BANCO DE ORO-EPCI, INC.,* G.R. No.

179901 Because the petition was sufficient in form and substance, a stay order[12] was issued
Petitioner, on September 28, 2003.[13] However, the proposed rehabilitation plan for JAPRL
Present: and RFC was eventually rejected by the Quezon City RTC in an order dated May 9,
2005.[14]
PUNO, C.J., Chairperson,
CARPIO,
- v e r s u s - CORONA, CIVIL CASE NO. 03-991
AZCUNA** and
LEONARDO-DE CASTRO, JJ.
Because JAPRL ignored its demand for payment, petitioner filed a complaint for sum
JAPRL DEVELOPMENT of money with an application for the issuance of a writ of preliminary attachment
CORPORATION, RAPID against respondents in the RTC of Makati City, Branch 145 (Makati RTC) on August
FORMING CORPORATION 21, 2003.[15] Petitioner essentially asserted that JAPRL was guilty of fraud because it
and JOSE U. AROLLADO, (JAPRL) altered and falsified its financial statements.[16]
Respondents. Promulgated: 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
April 14, 2008 allegations. Nevertheless, it ordered the service of summons on
respondents.[17] Pursuant to the said order, summonses were issued against
x-----------------------------------------x respondents and were served upon them.

DECISION
CORONA, J.:
This petition for review on certiorari[1] seeks to set aside the decision[2] of the Court
of Appeals (CA) in CA-G.R. SP No. 95659 and its resolution[3] denying
reconsideration.
After evaluating the financial statements of respondent JAPRL Development
Corporation (JAPRL) for fiscal years 1998, 1999 and 2000,[4]petitioner Banco de
Oro-EPCI, Inc. extended credit facilities to it amounting to P230,000,000[5] on
March 28, 2003. Respondents Rapid Forming Corporation (RFC) and Jose U.
Arollado acted as JAPRLs sureties.
Respondents moved to dismiss the complaint due to an allegedly invalid service of
summons.[18] Because the officers return stated that an administrative assistant had
received the summons,[19] JAPRL and RFC argued that Section 11, Rule 14 of the
Rules of Court[20] contained an exclusive list of persons on whom summons against a
corporation must be served.[21] An administrative assistant was not one of
them. Arollado, on the other hand, cited Section 6, Rule 14 thereof[22] which
mandated personal service of summons on an individual defendant.[23]
The Makati RTC, in its October 10, 2005 order,[24] 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[25] but withdrew it before the Makati RTC
could resolve the matter.[26]

Despite its seemingly strong financial position, JAPRL defaulted in the payment of
four trust receipts soon after the approval of its loan.[6]Petitioner later learned from
MRM Management, JAPRLs financial adviser, that JAPRL had altered and falsified
its financial statements. It allegedly bloated its sales revenues to post a big income
from operations for the concerned fiscal years to project itself as a viable
investment.[7]The information alarmed petitioner. Citing relevant provisions of the
Trust Receipt Agreement,[8] it demanded immediate payment of JAPRLs outstanding
obligations amounting to P194,493,388.98.[9]
SP PROC. NO. Q-03-064
On August 30, 2003, JAPRL (and its subsidiary, RFC) filed a petition for
rehabilitation in the Regional Trial Court (RTC) of Quezon City, Branch 90 (Quezon
City RTC).[10] It disclosed that it had been experiencing a decline in sales for the
three preceding years and a staggering loss in 2002.[11]
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[27] 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.[28]
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.[29] Respondents moved for reconsideration[30] but it was denied.[31]
1

On August 11, 2006, respondents filed a petition for certiorari[32] in the CA alleging
that the Makati RTC committed grave abuse of discretion in issuing the October 10,
2005 and July 7, 2006 orders.[33] They asserted that the court did not acquire
jurisdiction over their persons due to defective service of summons. Thus, the Makati
RTC could not hear the complaint for sum of money.[34]
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.[35]
Petitioner moved for reconsideration but it was denied.[36] 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.[37]
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.[38] 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,[39] 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.[40]
We withhold judgment for the moment on the July 7, 2006 order of the Makati RTC
suspending the proceedings in Civil Case No. 03-991 insofar as JAPRL and RFC are
concerned. Under the Interim Rules of Procedure on Corporate Rehabilitation, a stay
order defers all actions or claims against the corporation seeking
rehabilitation[41] from the date of its issuance until the dismissal of the petition or
termination of the rehabilitation proceedings.[42]
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.[43]
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.[44]
Banks are entities engaged in the lending of funds obtained through
deposits[45] from the public.[46] They borrow the publics excess money
(i.e.,deposits) and lend out the same.[47] Banks therefore redistribute wealth in the
economy by channeling idle savings to profitable investments.
Banks operate (and earn income) by extending credit facilities financed primarily by
deposits from the public.[48] They plough back the bulk of said deposits into the
economy in the form of loans.[49] Since banks deal with the 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.[50]
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.
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 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)
2
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.[51]
Finally, considering that respondents failed to pay the four trust receipts, the Makati
City Prosecutor should investigate whether or not there is probable cause to indict
respondents for violation of Section 13 of the Trust Receipts Law.[52]

ACCORDINGLY, the petition is hereby GRANTED. The June 7, 2007 decision and
August 31, 2007 resolution of the Court of Appeals in CA-G.R. SP No. 95659
are REVERSED and SET ASIDE.
The Regional Trial Court of Makati City, Branch 145 is ordered to proceed
expeditiously with the trial of Civil Case No. 03-991 with regard to respondent Jose U.
Arollado, and the other respondents if warranted.

SO ORDERED.

3
G.R. No. 128703, December 18, 2000
TEODORO BAÑAS,[*] C. G. DIZON CONSTRUCTION, INC., AND CENEN
DIZON, PETITIONERS, VS. ASIA PACIFIC FINANCE CORPORATION,[1]
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 to attorney's fees and costs of suit, as well as its 21
March 1997 Resolution denying reconsideration thereof.[2]
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
Bañas, C. G. Dizon Construction and Cenen Dizon. Sometime in August 1980 Teodoro
Bañas 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."[3]
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.[4] 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.[5]
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 Bañas, 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 Bañas 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 Bañas 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 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.[6]
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 the Promissory Note in the amount of P87,637.50 at 14% interest per
annum, and attorney's fees equivalent to 25% of the monetary award.[7]
4
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.[8] As defined in Sec. 2, par. (a), of the
Revised Securities Act,[9] 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.[10] 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
xx
Makati, Metro Manila, August 25, 1980.
(Sgd) Teodoro Bañas
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.[11]
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-
5
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.[12] 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).[13]
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,[14]
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 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.[15]
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.
6
Section X101 Classifications, Powers and Scope of Authorities of Banks.

The following are the classifications, powers and scope of authorities of banks, as
well as the prerequisites for the grant of banking authorities.

a. Classifications of banks.
Banks are classified into the following subject to the power of the Monetary
Board to create other classes or kinds of banks:
(1) Universal banks (UBs);
(2) Commercial banks (KBs);
(3) Thrift banks (TBs), as defined in Republic Act (R.A.) No. 7906, which shall be
composed of: (a) savings and mortgage banks, (b) stock savings and loan
associations, and (c) private development banks;
(4) Rural banks (RBs), as defined in R. A. No. 7353;
(5) Cooperative banks (Coop Banks); and
(6) Islamic banks (IBs), as defined in R.A. No. 6848.

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.
b. For the borrower’s own account shall refer to the assumption of liability in one’s
own capacity and not in representation, or as an agent or trustee, of another.
c. Purchasing of receivables or other
obligations shall refer to the acquisition of claims collectible in money, including
interbank borrowings or borrowings between FIs, or of acquisition of securities,
of any amount and maturity, from domestic or foreign sources.
d. Relending shall refer to the extension of loans by an institution with antecedent
borrowing transactions. Relending shall be presumed, in the absence of express
stipulations, when the institution is regularly engaged in lending.
e. Regularly engaged in lending shall refer to the practice of extending loans,
advances, discounts or rediscounts as a matter of business, as distinguished from
isolated lending transactions.
7
G.R. No. 170984, January 30, 2009
SECURITY BANK AND TRUST COMPANY, PETITIONER, VS. RIZAL
COMMERCIAL BANKING CORPORATION, RESPONDENT.
[G.R. NO. 170987]
RIZAL COMMERCIAL BANKING CORPORATION, PETITIONER, VS.
SECURITY BANK AND TRUST COMPANY, RESPONDENT.
DECISION
QUISUMBING, Acting C.J.
Before us are opposing parties' petitions for review of the Decision[1] dated March 29,
2005 and Resolution[2] dated December 12, 2005 of the Court of Appeals in CA-G.R.
CV No. 67387. The two petitions are herein consolidated as they stem from the same
set of factual circumstances.
The facts, as found by the trial and appellate courts, are as follows:
On January 9, 1981, Security Bank and Trust Company (SBTC) issued a manager's
check for P8 million, payable to "CASH," as proceeds of the loan granted to Guidon
Construction and Development Corporation (GCDC). On the same day, the P8-million
check, along with other checks, was deposited by Continental Manufacturing
Corporation (CMC) in its Current Account No. 0109-022888 with Rizal Commercial
Banking Corporation (RCBC). Immediately, RCBC honored the P8-million check and
allowed CMC to withdraw the same.[3]
On the next banking day, January 12, 1981, GCDC issued a "Stop Payment Order" to
SBTC, claiming that the P8-million check was released to a third party by mistake.
Consequently, SBTC dishonored and returned the manager's check to RCBC.
Thereafter, the check was returned back and forth between the two banks, resulting in
automatic debits and credits in each bank's clearing balance.[4]
On February 13, 1981, RCBC filed a complaint[5] for damages against SBTC 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 Court (RTC) of Makati City,
Branch 143.
Meanwhile, following the rules of the Philippine Clearing House, RCBC and SBTC
stopped returning the checks to each other. By way of a temporary arrangement
pending resolution of the case, the P8-million check was equally divided between, and
credited to, RCBC and SBTC.[6]
On May 9, 2000, the RTC of Makati City, Branch 143, rendered a Decision[7] in favor
of RCBC. The dispositive portion of the decision reads:
PREMISES CONSIDERED, the Court renders judgment in favor of plaintiff [RCBC]
and finds defendant SBTC justly liable to [RCBC] and sentences [SBTC] to pay
[RCBC] the amount of:
PhP4,000,000.00 as and for actual damages;
PhP100,000.00 as and for attorney's fees; and,
the costs.
SO ORDERED.[8]
On appeal, the Court of Appeals affirmed with modification the above Decision, to
wit:
WHEREFORE, the appealed Decision is AFFIRMED with MODIFICATION.
Appellant Security Bank and Trust Co. shall pay appellee Rizal Commercial Banking
Corporation not only the principal amount of P4,000,000.00 but also interest
thereon at (6%) per annum covering appellee's unearned income on interest
computed from the time of filing of the complaint on February 13, 1981 to the date of
finality of this Decision. For lack of factual and legal basis, the award of attorney's fees
is DELETED.
SO ORDERED.[9]
Now for our resolution are the opposing parties' petitions for review on certiorari of
the abovecited decision. On its part, SBTC alleges the following to support its petition:
I.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN REFUSING TO
APPLY THE LAW BECAUSE, IN ITS OPINION, TO DO SO WOULD "RESULT IN AN
INJUSTICE."
II.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING THAT
TO DETERMINE WHETHER OR NOT A BANK IS A HOLDER IN DUE COURSE,
ONLY THE NEGOTIABLE INSTRUMENTS 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 MANAGER'S 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 MANAGER'S
8
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 MANAGER'S 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 ATTORNEY'S FEES OF RCBC [SIC].[10]
On RCBC's part, the following issues are submitted for resolution:
I.
WHETHER OR NOT SBTC IS LIABLE FOR THE MANAGER'S 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 MANAGER'S CHECK, AS WELL AS FOR
EXEMPLARY DAMAGES AND ATTORNEY'S FEES.[11]
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 attorney's fees?
RCBC avers that the manager's 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 manager's check to CMC's account. Accordingly, RCBC asserts that SBTC's
refusal to honor its obligation justifies RCBC claim for lost interest income, exemplary
damages and attorney's 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.[12]
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 manager's check. A manager's check is one drawn by a bank's
manager upon the bank itself. It stands on the same footing as a certified check,[13]
which is deemed to have been accepted by the bank that certified it.[14] As the bank's
own check, a manager's check becomes the primary obligation of the bank and is
accepted in advance by the act of its issuance.[15]
In this case, RCBC, in immediately crediting the amount of P8 million to CMC's
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.[16]
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 manager's cashier's/
treasurer's 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."[17]
9
Thus, it is clear from the July 9, 1980 Memorandum that banks were given the
discretion to allow immediate drawings on uncollected deposits of manager's checks,
among others. Consequently, RCBC, in allowing the immediate withdrawal against
the subject manager's 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 manager's check and the relative
rights of the parties thereto. SBTC's 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.[18]

Concerning RCBC's 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[19] and 2209[20] 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.[21]

Pursuant to current jurisprudence, with the finding of liability for exemplary

damages, attorney's 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) attorney's fees of P25,000.00.

No pronouncement as to costs.

SO ORDERED.

10
SPS. EDGAR AND DINAH G.R. No. 161319 This refers to the land at Appas, Tabuk in the name of our brother, Edgar Omengan,
OMENGAN, which was mortgaged to [the] Bank in the amount of Three Million Pesos
Petitioners, Present: (P3,000,000.00), the sum of [P2.5 Million] had already been released and received by
our brother, Edgar.
PUNO, C.J.,
SANDOVAL-GUTIERREZ, In this connection, it is requested that the remaining unreleased balance of [half a
Working Chairperson, million pesos] be held in abeyance pending an understanding by the rest of the
- v e r s u s - CORONA, brothers and sisters of Edgar. Please be informed that the property mortgaged, while
AZCUNA and in the name of Edgar Omengan, is owned in co-ownership by all the children of the
GARCIA, JJ. late Roberto and Elnora Omengan. The lawyer who drafted the document registering
the subject property under Edgars name can attest to this fact. We had a prior
PHILIPPPINE NATIONAL BANK, understanding with Edgar in allowing him to make use of the property as collateral,
HENRY M. MONTALVO AND but he refuses to comply with such arrangement. Hence, this letter. (emphasis ours)
MANUEL S. ACIERTO,*
Respondents.
Very truly yours,
Promulgated: January 23, 2007
(Sgd.) Shirley O. Gamon (Sgd.) Imogene O. Bangao
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
(Sgd.) Caroline O. Salicob (Sgd.) Alice O. Claver[5]
DECISION
Montalvo was eventually replaced as branch manager by Manuel Acierto who released
CORONA, J. the remaining half million pesos to petitioners on May 2, 1997. Acierto also
recommended the approval of a P2 million increase in their credit line to
the Cagayan Valley Business Center Credit Committee in Santiago City.
This petition for review on certiorari[1] seeks a review and reversal of the Court of
Appeals (CA) decision[2] and resolution[3] in CA-G.R. CV No. 71302. The credit committee approved the increase of petitioners credit line (from P3 million
to P5 million), provided Edgars sisters gave their conformity. Acierto informed
In October 1996, the Philippine National Bank (PNB) Tabuk (Kalinga) Branch petitioners of the conditional approval of their credit line.
approved petitioners-spouses application for a revolving credit line of P3 million. The
loan was secured by two residential lots in Tabuk, Kalinga-Apayao covered by But petitioners failed to secure the consent of Edgars sisters; hence, PNB put on hold
Transfer Certificate of Title (TCT) Nos. 12954 and 12112. The certificates of title, the release of the additional P2 million.
issued by the Registry of Deeds of the Province of Kalinga-Apayao, were in the name On October 7, 1998, Edgar Omengan demanded the release of the P2 million. He
of Edgar[4] Omengan married to Dinah Omengan. 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.
The first P2.5 million was released by Branch Manager Henry Montalvo on three
separate dates. The release of the final half million was, however, withheld On March 3, 1999, petitioners filed a complaint for breach of contract and damages
by Montalvobecause of a letter allegedly sent by Edgars sisters. It read: against PNB with the Regional Trial Court (RTC), Branch 25 in Tabuk, Kalinga. After
Appas, Tabuk trial, the court decided in favor of petitioners.
Kalinga
Accordingly, judgment is hereby rendered finding in favor of [petitioners.] [PNB is
7 November 1996 ordered]:

The Manager 1) To release without delay in favor of [petitioners] the amount

Philippine National Bank of P2,000,000.00 to complete the P5,000,000.00 credit line agreement;
Tabuk Branch
Poblacion, Tabuk 2) To pay [petitioners] the amount of P2,760,000.00 representing the losses
Kalinga and/or expected income of the [petitioners] for three years;

Sir: 3) To pay lawful interest, until the amount aforementioned on paragraphs 1

and 2 above are fully paid; and

11
4) To pay the costs. 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
SO ORDERED.[6] banks.[12] (emphasis supplied)

The CA, however, on June 18, 2003, reversed and set aside the RTC decision dated
April 21, 2001.[7]
Petitioners now contend that the CA erred when it did not sustain the finding of
breach of contract by the RTC. [8]
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.[9]
Here, PNB had acquired information sufficient to induce a reasonably prudent person
to inquire into the status of the title over the subject 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.

In this case, the parties agreed on a P3 million credit line. This sum was completely WHEREFORE, the decision and resolution of the Court of Appeals in CA-G.R. CV No.
released to petitioners who subsequently applied[10] for an increase in their credit 71302 are hereby AFFIRMED.
line. This was conditionally approved by PNBs credit committee. For all intents and
purposes, petitioners sought an additional loan. Costs against petitioners.
The condition attached to the increase in credit line requiring petitioners to acquire
the conformity of Edgars sisters was never acknowledged and accepted by SO ORDERED.
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.[11] 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
12
13
BANK OF THE PHILIPPINE ISLANDS, G.R. No. 136202
Petitioner, Present:
PUNO, C.J., Chairperson,
- versus - SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
GARCIA, JJ.
COURT OF APPEALS, ANNABELLE A.
SALAZAR, and JULIO R. TEMPLONUEVO, Promulgated:
Respondents.
January 25, 2007
x-----------------------------------------------------------------------------------------x
DECISION
AZCUNA, J.:
This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of
the Decision[1] dated April 3, 1998, and the Resolution[2] dated November 9, 1998, of
the Court of Appeals in CA-G.R. CV No. 42241.
The facts[3] are as follows:
A.A. Salazar Construction and Engineering Services filed an action for a sum of money
with damages against herein petitioner Bank of the Philippine Islands (BPI) on
December 5, 1991 before Branch 156 of the Regional Trial Court (RTC) of Pasig City.
The complaint was later amended by substituting the name of Annabelle A. Salazar as
the real party in interest in place of A.A. Salazar Construction and Engineering
Services. Private respondent Salazar prayed for the recovery of the amount of Two
Hundred Sixty-Seven Thousand, Seven Hundred Seven Pesos and Seventy Centavos
(P267,707.70) debited by petitioner BPI from her account. She likewise prayed for
damages and attorneys fees.
Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R. Templonuevo,
third-party defendant and herein also a private respondent, demanded from the
former payment of the amount of Two Hundred Sixty-Seven Thousand, Six Hundred
Ninety-Two Pesos and Fifty Centavos (P267,692.50) representing the aggregate value
of three (3) checks, which were allegedly payable to him, but which were deposited
with the petitioner bank to private respondent Salazars account (Account No. 0203-
1187-67) without his knowledge and corresponding endorsement.
Accepting that Templonuevos claim was a valid one, petitioner BPI froze Account No.
0201-0588-48 of A.A. Salazar and Construction and Engineering 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.
Private respondent Salazar was advised to settle the matter with 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 checks which were deposited and
accepted for deposit, petitioner BPI decided to debit the amount of P267,707.70 from
her Account No. 0201-0588-48 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) and the amount actually debited from her account
(P267,707.70) represented bank charges in connection with the issuance of a cashiers
check to Templonuevo.
In the answer to the third-party complaint, private respondent Templonuevo
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 her private
account, and that petitioner banks negligence and tolerance regarding the matter was
violative of the primary and ordinary rules of banking. He likewise contended that the
debiting or taking of the reimbursed amount from the account of private respondent
Salazar by petitioner BPI was a matter exclusively between said parties and may be
pursuant to banking rules and regulations, but did not in any way affect him. The
debiting from another account of private respondent Salazar, considering that her
other account was effectively closed, was not his concern.
After trial, the RTC rendered a decision, the dispositive portion of which reads thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiff [private respondent Salazar] and against the defendant [petitioner BPI] and
ordering the latter to pay as follows:
1. The amount of P267,707.70 with 12% interest thereon from September 16,
1991 until the said amount is fully paid;
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.[4]
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[5] actually belonged to Salazar and would be deposited to
her account, with petitioner acquiescing to the arrangement.[6]
Petitioner therefore filed this petition on these grounds:
14

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.[7]
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,[8] as the latter applies only to a holder defined under Section 191of
the same.[9]
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.
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;
15
(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.[10]
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.[11]
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, 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.[12]
Generally, only questions of law may be raised in an appeal by certiorari under Rule
45 of the Rules of Court.[13] Factual findings of the CA are entitled to great weight
and respect, especially when the CA affirms the factual findings of the trial
court.[14] 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.[15]
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.[16]
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. [17]
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,
16
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.[18]
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[19] that these were crossed
checks.
In State Investment House v. IAC,[20] 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.[21]
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.[22] 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.[23] 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:[24]
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.[25] 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.[26] In this regard, petitioner was clearly remiss
in its duty to private respondent Salazar as its depositor.
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
17
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.[27] The taking and collection of a
check without the proper indorsement amount to a conversion of the check by the
bank.[28]
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.[29] 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:
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.[31] 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.[32]
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.

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)[30]

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
18
 spouses Panlilio for the payment of the loans. However, it was the spouses Panlilio
EUSEBIO GONZALES, G.R. No. 180257 who received the loan proceeds of PhP 1,800,000.
Petitioner,
Present: The monthly interest dues of the loans were paid by the spouses Panlilio through the
- versus - automatic debiting of their account with PCIB. But the spouses Panlilio, from the
CORONA, C.J., Chairperson,month of July 1998, defaulted in the payment of the periodic interest dues from their
VELASCO, JR., PCIB account which apparently was not maintained with enough deposits. PCIB
NACHURA,* allegedly called the attention of Gonzales regarding the July 1998 defaults and the
PHILIPPINE COMMERCIAL AND DEL CASTILLO, and subsequent accumulating periodic interest dues which were left still left unpaid.
INTERNATIONAL BANK, EDNA OCAMPO, PEREZ, JJ.
and ROBERTO NOCEDA, In the meantime, Gonzales issued a check dated September 30, 1998 in favor of Rene
Respondents. Promulgated: Unson (Unson) for PhP 250,000 drawn against the credit line (COHLA). However,
on October 13, 1998, upon presentment for payment by Unson of said check, it was
February 23, 2011 dishonored by PCIB due to the termination by PCIB of the credit line under COHLA
x-----------------------------------------------------------------------------------------x on October 7, 1998 for the unpaid periodic interest dues from the loans of Gonzales
and the spouses Panlilio. PCIB likewise froze the FCD account of Gonzales.
DECISION
Consequently, Gonzales had a falling out with Unson due to the dishonor of the
VELASCO, JR., J.: check. They had a heated argument in the premises of the Philippine Columbian
Association (PCA) where they are both members, which caused great embarrassment
The Case and humiliation to Gonzales. Thereafter, on November 5, 1998, Unson sent a demand
letter[5] to Gonzales for the PhP 250,000. And on December 3, 1998, the counsel of
This is an appeal via a Petition for Review on Certiorari under Rule 45 from the Unson sent a second demand letter[6] to Gonzales with the threat of legal
Decision[1] dated October 22, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. action. With his FCD account that PCIB froze, Gonzales was forced to source out and
74466, which denied petitioners appeal from the December 10, 2001 Decision[2] in pay the PhP 250,000 he owed to Unson in cash.
Civil Case No. 99-1324 of the Regional Trial Court (RTC), Branch 138 in Makati
City. The RTC found justification for respondents dishonor of petitioners check and On January 28, 1999, Gonzales, through counsel, wrote PCIB insisting that the check
found petitioner solidarily liable with the spouses Jose and Jocelyn Panlilio (spouses he issued had been fully funded, and demanded the return of the proceeds of his FCD
Panlilio) for the three promissory notes they executed in favor of respondent as well as damages for the unjust dishonor of the check.[7] PCIB replied on March 22,
Philippine Commercial and International Bank (PCIB). 1999 and stood its ground in freezing Gonzales accounts due to the outstanding dues
of the loans.[8] On May 26, 1999, Gonzales reiterated his demand, reminding PCIB
The Facts 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
Petitioner Eusebio Gonzales (Gonzales) was a client of PCIB for a good 15 years before the spouses Panlilio.[9]
he filed the instant case. His account with PCIB was handled by respondent Edna
Ocampo (Ocampo) until she was replaced by respondent Roberto Noceda (Noceda). 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 October 1992, PCIB granted a credit line to Gonzales through the execution of a in favor of Unson.
Credit-On-Hand Loan Agreement[3] (COHLA), in which the aggregate amount of the
accounts of Gonzales with PCIB served as collateral for and his availment limit under The Ruling of the RTC
the credit line. Gonzales drew from said credit line through the issuance of check. At
the institution of the instant case, Gonzales had a Foreign Currency Deposit (FCD) of After due trial, on December 10, 2001, the RTC rendered a Decision in favor of PCIB.
USD 8,715.72 with PCIB. The decretal portion reads:

On October 30, 1995, Gonzales and his wife obtained a loan for PhP WHEREFORE, judgment is rendered as follows
500,000. Subsequently, on December 26, 1995 and January 3, 1999, the spouses
Panlilio and Gonzales obtained two additional loans from PCIB in the amounts of PhP (a) on the first issue, plaintiff is liable to pay defendant Bank as principal under the
1,000,000 and PhP 300,000, respectively. These three loans amounting to PhP promissory notes, Exhibits A, B and C;
1,800,000 were covered by three promissory notes.[4] To secure the loans, a real
estate mortgage (REM) over a parcel of land covered by Transfer Certificate of Title (b) on the second issue, the Court finds that there is justification on part of the
(TCT) No. 38012 was executed by Gonzales and the spouses Panlilio. Notably, the defendant Bank to dishonor the check, Exhibit H;
promissory notes specified, among others, the solidary liability of Gonzales and the
19
(c) on the third issue, plaintiff and defendants are not entitled to damages from each
other.
No pronouncement as to costs.
SO ORDERED.[10]
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.[11]
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 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.[12]
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,[13] dated October 30, 1995, for PhP 500,000
was signed by Gonzales and his wife, Jessica Gonzales;
(2) Promissory Note BD-090-2122-95,[14] 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,[15] 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?
20
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.[16]
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.[17]
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.[18]
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,[19] 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.[20] 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.[21]
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.[22] 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.[23]
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.
21

We answer in the negative.
As a rule, an appeal by certiorari under Rule 45 of the Rules of Court is limited to
review of errors of law.[24] 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.[25]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.[26]
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 everything, he would be
able to withdraw more funds than the interest that the money he would be needed to
update the interest.[27]
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[28] 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]
22
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.[29]
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[30] 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 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.[31] (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[32] 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.[33]
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
23
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?
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.[34]
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.[35] 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).[36]
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.[37] 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.[38] In the instant case, PCIB was able to send a letter advising Gonzales of
the unpaid interest on the loans[39] 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.[40] 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.[41] (Emphasis ours.)
24

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:
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.[42]
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[43] 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.
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
25
liable to pay nominal damages. The amount of such damages is addressed to the No pronouncement as to costs.
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. SO ORDERED.

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.

26
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 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
27
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
question, but rather the Overseas Bank of Manila, as it did in G.R. No. L-29352.
Neither is there anything to prohibit in this case, since the questioned acts of the
respondent Central Bank (the acts of dissolving and liquidating the Overseas Bank of
Manila), which petitioner here intends to use as his basis for claims of damages
against respondent Central Bank, had been accomplished a long time ago.
Furthermore, both parties overlooked one fundamental principle in the nature of
bank deposits when the petitioner claimed that there should be created a constructive
trust in his favor when the respondent Overseas Bank of Manila increased its
collaterals in favor of respondent Central Bank for the former's overdrafts and
emergency loans, since these collaterals were acquired by the use of depositors'
money.
Bank deposits are in the nature of irregular deposits. They are really loans because
they earn interest. All kinds of bank deposits, whether fixed, savings, or current are to
be treated as loans and are to be covered by the law on loans. 14 Current and savings
deposit are loans to a bank because it can use the same. The petitioner here in making
time deposits that earn interests with respondent Overseas Bank of Manila was in
reality a creditor of the respondent Bank and not a depositor. The respondent Bank
was in turn a debtor of petitioner. Failure of he respondent Bank to honor the time
deposit is failure to pay s obligation as a debtor and not a breach of trust arising from
depositary's failure to return the subject matter of the deposit
WHEREFORE, the petition is dismissed for lack of merit, with costs against
petitioner.
SO ORDERED.

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

28

ALICE A.I. SANDEJAS, G.R. No. 155033
ROSITA A.I. CUSI,
PATRICIA A.I. SANDEJAS and Present:
BENJAMIN A.I. ESPIRITU,
Petitioners, YNARES-SANTIAGO,
Chairperson,
AUSTRIA-MARTINEZ,
- versus - CARPIO MORALES,*
CHICO-NAZARIO, and
NACHURA, JJ.
SPS. ARTURO IGNACIO, JR.
and EVELYN IGNACIO, Promulgated:
Respondents. December 19, 2007
x------------------------------------------------x
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court assailing the Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 62404
promulgated on August 27, 2002, which affirmed with modification the Decision of
the Regional Trial Court (RTC) of Pasig City, Branch 158, in Civil Case No. 65146
dated December 18, 1998.
The facts of the case, as summarized by the RTC, are as follows:
It appears from the plaintiffs' [petitioners] evidence that Arturo [respondent] is the
elder brother of Alice [petitioner] and Rosita [petitioner], Benjamin [petitioner] and
Patricia [petitioner] are Arturo's nephew and niece. Arturo and his wife Evelyn
[respondent] are residents of the United States. In October 1993, Arturo leased from
Dr. Borja a condominium unit identified as Unit 28-C Gilmore Townhomes located
at Granada St., Quezon City. The lease was for the benefit of Benjamin who is the
occupant of the unit. The 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 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 amount were left
blank because Arturo does not know when it will be renewed and the new rate of the
lease. The check was left with Arturo's sister-in-law, who was instructed to deliver or
give it to Benjamin.
The check later came to the possession of Alice who felt that Arturo cheated their
sister in the amount of three million pesos (P3,000,000.00). She believed that Arturo
and Rosita had a joint and/or money market placement in the amount of P3 million
with the UCPB branch at Ortigas Ave., San Juan and that Ignacio preterminated the
placement and ran away with it, which rightfully belonged to Rosita. Alice then
inquired from UCPB Greenhills branch if Arturo still has an account with them. On
getting a confirmation, she together with Rosita drew up a scheme to recover the P3
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 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 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 policy of the
bank that when a valued client opens an account, an identification card is no longer
required (TSN, April 21, 1997, pp. 15-16). SBC also allowed the check to be deposited
without the endorsement of the impostor Kudera. SBC officials stamped on the dorsal
portion of the check endorsement/lack of endorsement guaranteed and sent the check
for clearing to the Philippine Clearing House Corporation.
On 21 March 1995, after the check had already been cleared by the drawer bank
UCPB, Rosita withdrew P1 million from Joint Savings Account and deposited said
amount to the current account of Alice with SBC Greenhills Branch. On the same date,
Alice caused the transfer of P2 million from the Joint Savings Account to two (2)
Investment Savings Account[s] in the names of Alice, Rosita and/or Patricia. ...
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
29
(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 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
30
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.
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
31
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 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 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,
32
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.
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]
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 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.
33
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.

34
G.R. No. 88013 March 19, 1990
SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and TRADERS ROYAL
BANK, respondents.
Don P. Porcuincula for petitioner.
San Juan, Gonzalez, San Agustin & Sinense for private respondent.
CRUZ, J.:
We are concerned in this case with the question of damages, specifically moral and
exemplary damages. The negligence of the private respondent has already been
established. All we have to ascertain is whether the petitioner is entitled to the said
damages and, if so, in what amounts.
The parties agree on the basic facts. The petitioner is a private corporation engaged in
the exportation of food products. It buys these products from various local suppliers
and then sells them abroad, particularly in the United States, Canada and the Middle
East. Most of its exports are purchased by the petitioner on credit.
The petitioner was a depositor of the respondent bank and maintained a checking
account in its branch at Romulo Avenue, Cubao, Quezon City. On May 25, 1981, the
petitioner deposited to its account in the said bank the amount of P100,000.00, thus
increasing its balance as of that date to P190,380.74. 1 Subsequently, the petitioner
issued several checks against its deposit but was suprised to learn later that they had
been dishonored for insufficient funds.
The dishonored checks are the following:
1. Check No. 215391 dated May 29, 1981, in favor of California
Manufacturing Company, Inc. for P16,480.00:
2. Check No. 215426 dated May 28, 1981, in favor of the Bureau of
Internal Revenue in the amount of P3,386.73:
3. Check No. 215451 dated June 4, 1981, in favor of Mr. Greg
Pedreño in the amount of P7,080.00;
4. Check No. 215441 dated June 5, 1981, in favor of Malabon
Longlife Trading Corporation in the amount of P42,906.00:
5. Check No. 215474 dated June 10, 1981, in favor of Malabon
Longlife Trading Corporation in the amount of P12,953.00:
6. Check No. 215477 dated June 9, 1981, in favor of Sea-Land
Services, Inc. in the amount of P27,024.45:
7. Check No. 215412 dated June 10, 1981, in favor of Baguio Country
Club Corporation in the amount of P4,385.02: and
8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta Bayla
in the amount of P6,275.00. 2
As a consequence, the California Manufacturing Corporation sent on June 9, 1981, a
letter of demand to the petitioner, threatening prosecution if the 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. Enterprises, on June 10, 1981.
Malabon also canceled the petitioner's credit line and demanded that future payments
be made by it in cash or certified check. Meantime, action on the pending orders of
the petitioner with the other suppliers whose checks were dishonored was also
deferred.
The petitioner complained to the respondent bank on June 10, 1981. 3 Investigation
disclosed that the sum of P100,000.00 deposited by the petitioner on May 25, 1981,
had not been credited to it. The error was rectified on June 17, 1981, and the
dishonored checks were paid after they were re-deposited. 4
In its letter dated June 20, 1981, the petitioner demanded reparation from the
respondent bank for its "gross and wanton negligence." This demand was not met.
The petitioner then filed a complaint in the then Court of First Instance of Rizal
claiming from the private respondent moral damages in the sum of P1,000,000.00
and exemplary damages in the sum of P500,000.00, plus 25% attorney's fees, and
costs.
After trial, Judge Johnico G. Serquinia rendered judgment holding that moral and
exemplary damages were not called for under the circumstances. However, observing
that the plaintiff's right had been violated, he ordered the defendant to pay nominal
damages in the amount of P20,000.00 plus 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
35
 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. 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
36
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.

37
G.R. No. 69162 February 21, 1992 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).
BANK OF THE PHILIPPINE ISLANDS, petitioner,
vs. On February 27, 1978, the bank filed a motion to dismiss the complaint for improper
THE INTERMEDIATE APPELLATE COURT and the SPOUSES ARTHUR venue. The motion was denied.
CANLAS and VIVIENE CANLAS, respondents.
During the pendency of the case, the Bank of the Philippine Islands (BPI) and CBTC
Leonen, Ramirez & Associates for petitioner. 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
L. Emmanuel B. Canilao for private respondents. 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:
GRIÑO-AQUINO, J.:
WHEREFORE, judgment is hereby rendered sentencing defendant
In a decision dated September 3, 1984, the Intermediate Appellate Court (now Court to pay the plaintiff the following:
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 1. P 5,000.00 as actual damages;
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 2. P 150,000.00 for plaintiff Arthur Canlas and P150,000.00 for
account. This petition for review of that decision was filed by the Bank. plaintiff Vivienne S. Canlas representing moral damages;

The respondent spouses, Arthur and Vivienne Canlas, opened a joint current account 3. P 150.000.00 as exemplary damages;
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 4. P 10,000.00 as attorney's fees; and
thereto, Arthur Canlas had an existing separate personal checking account No. 210-
442-41 in the same branch.
5. Costs. (p. 36, Rollo).
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 On appeal, the Intermediate Appellate Court deleted the actual damages and reduced
respondent Arthur Canlas for Current Account No. 210-442-41 for use as I D and the other awards. The dispositive portion of its decision reads:
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 WHEREFORE, the judgment appealed from is hereby modified as
deposit of P2,250 for the joint checking account was miscredited to Arthur's personal follows:
account (p. 9, Rollo). The spouses subsequently deposited other amounts in their joint
account.
1. The award of P50,000.00 in actual damages is herewith deleted.

However, when respondent Vivienne Canlas issued a check for Pl,639.89 in April 1977
2. Moral damages of P50,000.00 is awarded to plaintiffs-appellees
and another check for P1,160.00 on June 1, 1977, one of the checks was dishonored by
Arthur Canlas and Vivienne S. Canlas, not P50,000.00 each.
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 3. Exemplary damages is likewise reduced to the sum of
could not contact them because they actually reside in Porac, Pampanga. The city P50,000.00 and attorney's fees to P5,000.00.
address and telephone number which they gave to the bank belonged to Mrs. Canlas'
parents. Costs against the defendants appellant. (p. 40, Rollo.)

38
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.
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.
39