THE MANAGERS CHECK IN QUESTION WAS
ACCEPTED FOR DEPOSIT BY THE RCBC AND WAS NOT ENCASHED BY
THE PAYEE.
IV.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING
TO CONSIDER THAT PRIOR TO THE DEPOSIT OF THE CHECKS WORTH
PhP53 MILLION, RCBC WAS HOLDING 43 CHECKS
TOTALING P49,017,669.66 DRAWN BY CONTINENTAL
MANUFACTURING CORPORATION AGAINST ITS CURRENT
ACCOUNT WHEN THE BALANCE OF THAT ACCOUNT WAS A
MERE P573.62.
V.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING
TO CONSIDER THAT THE CHECKS DEPOSITED WITH RCBC THE
PROCEEDS OF WHICH WERE IMMEDIATELY WITHDRAWN TO
HONOR THE 43 CHECKS TOTALING P49,017,669.66 DRAWN BY
CONTINENTAL MANUFACTURING CORPORATION ON ITS CURRENT
ACCOUNT WERE NOT ALL MANAGERS CHECK[S] BUT INCLUDED
ORDINARY CHECKS IN THE TOTAL AMOUNT OF PhP15,436,140.81.
VI.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING
TO CONSIDER THAT EACH OF THE 43 CHECKS DRAWN BY THE
CONTINENTAL MANUFACTURING CORPORATION WERE ALL
HONORED BY RCBC ON THE BASIS OF A MIXTURE OF ALL THE
MANAGERS AND ORDINARY CHECKS DEPOSITED ON THAT DAY OF
9 JANUARY 1981.
VII.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN
HOLDING THAT THE RCBC IS A HOLDER IN DUE COURSE.
VIII.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN
HOLDING THAT SBTC WAITED FOR THREE (3) DAYS TO NOTIFY THE
RCBC OF THE STOP PAYMENT ORDER.
IX.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN
HOLDING THAT SBTC SHOULD HAVE FIRST ACQUIRED PERSONAL
KNOWLEDGE OF THE FACTS WHICH GAVE RISE TO THE REQUEST
FOR THE STOP PAYMENT ORDER BEFORE HONORING SUCH
REQUEST.
X.
THE HONORABLE COURT OF APPEALS RULED CORRECTLY IN
REFUSING TO HOLD SBTC LIABLE FOR DAMAGE CLAIMS BASED
SOLELY ON SPECULATION, CONJECTURE AND GUESSWORK.
XI.
THE HONORABLE COURT OF APPEALS RULED CORRECTLY IN
HOLDING THAT RCBC IS NOT ENTITLED TO EXEMPLARY DAMAGES.
XII.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN
HOLDING SBTC LIABLE FOR THE ATTORNEYS FEES OF RCBC [SIC].
On RCBCs part, the following issues are submitted for resolution:
I.
WHETHER OR NOT SBTC IS LIABLE FOR THE MANAGERS CHECK IT
ISSUED.
II.
WHETHER OR NOT RCBC IS ENTITLED TO COMPENSATORY
DAMAGES EQUIVALENT TO THE INTEREST INCOME LOST AS A
RESULT OF THE ILLEGAL REFUSAL OF SBTC TO HONOR ITS OWN
MANAGERS CHECK, AS WELL AS FOR EXEMPLARY DAMAGES AND
ATTORNEYS FEES.
Simply stated, we find that in these consolidated petitions, the legal issues
for our resolution are: (1) Is SBTC liable to RCBC for the remaining P4
million? and (2) Is SBTC liable to pay for lost interest income on the
remaining P4 million, exemplary damages and attorneys fees?
RCBC avers that the managers check issued by SBTC is substantially as good
as the money it represents because by its peculiar character, its issuance has
the effect of an advance acceptance. RCBC claims that it is a holder in due
course when it credited the P8-million managers check to CMCs
account. Accordingly, RCBC asserts that SBTCs refusal to honor its
obligation justifies RCBC claim for lost interest income, exemplary damages
and attorneys fees.
On the other hand, SBTC contends that RCBC violated Monetary Board
Resolution No. 2202 of the Central Bank of the Philippines mandating all
banks to verify the genuineness and validity of all checks before allowing
drawings of the same. SBTC insists that RCBC should bear the consequences
of allowing CMC to withdraw the amount of the check before it was cleared.
We shall rule on the issues seriatim.
At the outset, it must be noted that the questioned check issued by SBTC is
not just an ordinary check but a managers check. A managers check is one
drawn by a banks manager upon the bank itself. It stands on the same
footing as a certified check, which is deemed to have been accepted by the
10
bank that certified it. As the banks own check, a managers check becomes the
primary obligation of the bank and is accepted in advance by the act of its
issuance.
In this case, RCBC, in immediately crediting the amount of P8 million to
CMCs account, relied on the integrity and honor of the check as it is
regarded in commercial transactions. Where the questioned check, which
was payable to Cash, appeared regular on its face, and the bank found
nothing unusual in the transaction, as the drawer usually issued checks in
big amounts made payable to cash, RCBC cannot be faulted in paying the
value of the questioned check.
In our considered view, SBTC cannot escape liability by invoking Monetary
Board Resolution No. 2202 dated December 21, 1979, prohibiting drawings
against uncollected deposits. For we must point out that the Central Bank at
that time issued a Memorandum dated July 9, 1980, which interpreted said
Monetary Board Resolution No. 2202. In its pertinent portion, said
Memorandum reads:
MEMORANDUM TO ALL BANKS
July 9, 1980
For the guidance of all concerned, Monetary Board Resolution No. 2202
dated December 31, 1979 prohibiting, as a matter of policy, drawing against
uncollected deposit effective July 1, 1980,uncollected deposits
representing managers cashiers/ treasurers checks, treasury warrants, postal
money orders and duly funded on us checks which may be permitted at the
discretion of each bank, covers drawings against demand deposits as well as
withdrawals from savings deposits.
Thus, it is clear from the July 9, 1980 Memorandum that banks were given
the discretion to allow immediate drawings on uncollected deposits of
managers checks, among others. Consequently, RCBC, in allowing the
immediate withdrawal against the subject managers check, only exercised a
prerogative expressly granted to it by the Monetary Board.
Moreover, neither Monetary Board Resolution No. 2202 nor the July 9,
1980 Memorandum alters the extraordinary nature of the managers check
and the relative rights of the parties thereto. SBTCs liability as drawer
remains the same − by drawing the instrument, it admits the existence of the
payee and his then capacity to indorse; and engages that on due
presentment, the instrument will be accepted, or paid, or both, according to
its tenor.
Concerning RCBCs claim for lost interest income on the remaining P4
million, this is already covered by the amount of damages in the form of
legal interest of 6%, based on Article 2200 and 2209 of the Civil Code of the
Philippines, as awarded by the Court of Appeals in its decision.
In addition to the above-mentioned award of compensatory damages, we
also find merit in the need to award exemplary damages in order to set an
example for the public good. The banking system has become an
indispensable institution in the modern world and plays a vital role in the
economic life of every civilized society. Whether as mere passive entities
for the safe-keeping and saving of money or as active instruments of
business and commerce, banks have attained an ubiquitous presence among
the people, who have come to regard them with respect and even gratitude
and, above all, trust and confidence. In this connection, it is important that
banks should guard against injury attributable to negligence or bad faith on
its part. As repeatedly emphasized, since the banking business is impressed
with public interest, the trust and confidence of the public in it is of
paramount importance. Consequently, the highest degree of diligence is
expected, and high standards of integrity and performance are required of
it. SBTC having failed in this respect, the award of exemplary damages to
RCBC in the amount of P50,000.00 is warranted.
Pursuant to current jurisprudence, with the finding of liability for exemplary
damages, attorneys fees in the amount of P25,000.00[22] must also be
awarded against SBTC and in favor of RCBC.
WHEREFORE, the assailed Decision dated March 29, 2005 and Resolution
dated December 12, 2005 of the Court of Appeals in CA-G.R. CV No. 67387 is
hereby AFFIRMED with MODIFICATION. Security Bank and Trust
Company is ordered to pay Rizal Commercial Banking Corporation: (1) the
remaining P4,000,000.00, with legal interest thereon at six percent (6%) per
annum from the time of filing of the complaint on February 13, 1981 to the
date of finality of this Decision; (2) exemplary damages of P50,000.00; and (3)
attorneys fees of P25,000.00.
No pronouncement as to costs.
SO ORDERED.
11
FIRST DIVISION Kalinga

SPS. EDGAR AND DINAH G.R. No. 161319 7 November 1996

OMENGAN,
Petitioners, Present: The Manager
Philippine National Bank
PUNO, C.J., Tabuk Branch
SANDOVAL-GUTIERREZ, Poblacion, Tabuk
Working Chairperson, Kalinga
- v e r s u s - CORONA,
AZCUNA and Sir:
GARCIA, JJ.
This refers to the land at Appas, Tabuk in the name of our brother,
PHILIPPPINE NATIONAL BANK,
Edgar Omengan, which was mortgaged to [the] Bank in the amount of Three
HENRY M. MONTALVO AND
Million Pesos (P3,000,000.00), the sum of [P2.5 Million] had already been
MANUEL S. ACIERTO,*
released and received by our brother, Edgar.
Respondents. Promulgated:
In this connection, it is requested that the remaining unreleased balance of
January 23, 2007
[half a million pesos] be held in abeyance pending an understanding by the
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x rest of the brothers and sisters of Edgar. Please be informed that the property
mortgaged, while in the name of Edgar Omengan, is owned in co-ownership
DECISION by all the children of the late Roberto and Elnora Omengan. The lawyer who
drafted the document registering the subject property under Edgars name
CORONA, J. can attest to this fact. We had a prior understanding with Edgar in allowing
him to make use of the property as collateral, but he refuses to comply with
such arrangement. Hence, this letter. (emphasis ours)
This petition for review on certiorari seeks a review and reversal of the Court
of Appeals (CA) decision and resolution in CA-G.R. CV No. 71302.
Very truly yours,
In October 1996, the Philippine National Bank (PNB) Tabuk (Kalinga) Branch
approved petitioners-spouses application for a revolving credit line of P3 (Sgd.) Shirley O. Gamon (Sgd.) Imogene O. Bangao
million. The loan was secured by two residential lots in Tabuk, Kalinga-
Apayao covered by Transfer Certificate of Title (TCT) Nos. 12954 and (Sgd.) Caroline O. Salicob (Sgd.) Alice O. Claver
12112. The certificates of title, issued by the Registry of Deeds of the Province
of Kalinga-Apayao, were in the name of Edgar Omengan married to Montalvo was eventually replaced as branch manager by
Dinah Omengan. Manuel Acierto who released the remaining half million pesos to petitioners
on May 2, 1997. Acierto also recommended the approval of a P2 million
The first P2.5 million was released by Branch Manager Henry Montalvo on increase in their credit line to the Cagayan Valley Business Center Credit
three separate dates. The release of the final half million was, however, Committee in Santiago City.
withheld by Montalvobecause of a letter allegedly sent by Edgars sisters. It
read: The credit committee approved the increase of petitioners credit line
Appas, Tabuk (from P3 million to P5 million), provided Edgars sisters gave their

12
conformity. Acierto informed petitioners of the conditional approval of their
credit line.
But petitioners failed to secure the consent of Edgars sisters; hence, PNB put
on hold the release of the additional P2 million.
On October 7, 1998, Edgar Omengan demanded the release of the P2
million. He claimed that the condition for its release was not part of his credit
line agreement with PNB because it was added without his consent. PNB
denied his request.
On March 3, 1999, petitioners filed a complaint for breach of contract and
damages against PNB with the Regional Trial Court (RTC), Branch 25
in Tabuk, Kalinga. After trial, the court decided in favor of petitioners.
Accordingly, judgment is hereby rendered finding in favor of [petitioners.]
[PNB is ordered]:
1) To release without delay in favor of [petitioners] the amount
of P2,000,000.00 to complete the P5,000,000.00 credit line agreement;
2) To pay [petitioners] the amount of P2,760,000.00 representing the
losses and/or expected income of the [petitioners] for three years;
3) To pay lawful interest, until the amount aforementioned on
paragraphs 1 and 2 above are fully paid; and
4) To pay the costs.
SO ORDERED.
The CA, however, on June 18, 2003, reversed and set aside the RTC decision
dated April 21, 2001.
Petitioners now contend that the CA erred when it did not sustain the
finding of breach of contract by the RTC.
The existence of breach of contract is a factual matter not usually reviewed in
a petition filed under Rule 45. But since the RTC and the CA had
contradictory findings, we are constrained to rule on this issue.
Was there a breach of contract? There was none.
Breach of contract is defined as follows:
[It] is the failure without legal reason to comply with the terms of a contract.
It is also defined as the [f]ailure, without legal excuse, to perform any
promise which forms the whole or part of the contract.
In this case, the parties agreed on a P3 million credit line. This sum was
completely released to petitioners who subsequently applied for an increase
in their credit line. This was conditionally approved by PNBs credit
committee. For all intents and purposes, petitioners sought an additional
loan.
The condition attached to the increase in credit line requiring petitioners to
acquire the conformity of Edgars sisters was never acknowledged and
accepted by petitioners. Thus, as to the additional loan, no meeting of the
minds actually occurred and no breach of contract could be attributed to
PNB. There was no perfected contract over the increase in credit line.
[T]he business of a bank is one affected with public interest, for which reason
the bank should guard against loss due to negligence or bad faith. In
approving the loan of an applicant, the bank concerns itself with proper
[information] regarding its debtors. Any investigation previously conducted
on the property offered by petitioners as collateral did not preclude PNB
from considering new information on the same property as security for a
subsequent loan. The credit and property investigation for the original loan
of P3 million did not oblige PNB to grant and release any additional loan. At
the time the original P3 million credit line was approved, the title to the
property appeared to pertain exclusively to petitioners. By the time the
application for an increase was considered, however, PNB already had
reason to suspect petitioners claim of exclusive ownership.
A mortgagee can rely on what appears on the certificate of title presented by
the mortgagor and an innocent mortgagee is not expected to conduct an
exhaustive investigation on the history of the mortgagors title. This rule is
strictly applied to banking institutions. xxx
Banks, indeed, should exercise more care and prudence in dealing even with
registered lands, than private individuals, as their business is one affected
with public interest. xxx Thus, this Court clarified that the rule that persons
dealing with registered lands can rely solely on the certificate of title
does not apply to banks. (emphasis supplied)
Here, PNB had acquired information sufficient to induce a reasonably
prudent person to inquire into the status of the title over the subject
13
property. Instead of defending their position, petitioners merely insisted that
reliance on the face of the certificate of title (in their name) was
sufficient. This principle, as already mentioned, was not applicable to
financial institutions like PNB.
In truth, petitioners had every chance to turn the situation in their favor if, as
they said, they really owned the subject property alone, to the exclusion of
any other owner(s).Unfortunately, all they offered were bare denials of the
co-ownership claimed by Edgars sisters.

PNB exercised reasonable prudence in requiring the above-mentioned

condition for the release of the additional loan. If the condition proved
unacceptable to petitioners, the parties could have discussed other terms
instead of making an obstinate and outright demand for the release of the
additional amount. If the alleged co-ownership in fact had no leg to stand on,
petitioners could have introduced evidence other than a simple denial of its
existence.
Since PNB did not breach any contract and since it exercised the degree of
diligence expected of it, it cannot be held liable for damages.

WHEREFORE, the decision and resolution of the Court of Appeals in CA-

G.R. CV No. 71302 are hereby AFFIRMED.

Costs against petitioners.

SO ORDERED.

14
BANK OF THE PHILIPPINE ISLANDS, G.R. No. 136202 Hundred Sixty-Seven Thousand, Six Hundred Ninety-Two Pesos and Fifty
Centavos (P267,692.50) representing the aggregate value of three (3) checks,
Petitioner, Present: which were allegedly payable to him, but which were deposited with the
petitioner bank to private respondent Salazars account (Account No. 0203-
PUNO, C.J., Chairperson, 1187-67) without his knowledge and corresponding endorsement.
- versus - SANDOVAL-GUTIERREZ,
CORONA, Accepting that Templonuevos claim was a valid one, petitioner BPI froze
AZCUNA, and Account No. 0201-0588-48 of A.A. Salazar and Construction and Engineering
GARCIA, JJ. Services, instead of Account No. 0203-1187-67 where the checks were
deposited, since this account was already closed by private respondent
Salazar or had an insufficient balance.
COURT OF APPEALS, ANNABELLE A.
SALAZAR, and JULIO R. TEMPLONUEVO, Private respondent Salazar was advised to settle the matter with
Respondents. Promulgated:
Templonuevo but they did not arrive at any settlement. As it appeared that
private respondent Salazar was not entitled to the funds represented by the
January 25, 2007
checks which were deposited and accepted for deposit, petitioner BPI
decided to debit the amount of P267,707.70 from her Account No. 0201-0588-
x-----------------------------------------------------------------------------------------x
48 and the sum of P267,692.50 was paid to Templonuevo by means of a
cashiers check. The difference between the value of the checks (P267,692.50)
DECISION
and the amount actually debited from her account (P267,707.70) represented
AZCUNA, J.: bank charges in connection with the issuance of a cashiers check to
Templonuevo.
This is a petition for review under Rule 45 of the Rules of Court seeking the
reversal of the Decision dated April 3, 1998, and the Resolution dated In the answer to the third-party complaint, private respondent Templonuevo
November 9, 1998, of the Court of Appeals in CA-G.R. CV No. 42241. admitted the payment to him of P267,692.50 and argued that said payment
was to correct the malicious deposit made by private respondent Salazar to
The facts are as follows: her private account, and that petitioner banks negligence and tolerance
regarding the matter was violative of the primary and ordinary rules of
A.A. Salazar Construction and Engineering Services filed an action for a sum banking. He likewise contended that the debiting or taking of the reimbursed
of money with damages against herein petitioner Bank of the Philippine amount from the account of private respondent Salazar by petitioner BPI was
Islands (BPI) on December 5, 1991 before Branch 156 of the Regional Trial a matter exclusively between said parties and may be pursuant to banking
Court (RTC) of Pasig City. The complaint was later amended by substituting rules and regulations, but did not in any way affect him. The debiting from
the name of Annabelle A. Salazar as the real party in interest in place of A.A. another account of private respondent Salazar, considering that her other
Salazar Construction and Engineering Services. Private respondent Salazar account was effectively closed, was not his concern.
prayed for the recovery of the amount of Two Hundred Sixty-Seven
Thousand, Seven Hundred Seven Pesos and Seventy Centavos (P267,707.70) After trial, the RTC rendered a decision, the dispositive portion of which
debited by petitioner BPI from her account. She likewise prayed for damages reads thus:
and attorneys fees. WHEREFORE, premises considered, judgment is hereby rendered in favor of
the plaintiff [private respondent Salazar] and against the defendant
Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R. [petitioner BPI] and ordering the latter to pay as follows:
Templonuevo, third-party defendant and herein also a private
respondent, demanded from the former payment of the amount of Two 1. The amount of P267,707.70 with 12% interest thereon
from September 16, 1991 until the said amount is fully paid;
15
2. The amount of P30,000.00 as and for actual damages;
3. The amount of P50,000.00 as and for moral damages;
4. The amount of P50,000.00 as and for exemplary damages;
5. The amount of P30,000.00 as and for attorneys fees; and
6. Costs of suit.
The counterclaim is hereby ordered DISMISSED for lack of factual basis.
The third-party complaint [filed by petitioner] is hereby likewise ordered
DISMISSED for lack of merit.
Third-party defendants [i.e., private respondent Templonuevos]
counterclaim is hereby likewise DISMISSED for lack of factual basis.
SO ORDERED.
On appeal, the Court of Appeals (CA) affirmed the decision of the RTC and
held that respondent Salazar was entitled to the proceeds of the three (3)
checks notwithstanding the lack of endorsement thereon by the payee. The
CA concluded that Salazar and Templonuevo had previously agreed that the
checks payable to JRT Construction and Trading actually belonged to Salazar
and would be deposited to her account, with petitioner acquiescing to the
arrangement.
Petitioner therefore filed this petition on these grounds:
I.
The Court of Appeals committed reversible error in misinterpreting Section
49 of the Negotiable Instruments Law and Section 3 (r and s) of Rule 131 of
the New Rules on Evidence.
II.
The Court of Appeals committed reversible error in NOT applying the
provisions of Articles 22, 1278 and 1290 of the Civil Code in favor of BPI.
III.
The Court of Appeals committed a reversible error in holding, based on a
misapprehension of facts, that the account from which BPI debited the
amount of P267,707.70 belonged to a corporation with a separate and distinct
personality.
IV.
The Court of Appeals committed a reversible error in holding, based entirely
on speculations, surmises or conjectures, that there was an agreement
between SALAZAR and TEMPLONUEVO that checks payable to
TEMPLONUEVO may be deposited by SALAZAR to her personal account
and that BPI was privy to this agreement.
V.
The Court of Appeals committed reversible error in holding, based entirely
on speculation, surmises or conjectures, that SALAZAR suffered great
damage and prejudice and that her business standing was eroded.
VI.
The Court of Appeals erred in affirming instead of reversing the decision of
the lower court against BPI and dismissing SALAZARs complaint.
VII.
The Honorable Court erred in affirming the decision of the lower court
dismissing the third-party complaint of BPI.
The issues center on the propriety of the deductions made by petitioner from
private respondent Salazars account. Stated otherwise, does a collecting
bank, over the objections of its depositor, have the authority to withdraw
unilaterally from such depositors account the amount it had previously paid
upon certain unendorsed order instruments deposited by the depositor to
another account that she later closed?
Petitioner argues thus:
1. There is no presumption in law that a check payable to order,
when found in the possession of a person who is neither a payee nor the
indorsee thereof, has been lawfully transferred for value. Hence, the CA
should not have presumed that Salazar was a transferee for value within the
contemplation of Section 49 of the Negotiable Instruments Law, as the latter
applies only to a holder defined under Section 191of the same.
2. Salazar failed to adduce sufficient evidence to prove that her
possession of the three checks was lawful despite her allegations that these
checks were deposited pursuant to a prior internal arrangement with
Templonuevo and that petitioner was privy to the arrangement.
3. The CA should have applied the Civil Code provisions on legal
compensation because in deducting the subject amount from Salazars
account, petitioner was merely rectifying the undue payment it made upon
the checks and exercising its prerogative to alter or modify an erroneous
credit entry in the regular course of its business.
16

4. The debit of the amount from the account of A.A. Salazar
Construction and Engineering Services was proper even though the value of
the checks had been originally credited to the personal account of Salazar
because A.A. Salazar Construction and Engineering Services, an
unincorporated single proprietorship, had no separate and distinct
personality from Salazar.
5. Assuming the deduction from Salazars account was improper,
the CA should not have dismissed petitioners third-party complaint against
Templonuevo because the latter would have the legal duty to return to
petitioner the proceeds of the checks which he previously received from it.
6. There was no factual basis for the award of damages to Salazar.
The petition is partly meritorious.
First, the issue raised by petitioner requires an inquiry into the factual
findings made by the CA. The CAs conclusion that the deductions from the
bank account of A.A. Salazar Construction and Engineering Services were
improper stemmed from its finding that there was no ineffective payment to
Salazar which would call for the exercise of petitioners right to set off against
the formers bank deposits. This finding, in turn, was drawn from the
pleadings of the parties, the evidence adduced during trial and upon the
admissions and stipulations of fact made during the pre-trial, most
significantly the following:
(a) That Salazar previously had in her possession the following
checks:
(1) Solid Bank Check No. CB766556 dated January 30, 1990 in the
amount of P57,712.50;
(2) Solid Bank Check No. CB898978 dated July 31, 1990 in the amount
of P55,180.00; and,
(3) Equitable Banking Corporation Check No. 32380638
dated August 28, 1990 for the amount of P154,800.00;
(b) That these checks which had an aggregate amount of P267,692.50
were payable to the order of JRT Construction and Trading, the name and
style under which Templonuevo does business;
(c) That despite the lack of endorsement of the designated payee
upon such checks, Salazar was able to deposit the checks in her personal
savings account with petitioner and encash the same;
(d) That petitioner accepted and paid the checks on three (3) separate
occasions over a span of eight months in 1990; and
(e) That Templonuevo only protested the purportedly unauthorized
encashment of the checks after the lapse of one year from the date of the last
check.
Petitioner concedes that when it credited the value of the checks to the
account of private respondent Salazar, it made a mistake because it failed to
notice the lack of endorsement thereon by the designated payee. The CA,
however, did not lend credence to this claim and concluded that petitioners
actions were deliberate, in view of its admission that the mistake was
committed three times on three separate occasions, indicating acquiescence
to the internal arrangement between Salazar and Templonuevo. The CA
explained thus:
It was quite apparent that the three checks which appellee Salazar deposited
were not indorsed. Three times she deposited them to her account and three
times the amounts borne by these checks were credited to the same. And in
those separate occasions, the bank did not return the checks to her so that she
could have them indorsed. Neither did the bank question her as to why she
was depositing the checks to her account considering that she was not the
payee thereof, thus allowing us to come to the conclusion that defendant-
appellant BPI was fully aware that the proceeds of the three checks belong to
appellee.
For if the bank was not privy to the agreement between Salazar and
Templonuevo, it is most unlikely that appellant BPI (or any bank for that
matter) would have accepted the checks for deposit on three separate times
nary any question. Banks are most finicky over accepting checks for deposit
without the corresponding indorsement by their payee. In fact, they hesitate
to accept indorsed checks for deposit if the depositor is not one they know
very well.
The CA likewise sustained Salazars position that she received the checks
from Templonuevo pursuant to an internal arrangement between them,
ratiocinating as follows:
If there was indeed no arrangement between Templonuevo and the plaintiff
over the three questioned checks, it baffles us why it was only on August 31,
17
1991 or more than a year after the third and last check was deposited that he
demanded for the refund of the total amount of P267,692.50.
A prudent man knowing that payment is due him would have demanded
payment by his debtor from the moment the same became due and
demandable. More so if the sum involved runs in hundreds of thousand of
pesos. By and large, every person, at the very moment he learns that he was
deprived of a thing which rightfully belongs to him, would have created a
big fuss. He would not have waited for a year within which to do so. It is
most inconceivable that Templonuevo did not do this.
Generally, only questions of law may be raised in an appeal
by certiorari under Rule 45 of the Rules of Court. Factual findings of the CA
are entitled to great weight and respect, especially when the CA affirms the
factual findings of the trial court. Such questions on whether certain items of
evidence should be accorded probative value or weight, or rejected as feeble
or spurious, or whether or not the proofs on one side or the other are clear
and convincing and adequate to establish a proposition in issue, are
questions of fact. The same holds true for questions on whether or not the
body of proofs presented by a party, weighed and analyzed in relation to
contrary evidence submitted by the adverse party may be said to be strong,
clear and convincing, or whether or not inconsistencies in the body of proofs
of a party are of such gravity as to justify refusing to give said proofs weight
all these are issues of fact which are not reviewable by the Court.
This rule, however, is not absolute and admits of certain exceptions, namely:
a) when the conclusion is a finding grounded entirely on speculations,
surmises, or conjectures; b) when the inference made is manifestly mistaken,
absurd, or impossible; c) when there is a grave abuse of discretion; d) when
the judgment is based on a misapprehension of facts; e) when the findings of
fact are conflicting; f) when the CA, in making its findings, went beyond the
issues of the case and the same are contrary to the admissions of both
appellant and appellee; g) when the findings of the CA are contrary to those
of the trial court; h) when the findings of fact are conclusions without citation
of specific evidence on which they are based; i) when the finding of fact of
the CA is premised on the supposed absence of evidence but is contradicted
by the evidence on record; and j) when the CA manifestly overlooked certain
relevant facts not disputed by the parties and which, if properly considered,
would justify a different conclusion.
In the present case, the records do not support the finding made by the CA
and the trial court that a prior arrangement existed between Salazar and
Templonuevo regarding the transfer of ownership of the checks. This fact is
crucial as Salazars entitlement to the value of the instruments is based on the
assumption that she is a transferee within the contemplation of Section 49 of
the Negotiable Instruments Law.
Section 49 of the Negotiable Instruments Law contemplates a situation
whereby the payee or indorsee delivers a negotiable instrument for value
without indorsing it, thus:
Transfer without indorsement; effect of- Where the holder of an instrument
payable to his order transfers it for value without indorsing it, the transfer
vests in the transferee such title as the transferor had therein, and the
transferee acquires in addition, the right to have the indorsement of the
transferor. But for the purpose of determining whether the transferee is a
holder in due course, the negotiation takes effect as of the time when the
indorsement is actually made.
It bears stressing that the above transaction is an equitable assignment and
the transferee acquires the instrument subject to defenses and equities
available among prior parties. Thus, if the transferor had legal title, the
transferee acquires such title and, in addition, the right to have the
indorsement of the transferor and also the right, as holder of the legal title, to
maintain legal action against the maker or acceptor or other party liable to
the transferor. The underlying premise of this provision, however, is that a
valid transfer of ownership of the negotiable instrument in question has
taken place.
Transferees in this situation do not enjoy the presumption of ownership in
favor of holders since they are neither payees nor indorsees of such
instruments. The weight of authority is that the mere possession of a
negotiable instrument does not in itself conclusively establish either the right
of the possessor to receive payment, or of the right of one who has made
payment to be discharged from liability. Thus, something more than mere
possession by persons who are not payees or indorsers of the instrument is
necessary to authorize payment to them in the absence of any other facts
from which the authority to receive payment may be inferred.
The CA and the trial court surmised that the subject checks belonged to
private respondent Salazar based on the pre-trial stipulation that
Templonuevo incurred a one-year delay in demanding reimbursement for
the proceeds of the same. To the Courts mind, however, such period of delay
is not of such unreasonable length as to estop Templonuevo from asserting
ownership over the checks especially considering that it was readily
apparent on the face of the instruments that these were crossed checks.
18
In State Investment House v. IAC, the Court enumerated the effects of
crossing a check, thus: (1) that the check may not be encashed but only
deposited in the bank; (2) that the check may be negotiated only once - to one
who has an account with a bank; and (3) that the act of crossing the check
serves as a warning to the holder that the check has been issued for a definite
purpose so that such holder must inquire if the check has been received
pursuant to that purpose.
Thus, even if the delay in the demand for reimbursement is taken in
conjunction with Salazars possession of the checks, it cannot be said that the
presumption of ownership in Templonuevos favor as the designated payee
therein was sufficiently overcome. This is consistent with the principle that if
instruments payable to named payees or to their order have not been
indorsed in blank, only such payees or their indorsees can be holders and
entitled to receive payment in their own right.
The presumption under Section 131(s) of the Rules of Court stating that a
negotiable instrument was given for a sufficient consideration will not inure
to the benefit of Salazar because the term given does not pertain merely to a
transfer of physical possession of the instrument. The phrase given or
indorsed in the context of a negotiable instrument refers to the manner in
which such instrument may be negotiated. Negotiable instruments are
negotiated by transfer to one person or another in such a manner as to
constitute the transferee the holder thereof. If payable to bearer it is
negotiated by delivery. If payable to order it is negotiated by the
indorsement completed by delivery. The present case involves checks
payable to order. Not being a payee or indorsee of the checks, private
respondent Salazar could not be a holder thereof.
It is an exception to the general rule for a payee of an order instrument to
transfer the instrument without indorsement. Precisely because the situation
is abnormal, it is but fair to the maker and to prior holders to require
possessors to prove without the aid of an initial presumption in their favor,
that they came into possession by virtue of a legitimate transaction with the
last holder. Salazar failed to discharge this burden, and the return of the
check proceeds to Templonuevo was therefore warranted under the
circumstances despite the fact that Templonuevo may not have clearly
demonstrated that he never authorized Salazar to deposit the checks or to
encash the same. Noteworthy also is the fact that petitioner stamped on the
back of the checks the words: "All prior endorsements and/or lack of
endorsements guaranteed," thereby making the assurance that it had
ascertained the genuineness of all prior endorsements. Having assumed the
liability of a general indorser, petitioners liability to the designated payee
cannot be denied.
Consequently, petitioner, as the collecting bank, had the right to debit
Salazars account for the value of the checks it previously credited in her
favor. It is of no moment that the account debited by petitioner was different
from the original account to which the proceeds of the check were credited
because both admittedly belonged to Salazar, the former being the account of
the sole proprietorship which had no separate and distinct personality from
her, and the latter being her personal account.
The right of set-off was explained in Associated Bank v. Tan:
A bank generally has a right of set-off over the deposits therein for the
payment of any withdrawals on the part of a depositor. The right of a
collecting bank to debit a client's account for the value of a dishonored check
that has previously been credited has fairly been established by
jurisprudence. To begin with, Article 1980 of the Civil Code provides that
"[f]ixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan.
Hence, the relationship between banks and depositors has been held to be
that of creditor and debtor. Thus, legal compensation under Article 1278 of
the Civil Code may take place "when all the requisites mentioned in Article
1279 are present," as follows:
(1) That each one of the obligors be bound principally, and that he be at the
same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the
latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the debtor.
While, however, it is conceded that petitioner had the right of set-off over the
amount it paid to Templonuevo against the deposit of Salazar, the issue of
whether it acted judiciously is an entirely different matter. As businesses
affected with public interest, and because of the nature of their functions,
banks are under obligation to treat the accounts of their depositors with
meticulous care, always having in mind the fiduciary nature of their
relationship. In this regard, petitioner was clearly remiss in its duty to
private respondent Salazar as its depositor.
19
To begin with, the irregularity appeared plainly on the face of the checks.
Despite the obvious lack of indorsement thereon, petitioner permitted the
encashment of these checks three times on three separate occasions. This
negates petitioners claim that it merely made a mistake in crediting the value
of the checks to Salazars account and instead bolsters the conclusion of the
CA that petitioner recognized Salazars claim of ownership of checks and
acted deliberately in paying the same, contrary to ordinary banking policy
and practice. It must be emphasized that the law imposes a duty of diligence
on the collecting bank to scrutinize checks deposited with it, for the purpose
of determining their genuineness and regularity. The collecting bank, being
primarily engaged in banking, holds itself out to the public as the expert on
this field, and the law thus holds it to a high standard of conduct. The taking
and collection of a check without the proper indorsement amount to a
conversion of the check by the bank.
More importantly, however, solely upon the prompting of Templonuevo,
and with full knowledge of the brewing dispute between Salazar and
Templonuevo, petitioner debited the account held in the name of the sole
proprietorship of Salazar without even serving due notice upon her. This ran
contrary to petitioners assurances to private respondent Salazar that the
account would remain untouched, pending the resolution of the controversy
between her and Templonuevo. In this connection, the CA cited the letter
dated September 5, 1991 of Mr. Manuel Ablan, Senior Manager of petitioner
banks Pasig/Ortigas branch, to private respondent Salazar informing her
that her account had been frozen, thus:
From the tenor of the letter of Manuel Ablan, it is safe to conclude that
Account No. 0201-0588-48 will remain frozen or untouched until herein
[Salazar] has settled matters with Templonuevo. But, in an unexpected
move, in less than two weeks (eleven days to be precise) from the time that
letter was written, [petitioner] bank issued a cashiers check in the name of
Julio R. Templonuevo of the J.R.T. Construction and Trading for the sum
of P267,692.50 (Exhibit 8) and debited said amount from Ms. Arcillas account
No. 0201-0588-48 which was supposed to be frozen or controlled. Such a
move by BPI is, to Our minds, a clear case of negligence, if not a fraudulent,
wanton and reckless disregard of the right of its depositor.
The records further bear out the fact that respondent Salazar had issued
several checks drawn against the account of A.A. Salazar Construction and
Engineering Services prior to any notice of deduction being served. The CA
sustained private respondent Salazars claim of damages in this regard:
The act of the bank in freezing and later debiting the amount of P267,692.50
from the account of A.A. Salazar Construction and Engineering Services
caused plaintiff-appellee great damage and prejudice particularly when she
had already issued checks drawn against the said account. As can be
expected, the said checks bounced. To prove this, plaintiff-appellee
presented as exhibits photocopies of checks dated September 8,
1991, October 28, 1991, and November 14, 1991 (Exhibits D, E and F
respectively)
These checks, it must be emphasized, were subsequently dishonored,
thereby causing private respondent Salazar undue embarrassment and
inflicting damage to her standing in the business community. Under the
circumstances, she was clearly not given the opportunity to protect her
interest when petitioner unilaterally withdrew the above amount from her
account without informing her that it had already done so.
For the above reasons, the Court finds no reason to disturb the award of
damages granted by the CA against petitioner. This whole incident would
have been avoided had petitioner adhered to the standard of diligence
expected of one engaged in the banking business. A depositor has the right
to recover reasonable moral damages even if the banks negligence may not
have been attended with malice and bad faith, if the former suffered mental
anguish, serious anxiety, embarrassment and humiliation. Moral damages
are not meant to enrich a complainant at the expense of defendant. It is only
intended to alleviate the moral suffering she has undergone. The award of
exemplary damages is justified, on the other hand, when the acts of the bank
are attended by malice, bad faith or gross negligence. The award of
reasonable attorneys fees is proper where exemplary damages are awarded.
It is proper where depositors are compelled to litigate to protect their
interest.
WHEREFORE, the petition is partially GRANTED. The assailed Decision
dated April 3, 1998 and Resolution dated April 3, 1998 rendered by the Court
of Appeals in CA-G.R. CV No. 42241 are MODIFIED insofar as it ordered
petitioner Bank of the Philippine Islands to return the amount of Two
Hundred Sixty-seven Thousand Seven Hundred and Seven and 70/100
Pesos (P267,707.70) to respondent Annabelle A. Salazar, which portion
is REVERSED and SET ASIDE. In all other respects, the same
are AFFIRMED.
20
Republic of the Philippines respondent Edna Ocampo (Ocampo) until she was replaced by respondent
SUPREME COURT Roberto Noceda (Noceda).
Manila
In October 1992, PCIB granted a credit line to Gonzales through the
execution of a Credit-On-Hand Loan Agreement (COHLA), in which the
FIRST DIVISION aggregate amount of the accounts of Gonzales with PCIB served as collateral
for and his availment limit under the credit line. Gonzales drew from said
credit line through the issuance of check. At the institution of the instant
EUSEBIO GONZALES, G.R. No. 180257 case, Gonzales had a Foreign Currency Deposit (FCD) of USD 8,715.72 with
Petitioner, PCIB.
Present:
- versus - On October 30, 1995, Gonzales and his wife obtained a loan for PhP
CORONA, C.J., Chairperson,500,000. Subsequently, on December 26, 1995 and January 3, 1999, the
VELASCO, JR.,
spouses Panlilio and Gonzales obtained two additional loans from PCIB in
NACHURA,*
the amounts of PhP 1,000,000 and PhP 300,000, respectively. These three
PHILIPPINE COMMERCIAL AND DEL CASTILLO, and
loans amounting to PhP 1,800,000 were covered by three promissory
INTERNATIONAL BANK, EDNA OCAMPO, PEREZ, JJ.
notes. To secure the loans, a real estate mortgage (REM) over a parcel of land
and ROBERTO NOCEDA,
covered by Transfer Certificate of Title (TCT) No. 38012 was executed by
Respondents. Promulgated:
Gonzales and the spouses Panlilio. Notably, the promissory notes specified,
February 23, 2011 among others, the solidary liability of Gonzales and the spouses Panlilio for
x-----------------------------------------------------------------------------------------x the payment of the loans. However, it was the spouses Panlilio who received
the loan proceeds of PhP 1,800,000.
DECISION
The monthly interest dues of the loans were paid by the spouses Panlilio
VELASCO, JR., J.: through the automatic debiting of their account with PCIB. But the spouses
Panlilio, from the month of July 1998, defaulted in the payment of the
The Case periodic interest dues from their PCIB account which apparently was not
maintained with enough deposits. PCIB allegedly called the attention of
This is an appeal via a Petition for Review on Certiorari under Rule 45 from Gonzales regarding the July 1998 defaults and the subsequent accumulating
the Decision dated October 22, 2007 of the Court of Appeals (CA) in CA-G.R. periodic interest dues which were left still left unpaid.
CV No. 74466, which denied petitioners appeal from the December 10, 2001
Decision in Civil Case No. 99-1324 of the Regional Trial Court (RTC), Branch In the meantime, Gonzales issued a check dated September 30, 1998 in favor
138 in Makati City. The RTC found justification for respondents dishonor of of Rene Unson (Unson) for PhP 250,000 drawn against the credit line
petitioners check and found petitioner solidarily liable with the spouses Jose (COHLA). However, on October 13, 1998, upon presentment for payment by
and Jocelyn Panlilio (spouses Panlilio) for the three promissory notes they Unson of said check, it was dishonored by PCIB due to the termination by
executed in favor of respondent Philippine Commercial and International PCIB of the credit line under COHLA on October 7, 1998 for the unpaid
Bank (PCIB). periodic interest dues from the loans of Gonzales and the spouses
Panlilio. PCIB likewise froze the FCD account of Gonzales.
The Facts
Consequently, Gonzales had a falling out with Unson due to the dishonor of
Petitioner Eusebio Gonzales (Gonzales) was a client of PCIB for a good 15 the check. They had a heated argument in the premises of the Philippine
years before he filed the instant case. His account with PCIB was handled by Columbian Association (PCA) where they are both members, which caused
great embarrassment and humiliation to Gonzales. Thereafter, on November
21
5, 1998, Unson sent a demand letter to Gonzales for the PhP 250,000. And
on December 3, 1998, the counsel of Unson sent a second demand letter to
Gonzales with the threat of legal action. With his FCD account that PCIB
froze, Gonzales was forced to source out and pay the PhP 250,000 he owed to
Unson in cash.
On January 28, 1999, Gonzales, through counsel, wrote PCIB insisting that
the check he issued had been fully funded, and demanded the return of the
proceeds of his FCD as well as damages for the unjust dishonor of the
check. PCIB replied on March 22, 1999 and stood its ground in freezing
Gonzales accounts due to the outstanding dues of the loans. On May 26,
1999, Gonzales reiterated his demand, reminding PCIB that it knew well that
the actual borrowers were the spouses Panlilio and he never benefited from
the proceeds of the loans, which were serviced by the PCIB account of the
spouses Panlilio.
PCIBs refusal to heed his demands compelled Gonzales to file the instant
case for damages with the RTC, on account of the alleged unjust dishonor of
the check issued in favor of Unson.
The Ruling of the RTC
After due trial, on December 10, 2001, the RTC rendered a Decision in favor
of PCIB. The decretal portion reads:
WHEREFORE, judgment is rendered as follows
(a) on the first issue, plaintiff is liable to pay defendant Bank as principal
under the promissory notes, Exhibits A, B and C;
(b) on the second issue, the Court finds that there is justification on part of
the defendant Bank to dishonor the check, Exhibit H;
(c) on the third issue, plaintiff and defendants are not entitled to damages
from each other.
No pronouncement as to costs.
SO ORDERED.
The RTC found Gonzales solidarily liable with the spouses Panlilio on the
three promissory notes relative to the outstanding REM loan. The trial court
found no fault in the termination by PCIB of the COHLA with Gonzales and
in freezing the latters accounts to answer for the past due PhP 1,800,000
loan. The trial court ruled that the dishonor of the check issued by Gonzales
in favor of Unson was proper considering that the credit line under the
COHLA had already been terminated or revoked before the presentment of
the check.
Aggrieved, Gonzales appealed the RTC Decision before the CA.
The Ruling of the CA
On September 26, 2007, the appellate court rendered its Decision dismissing
Gonzales appeal and affirming in toto the RTC Decision. The fallo reads:
WHEREFORE, in view of the foregoing, the decision, dated December 10,
2001, in Civil Case No. 99-1324 is hereby AFFIRMED in toto.
SO ORDERED.
In dismissing Gonzales appeal, the CA, first, confirmed the RTCs findings
that Gonzales was indeed solidarily liable with the spouses Panlilio for the
three promissory notes executed for the REM loan; second, it likewise found
neither fault nor negligence on the part of PCIB in dishonoring the check
issued by Gonzales in favor of Unson, ratiocinating that PCIB was merely
exercising its rights under the contractual stipulations in the COHLA
brought about by the outstanding past dues of the REM loan and interests
for which Gonzales was solidarily liable with the spouses Panlilio to pay
under the promissory notes.
Thus, we have this petition.
The Issues
Gonzales, as before the CA, raises again the following assignment of errors:
I - IN NOT CONSIDERING THAT THE LIABILITY ARISING FROM
PROMISSORY NOTES (EXHIBITS A, B AND C, PETITIONER; EXHIBITS 1,
2 AND 3, RESPONDENT) PERTAINED TO BORROWER JOSE MA.
PANLILIO AND NOT TO APPELLANT AS RECOGNIZED AND
ACKNOWLEDGE[D] BY RESPONDENT PHILIPPINE COMMERCIAL &
INDUSTRIAL BANK (RESPONDENT BANK).
II - IN FINDING THAT THE RESPONDENTS WERE NOT AT FAULT NOR
GUILTY OF GROSS NEGLIGENCE IN DISHONORING PETITIONERS
CHECK DATED 30 SEPTEMBER 1998 IN THE AMOUNT OF P250,000.00
22
FOR THE REASON ACCOUNT CLOSED, INSTEAD OF MERELY REFER
TO DRAWER GIVEN THE FACT THAT EVEN AFTER DISHONOR,
RESPONDENT SIGNED A CERTIFICATION DATED 7 DECEMBER 1998
THAT CREDIT ON HAND (COH) LOAN AGREEMENT WAS STILL
VALID WITH A COLLATERAL OF FOREIGN CURRENCY DEPOSIT (FCD)
OF [USD] 48,715.72.
III - IN NOT AWARDING DAMAGES AGAINST RESPONDENTS DESPITE
PRESENTATION OF CLEAR PROOF TO SUPPORT ACTION FOR
DAMAGES.
The Courts Ruling
The core issues can be summarized, as follows: first, whether Gonzales is
liable for the three promissory notes covering the PhP 1,800,000 loan he
made with the spouses Panlilio where a REM over a parcel of land covered
by TCT No. 38012 was constituted as security; and second, whether PCIB
properly dishonored the check of Gonzales drawn against the COHLA he
had with the bank.
The petition is partly meritorious.
First Issue: Solidarily Liability on Promissory Notes
A close perusal of the records shows that the courts a quo correctly found
Gonzales solidarily liable with the spouses Panlilio for the three promissory
notes.
The promissory notes covering the PhP 1,800,000 loan show the following:
(1) Promissory Note BD-090-1766-95, dated October 30, 1995, for PhP 500,000
was signed by Gonzales and his wife, Jessica Gonzales;
(2) Promissory Note BD-090-2122-95, dated December 26, 1995, for PhP
1,000,000 was signed by Gonzales and the spouses Panlilio; and
(3) Promissory Note BD-090-011-96, dated January 3, 1996, for PhP 300,000
was signed by Gonzales and the spouses Panlilio.
Clearly, Gonzales is liable for the loans covered by the above promissory
notes. First, Gonzales admitted that he is an accommodation party which
PCIB did not dispute. In his testimony, Gonzales admitted that he merely
accommodated the spouses Panlilio at the suggestion of Ocampo, who was
then handling his accounts, in order to facilitate the fast release of the
loan. Gonzales testified:
ATTY. DE JESUS:
Now in this case you filed against the bank you mentioned there was a loan
also applied for by the Panlilios in the sum of P1.8 Million Pesos. Will you
please tell this Court how this came about?
GONZALES:
Mr. Panlilio requested his account officer . . . . at that time it is a P42.0 Million
loan and if he secures another P1.8 Million loan the release will be longer
because it has to pass to XO.
Q: After that what happened?
A: So as per suggestion since Mr. Panlilio is a good friend of mine and we co-
owned the property I agreed initially to use my name so that the loan can be
utilized immediately by Mr. Panlilio.
Q: Who is actually the borrower of this P1.8 Million Pesos?
A: Well, in paper me and Mr. Panlilio.
Q: Who received the proceeds of said loan?
A: Mr. Panlilio.
Q: Do you have any proof that it was Mr. Panlilio who actually received the
proceeds of this P1.8 Million Pesos loan?
A: A check was deposited in the account of Mr. Panlilio.
xxxx
Q: By the way upon whose suggestion was the loan of Mr. Panlilio also
placed under your name initially?
A: Well it was actually suggested by the account officer at that time Edna
Ocampo.
Q: How about this Mr. Rodolfo Noceda?
A: As you look at the authorization aspect of the loan Mr. Noceda is the boss
of Edna so he has been familiar with my account ever since its inception.
Q: So these two officers Ocampo and Noceda knew that this was actually the
account of Mr. Panlilio and not your account?
A: Yes, sir. In fact even if there is a change of account officer they are always
informing me that the account will be debited to Mr. Panlilios account.
23
Moreover, the first note for PhP 500,000 was signed by Gonzales and his wife
as borrowers, while the two subsequent notes showed the spouses Panlilio
sign as borrowers with Gonzales. It is, thus, evident that Gonzales signed, as
borrower, the promissory notes covering the PhP 1,800,000 loan despite not
receiving any of the proceeds.
Second, the records of PCIB indeed bear out, and was admitted by Noceda,
that the PhP 1,800,000 loan proceeds went to the spouses Panlilio, thus:
ATTY. DE JESUS: [on Cross-Examination]
Is it not a fact that as far as the records of the bank [are] concerned the
proceeds of the 1.8 million loan was received by Mr. Panlilio?
NOCEDA:
Yes sir.
The fact that the loans were undertaken by Gonzales when he signed as
borrower or co-borrower for the benefit of the spouses Panlilioas shown by
the fact that the proceeds went to the spouses Panlilio who were servicing or
paying the monthly duesis beside the point. For signing as borrower and co-
borrower on the promissory notes with the proceeds of the loans going to the
spouses Panlilio, Gonzales has extended an accommodation to said spouses.
Third, as an accommodation party, Gonzales is solidarily liable with the
spouses Panlilio for the loans. In Ang v. Associated Bank, quoting the
definition of an accommodation party under Section 29 of the Negotiable
Instruments Law, the Court cited that an accommodation party is a person
who has signed the instrument as maker, drawer, acceptor, or indorser,
without receiving value therefor, and for the purpose of lending his name to
some other person. The Court further explained:
[A]n accommodation party is one who meets all the three requisites, viz: (1)
he must be a party to the instrument, signing as maker, drawer, acceptor, or
indorser; (2) he must not receive value therefor; and (3) he must sign for the
purpose of lending his name or credit to some other person. An
accommodation party lends his name to enable the accommodated party to
obtain credit or to raise money; he receives no part of the consideration for
the instrument but assumes liability to the other party/ies thereto. The
accommodation party is liable on the instrument to a holder for value even
though the holder, at the time of taking the instrument, knew him or her to
be merely an accommodation party, as if the contract was not for
accommodation.
As petitioner acknowledged it to be, the relation between an accommodation
party and the accommodated party is one of principal and suretythe
accommodation party being the surety. As such, he is deemed an original
promisor and debtor from the beginning; he is considered in law as the same
party as the debtor in relation to whatever is adjudged touching the
obligation of the latter since their liabilities are interwoven as to be
inseparable. Although a contract of suretyship is in essence accessory or
collateral to a valid principal obligation, the suretys liability to the creditor
is immediate, primary and absolute; he is directly and equally bound with
the principal. As an equivalent of a regular party to the undertaking, a surety
becomes liable to the debt and duty of the principal obligor even without
possessing a direct or personal interest in the obligations nor does he receive
any benefit therefrom.
Thus, the knowledge, acquiescence, or even demand by Ocampo for an
accommodation by Gonzales in order to extend the credit or loan of PhP
1,800,000 to the spouses Panlilio does not exonerate Gonzales from liability
on the three promissory notes.
Fourth, the solidary liability of Gonzales is clearly stipulated in the
promissory notes which uniformly begin, For value received, the
undersigned (the BORROWER) jointly and severally promise to pay x x
x. Solidary liability cannot be presumed but must be established by law or
contract. Article 1207 of the Civil Code pertinently states that there is
solidary liability only when the obligation expressly so states, or when the
obligation requires solidarity. This is true in the instant case where Gonzales,
as accommodation party, is immediately, equally, and absolutely bound with
the spouses Panlilio on the promissory notes which indubitably stipulated
solidary liability for all the borrowers. Moreover, the three promissory notes
serve as the contract between the parties. Contracts have the force of law
between the parties and must be complied with in good faith.
Second Issue: Improper Dishonor of Check
Having ruled that Gonzales is solidarily liable for the three promissory notes,
We shall now touch upon the question of whether it was proper for PCIB to
dishonor the check issued by Gonzales against the credit line under the
COHLA.
We answer in the negative.
24
As a rule, an appeal by certiorari under Rule 45 of the Rules of Court is
limited to review of errors of law. The factual findings of the trial court,
especially when affirmed by the appellate court, are generally binding on us
unless there was a misapprehension of facts or when the inference drawn
from the facts was manifestly mistaken. The instant case falls within the
exception.
The courts a quo found and held that there was a proper dishonor of the PhP
250,000 check issued by Gonzales against the credit line, because the credit
line was already closed prior to the presentment of the check by Unson; and
the closing of the credit line was likewise proper pursuant to the stipulations
in the promissory notes on the banks right to set off or apply all moneys of
the debtor in PCIBs hand and the stipulations in the COHLA on the PCIBs
right to terminate the credit line on grounds of default by Gonzales.
Gonzales argues otherwise, pointing out that he was not informed about the
default of the spouses Panlilio and that the September 21, 1998 account
statement of the credit line shows a balance of PhP 270,000 which was
likewise borne out by the December 7, 1998 PCIBs certification that he has
USD 8,715.72 in his FCD account which is more than sufficient collateral to
guarantee the PhP 250,000 check, dated September 30, 1998, he issued against
the credit line.
A careful scrutiny of the records shows that the courts a quo committed
reversible error in not finding negligence by PCIB in the dishonor of the PhP
250,000 check.
First. There was no proper notice to Gonzales of the default and delinquency
of the PhP 1,800,000 loan. It must be borne in mind that while solidarily
liable with the spouses Panlilio on the PhP 1,800,000 loan covered by the
three promissory notes, Gonzales is only an accommodation party and as
such only lent his name and credit to the spouses Panlilio. While not
exonerating his solidary liability, Gonzales has a right to be properly
apprised of the default or delinquency of the loan precisely because he is a
co-signatory of the promissory notes and of his solidary liability.
We note that it is indeed understandable for Gonzales to push the spouses
Panlilio to pay the outstanding dues of the PhP 1,800,000 loan, since he was
only an accommodation party and was not personally interested in the
loan. Thus, a meeting was set by Gonzales with the spouses Panlilio and the
PCIB officers, Noceda and Ocampo, in the spouses Panlilios jewelry shop in
SM Megamall on October 5, 1998. Unfortunately, the meeting did not push
through due to the heavy traffic Noceda and Ocampo encountered.
Such knowledge of the default by Gonzales was, however, not enough to
properly apprise Gonzales about the default and the outstanding
dues. Verily, it is not enough to be merely informed to pay over a hundred
thousand without being formally apprised of the exact aggregate amount
and the corresponding dues pertaining to specific loans and the dates they
became due.
Gonzales testified that he was not duly notified about the outstanding
interest dues of the loan:
ATTY. DE JESUS:
Now when Mr. Panlilios was encountering problems with the bank did the
defendant bank [advise] you of any problem with the same account?
GONZALES:
They never [advised] me in writing.
Q: How did you come to know that there was a problem?
A: When my check bounced sir.
On the other hand, the PCIB contends otherwise, as Corazon Nepomuceno
testified:
ATTY. PADILLA:
Can you tell this Honorable Court what is it that you told Mr. Gonzales
when you spoke to him at the celphone?
NEPOMUCENO:
I just told him to update the interest so that we would not have to cancel the
COH Line and he could withdraw the money that was in the deposit because
technically, if an account is past due we are not allowed to let the client
withdraw funds because they are allowed to offset funds so, just to help him
get his money, just to update the interest so that we could allow him to
withdraw.
Q: Withdraw what?
A: His money on the COH, whatever deposit he has with us.
Q: Did you inform him that if he did not update the interest he would not be
able to withdraw his money?
A: Yes sir, we will be forced to hold on to any assets that he has with us so
thats why we suggested just to update the interest because at the end of
25
everything, he would be able to withdraw more funds than the interest that
the money he would be needed to update the interest.
From the foregoing testimonies, between the denial of Gonzales and the
assertion by PCIB that Gonzales was properly apprised, we find for
Gonzales. We find the testimonies of the former PCIB employees to be self-
serving and tenuous at best, for there was no proper written notice given by
the bank. The record is bereft of any document showing that, indeed,
Gonzales was formally informed by PCIB about the past due periodic
interests.
PCIB is well aware and did not dispute the fact that Gonzales is an
accommodation party. It also acted in accordance with such fact by releasing
the proceeds of the loan to the spouses Panlilio and likewise only informed
the spouses Panlilio of the interest dues. The spouses Panlilio, through their
account with PCIB, were paying the periodic interest dues and were the ones
periodically informed by the bank of the debiting of the amounts for the
periodic interest payments. Gonzales never paid any of the periodic interest
dues. PCIBs Noceda admitted as much in his cross-examination:
ATTY. DE JESUS: [on Cross-Examination]
And there was no instance that Mr. Gonzales ever made even interest for this
loan, is it not, its always Mr. Panlilio who was paying the interest for this
loan?
NOCEDA:
Yes sir.
Indeed, no evidence was presented tending to show that Gonzales was
periodically sent notices or notified of the various periodic interest dues
covering the three promissory notes. Neither do the records show that
Gonzales was aware of amounts for the periodic interests and the payment
for them. Such were serviced by the spouses Panlilio.
Thus, PCIB ought to have notified Gonzales about the status of the default or
delinquency of the interest dues that were not paid starting July 1998. And
such notification must be formal or in written form considering that the
outstanding periodic interests became due at various dates, i.e., on July 8, 17,
and 28, 1998, and the various amounts have to be certain so that Gonzales is
not only properly apprised but is given the opportunity to pay them being
solidarily liable for the loans covered by the promissory notes.
It is the bank which computes these periodic interests and such dues must be
put into writing and formally served to Gonzales if he were asked to pay
them, more so when the payments by the spouses Panlilio were charged
through the account of the spouses Panlilio where the interest dues were
simply debited. Such arrangement did not cover Gonzales bank account with
PCIB, since he is only an accommodation party who has no personal interest
in the PhP 1,800,000 loan. Without a clear and determinate demand through
a formal written notice for the exact periodic interest dues for the loans,
Gonzales cannot be expected to pay for them.
In business, more so for banks, the amounts demanded from the debtor or
borrower have to be definite, clear, and without ambiguity. It is not sufficient
simply to be informed that one must pay over a hundred thousand aggregate
outstanding interest dues without clear and certain figures. Thus, We find
PCIB negligent in not properly informing Gonzales, who is an
accommodation party, about the default and the exact outstanding periodic
interest dues. Without being properly apprised, Gonzales was not given the
opportunity to properly act on them.
It was only through a letter sent by PCIB dated October 2, 1998 but
incongruously showing the delinquencies of the PhP 1,800,000 loan at a
much later date, i.e., as of October 31, 1998, when Gonzales was formally
apprised by PCIB. In it, the interest due was PhP 106,1616.71 and penalties
for the unpaid interest due of PhP 64,766.66, or a total aggregate due of PhP
171,383.37. But it is not certain and the records do not show when the letter
was sent and when Gonzales received it. What is clear is that such letter was
belatedly sent by PCIB and received by Gonzales after the fact that the latters
FCD was already frozen, his credit line under the COHLA was terminated or
suspended, and his PhP 250,000 check in favor of Unson was dishonored.
And way much later, or on May 4, 1999, was a demand letter from the
counsel of PCIB sent to Gonzales demanding payment of the PhP 1,800,000
loan. Obviously, these formal written notices sent to Gonzales were too late
in the day for Gonzales to act properly on the delinquency and he already
suffered the humiliation and embarrassment from the dishonor of his check
drawn against the credit line.
To reiterate, a written notice on the default and deficiency of the PhP
1,800,000 loan covered by the three promissory notes was required to apprise
Gonzales, an accommodation party. PCIB is obliged to formally inform and
apprise Gonzales of the defaults and the outstanding obligations, more so
26
when PCIB was invoking the solidary liability of Gonzales. This PCIB failed
to do.
Second. PCIB was grossly negligent in not giving prior notice to Gonzales
about its course of action to suspend, terminate, or revoke the credit line,
thereby violating the clear stipulation in the COHLA.
The COHLA, in its effectivity clause, clearly provides:
4. EFFECTIVITY The COH shall be effective for a period of one (1) year
commencing from the receipt by the CLIENT of the COH checkbook issued
by the BANK, subject to automatic renewals for same periods unless
terminated by the BANK upon prior notice served on CLIENT. (Emphasis
ours.)
It is undisputed that the bank unilaterally revoked, suspended, and
terminated the COHLA without giving Gonzales prior notice as required by
the above stipulation in the COHLA. Noceda testified on cross-examination
on the Offering Ticket recommending the termination of the credit line, thus:
ATTY. DE JESUS: [on Cross-Examination]
This Exhibit 8, you have not furnished at anytime a copy to the plaintiff Mr.
Gonzales is it not?
NOCEDA:
No sir but verbally it was relayed to him.
Q: But you have no proof that Mr. Gonzales came to know about this Exhibit
8?
A: It was relayed to him verbally.
Q: But there is no written proof?
A: No sir.
Q: And it is only now that you claim that it was verbally relayed to him, its
only now when you testified in Court?
A: Before . . .
Q: To whom did you relay this information?
A: It was during the time that we were going to Megamall, it was relayed by
Liza that he has to pay his obligations or else it will adversely affect the
status of the account.
On the other hand, the testimony of Corazon Nepomuceno shows:
ATTY. DE JESUS: [on Cross-Examination]
Now we go to the other credit facility which is the credit on hand extended
solely of course to Mr. Eusebio Gonzales who is the plaintiff here, Mr.
Panlilio is not included in this credit on hand facility. Did I gather from you
as per your Exhibit 7 as of October 2, 1998 you were the one who
recommended the cancellation of this credit on hand facility?
NEPOMUCENO:
It was recommended by the account officer and I supported it.
Q: And you approved it?
A: Yes sir.
Q: Did you inform Mr. Gonzales that you have already cancelled his credit
on hand facility?
A: As far as I know, it is the account officer who will inform him.
Q: But you have no record that he was informed?
A: I dont recall and we have to look at the folder to determine if they were
informed.
Q: If you will notice, this letter . . . what do you call this letter of yours?
A: That is our letter advising them or reminding them of their unpaid
interest and that if he is able to update his interest he can extend the
promissory note or restructure the outstanding.
Q: Now, I call your attention madam witness, there is nothing in this letter to
the clients advising them or Mr. Gonzales that his credit on hand facility was
already cancelled?
A: I dont know if there are other letters aside from this.
Q: So in this letter there is nothing to inform or to make Mr. Eusebio aware
that his credit on hand facility was already cancelled?
A: No actually he can understand it from the last sentence. If you will be able
to update your outstanding interest, we can apply the extention of your
promissory note so in other words we are saying that if you dont, you cannot
extend the promissory note.
Q: You will notice that the subject matter of this October 2, 1998 letter is only
the loan of 1.8 million is it not, as you can see from the letter? Okay?
27
A: Ah . . .
Q: Okay. There is nothing there that will show that that also refers to the
credit on hand facility which was being utilized by Mr. Gonzales is it not?
A: But I dont know if there are other letters that are not presented to me now.
The foregoing testimonies of PCIB officers clearly show that not only did
PCIB fail to give prior notice to Gonzales about the Offering Ticket for the
process of termination, suspension, or revocation of the credit line under the
COHLA, but PCIB likewise failed to inform Gonzales of the fact that his
credit line has been terminated. Thus, we find PCIB grossly negligent in the
termination, revocation, or suspension of the credit line under the
COHLA. While PCIB invokes its right on the so-called cross default
provisions, it may not with impunity ignore the rights of Gonzales under the
COHLA.
Indeed, the business of banking is impressed with public interest and great
reliance is made on the banks sworn profession of diligence and
meticulousness in giving irreproachable service. Like a common carrier
whose business is imbued with public interest, a bank should exercise
extraordinary diligence to negate its liability to the depositors. In this
instance, PCIB is sorely remiss in the diligence required in treating with its
client, Gonzales. It may not wantonly exercise its rights without respecting
and honoring the rights of its clients.
Art. 19 of the New Civil Code clearly provides that [e]very person must, in
the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith. This is
the basis of the principle of abuse of right which, in turn, is based upon the
maxim suum jus summa injuria (the abuse of right is the greatest possible
wrong).
In order for Art. 19 to be actionable, the following elements must be present:
(1) the existence of a legal right or duty, (2) which is exercised in bad faith,
and (3) for the sole intent of prejudicing or injuring another. We find that
such elements are present in the instant case. The effectivity clause of the
COHLA is crystal clear that termination of the COH should be done
only upon prior notice served on the CLIENT. This is the legal duty of
PCIBto inform Gonzales of the termination. However, as shown by the above
testimonies, PCIB failed to give prior notice to Gonzales.
Malice or bad faith is at the core of Art. 19. Malice or bad faith implies a
conscious and intentional design to do a wrongful act for a dishonest
purpose or moral obliquity. In the instant case, PCIB was able to send a letter
advising Gonzales of the unpaid interest on the loans but failed to mention
anything about the termination of the COHLA. More significantly, no letter
was ever sent to him about the termination of the COHLA. The failure to
give prior notice on the part of PCIB is already prima facie evidence of bad
faith. Therefore, it is abundantly clear that this case falls squarely within the
purview of the principle of abuse of rights as embodied in Art. 19.
Third. There is no dispute on the right of PCIB to suspend, terminate, or
revoke the COHLA under the cross default provisions of both the
promissory notes and the COHLA. However, these cross default provisions
do not confer absolute unilateral right to PCIB, as they are qualified by the
other stipulations in the contracts or specific circumstances, like in the instant
case of an accommodation party.
The promissory notes uniformly provide:
The lender is hereby authorized, at its option and without notice, to set off or
apply to the payment of this Note any and all moneys which may be in its
hands on deposit or otherwise belonging to the Borrower. The Borrower
irrevocably appoint/s the Lender, effective upon the nonpayment of this
Note on demand/at maturity or upon the happening of any of the events of
default, but without any obligation on the Lenders part should it choose not
to perform this mandate, as the attorney-in-fact of the Borrower, to sell and
dispose of any property of the Borrower, which may be in the Lenders
possession by public or private sale, and to apply the proceeds thereof to the
payment of this Note; the Borrower, however, shall remain liable for any
deficiency. (Emphasis ours.)
The above provisos are indeed qualified with the specific circumstance of an
accommodation party who, as such, has not been servicing the payment of
the dues of the loans, and must first be properly apprised in writing of the
outstanding dues in order to answer for his solidary obligation.
The same is true for the COHLA, which in its default clause provides:
16. DEFAULT The CLIENT shall be considered in default under the COH if
any of the following events shall occur:
28
1. x x x
2. Violation of the terms and conditions of this Agreement or any contract of
the CLIENT with the BANK or any bank, persons, corporations or entities for
the payment of borrowed money, or any other event of default in such
contracts.
The above pertinent default clause must be read in conjunction with the
effectivity clause (No. 4 of the COHLA, quoted above), which expressly
provides for the right of client to prior notice. The rationale is simple: in cases
where the bank has the right to terminate, revoke, or suspend the credit line,
the client must be notified of such intent in order for the latter to act
accordinglywhether to correct any ground giving rise to the right of the bank
to terminate the credit line and to dishonor any check issued or to act in
accord with such termination, i.e., not to issue any check drawn from the
credit line or to replace any checks that had been issued. This, the bankwith
gross negligencefailed to accord Gonzales, a valued client for more than 15
years.
Fourth. We find the testimony of Ocampo incredible on the point that the
principal borrower of the PhP 1,800,000 loan covered by the three
promissory notes is Gonzales for which the bank officers had special
instructions to grant and that it was through the instructions of Gonzales that
the payment of the periodic interest dues were debited from the account of
the spouses Panlilio.
For one, while the first promissory note dated October 30, 1995 indeed shows
Gonzales as the principal borrower, the other promissory notes dated
December 26, 1995 and January 3, 1996 evidently show that it was Jose
Panlilio who was the principal borrower with Gonzales as co-borrower. For
another, Ocampo cannot feign ignorance on the arrangement of the
payments by the spouses Panlilio through the debiting of their bank
account. It is incredulous that the payment arrangement is merely at the
behest of Gonzales and at a mere verbal directive to do so. The fact that the
spouses Panlilio not only received the proceeds of the loan but were
servicing the periodic interest dues reinforces the fact that Gonzales was only
an accommodation party.
Thus, due to PCIBs negligence in not giving Gonzalesan accommodation
partyproper notice relative to the delinquencies in the PhP 1,800,000 loan
covered by the three promissory notes, the unjust termination, revocation, or
suspension of the credit line under the COHLA from PCIBs gross negligence
in not honoring its obligation to give prior notice to Gonzales about such
termination and in not informing Gonzales of the fact of such termination,
treating Gonzales account as closed and dishonoring his PhP 250,000 check,
was certainly a reckless act by PCIB. This resulted in the actual injury of PhP
250,000 to Gonzales whose FCD account was frozen and had to look
elsewhere for money to pay Unson.
With banks, the degree of diligence required is more than that of a good
father of the family considering that the business of banking is imbued with
public interest due to the nature of their function. The law imposes on banks
a high degree of obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of
banking.[44] Had Gonzales been properly notified of the delinquencies of the
PhP 1,800,000 loan and the process of terminating his credit line under the
COHLA, he could have acted accordingly and the dishonor of the check
would have been avoided.
Third Issue: Award of Damages
The banking system has become an indispensable institution in the modern
world and plays a vital role in the economic life of every civilized
societybanks have attained a ubiquitous presence among the people, who
have come to regard them with respect and even gratitude and most of all,
confidence, and it is for this reason, banks should guard against injury
attributable to negligence or bad faith on its part.[45]
In the instant case, Gonzales suffered from the negligence and bad faith of
PCIB. From the testimonies of Gonzales witnesses, particularly those of
Dominador Santos[46]and Freddy Gomez,[47] the embarrassment and
humiliation Gonzales has to endure not only before his former close friend
Unson but more from the members and families of his friends and associates
in the PCA, which he continues to experience considering the confrontation
he had with Unson and the consequent loss of standing and credibility
among them from the fact of the apparent bouncing check he issued. Credit
is very important to businessmen and its loss or impairment needs to be
recognized and compensated.[48]
The termination of the COHLA by PCIB without prior notice and the
subsequent dishonor of the check issued by Gonzales constitute acts
of contra bonus mores. Art. 21 of the Civil Code refers to such acts when it
says, Any person who willfully causes loss or injury to another in a manner
that is contrary to morals, good customs or public policy shall compensate
the latter for damage.
29
Accordingly, this Court finds that such acts warrant the payment of
indemnity in the form of nominal damages. Nominal damages are
recoverable where a legal right is technically violated and must be vindicated
against an invasion that has produced no actual present loss of any kind x x
x.[49] We further explained the nature of nominal damages in Almeda v.
Cario:
x x x Its award is thus not for the purpose of indemnification for a loss but
for the recognition and vindication of a right. Indeed, nominal damages are
damages in name only and not in fact. When granted by the courts, they are
not treated as an equivalent of a wrong inflicted but simply a recognition of
the existence of a technical injury. A violation of the plaintiffs right, even if
only technical, is sufficient to support an award of nominal
damages. Conversely, so long as there is a showing of a violation of the right
of the plaintiff, an award of nominal damages is proper.[50] (Emphasis
Ours.)
In the present case, Gonzales had the right to be informed of the accrued
interest and most especially, for the suspension of his COHLA. For failure to
do so, the bank is liable to pay nominal damages. The amount of such
damages is addressed to the sound discretion of the court, taking into
account the relevant circumstances.[51] In this case, the Court finds that the
grant of PhP 50,000 as nominal damages is proper.
Moreover, as We held in MERALCO v. CA,[52] failure to give prior notice
when required, such as in the instant case, constitutes a breach of contract
and is a clear violation of Art. 21 of the Code. In cases such as this, Art. 2219
of the Code provides that moral damages may be recovered in acts referred
to in its Art. 21. Further, Art. 2220 of the Code provides that [w]illful injury
to property may be a legal ground for awarding moral damages if the court
should find that, under the circumstances, such damages are justly due. The
same rule applies to breaches of contract where the defendant acted
fraudulently or in bad faith. Similarly, every person who, contrary to law,
willfully or negligently causes damage to another, shall indemnify the latter
for the same.[53] Evidently, Gonzales is entitled to recover moral damages.
Even in the absence of malice or bad faith, a depositor still has the right to
recover reasonable moral damages, if the depositor suffered mental anguish,
serious anxiety, embarrassment, and humiliation.[54] Although incapable of
pecuniary estimation, moral damages are certainly recoverable if they are the
proximate result of the defendants wrongful act or omission. The factual
antecedents bolstered by undisputed testimonies likewise show the mental
anguish and anxiety Gonzales had to endure with the threat of Unson to file
a suit. Gonzales had to pay Unson PhP 250,000, while his FCD account in
PCIB was frozen, prompting Gonzales to demand from PCIB and to file the
instant suit.
The award of moral damages is aimed at a restoration within the limits of the
possible, of the spiritual status quo anteit must always reasonably
approximate the extent of injury and be proportional to the wrong
committed.[55] Thus, an award of PhP 50,000 is reasonable moral damages
for the unjust dishonor of the PhP 250,000 which was the proximate cause of
the consequent humiliation, embarrassment, anxiety, and mental anguish
suffered by Gonzales from his loss of credibility among his friends,
colleagues and peers.
Furthermore, the initial carelessness of the banks omission in not properly
informing Gonzales of the outstanding interest duesaggravated by its gross
neglect in omitting to give prior notice as stipulated under the COHLA and
in not giving actual notice of the termination of the credit linejustifies the
grant of exemplary damages of PhP 10,000. Such an award is imposed by
way of example or correction for the public good.
Finally, an award for attorneys fees is likewise called for from PCIBs
negligence which compelled Gonzales to litigate to protect his interest. In
accordance with Art. 2208(1) of the Code, attorneys fees may be recovered
when exemplary damages are awarded. We find that the amount of PhP
50,000 as attorneys fees is reasonable.
WHEREFORE, this petition is PARTLY GRANTED. Accordingly, the CA
Decision dated October 22, 2007 in CA-G.R. CV No. 74466 is
hereby REVERSED and SET ASIDE. The Philippine Commercial and
International Bank (now Banco De Oro) is ORDERED to pay Eusebio
Gonzales PhP 50,000 as nominal damages, PhP 50,000 as moral damages,
PhP 10,000 as exemplary damages, and PhP 50,000 as attorneys fees.
No pronouncement as to costs.
SO ORDERED.
30
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-30511 February 14, 1980
MANUEL M. SERRANO, petitioner,
vs.
CENTRAL BANK OF THE PHILIPPINES; OVERSEAS BANK OF
MANILA; EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO B.
RAMOS, JR., JOSEFA RAMOS DELA RAMA, HORACIO DELA RAMA,
ANTONIO B. RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO
LEDESMA, VICTORIA RAMOS TANJUATCO, and TEOFILO
TANJUATCO, respondents.
Rene Diokno for petitioner.
F.E. Evangelista & Glecerio T. Orsolino for respondent Central Bank of the
Philippines.
Feliciano C. Tumale, Pacifico T. Torres and Antonio B. Periquet for respondent
Overseas Bank of Manila.
Josefina G. Salonga for all other respondents.
CONCEPCION, JR., J.:
Petition for mandamus and prohibition, with preliminary injunction, that
seeks the establishment of joint and solidary liability to the amount of Three
Hundred Fifty Thousand Pesos, with interest, against respondent Central
Bank of the Philippines and Overseas Bank of Manila and its stockholders,
on the alleged failure of the Overseas Bank of Manila to return the time
deposits made by petitioner and assigned to him, on the ground that
respondent Central Bank failed in its duty to exercise strict supervision over
respondent Overseas Bank of Manila to protect depositors and the general
public.1 Petitioner also prays that both respondent banks be ordered to
execute the proper and necessary documents to constitute all properties
fisted in Annex "7" of the Answer of respondent Central Bank of the
Philippines in G.R. No. L-29352, entitled "Emerita M. Ramos, et al vs. Central
Bank of the Philippines," into a trust fund in favor of petitioner and all other
depositors of respondent Overseas Bank of Manila. It is also prayed that the
respondents be prohibited permanently from honoring, implementing, or
doing any act predicated upon the validity or efficacy of the deeds of
mortgage, assignment. and/or conveyance or transfer of whatever nature of
the properties listed in Annex "7" of the Answer of respondent Central Bank
in G.R. No. 29352.2
A sought for ex-parte preliminary injunction against both respondent banks
was not given by this Court.
Undisputed pertinent facts are:
On October 13, 1966 and December 12, 1966, petitioner made a time deposit,
for one year with 6% interest, of One Hundred Fifty Thousand Pesos
(P150,000.00) with the respondent Overseas Bank of Manila. 3 Concepcion
Maneja also made a time deposit, for one year with 6-½% interest, on March
6, 1967, of Two Hundred Thousand Pesos (P200,000.00) with the same
respondent Overseas Bank of Manila.4
On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano,
assigned and conveyed to petitioner Manuel M. Serrano, her time deposit of
P200,000.00 with respondent Overseas Bank of Manila. 5
Notwithstanding series of demands for encashment of the aforementioned
time deposits from the respondent Overseas Bank of Manila, dating from
December 6, 1967 up to March 4, 1968, not a single one of the time deposit
certificates was honored by respondent Overseas Bank of Manila. 6
Respondent Central Bank admits that it is charged with the duty of
administering the banking system of the Republic and it exercises
supervision over all doing business in the Philippines, but denies the
petitioner's allegation that the Central Bank has the duty to exercise a most
rigid and stringent supervision of banks, implying that respondent Central
Bank has to watch every move or activity of all banks, including respondent
Overseas Bank of Manila. Respondent Central Bank claims that as of March
12, 1965, the Overseas Bank of Manila, while operating, was only on a
limited degree of banking operations since the Monetary Board decided in its
Resolution No. 322, dated March 12, 1965, to prohibit the Overseas Bank of
Manila from making new loans and investments in view of its chronic
31
reserve deficiencies against its deposit liabilities. This limited operation of
respondent Overseas Bank of Manila continued up to 1968. 7
Respondent Central Bank also denied that it is guarantor of the permanent
solvency of any banking institution as claimed by petitioner. It claims that
neither the law nor sound banking supervision requires respondent Central
Bank to advertise or represent to the public any remedial measures it may
impose upon chronic delinquent banks as such action may inevitably result
to panic or bank "runs". In the years 1966-1967, there were no findings to
declare the respondent Overseas Bank of Manila as insolvent. 8
Respondent Central Bank likewise denied that a constructive trust was
created in favor of petitioner and his predecessor in interest Concepcion
Maneja when their time deposits were made in 1966 and 1967 with the
respondent Overseas Bank of Manila as during that time the latter was not
an insolvent bank and its operation as a banking institution was being
salvaged by the respondent Central Bank. 9
Respondent Central Bank avers no knowledge of petitioner's claim that the
properties given by respondent Overseas Bank of Manila as additional
collaterals to respondent Central Bank of the Philippines for the former's
overdrafts and emergency loans were acquired through the use of
depositors' money, including that of the petitioner and Concepcion
Maneja. 10
In G.R. No. L-29362, entitled "Emerita M. Ramos, et al. vs. Central Bank of the
Philippines," a case was filed by the petitioner Ramos, wherein respondent
Overseas Bank of Manila sought to prevent respondent Central Bank from
closing, declaring the former insolvent, and liquidating its assets. Petitioner
Manuel Serrano in this case, filed on September 6, 1968, a motion to
intervene in G.R. No. L-29352, on the ground that Serrano had a real and
legal interest as depositor of the Overseas Bank of Manila in the matter in
litigation in that case. Respondent Central Bank in G.R. No. L-29352 opposed
petitioner Manuel Serrano's motion to intervene in that case, on the ground
that his claim as depositor of the Overseas Bank of Manila should properly
be ventilated in the Court of First Instance, and if this Court were to allow
Serrano to intervene as depositor in G.R. No. L-29352, thousands of other
depositors would follow and thus cause an avalanche of cases in this Court.
In the resolution dated October 4, 1968, this Court denied Serrano's, motion
to intervene. The contents of said motion to intervene are substantially the
same as those of the present petition. 11
This Court rendered decision in G.R. No. L-29352 on October 4, 1971, which
became final and executory on March 3, 1972, favorable to the respondent
Overseas Bank of Manila, with the dispositive portion to wit:
WHEREFORE, the writs prayed for in the petition are
hereby granted and respondent Central Bank's resolution
Nos. 1263, 1290 and 1333 (that prohibit the Overseas Bank of
Manila to participate in clearing, direct the suspension of its
operation, and ordering the liquidation of said bank) are
hereby annulled and set aside; and said respondent Central
Bank of the Philippines is directed to comply with its
obligations under the Voting Trust Agreement, and to desist
from taking action in violation therefor. Costs against
respondent Central Bank of the Philippines. 12
Because of the above decision, petitioner in this case filed a motion for
judgment in this case, praying for a decision on the merits, adjudging
respondent Central Bank jointly and severally liable with respondent
Overseas Bank of Manila to the petitioner for the P350,000 time deposit made
with the latter bank, with all interests due therein; and declaring all assets
assigned or mortgaged by the respondents Overseas Bank of Manila and the
Ramos groups in favor of the Central Bank as trust funds for the benefit of
petitioner and other depositors. 13
By the very nature of the claims and causes of action against respondents,
they in reality are recovery of time deposits plus interest from respondent
Overseas Bank of Manila, and recovery of damages against respondent
Central Bank for its alleged failure to strictly supervise the acts of the other
respondent Bank and protect the interests of its depositors by virtue of the
constructive trust created when respondent Central Bank required the other
respondent to increase its collaterals for its overdrafts said emergency loans,
said collaterals allegedly acquired through the use of depositors money.
These claims shoud be ventilated in the Court of First Instance of proper
jurisdiction as We already pointed out when this Court denied petitioner's
motion to intervene in G.R. No. L-29352. Claims of these nature are not
proper in actions for mandamus and prohibition as there is no shown clear
abuse of discretion by the Central Bank in its exercise of supervision over the
other respondent Overseas Bank of Manila, and if there was, petitioner here
is not the proper party to raise that question, but rather the Overseas Bank of
Manila, as it did in G.R. No. L-29352. Neither is there anything to prohibit in
this case, since the questioned acts of the respondent Central Bank (the acts
of dissolving and liquidating the Overseas Bank of Manila), which petitioner
32
here intends to use as his basis for claims of damages against respondent
Central Bank, had been accomplished a long time ago.

Furthermore, both parties overlooked one fundamental principle in the

nature of bank deposits when the petitioner claimed that there should be
created a constructive trust in his favor when the respondent Overseas Bank
of Manila increased its collaterals in favor of respondent Central Bank for the
former's overdrafts and emergency loans, since these collaterals were
acquired by the use of depositors' money.

Bank deposits are in the nature of irregular deposits. They are really loans
because they earn interest. All kinds of bank deposits, whether fixed,
savings, or current are to be treated as loans and are to be covered by the law
on loans. 14 Current and savings deposit are loans to a bank because it can
use the same. The petitioner here in making time deposits that earn interests
with respondent Overseas Bank of Manila was in reality a creditor of the
respondent Bank and not a depositor. The respondent Bank was in turn a
debtor of petitioner. Failure of he respondent Bank to honor the time deposit
is failure to pay s obligation as a debtor and not a breach of trust arising from
depositary's failure to return the subject matter of the deposit

WHEREFORE, the petition is dismissed for lack of merit, with costs against
petitioner.

SO ORDERED.

33
Republic of the Philippines Unit 28-C Gilmore Townhomes located at Granada St., Quezon City. The
Supreme Court lease was for the benefit of Benjamin who is the occupant of the unit. The
Manila rentals were paid by Ignacio. The term of the lease is for one (1) year and will
expire on October 15, 1994. It appears that Arturo was intending to renew the
lease contract. As he had to leave for the U.S., Arturo drew up a check, UCPB
THIRD DIVISION Check No. GRH-560239 and wrote on it the name of the payee, Dr.
Manuel Borja, but left blank the date and amount. He signed the check. The
check was intended as payment for the renewal of the lease. The date and the
ALICE A.I. SANDEJAS, G.R. No. 155033 amount were left blank because Arturo does not know when it will be
ROSITA A.I. CUSI, renewed and the new rate of the lease. The check was left with Arturo's
PATRICIA A.I. SANDEJAS and Present: sister-in-law, who was instructed to deliver or give it to Benjamin.
BENJAMIN A.I. ESPIRITU,
Petitioners, YNARES-SANTIAGO, The check later came to the possession of Alice who felt that Arturo cheated
Chairperson,
their sister in the amount of three million pesos (P3,000,000.00). She believed
AUSTRIA-MARTINEZ,
that Arturo and Rosita had a joint and/or money market placement in the
- versus - CARPIO MORALES,*
amount of P3 million with the UCPB branch at Ortigas Ave., San Juan and
CHICO-NAZARIO, and
that Ignacio preterminated the placement and ran away with it, which
NACHURA, JJ.
rightfully belonged to Rosita. Alice then inquired from
SPS. ARTURO IGNACIO, JR.
UCPB Greenhills branch if Arturo still has an account with them. On getting
and EVELYN IGNACIO, Promulgated:
Respondents. December 19, 2007 a confirmation, she together with Rosita drew up a scheme to recover the P3
x------------------------------------------------x million from Arturo. Alice filled up the date of the check with March 17,
1995 and the amount with three million only. Alice got her driver, Kudera, to
stand as the payee of the check, Dr. Borja. Alice and Rosita came to
DECISION SBC[2] Greenhills Branch together with a man (Kudera) who[m] they
introduced as Dr. Borja to the then Assistant Cashier Luis. After introducing
the said man as Dr. Borja, Rosita, Alice and the man who was later identified
AUSTRIA-MARTINEZ, J.: as Kudera opened a Joint Savings Account No. 271-410554-7. As initial
deposit for the Joint Savings Account, Alice, Rosita and Kudera deposited
the check. No ID card was required of Mr. Kudera because it is an internal
Before the Court is a Petition for Review on Certiorari under Rule 45 of the policy of the bank that when a valued client opens an account, an
Rules of Court assailing the Decision[1] of the Court of Appeals (CA) in CA- identification card is no longer required (TSN, April 21, 1997, pp. 15-16). SBC
G.R. CV No. 62404 promulgated on August 27, 2002, which affirmed with also allowed the check to be deposited without the endorsement of the
modification the Decision of the Regional Trial Court (RTC) of Pasig City, impostor Kudera. SBC officials stamped on the dorsal portion of the check
Branch 158, in Civil Case No. 65146 dated December 18, 1998. endorsement/lack of endorsement guaranteed and sent the check for
clearing to the Philippine Clearing House Corporation.
The facts of the case, as summarized by the RTC, are as follows:
On 21 March 1995, after the check had already been cleared by the drawer
It appears from the plaintiffs' [petitioners] evidence that Arturo [respondent] bank UCPB, Rosita withdrew P1 million from Joint Savings Account and
is the elder brother of Alice [petitioner] and Rosita [petitioner], Benjamin deposited said amount to the current account of Alice with
[petitioner] and Patricia [petitioner] are Arturo's nephew and niece. Arturo SBC Greenhills Branch. On the same date, Alice caused the transfer of P2
and his wife Evelyn [respondent] are residents of the United States. In million from the Joint Savings Account to two (2) Investment Savings
October 1993, Arturo leased from Dr. Borja a condominium unit identified as Account[s] in the names of Alice, Rosita and/or Patricia. ...

34
On April 4, 1995, a day after Evelyn and Atty. Sanz inquired about the
identity of the persons and the circumstances surrounding the deposit and
withdrawal of the check, the three million pesos in the two investment
savings account[s] and in the current account just opened with SBC were
withdrawn by Alice and Rosita.[3]
On June 18, 1995, Arturo Ignacio, Jr. and Evelyn Ignacio (respondents) filed a
verified complaint for recovery of a sum of money and damages against
Security Bank and Trust Company (SBTC) and its officers, namely: Rene
Colin D. Gray, Manager; and Sonia Ortiz-Luis, Cashier. The complaint
also impleaded herein petitioner Benjamin A.I. Espiritu(Benjamin), a John
Doe, representing himself as Manuel N. Borja; and a Jane Doe.
On November 7, 1995, the complaint was amended by
additionally impleading herein petitioners Alice A.I. Sandejas (Alice), Rosita
A.I. Cusi (Rosita) and Patricia A.I. Sandejas(Patricia) as defendants who filed
their respective answers and counterclaims.
After trial, the RTC rendered judgment dated December 18, 1998 with the
following dispositive portion:
WHEREFORE, in view of the foregoing, judgment is rendered in favor of
plaintiffs as against defendants Security Bank and Trust Co., Rene Colin
Gray, Sonia Ortiz Luis, Alice A.I. Sandejasand Rosita A.I. Cusi, ordering
them to pay jointly and severally the plaintiffs the following amounts:
(1) P3,000,000.00 plus legal interest on it from March 17, 1995 until the entire
amount is fully paid;
(2) P500,000.00 as moral damages;
(3) P200,000.00 as exemplary damages;
(4) P300,000.00 as attorney's fees; plus
(5) the cost of suit.
In turn, plaintiffs are directed to pay Benjamin A.I. Espiritu the amount
of P100,000.00 as moral damages, P50,000.00 as exemplary damages and
another P50,000.00 as attorney's fees.
The counterclaims of Patricia A.I. Sandejas are dismissed.
SO ORDERED.[4]
Both parties appealed the RTC Decision to the CA.
On August 14, 1999, during the pendency of the appeal with the CA, herein
respondent Arturo Ignacio, Jr. (Arturo) died.[5]
On August 27, 2002, the CA promulgated the presently assailed Decision,
disposing as follows:
WHEREFORE, in view of the foregoing, the assailed decision of the trial
court is hereby AFFIRMED with the MODIFICATION that the judgment
shall read as follows:
The defendants-appellants Security Bank and Trust Company, Rene Colin D.
Gray, Sonia Ortiz-Luis, Alice A.I. Sandejas, and Rosita A.I. Cusi, are hereby
ordered to jointly and severally pay the plaintiffs the following amounts:
1. P3,000,000.00 plus legal interest computed from March 17, 1995 until the
entire amount is fully paid;
2. P200,000.00 as moral damages;
3. P100,000.00 as exemplary damages;
4. P50,000.00 as attorney's fees; plus
5. the costs of suit.
The award of moral damages, exemplary damages, and attorney's fees in
favor of Benjamin Espiritu is DELETED.
SO ORDERED.[6]
Petitioners and SBTC, together with Gray and Ortiz-Luis, filed their
respective petitions for review before this Court.
However, the petition filed by SBTC, Gray and Ortiz-Luis, docketed as G.R.
No. 155038, was denied in a Resolution[7] issued by this Court on November
20, 2002, for their failure to properly verify the petition, submit a valid
certification of non-forum shopping, and attach to the petition the duplicate
original or certified true copy of the assailed CA Decision. Said
Resolution became final and executory on April 9, 2003.[8]
On the other hand, the instant petition was given due course. Petitioners
enumerated the following grounds in support of their petition:
I. THE COURT OF APPEALS HAD DECIDED A QUESTION OF
SUBSTANCE NOT HERETOFORE DECIDED BY THIS COURT AND/OR
HAD DECIDED IT IN A WAY PROBABLY NOT IN ACCORD WITH
35
EQUITY, THE LAW AND THE APPLICABLE DECISIONS OF THIS
COURT, SUCH AS:
(a) IN NOT HOLDING THAT AS BETWEEN SIBLINGS, THE AGGRIEVED
SIBLING HAS THE RIGHT TO TAKE MEASURES OR STEPS TO PROTECT
HIS OWN INTEREST OR PROPERTY RIGHTS FROM AN ACT OF THE
GUILTY SIBLING;
(b) IN NOT HOLDING THAT THE ACT OF ROSITA AND ALICE IN
FILLING OUT THE BLANK PORTIONS OF THE CHECK TO RECOVER
WHAT ARTURO, JR. TOOK FROM AND DUE ROSITA, DID NOT GIVE
RISE TO AN ACTIONABLE TORT;
(c) IN NOT HOLDING THAT THE CRIMINAL ACT OF ARTURO, JR. IN
SUBMITTING AN AFFIDAVIT OF LOSS OF THE CERTIFICATE OF TIME
DEPOSIT FOR P3,000,000 THAT RIGHTFULLY BELONGED TO ROSITA
JUST TO BE ABLE TO PRE-TERMINATE THE TIME DEPOSIT AND GET
ITS FACE VALUE, WHEN HE KNEW IT WAS NOT LOST BUT IN FACT
INTACT AND IN THE POSSESSION OF ROSITA, IS A DISHONEST AND
REPREHENSIBLE ACT THAT JUSTIFIED ROSITA AND ALICE IN
TAKING MEANS TO REGAIN THE MONEY AND TO DENY ARTURO, JR.
ANY RIGHT TO RECOVER THE SAID AMOUNT AS WELL AS TO AN
AWARD OF DAMAGES;
(d) IN NOT HOLDING THAT THE CRIMINAL ACT OF ARTURO, JR. IN
SUBMITTING AN AFFIDAVIT OF LOSS OF THE OWNER'S COPY OF THE
TITLE IN MORAYTA AND IN TESTIFYING IN COURT AS TO SUCH,
WHEN THAT IS NOT THE TRUTH AS HE KNEW THAT THE ORIGINAL
OWNER'S COPY OF THE TITLE WAS WITH ROSITA, IS ANOTHER
DISHONEST AND REPREHENSIBLE ACT THAT SHOULD NOT HAVE
ENTITLED HIM TO ANY AWARD OF DAMAGES; AND
(e) IN NOT APPLYING THE RULE ON PARI DELICTO UNDER ART. 1412
OF THE CIVIL CODE.
II. THE COURT OF APPEALS HAD DEPARTED FROM THE USUAL
COURSE OF JUDICIAL PROCEEDINGS WHEN IT FAILED TO RESOLVE
IN THE APPEAL THE COUNTERCLAIM OF ROSITA AGAINST ARTURO,
JR. FOR THE RECOVERY OF THE AMOUNTS LEGALLY HERS THAT
SHOULD JUSTIFY ALICE'S BEING ABSOLVED FROM ANY LIABILITY
FOR USING THE CHECK IN RECOVERING THE AMOUNT RIGHTFULLY
BELONGING TO ROSITA;
III. THE COURT OF APPEALS HAD DEPARTED FROM THE USUAL
COURSE OF JUDICIAL PROCEEDINGS WHEN IT REVERSED THE TRIAL
COURT'S FINDING THAT RESPONDENT WAS GUILTY OF BAD FAITH
AND MALICE THAT ENTITLED PETITIONER BENJAMIN A.I. ESPIRITU
TO THE AWARD OF DAMAGES NOTWITHSTANDING THAT THERE
WAS AMPLE EVIDENCE SHOWN THAT SUCH BAD FAITH AND
MALICE WAS MADE AS A LEVERAGE TO COMPEL ARTURO'S
SIBLINGS TO RETURN TO HIM THE P3,000,000 WHICH WAS NOT HIS;
and,
IV. THE COURT OF APPEALS HAD DECIDED THE CASE NOT IN
ACCORD WITH LAW WHEN IT DELETED THE AWARD OF DAMAGES
TO PETITIONER ESPIRITU AND IN NOT HAVING RULED THAT HE
WAS ENTITLED TO A HIGHER AWARD OF DAMAGES CONSIDERING
THE CIRCUMSTANCES OF THE CASE AS WELL AS IN NOT HAVING
RULED THAT PATRICIA WAS ENTITLED TO AN AWARD OF
DAMAGES.[9]
Petitioners argue that the CA overlooked and ignored vital pieces of
evidence showing that the encashment of the subject check was not
fraudulent and, on the contrary, was justified under the circumstances; and
that such encashment did not amount to an actionable tort and that it merely
called for the application of the civil law rule on pari delicto.
In support of these arguments, petitioners contend that the principal
adversaries in the present case are full blooded siblings; that the law
recognizes the solidarity of family which is why it is made a condition that
earnest efforts towards a compromise be exerted before one family member
can institute a suit against the other; that even if Arturo previously
defrauded Rosita and deprived her of her lawful share in the sale of her
property, petitioners Rosita and Alice did not precipitately file suit against
him and instead took extra-legal measures to protect Rosita's property rights
and at the same time preserve the solidarity of their family and save it from
public embarrassment. Petitioners also aver that Rosita's and Alice's act
of encashing the subject check is not fraudulent because they did not have
any unlawful intent and that they merely took from Arturo what rightfully
belonged to Rosita. Petitioners contend that even granting that the act of
Rosita and Alice amounted to an actionable tort, they could not be adjudged
liable to return the amount to respondents or to pay damages in their favor,
because the civil law rule on pari delicto dictates that, when both parties are
at fault, neither of them could expect positive relief from courts of justice
and, instead, are left in the state where they were at the time of the filing of
the case.
36

Petitioners also contend that the CA erred in failing to award damages to
Patricia even if the appellate court sustained the trial court's finding that she
was not a party to the fraudulent acts committed by Rosita and
Alice. Petitioners argue that even if Patricia did not bother to know the
details of the cases against her and left everything to her mother, she did not
even know the nature of the case against her, or her superiors in the bank
where she worked did not know whether she was the plaintiff or defendant,
these were not reasons to deny her award of damages. The fact remains that
she had been maliciously dragged into the case, and that the suit had
adversely affected her work and caused her mental worries and anguish,
besmirched reputation, embarrassment and humiliation.
As to Benjamin, petitioners aver that the CA also erred in deleting the award
of damages and attorney's fees in his favor. Petitioners assert that the trial
court found that Benjamin suffered mental anguish, wounded feelings and
moral shock as a result of the filing of the present case. Citing the credentials
and social standing of Benjamin, petitioners claim that the award of damages
and attorney's fees in his favor should be increased.
Lastly, petitioners contend that the award of damages and attorney's fees to
respondents should be deleted for their failure to establish malice or bad
faith on the part of petitioners Alice and Rosita in recovering
the P3,000,000.00 which Arturo took from Rosita; and that it is Rosita who is
entitled to damages and attorney's fees for Arturo's failure and refusal to
give her share in the sale of her property in Morayta.
In their Memorandum, respondents simply contend that the issues raised by
petitioners are factual in nature and that the settled rule is that questions of
fact are not subject to review by the Supreme Court in a petition for review
on certiorari under Rule 45 of the Rules of Court. While there are exceptions
to this rule, respondents assert that petitioners failed to show that the instant
case falls under any of these exceptions.
The Courts Ruling
The Court finds the petition bereft of merit. There is no compelling reason for
the Court to disturb the findings of facts of the lower courts.
The trial court's findings are as follows: (1) Rosita failed to establish that
there is an agreement between her and Arturo that the latter will give her
one-third of the proceeds of the sale of the Morayta property; (2) petitioners
were not able to establish by clear and sufficient evidence that
the P3,000,000.00 which they took from Arturo when they encashedthe
subject check was part of the proceeds of the sale of the Morayta property;
(3) Rosita's counterclaim is permissive and she failed to pay the full docket
and filing fees for her counterclaim.[10]
Petitioners challenge the findings of the RTC and insist that they should not
be held liable for encashing the subject check because Arturo defrauded
Rosita and that he committed deceitful acts which deprived her of her
rightful share in the sale of her building in Morayta; that the amount
of P3,000,000.00 represented by the check which they encashedformed part
of the proceeds of the said sale; that Alice and Rosita were merely moved by
their desire to recover from Arturo, Rosita's supposed share in the sale of her
property.
However, the Court agrees with respondents that only questions of law are
entertained in petitions for review on certiorari under Rule 45 of the Rules of
Court.[11] The trial courts findings of fact, which the Court of Appeals
affirmed, are generally binding and conclusive upon this court.[12] There are
recognized exceptions to this rule, among which are: (1) the conclusion is
grounded on speculations, surmises or conjectures; (2) the inference is
manifestly mistaken, absurd or impossible; (3) there is grave abuse of
discretion; (4) the judgment is based on a misapprehension of facts; (5) the
findings of facts are conflicting; (6) there is no citation of specific evidence on
which the factual findings are based; (7) the finding of absence of facts is
contradicted by the presence of evidence on record; (8) the findings of the
CA are contrary to the findings of the trial court; (9) the CA manifestly
overlooked certain relevant and undisputed facts that, if properly
considered, would justify a different conclusion; (10) the findings of the CA
are beyond the issues of the case; and (11) such findings are contrary to the
admissions of both parties.[13] In the instant case, petitioners failed to
demonstrate that their petition falls under any one of the above exceptions.
Petitioners' assignments of errors boil down to the basic issue of whether or
not Alice and Rosita are justified in encashing the subject check given the
factual circumstances established in the present case.
Petitioners' posture is not sanctioned by law. If they truly believe that Arturo
took advantage of and violated the rights of Rosita, petitioners should have
sought redress from the courts and should not have simply taken the law
into their own hands. Our laws are replete with specific remedies designed
to provide relief for the violation of one's rights. In the instant case, Rosita
could have immediately filed an action for the nullification of the sale of the
building she owns in light of petitioners' claim that the document bearing
37
her conformity to the sale of the said building was taken by Arturo from her
without her knowledge and consent. Or, in the alternative, as the CA
correctly held, she could have brought a suit for the collection of a sum of
money to recover her share in the sale of her property in Morayta. In a
civilized society such as ours, the rule of law should always prevail. To allow
otherwise would be productive of nothing but mischief, chaos and
anarchy. As a lawyer, who has sworn to uphold the rule of law, Rosita
should know better.She must go to court for relief.
It is true that Article 151 of the Family Code requires that earnest efforts
towards a compromise be made before family members can institute suits
against each other. However, nothing in the law sanctions or allows the
commission of or resort to any extra-legal or illegal measure or remedy in
order for family members to avoid the filing of suits against another family
member for the enforcement or protection of their respective rights.
Petitioners invoke the rule of pari delicto to support their contention that
respondents do not deserve any relief from the courts.
The principle of pari delicto provides that when two parties are equally at
fault, the law leaves them as they are and denies recovery by either one of
them.[14] Indeed, one who seeks equity and justice must come to court with
clean hands.[15] However, in the present case, petitioners were not able to
establish that respondents are also at fault. Thus, the principle
of pari delicto cannot apply.
In any case, the application of the pari delicto principle is not absolute, as
there are exceptions to its application.[16] One of these exceptions is where
the application of the paridelicto rule would violate well-established public
policy.[17] The prevention of lawlessness and the maintenance of peace and
order are established public policies. In the instant case, to deny respondents
relief on the ground of pari delicto would put a premium on the illegal act of
petitioners in taking from respondents what the former claim to be rightfully
theirs.
Petitioners also question the trial court's ruling that their counterclaim is
permissive. This Court has laid down the following tests to determine
whether a counterclaim is compulsory or not, to wit: (1) Are the issues of fact
or law raised by the claim and the counterclaim largely the same? (2)
Would res judicata bar a subsequent suit on defendants claims, absent the
compulsory counterclaim rule? (3) Will substantially the same evidence
support or refute plaintiffs claim as well as the defendants
counterclaim? and (4) Is there any logical relation between the claim and the
counterclaim, such that the conduct of separate trials of the respective claims
of the parties would entail a substantial duplication of effort and time by the
parties and the court?[18]
Tested against the above-mentioned criteria, this Court agrees with the view
of the RTC that Rosita's counterclaim for the recovery of her alleged share in
the sale of the Moraytaproperty is permissive in nature. The evidence needed
to prove respondents' claim to recover the amount of P3,000,000.00 from
petitioners is different from that required to establish Rosita's demands for
the recovery of her alleged share in the sale of the
subject Morayta property. The recovery of respondents' claim is not
contingent or dependent upon the establishment of Rosita's counterclaim
such that conducting separate trials will not result in the substantial
duplication of the time and effort of the court and the parties.
In Sun Insurance Office, Ltd., (SIOL) v. Asuncion,[19] this Court laid down
the rules on the payment of filing fees, to wit:
1. It is not simply the filing of the complaint or appropriate initiatory
pleading, but the payment of the prescribed docket fee, that vests a trial
court with jurisdiction over the subject-matter or nature of the action. Where
the filing of the initiatory pleading is not accompanied by payment of the
docket fee, the court may allow payment of the fee within a reasonable time
but in no case beyond the applicable prescriptive or reglementary period.
2. The same rule applies to permissive counterclaims, third-party claims and
similar pleadings, which shall not be considered filed until and unless the
filing fee prescribed therefor is paid. The court may allow payment of said
fee within a reasonable time but also in no case beyond its applicable
prescriptive or reglementary period.
3. Where the trial court acquires jurisdiction over a claim by the filing of the
appropriate pleading and payment of the prescribed filing fee but,
subsequently, the judgment awards a claim not specified in the pleading, or
if specified the same has been left for determination by the court, the
additional filing fee therefor shall constitute a lien on the judgment. It shall
be the responsibility of the Clerk of Court or his duly authorized deputy to
enforce said lien and assess and collect the additional fee.[20]
In order for the trial court to acquire jurisdiction over her permissive
counterclaim, Rosita is bound to pay the prescribed docket fees.[21] Since it
is not disputed that Rosita never paid the docket and filing fees, the RTC did
not acquire jurisdiction over her permissive counterclaim. Nonetheless, the
38
trial court ruled on the merits of Rosita's permissive counterclaim by
dismissing the same on the ground that she failed to establish that there is a
sharing agreement between her and Arturo with respect to the proceeds of
the sale of the subject Morayta property and that the amount
of P3,000,000.00 represented by the check which Rosita and
Alice encashed formed part of the proceeds of the said sale.
It is settled that any decision rendered without jurisdiction is a total nullity
and may be struck down at any time, even on appeal before this Court.[22]
In the present case, considering that the trial court did not acquire
jurisdiction over the permissive counterclaim of Rosita, any proceeding
taken up by the trial court and any ruling or judgment rendered in relation
to such counterclaim is considered null and void. In effect, Rosita may file a
separate action against Arturo for recovery of a sum of money.
However, Rosita's claims for damages and attorney's fees are compulsory as
they necessarily arise as a result of the filing by respondents of their
complaint. Being compulsory in nature, payment of docket fees is not
required.[23] Nonetheless, since petitioners are found to be liable to return to
respondents the amount of P3,000,000.00 as well as to pay moral and
exemplary damages and attorney's fees, it necessarily follows that Rosita's
counterclaim for damages and attorney's fees should be dismissed as
correctly done by the RTC and affirmed by the CA.
As to Patricia's entitlement to damages, this Court has held that while no
proof of pecuniary loss is necessary in order that moral damages may be
awarded, the amount of indemnity being left to the discretion of the court, it
is nevertheless essential that the claimant should satisfactorily show the
existence of the factual basis of damages and its causal connection to
defendants acts.[24] This is so because moral damages, though incapable of
pecuniary estimation, are in the category of an award designed to
compensate the claimant for actual injury suffered and not to impose a
penalty on the wrongdoer.[25] Moreover, additional facts must be pleaded
and proven to warrant the grant of moral damages under the Civil
Code, these being, social humiliation, wounded feelings, grave anxiety, etc.
that resulted from the act being complained of.[26] In the present case, both
the RTC and the CA were not convinced that Patricia is entitled to damages.
Quoting the RTC, the CA held thus:
With respect to Patricia, she did not even bother to know the details of the
case against her, she left everything to the hands of her mother Alice. Her
attitude towards the case appears weird, she being a banker who seems so
concerned of her reputation.
Aside from the parties to this case, her immediate superiors in the BPI knew
that she is involved in a case. They did not however know whether she is the
plaintiff or the defendant in the case. Further, they did not know the nature
of the case that she is involved in. It appears that Patricia has not suffered
any of the injuries enumerated in Article 2217 of the Civil Code, thus, she is
not entitled to moral damages and attorney's fees.[27]
This Court finds no cogent reason to depart from the above-quoted findings
as Patricia failed to satisfactorily show the existence of the factual basis for
granting her moral damages and the causal connection of such fact to the act
of respondents in filing a complaint against her.
In addition, and with respect to Benjamin, the Court agrees with the CA that
in the absence of a wrongful act or omission, or of fraud or bad faith, moral
damages cannot be awarded.[28] The adverse result of an action does not per
se make the action wrongful, or the party liable for it.[29] One may err, but
error alone is not a ground for granting such damages.[30] In the absence of
malice and bad faith, the mental anguish suffered by a person for having
been made a party in a civil case is not the kind of anxiety which would
warrant the award of moral damages.[31]
A resort to judicial processes is not, per se, evidence of ill will upon which a
claim for damages may be based.[32]
In China Banking Corporation v. Court of Appeals,[33] this Court held:
Settled in our jurisprudence is the rule that moral damages cannot be
recovered from a person who has filed a complaint against another in good
faith, or without malice or bad faith (Philippine National Bank v. Court of
Appeals, 159 SCRA 433 [1988]; R & B Surety and Insurance v. Intermediate
Appellate Court, 129 SCRA 736 [1984]). If damage results from the filing of
the complaint, it is damnum absque injuria (Ilocos Norte Electrical Company
v. Court of Appeals, 179 SCRA 5 [1989]).[34]
In the present case, the Court agrees with the RTC and the CA that
petitioners failed to establish that respondents were moved by bad faith or
malice in impleading Patricia and Benjamin. Hence, Patricia and Benjamin
are not entitled to damages.
39
The Court sustains the award of moral and exemplary damages as well as
attorney's fees in favor of respondents.
As to moral damages, Article 20 of the Civil Code provides that every person
who, contrary to law, willfully or negligently causes damage to another, shall
indemnify the latter for the same. In addition, Article 2219 (10) of the Civil
Code provides that moral damages may be recovered in acts or actions
referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 and 35 of the same
Code. More particularly, Article 21 of the said Code provides that any person
who willfully causes loss or injury to another in a manner that is contrary to
morals, good customs, or public policy shall compensate the latter for the
damage. In the present case, the act of Alice and Rosita in
fraudulently encashing the subject check to the prejudice of respondents is
certainly a violation of law as well as of the public policy that no one should
put the law into his own hands. As to SBTC and its officers, their negligence
is so gross as to amount to a willfull injury to respondents. The banking
system has become an indispensable institution in the modern world and
plays a vital role in the economic life of every civilized society.[35] Whether
as mere passive entities for the safe-keeping and saving of money or as active
instruments of business and commerce, banks have attained a ubiquitous
presence among the people, who have come to regard them with respect and
even gratitude and most of all, confidence.[36] For this reason,banks should
guard against injury attributable to negligence or bad faith on its part.[37]
policy. On the part of respondent bank, the public relies on a bank's sworn
profession of diligence and meticulousness in giving irreproachable
service.[42] Hence, the level of meticulousness must be maintained at all
times by the banking sector.[43] In the present case the award of exemplary
damages is justified by the brazen acts of petitioners Rosita and Alice in
violating the law coupled with the gross negligence committed by
respondent bank and its officers in allowing the subject check to be deposited
which later paved the way for its encashment.
As to attorney's fees, Article 2208 of the same Code provides, among others,
that attorney's fees may be recovered when exemplary damages are awarded
or when the defendant's act or omission has compelled the plaintiff to litigate
with third persons or to incur expenses to protect his interest.
WHEREFORE, the instant petition is DENIED. The Decision of the Court of
Appeals dated August 27, 2002 in CA-G.R. CV No. 62404 is AFFIRMED.
Costs against the petitioners.
SO ORDERED.

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.[38] The yardstick should be that it is not palpably and
scandalously excessive.[39] Moreover, the social standing of the aggrieved
party is essential to the determination of the proper amount of the
award.[40] Otherwise, the goal of enabling him to obtain means, diversions,
or amusements to restore him to the status quo ante would not be
achieved.[41] In the present case, the Court finds no cogent reason to modify
the amount of moral damages granted by the CA.

Likewise, the Court finds no compelling reason to disturb the modifications

made by the CA on the award of exemplary damages and attorney's fees.

Under Article 2229 of the Civil Code, exemplary or corrective damages are
imposed by way of example or correction for the public good, in addition to
moral, temperate, liquidated, or compensatory damages. In the instant case,
the award of exemplary damages in favor of respondents is in order for the
purpose of deterring those who intend to enforce their rights by taking
measures or remedies which are not in accord with law and public
40
Republic of the Philippines 2. Check No. 215426 dated May 28, 1981, in favor of the Bureau of
SUPREME COURT Internal Revenue in the amount of P3,386.73:
Manila 3. Check No. 215451 dated June 4, 1981, in favor of Mr. Greg Pedreño in
the amount of P7,080.00;
FIRST DIVISION 4. Check No. 215441 dated June 5, 1981, in favor of Malabon Longlife
Trading Corporation in the amount of P42,906.00:
G.R. No. 88013 March 19, 1990 5. Check No. 215474 dated June 10, 1981, in favor of Malabon Longlife
Trading Corporation in the amount of P12,953.00:
SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner, 6. Check No. 215477 dated June 9, 1981, in favor of Sea-Land Services,
vs. Inc. in the amount of P27,024.45:
THE HONORABLE COURT OF APPEALS and TRADERS ROYAL 7. Check No. 215412 dated June 10, 1981, in favor of Baguio Country
BANK, respondents. Club Corporation in the amount of P4,385.02: and
8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta Bayla in
Don P. Porcuincula for petitioner. the amount of P6,275.00. 2

San Juan, Gonzalez, San Agustin & Sinense for private respondent. As a consequence, the California Manufacturing Corporation sent on June 9,
1981, a letter of demand to the petitioner, threatening prosecution if the
CRUZ, J.: dishonored check issued to it was not made good. It also withheld delivery
of the order made by the petitioner. Similar letters were sent to the petitioner
by the Malabon Long Life Trading, on June 15, 1981, and by the G. and U.
We are concerned in this case with the question of damages, specifically
Enterprises, on June 10, 1981. Malabon also canceled the petitioner's credit
moral and exemplary damages. The negligence of the private respondent has
line and demanded that future payments be made by it in cash or certified
already been established. All we have to ascertain is whether the petitioner is
check. Meantime, action on the pending orders of the petitioner with the
entitled to the said damages and, if so, in what amounts.
other suppliers whose checks were dishonored was also deferred.
The parties agree on the basic facts. The petitioner is a private corporation
The petitioner complained to the respondent bank on June 10,
engaged in the exportation of food products. It buys these products from
1981. 3 Investigation disclosed that the sum of P100,000.00 deposited by the
various local suppliers and then sells them abroad, particularly in the United
petitioner on May 25, 1981, had not been credited to it. The error was
States, Canada and the Middle East. Most of its exports are purchased by the
rectified on June 17, 1981, and the dishonored checks were paid after they
petitioner on credit.
were re-deposited. 4
The petitioner was a depositor of the respondent bank and maintained a
In its letter dated June 20, 1981, the petitioner demanded reparation from the
checking account in its branch at Romulo Avenue, Cubao, Quezon City. On
respondent bank for its "gross and wanton negligence." This demand was
May 25, 1981, the petitioner deposited to its account in the said bank the
not met. The petitioner then filed a complaint in the then Court of First
amount of P100,000.00, thus increasing its balance as of that date to
Instance of Rizal claiming from the private respondent moral damages in the
P190,380.74. 1 Subsequently, the petitioner issued several checks against its
sum of P1,000,000.00 and exemplary damages in the sum of P500,000.00, plus
deposit but was suprised to learn later that they had been dishonored for
25% attorney's fees, and costs.
insufficient funds.

After trial, Judge Johnico G. Serquinia rendered judgment holding that moral
The dishonored checks are the following:
and exemplary damages were not called for under the circumstances.
1. Check No. 215391 dated May 29, 1981, in favor of California
However, observing that the plaintiff's right had been violated, he ordered
Manufacturing Company, Inc. for P16,480.00:
the defendant to pay nominal damages in the amount of P20,000.00 plus
41
P5,000.00 attorney's fees and costs. 5 This decision was affirmed in toto by the
respondent court. 6
The respondent court found with the trial court that the private respondent
was guilty of negligence but agreed that the petitioner was nevertheless not
entitled to moral damages. It said:
The essential ingredient of moral damages is proof of bad faith (De
Aparicio vs. Parogurga, 150 SCRA 280). Indeed, there was the omission
by the defendant-appellee bank to credit appellant's deposit of
P100,000.00 on May 25, 1981. But the bank rectified its records. It
credited the said amount in favor of plaintiff-appellant in less than a
month. The dishonored checks were eventually paid. These
circumstances negate any imputation or insinuation of malicious,
fraudulent, wanton and gross bad faith and negligence on the part of
the defendant-appellant.
It is this ruling that is faulted in the petition now before us.
This Court has carefully examined the facts of this case and finds that it
cannot share some of the conclusions of the lower courts. It seems to us that
the negligence of the private respondent had been brushed off rather lightly
as if it were a minor infraction requiring no more than a slap on the wrist.
We feel it is not enough to say that the private respondent rectified its
records and credited the deposit in less than a month as if this were sufficient
repentance. The error should not have been committed in the first place. The
respondent bank has not even explained why it was committed at all. It is
true that the dishonored checks were, as the Court of Appeals put it,
"eventually" paid. However, this took almost a month when, properly, the
checks should have been paid immediately upon presentment.
As the Court sees it, the initial carelessness of the respondent bank,
aggravated by the lack of promptitude in repairing its error, justifies the
grant of moral damages. This rather lackadaisical attitude toward the
complaining depositor constituted the gross negligence, if not wanton bad
faith, that the respondent court said had not been established by the
petitioner.
We also note that while stressing the rectification made by the respondent
bank, the decision practically ignored the prejudice suffered by the
petitioner. This was simply glossed over if not, indeed, disbelieved. The fact
is that the petitioner's credit line was canceled and its orders were not acted
upon pending receipt of actual payment by the suppliers. Its business
declined. Its reputation was tarnished. Its standing was reduced in the
business community. All this was due to the fault of the respondent bank
which was undeniably remiss in its duty to the petitioner.
Article 2205 of the Civil Code provides that actual or compensatory damages
may be received "(2) for injury to the plaintiff s business standing or
commercial credit." There is no question that the petitioner did sustain actual
injury as a result of the dishonored checks and that the existence of the loss
having been established "absolute certainty as to its amount is not
required." 7 Such injury should bolster all the more the demand of the
petitioner for moral damages and justifies the examination by this Court of
the validity and reasonableness of the said claim.
We agree that moral damages are not awarded to penalize the defendant but
to compensate the plaintiff for the injuries he may have suffered. 8 In the case
at bar, the petitioner is seeking such damages for the prejudice sustained by
it as a result of the private respondent's fault. The respondent court said that
the claimed losses are purely speculative and are not supported by
substantial evidence, but if failed to consider that the amount of such losses
need not be established with exactitude precisely because of their nature.
Moral damages are not susceptible of pecuniary estimation. Article 2216 of
the Civil Code specifically provides that "no proof of pecuniary loss is
necessary in order that moral, nominal, temperate, liquidated or exemplary
damages may be adjudicated." That is why the determination of the amount
to be awarded (except liquidated damages) is left to the sound discretion of
the court, according to "the circumstances of each case."
From every viewpoint except that of the petitioner's, its claim of moral
damages in the amount of P1,000,000.00 is nothing short of preposterous. Its
business certainly is not that big, or its name that prestigious, to sustain such
an extravagant pretense. Moreover, a corporation is not as a rule entitled to
moral damages because, not being a natural person, it cannot experience
physical suffering or such sentiments as wounded feelings, serious anxiety,
mental anguish and moral shock. The only exception to this rule is where the
corporation has a good reputation that is debased, resulting in its social
humiliation. 9
We shall recognize that the petitioner did suffer injury because of the private
respondent's negligence that caused the dishonor of the checks issued by it.
The immediate consequence was that its prestige was impaired because of
the bouncing checks and confidence in it as a reliable debtor was diminished.
42
The private respondent makes much of the one instance when the petitioner
was sued in a collection case, but that did not prove that it did not have a
good reputation that could not be marred, more so since that case was
ultimately settled. 10 It does not appear that, as the private respondent would
portray it, the petitioner is an unsavory and disreputable entity that has no
good name to protect.
Considering all this, we feel that the award of nominal damages in the sum
of P20,000.00 was not the proper relief to which the petitioner was entitled.
Under Article 2221 of the Civil Code, "nominal damages are adjudicated in
order that a right of the plaintiff, which has been violated or invaded by the
defendant, may be vindicated or recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered by him." As we have found
that the petitioner has indeed incurred loss through the fault of the private
respondent, the proper remedy is the award to it of moral damages, which
we impose, in our discretion, in the same amount of P20,000.00.
Now for the exemplary damages.
The pertinent provisions of the Civil Code are the following:
Art. 2229. Exemplary or corrective damages are imposed, by way of
example or correction for the public good, in addition to the moral,
temperate, liquidated or compensatory damages.
Art. 2232. In contracts and quasi-contracts, the court may award
exemplary damages if the defendant acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner.
The banking system is an indispensable institution in the modern world and
plays a vital role in the economic life of every civilized nation. Whether as
mere passive entities for the safekeeping and saving of money or as active
instruments of business and commerce, banks have become an ubiquitous
presence among the people, who have come to regard them with respect and
even gratitude and, most of all, confidence. Thus, even the humble wage-
earner has not hesitated to entrust his life's savings to the bank of his choice,
knowing that they will be safe in its custody and will even earn some interest
for him. The ordinary person, with equal faith, usually maintains a modest
checking account for security and convenience in the settling of his monthly
bills and the payment of ordinary expenses. As for business entities like the
petitioner, the bank is a trusted and active associate that can help in the
running of their affairs, not only in the form of loans when needed but more
often in the conduct of their day-to-day transactions like the issuance or
encashment of checks.
In every case, the depositor expects the bank to treat his account with the
utmost fidelity, whether such account consists only of a few hundred pesos
or of millions. The bank must record every single transaction accurately,
down to the last centavo, and as promptly as possible. This has to be done if
the account is to reflect at any given time the amount of money the depositor
can dispose of as he sees fit, confident that the bank will deliver it as and to
whomever he directs. A blunder on the part of the bank, such as the
dishonor of a check without good reason, can cause the depositor not a little
embarrassment if not also financial loss and perhaps even civil and criminal
litigation.
The point is that as a business affected with public interest and because of
the nature of its functions, the bank is under obligation to treat the accounts
of its depositors with meticulous care, always having in mind the fiduciary
nature of their relationship. In the case at bar, it is obvious that the
respondent bank was remiss in that duty and violated that relationship.
What is especially deplorable is that, having been informed of its error in not
crediting the deposit in question to the petitioner, the respondent bank did
not immediately correct it but did so only one week later or twenty-three
days after the deposit was made. It bears repeating that the record does not
contain any satisfactory explanation of why the error was made in the first
place and why it was not corrected immediately after its discovery. Such
ineptness comes under the concept of the wanton manner contemplated in
the Civil Code that calls for the imposition of exemplary damages.
After deliberating on this particular matter, the Court, in the exercise of its
discretion, hereby imposes upon the respondent bank exemplary damages in
the amount of P50,000.00, "by way of example or correction for the public
good," in the words of the law. It is expected that this ruling will serve as a
warning and deterrent against the repetition of the ineptness and
indefference that has been displayed here, lest the confidence of the public in
the banking system be further impaired.
ACCORDINGLY, the appealed judgment is hereby MODIFIED and the
private respondent is ordered to pay the petitioner, in lieu of nominal
damages, moral damages in the amount of P20,000.00, and exemplary
damages in the amount of P50,000.00 plus the original award of attorney's
fees in the amount of P5,000.00, and costs.
SO ORDERED.
43
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 69162 February 21, 1992
BANK OF THE PHILIPPINE ISLANDS, petitioner,
vs.
THE INTERMEDIATE APPELLATE COURT and the SPOUSES ARTHUR
CANLAS and VIVIENE CANLAS, respondents.
Leonen, Ramirez & Associates for petitioner.
L. Emmanuel B. Canilao for private respondents.
GRIÑO-AQUINO, J.:
In a decision dated September 3, 1984, the Intermediate Appellate Court
(now Court of Appeals) in AC-G.R. CV No. 69178 entitled, "Arthur A.
Canlas, et al., Plaintiff-Appellees vs. Commercial Bank and Trust Company
of the Philippines, Defendant-Appellant," reduced to P105,000 the P465,000
damage-award of the trial court to the private respondents for an error of a
bank teller which resulted in the dishonor of two small checks which the
private respondents had issued against their joint current account. This
petition for review of that decision was filed by the Bank.
The respondent spouses, Arthur and Vivienne Canlas, opened a joint current
account No. 210-520-73 on April 25, 1977 in the Quezon City branch of the
Commercial Bank and Trust Company of the Philippines (CBTC) with an
initial deposit of P2,250. Prior thereto, Arthur Canlas had an existing
separate personal checking account No. 210-442-41 in the same branch.
When the respondent spouses opened their joint current account, the "new
accounts" teller of the bank pulled out from the bank's files the old and
existing signature card of respondent Arthur Canlas for Current Account No.
210-442-41 for use as I D and reference. By mistake, she placed the old
personal account number of Arthur Canlas on the deposit slip for the new
joint checking account of the spouses so that the initial deposit of P2,250 for
the joint checking account was miscredited to Arthur's personal account (p.
9, Rollo). The spouses subsequently deposited other amounts in their joint
account.
However, when respondent Vivienne Canlas issued a check for Pl,639.89 in
April 1977 and another check for P1,160.00 on June 1, 1977, one of the checks
was dishonored by the bank for insufficient funds and a penalty of P20 was
deducted from the account in both instances. In view of the overdrawings,
the bank tried to call up the spouses at the telephone number which they had
given in their application form, but the bank could not contact them because
they actually reside in Porac, Pampanga. The city address and telephone
number which they gave to the bank belonged to Mrs. Canlas' parents.
On December 15, 1977, the private respondents filed a complaint for
damages against CBTC in the Court of First Instance of Pampanga (p.
113, Rollo).
On February 27, 1978, the bank filed a motion to dismiss the complaint for
improper venue. The motion was denied.
During the pendency of the case, the Bank of the Philippine Islands (BPI) and
CBTC were merged. As the surviving corporation under the merger
agreement and under Section 80 (5) of the Corporation Code of the
Philippines, BPI took over the prosecution and defense of any pending
claims, actions or proceedings by and against CBTC.
On May 5, 1981, the Regional Trial Court of Pampanga rendered a decision
against BPI, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered sentencing
defendant to pay the plaintiff the following:
1. P 5,000.00 as actual damages;
2. P 150,000.00 for plaintiff Arthur Canlas and P150,000.00
for plaintiff Vivienne S. Canlas representing moral damages;
3. P 150.000.00 as exemplary damages;
44
 4. P 10,000.00 as attorney's fees; and
5. Costs. (p. 36, Rollo).
On appeal, the Intermediate Appellate Court deleted the actual damages and
reduced the other awards. The dispositive portion of its decision reads:
WHEREFORE, the judgment appealed from is hereby
modified as follows:
1. The award of P50,000.00 in actual damages is herewith
deleted.
2. Moral damages of P50,000.00 is awarded to plaintiffs-
appellees Arthur Canlas and Vivienne S. Canlas, not
P50,000.00 each.
3. Exemplary damages is likewise reduced to the sum of
P50,000.00 and attorney's fees to P5,000.00.
Costs against the defendants appellant. (p. 40, Rollo.)
Petitioner filed this petition for review alleging that the appellate court erred
in holding that:
1. The venue of the case had been properly laid at Pampanga
in the light of private respondents' earlier declaration that
Quezon City is their true residence.
2. The petitioner was guilty of gross negligence in the
handling of private respondents' bank account.
3. Private respondents are entitled to the moral and
exemplary damages and attorney's fees adjudged by the
respondent appellate court.
On the question of venue raised by petitioner, it is evident that personal
actions may be instituted in the Court of First Instance (now Regional Trial
Court) of the province where the defendant or any of the defendants resides
or may be found, or where the plaintiff or any of the plaintiffs resides, at the
election of the plaintiff (Section 2[b], Rule 4 of the Rules of Court). In this
case, there was ample proof that the residence of the plaintiffs is B. Sacan,
Porac, Pampanga (p. 117, Rollo). The city address of Mrs. Canlas' parents was
placed by the private respondents in their application for a joint checking
account, at the suggestion of the new accounts teller, presumably to facilitate
mailing of the bank statements and communicating with the private
respondents in case any problems should arise involving the account. No
waiver of their provincial residence for purposes of determining the venue of
an action against the bank may be inferred from the so-called
"misrepresentation" of their true residence.
The appellate court based its award of moral and exemplary damages, and
attorney's fees on its finding that the mistake committed by the new accounts
teller of the petitioner constituted "serious" negligence (p. 38, Rollo). Said
court further stressed that it cannot absolve the petitioner from liability for
damages to the private respondents, even on the assumption of an honest
mistake on its part, because of the embarrassment that even an honest
mistake can cause its depositors (p. 31, Rollo).
There is no merit in petitioner's argument that it should not be considered
negligent, much less held liable for damages on account of the inadvertence
of its bank employee for Article 1173 of the Civil Code only requires it to
exercise the diligence of a good father of family.
In Simex International (Manila), Inc. vs. Court of Appeals (183 SCRA 360, 367),
this Court stressed the fiduciary nature of the relationship between a bank
and its depositors and the extent of diligence expected of it in handling the
accounts entrusted to its care.
In every case, the depositor expects the bank to treat his
account with the utmost fidelity, whether such account
consists only of a few hundred pesos or of millions. The
bank must record every single transaction accurately, down
to the last centavo, and as promptly as possible. This has to
be done if the account is to reflect at any given time the
amount of money the depositor can dispose of as he sees fit,
confident that the bank will deliver it as and to whomever
he directs. A blunder on the part of the bank, such as the
dishonor of a check without good reason, can cause the
depositor not a little embarrassment if not also financial loss
and perhaps even civil and criminal litigation.
45
 The point is that as a business affected with public interest
and because of the nature of its functions, the bank is under
obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature
of their relationship. . . .

The bank is not expected to be infallible but, as correctly observed by

respondent Appellate Court, in this instance, it must bear the blame for not
discovering the mistake of its teller despite the established procedure
requiring the papers and bank books to pass through a battery of bank
personnel whose duty it is to check and countercheck them for possible
errors. Apparently, the officials and employees tasked to do that did not
perform their duties with due care, as may be gathered from the testimony of
the bank's lone witness, Antonio Enciso, who casually declared that "the
approving officer does not have to see the account numbers and all those
things. Those are very petty things for the approving manager to look into" (p. 78,
Record on Appeal). Unfortunately, it was a "petty thing," like the incorrect
account number that the bank teller wrote on the initial deposit slip for the
newly-opened joint current account of the Canlas spouses, that sparked this
half-a-million-peso damage suit against the bank.

While the bank's negligence may not have been attended with malice and
bad faith, nevertheless, it caused serious anxiety, embarrassment and
humiliation to the private respondents for which they are entitled to recover
reasonable moral damages (American Express International, Inc. vs. IAC, 167
SCRA 209). The award of reasonable attorney's fees is proper for the private
respondents were compelled to litigate to protect their interest (Art. 2208,
Civil Code). However, the absence of malice and bad faith renders the award
of exemplary damages improper (Globe Mackay Cable and Radio Corp. vs.
Court of Appeals, 176 SCRA 778).

WHEREFORE, the petition for review is granted. The appealed decision is

MODIFIED by deleting the award of exemplary damages to the private
respondents. In all other respects, the decision of the Intermediate Appellate
Court, now Court of Appeals, is AFFIRMED. No costs.

SO ORDERED.

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