Banking Cases ECQ Edition

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 76118 March 30, 1993
THE CENTRAL BANK OF THE PHILIPPINES and RAMON V. TIAOQUI, petitioners,

vs.
COURT OF APPEALS and TRIUMPH SAVINGS BANK, respondents.
Sycip, Salazar, Hernandez & Gatmaitan for petitioners.
Quisumbing, Torres & Evangelista for Triumph Savings Bank.
BELLOSILLO, J.:
May a Monetary Board resolution placing a private bank under receivership be annulled on the ground of lack of prior notice and
hearing?
This petition seeks review of the decision of the Court of Appeals in CA G.R. S.P. No. 07867 entitled "The Central Bank of the
Philippines and Ramon V. Tiaoqui vs. Hon. Jose C. de Guzman and Triumph Savings Bank," promulgated 26 September 1986, which
affirmed the twin orders of the Regional Trial Court of Quezon City issued 11 November 1985 1 denying herein petitioners' motion to
dismiss Civil Case No. Q-45139, and directing petitioner Ramon V. Tiaoqui to restore the private management of Triumph Savings
Bank (TSB) to its elected board of directors and officers, subject to Central Bank comptrollership.2
The antecedent facts: Based on examination reports submitted by the Supervision and Examination Sector (SES), Department II, of the
Central Bank (CB) "that the financial condition of TSB is one of insolvency and its continuance in business would involve probable loss
to its depositors and creditors,"3 the Monetary Board (MB) issued on 31 May 1985 Resolution No. 596 ordering the closure of TSB,
forbidding it from doing business in the Philippines, placing it under receivership, and appointing Ramon V. Tiaoqui as receiver. Tiaoqui
assumed office on 3 June 1985.4
On 11 June 1985, TSB filed a complaint with the Regional Trial Court of Quezon City, docketed as Civil Case No. Q-45139, against
Central Bank and Ramon V. Tiaoqui to annul MB Resolution No. 596, with prayer for injunction, challenging in the process the
constitutionality of Sec. 29 of R.A. 269, otherwise known as "The Central Bank Act," as amended, insofar as it authorizes the Central
Bank to take over a banking institution even if it is not charged with violation of any law or regulation, much less found guilty thereof.5
On 1 July 1985, the trial court temporarily restrained petitioners from implementing MB Resolution No. 596 "until further orders", thus
prompting them to move for the quashal of the restraining order (TRO) on the ground that it did not comply with said Sec. 29, i.e., that
TSB failed to show convincing proof of arbitrariness and bad faith on the part of petitioners;' and, that TSB failed to post the requisite
bond in favor of Central Bank.
On 19 July 1985, acting on the motion to quash the restraining order, the trial court granted the relief sought and denied the application
of TSB for injunction. Thereafter, Triumph Savings Bank filed with Us a petition for certiorari under Rule 65 of the Rules of Court6 dated
25 July 1985 seeking to enjoin the continued implementation of the questioned MB resolution.
Meanwhile, on 9 August 1985; Central Bank and Ramon Tiaoqui filed a motion to dismiss the complaint before the RTC for failure to
state a cause of action, i.e., it did not allege ultimate facts showing that the action was plainly arbitrary and made in bad faith, which are
the only grounds for the annulment of Monetary Board resolutions placing a bank under conservatorship, and that TSB was without
legal capacity to sue except through its receiver.7
On 9 September 1985, TSB filed an urgent motion in the RTC to direct receiver Ramon V. Tiaoqui to restore TSB to its private
management. On 11 November 1985, the RTC in separate orders denied petitioners' motion to dismiss and ordered receiver Tiaoqui to
restore the management of TSB to its elected board of directors and officers, subject to CB comptrollership.
Since the orders of the trial court rendered moot the petition for certiorari then pending before this Court, Central Bank and Tiaoqui
moved on 2 December 1985 for the dismissal of G.R. No. 71465 which We granted on 18 December 1985.8
Instead of proceeding to trial, petitioners elevated the twin orders of the RTC to the Court of Appeals on a petition for certiorari and
prohibition under Rule 65.9 On 26 September 1986, the appellate court, upheld the orders of the trial court thus —
Petitioners' motion to dismiss was premised on two grounds, namely, that the complaint failed to state a cause of
action and that the Triumph Savings Bank was without capacity to sue except through its appointed receiver.
Concerning the first ground, petitioners themselves admit that the Monetary Board resolution placing the Triumph
Savings Bank under the receivership of the officials of the Central Bank was done without prior hearing, that is,
without first hearing the side of the bank. They further admit that said resolution can be the subject of judicial review
and may be set aside should it be found that the same was issued with arbitrariness and in bad faith.
The charge of lack of due process in the complaint may be taken as constitutive of allegations of arbitrariness and
bad faith. This is not of course to be taken as meaning that there must be previous hearing before the Monetary
Board may exercise its powers under Section 29 of its Charter. Rather, judicial review of such action not being
foreclosed, it would be best should private respondent be given the chance to show and prove arbitrariness and bad
faith in the issuance of the questioned resolution, especially so in the light of the statement of private respondent that
neither the bank itself nor its officials were even informed of any charge of violating banking laws.
In regard to lack of capacity to sue on the part of Triumph Savings Bank, we view such argument as being specious,
for if we get the drift of petitioners' argument, they mean to convey the impression that only the CB appointed receiver
himself may question the CB resolution appointing him as such. This may be asking for the impossible, for it cannot
be expected that the master, the CB, will allow the receiver it has appointed to question that very appointment.
Should the argument of petitioners be given circulation, then judicial review of actions of the CB would be effectively
checked and foreclosed to the very bank officials who may feel, as in the case at bar, that the CB action ousting them
from the bank deserves to be set aside.
xxx xxx xxx
On the questioned restoration order, this Court must say that it finds nothing whimsical, despotic, capricious, or
arbitrary in its issuance, said action only being in line and congruent to the action of the Supreme Court in the Banco
Filipino Case (G.R. No. 70054) where management of the bank was restored to its duly elected directors and officers,
but subject to the Central Bank comptrollership.10
On 15 October 1986, Central Bank and its appointed receiver, Ramon V. Tiaoqui, filed this petition under Rule 45 of the Rules of Court
praying that the decision of the Court of Appeals in CA-G.R. SP No. 07867 be set aside, and that the civil case pending before the RTC
of Quezon City, Civil Case No.
Q-45139, be dismissed. Petitioners allege that the Court of Appeals erred —
(1) in affirming that an insolvent bank that had been summarily closed by the Monetary Board should be restored to
its private management supposedly because such summary closure was "arbitrary and in bad faith" and a denial of
"due process";
(2) in holding that the "charge of lack of due process" for "want of prior hearing" in a complaint to annul a Monetary
Board receivership resolution under Sec. 29 of R.A. 265 "may be taken as . . allegations of arbitrariness and bad
faith"; and
(3) in holding that the owners and former officers of an insolvent bank may still act or sue in the name and corporate
capacity of such bank, even after it had been ordered closed and placed under receivership.11
The respondents, on the other hand, allege inter alia that in the Banco Filipino case,12 We held that CB violated the rule on
administrative due process laid down in Ang Tibay vs. CIR (69 Phil. 635) and Eastern Telecom Corp. vs. Dans, Jr. (137 SCRA 628)
which requires that prior notice and hearing be afforded to all parties in administrative proceedings. Since MB Resolution No. 596 was
adopted without TSB being previously notified and heard, according to respondents, the same is void for want of due process;
consequently, the bank's management should be restored to its board of directors and officers.13
Petitioners claim that it is the essence of Sec. 29 of R.A. 265 that prior notice and hearing in cases involving bank closures should not
be required since in all probability a hearing would not only cause unnecessary delay but also provide bank "insiders" and stockholders
the opportunity to further dissipate the bank's resources, create liabilities for the bank up to the insured amount of P40,000.00, and
even destroy evidence of fraud or irregularity in the bank's operations to the prejudice of its depositors and creditors. 14 Petitioners
further argue that the legislative intent of Sec. 29 is to repose in the Monetary Board exclusive power to determine the existence of
statutory grounds for the closure and liquidation of banks, having the required expertise and specialized competence to do so.
The first issue raised before Us is whether absence of prior notice and hearing may be considered acts of arbitrariness and bad faith
sufficient to annul a Monetary Board resolution enjoining a bank from doing business and placing it under receivership. Otherwise
stated, is absence of prior notice and hearing constitutive of acts of arbitrariness and bad faith?
Under Sec. 29 of R.A. 265,15 the Central Bank, through the Monetary Board, is vested with exclusive authority to assess, evaluate and
determine the condition of any bank, and finding such condition to be one of insolvency, or that its continuance in business would
involve probable loss to its depositors or creditors, forbid the bank or non-bank financial institution to do business in the Philippines; and
shall designate an official of the CB or other competent person as receiver to immediately take charge of its assets and liabilities. The
fourth paragraph,16 which was then in effect at the time the action was commenced, allows the filing of a case to set aside the actions of
the Monetary Board which are tainted with arbitrariness and bad faith.
Contrary to the notion of private respondent, Sec. 29 does not contemplate prior notice and hearing before a bank may be directed to
stop operations and placed under receivership. When par. 4 (now par. 5, as amended by E.O. 289) provides for the filing of a case
within ten (10) days after the receiver takes charge of the assets of the bank, it is unmistakable that the assailed actions should precede
the filing of the case. Plainly, the legislature could not have intended to authorize "no prior notice and hearing" in the closure of the bank
and at the same time allow a suit to annul it on the basis of absence thereof.
In the early case of Rural Bank of Lucena, Inc. v. Arca [1965], 17 We held that a previous hearing is nowhere required in Sec. 29 nor
does the constitutional requirement of due process demand that the correctness of the Monetary Board's resolution to stop operation
and proceed to liquidation be first adjudged before making the resolution effective. It is enough that a subsequent judicial review be
provided.
Even in Banco Filipino, 18 We reiterated that Sec. 29 of R.A. 265 does not require a previous hearing before the Monetary Board can
implement its resolution closing a bank, since its action is subject to judicial scrutiny as provided by law.
It may be emphasized that Sec. 29 does not altogether divest a bank or a non-bank financial institution placed under receivership of the
opportunity to be heard and present evidence on arbitrariness and bad faith because within ten (10) days from the date the receiver
takes charge of the assets of the bank, resort to judicial review may be had by filing an appropriate pleading with the court. Respondent
TSB did in fact avail of this remedy by filing a complaint with the RTC of Quezon City on the 8th day following the takeover by the
receiver of the bank's assets on 3 June 1985.
This "close now and hear later" scheme is grounded on practical and legal considerations to prevent unwarranted dissipation of the
bank's assets and as a valid exercise of police power to protect the depositors, creditors, stockholders and the general public.
In Rural Bank of Buhi, Inc. v. Court of Appeals,19 We stated that —
. . . due process does not necessarily require a prior hearing; a hearing or an opportunity to be heard may
be subsequent to the closure. One can just imagine the dire consequences of a prior hearing: bank runs would be the
order of the day, resulting in panic and hysteria. In the process, fortunes may be wiped out and disillusionment will
run the gamut of the entire banking community.
We stressed in Central Bank of the Philippines v. Court of Appeals20 that —
. . . the banking business is properly subject to reasonable regulation under the police power of the state because of
its nature and relation to the fiscal affairs of the people and the revenues of the state (9 CJS 32). Banks are affected
with public interest because they receive funds from the general public in the form of deposits. Due to the nature of
their transactions and functions, a fiduciary relationship is created between the banking institutions and their
depositors. Therefore, banks are under the obligation to treat with meticulous care and utmost fidelity the accounts of
those who have reposed their trust and confidence in them (Simex International [Manila], Inc., v. Court of Appeals,
183 SCRA 360 [1990]).
It is then the Government's responsibility to see to it that the financial interests of those who deal with the banks and
banking institutions, as depositors or otherwise, are protected. In this country, that task is delegated to the Central
Bank which, pursuant to its Charter (R.A. 265, as amended), is authorized to administer the monetary, banking and
credit system of the Philippines. Under both the 1973 and 1987 Constitutions, the Central Bank is tasked with
providing policy direction in the areas of money, banking and credit; corollarily, it shall have supervision over the
operations of banks (Sec. 14, Art. XV, 1973 Constitution, and Sec. 20, Art. XII, 1987 Constitution). Under its charter,
the CB is further authorized to take the necessary steps against any banking institution if its continued operation
would cause prejudice to its depositors, creditors and the general public as well. This power has been expressly
recognized by this Court. In Philippine Veterans Bank Employees Union-NUBE v. Philippine Veterans Banks (189
SCRA 14 [1990], this Court held that:
. . . [u]nless adequate and determined efforts are taken by the government against distressed and
mismanaged banks, public faith in the banking system is certain to deteriorate to the prejudice of
the national economy itself, not to mention the losses suffered by the bank depositors, creditors,
and stockholders, who all deserve the protection of the government. The government cannot simply
cross its arms while the assets of a bank are being depleted through mismanagement or
irregularities. It is the duty of the Central Bank in such an event to step in and salvage the
remaining resources of the bank so that they may not continue to be dissipated or plundered by
those entrusted with their management.
Section 29 of R.A. 265 should be viewed in this light; otherwise, We would be subscribing to a situation where the procedural rights
invoked by private respondent would take precedence over the substantive interests of depositors, creditors and stockholders over the
assets of the bank.
Admittedly, the mere filing of a case for receivership by the Central Bank can trigger a bank run and drain its assets in days or even
hours leading to insolvency even if the bank be actually solvent. The procedure prescribed in Sec. 29 is truly designed to protect the
interest of all concerned, i.e., the depositors, creditors and stockholders, the bank itself, and the general public, and the summary
closure pales in comparison to the protection afforded public interest. At any rate, the bank is given full opportunity to
prove arbitrariness and bad faith in placing the bank under receivership, in which event, the resolution may be properly nullified and the
receivership lifted as the trial court may determine.
The heavy reliance of respondents on the Banco Filipino case is misplaced in view of factual circumstances therein which are not
attendant in the present case. We ruled in Banco Filipino that the closure of the bank was arbitrary and attendant with grave abuse of
discretion, not because of the absence of prior notice and hearing, but that the Monetary Board had no sufficient basis to arrive at a
sound conclusion of insolvency to justify the closure. In other words, the arbitrariness, bad faith and abuse of discretion were
determined only after the bank was placed under conservatorship and evidence thereon was received by the trial court. As this Court
found in that case, the Valenzuela, Aurellano and Tiaoqui Reports contained unfounded assumptions and deductions which did not
reflect the true financial condition of the bank. For instance, the subtraction of an uncertain amount as valuation reserve from the assets
of the bank would merely result in its net worth or the unimpaired capital and surplus; it did not reflect the total financial condition of
Banco Filipino.
Furthermore, the same reports showed that the total assets of Banco Filipino far exceeded its total liabilities. Consequently, on the
basis thereof, the Monetary Board had no valid reason to liquidate the bank; perhaps it could have merely ordered its reorganization or
rehabilitation, if need be. Clearly, there was in that case a manifest arbitrariness, abuse of discretion and bad faith in the closure
of Banco Filipino by the Monetary Board. But, this is not the case before Us. For here, what is being raised as arbitrary by private
respondent is the denial of prior notice and hearing by the Monetary Board, a matter long settled in this jurisdiction, and not the
arbitrariness which the conclusions of the Supervision and Examination Sector (SES), Department II, of the Central Bank were reached.
Once again We refer to Rural Bank of Buhi, Inc. v. Court of Appeals,21 and reiterate Our pronouncement therein that —
. . . the law is explicit as to the conditions prerequisite to the action of the Monetary Board to forbid the institution to
do business in the Philippines and to appoint a receiver to immediately take charge of the bank's assets and
liabilities. They are: (a) an examination made by the examining department of the Central Bank; (b) report by said
department to the Monetary Board; and (c) prima facie showing that its continuance in business would involve
probable loss to its depositors or creditors.
In sum, appeal to procedural due process cannot just outweigh the evil sought to be prevented; hence, We rule that Sec. 29 of R.A. 265
is a sound legislation promulgated in accordance with the Constitution in the exercise of police power of the state. Consequently, the
absence of notice and hearing is not a valid ground to annul a Monetary Board resolution placing a bank under receivership. The
absence of prior notice and hearing cannot be deemed acts of arbitrariness and bad faith. Thus, an MB resolution placing a bank under
receivership, or conservatorship for that matter, may only be annulled after a determination has been made by the trial court that its
issuance was tainted with arbitrariness and bad faith. Until such determination is made, the status quo shall be maintained, i.e., the
bank shall continue to be under receivership.
As regards the second ground, to rule that only the receiver may bring suit in behalf of the bank is, to echo the respondent appellate
court, "asking for the impossible, for it cannot be expected that the master, the CB, will allow the receiver it has appointed to question
that very appointment." Consequently, only stockholders of a bank could file an action for annulment of a Monetary Board resolution
placing the bank under receivership and prohibiting it from continuing operations.22 In Central Bank v. Court of Appeals, 23 We explained
the purpose of the law —
. . . in requiring that only the stockholders of record representing the majority of the capital stock may bring the action
to set aside a resolution to place a bank under conservatorship is to ensure that it be not frustrated or defeated by the
incumbent Board of Directors or officers who may immediately resort to court action to prevent its implementation or
enforcement. It is presumed that such a resolution is directed principally against acts of said Directors and officers
which place the bank in a state of continuing inability to maintain a condition of liquidity adequate to protect the
interest of depositors and creditors. Indirectly, it is likewise intended to protect and safeguard the rights and interests
of the stockholders. Common sense and public policy dictate then that the authority to decide on whether to contest
the resolution should be lodged with the stockholders owning a majority of the shares for they are expected to be
more objective in determining whether the resolution is plainly arbitrary and issued in bad faith.
It is observed that the complaint in this case was filed on 11 June 1985 or two (2) years prior to 25 July 1987 when E.O. 289 was
issued, to be effective sixty (60) days after its approval (Sec. 5). The implication is that before E.O
. 289, any party in interest could institute court proceedings to question a Monetary Board resolution placing a bank under receivership.
Consequently, since the instant complaint was filed by parties representing themselves to be officers of respondent Bank (Officer-in-
Charge and Vice President), the case before the trial court should now take its natural course. However, after the effectivity of E.O. 289,
the procedure stated therein should be followed and observed.
PREMISES considered, the Decision of the Court of Appeals in CA-G.R. SP No. 07867 is AFFIRMED, except insofar as it upholds the
Order of the trial court of 11 November 1985 directing petitioner RAMON V. TIAOQUI to restore the management of TRIUMPH
SAVINGS BANK to its elected Board of Directors and Officers, which is hereby SET ASIDE.
Let this case be remanded to the Regional Trial Court of Quezon City for further proceedings to determine whether the issuance of
Resolution No. 596 of the Monetary Board was tainted with arbitrariness and bad faith and to decide the case accordingly.
SO ORDERED.
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-30511 February 14, 1980
MANUEL M. SERRANO, petitioner,
vs.
CENTRAL BANK OF THE PHILIPPINES; OVERSEAS BANK OF MANILA; EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO
B. RAMOS, JR., JOSEFA RAMOS DELA RAMA, HORACIO DELA RAMA, ANTONIO B. RAMOS, FILOMENA RAMOS LEDESMA,
RODOLFO LEDESMA, VICTORIA RAMOS TANJUATCO, and TEOFILO TANJUATCO, respondents.
Rene Diokno for petitioner.
F.E. Evangelista & Glecerio T. Orsolino for respondent Central Bank of the Philippines.
Feliciano C. Tumale, Pacifico T. Torres and Antonio B. Periquet for respondent Overseas Bank of Manila.
Josefina G. Salonga for all other respondents.
CONCEPCION, JR., J.:
Petition for mandamus and prohibition, with preliminary injunction, that seeks the establishment of joint and solidary liability to the
amount of Three Hundred Fifty Thousand Pesos, with interest, against respondent Central Bank of the Philippines and Overseas Bank
of Manila and its stockholders, on the alleged failure of the Overseas Bank of Manila to return the time deposits made by petitioner and
assigned to him, on the ground that respondent Central Bank failed in its duty to exercise strict supervision over respondent Overseas
Bank of Manila to protect depositors and the general public. 1 Petitioner also prays that both respondent banks be ordered to execute
the proper and necessary documents to constitute all properties fisted in Annex "7" of the Answer of respondent Central Bank of the
Philippines in G.R. No. L-29352, entitled "Emerita M. Ramos, et al vs. Central Bank of the Philippines," into a trust fund in favor of
petitioner and all other depositors of respondent Overseas Bank of Manila. It is also prayed that the respondents be prohibited
permanently from honoring, implementing, or doing any act predicated upon the validity or efficacy of the deeds of mortgage,
assignment. and/or conveyance or transfer of whatever nature of the properties listed in Annex "7" of the Answer of respondent Central
Bank in G.R. No. 29352.2
A sought for ex-parte preliminary injunction against both respondent banks was not given by this Court.
Undisputed pertinent facts are:
On October 13, 1966 and December 12, 1966, petitioner made a time deposit, for one year with 6% interest, of One Hundred Fifty
Thousand Pesos (P150,000.00) with the respondent Overseas Bank of Manila. 3 Concepcion Maneja also made a time deposit, for one
year with 6-½% interest, on March 6, 1967, of Two Hundred Thousand Pesos (P200,000.00) with the same respondent Overseas Bank
of Manila.4
On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano, assigned and conveyed to petitioner Manuel M. Serrano,
her time deposit of P200,000.00 with respondent Overseas Bank of Manila. 5
Notwithstanding series of demands for encashment of the aforementioned time deposits from the respondent Overseas Bank of Manila,
dating from December 6, 1967 up to March 4, 1968, not a single one of the time deposit certificates was honored by respondent
Overseas Bank of Manila. 6
Respondent Central Bank admits that it is charged with the duty of administering the banking system of the Republic and it exercises
supervision over all doing business in the Philippines, but denies the petitioner's allegation that the Central Bank has the duty to
exercise a most rigid and stringent supervision of banks, implying that respondent Central Bank has to watch every move or activity of
all banks, including respondent Overseas Bank of Manila. Respondent Central Bank claims that as of March 12, 1965, the Overseas
Bank of Manila, while operating, was only on a limited degree of banking operations since the Monetary Board decided in its Resolution
No. 322, dated March 12, 1965, to prohibit the Overseas Bank of Manila from making new loans and investments in view of its chronic
reserve deficiencies against its deposit liabilities. This limited operation of respondent Overseas Bank of Manila continued up to 1968.7
Respondent Central Bank also denied that it is guarantor of the permanent solvency of any banking institution as claimed by petitioner.
It claims that neither the law nor sound banking supervision requires respondent Central Bank to advertise or represent to the public
any remedial measures it may impose upon chronic delinquent banks as such action may inevitably result to panic or bank "runs". In
the years 1966-1967, there were no findings to declare the respondent Overseas Bank of Manila as insolvent. 8
Respondent Central Bank likewise denied that a constructive trust was created in favor of petitioner and his predecessor in interest
Concepcion Maneja when their time deposits were made in 1966 and 1967 with the respondent Overseas Bank of Manila as during that
time the latter was not an insolvent bank and its operation as a banking institution was being salvaged by the respondent Central
Bank. 9
Respondent Central Bank avers no knowledge of petitioner's claim that the properties given by respondent Overseas Bank of Manila as
additional collaterals to respondent Central Bank of the Philippines for the former's overdrafts and emergency loans were acquired
through the use of depositors' money, including that of the petitioner and Concepcion Maneja. 10
In G.R. No. L-29362, entitled "Emerita M. Ramos, et al. vs. Central Bank of the Philippines," a case was filed by the petitioner Ramos,
wherein respondent Overseas Bank of Manila sought to prevent respondent Central Bank from closing, declaring the former insolvent,
and liquidating its assets. Petitioner Manuel Serrano in this case, filed on September 6, 1968, a motion to intervene in G.R. No. L-
29352, on the ground that Serrano had a real and legal interest as depositor of the Overseas Bank of Manila in the matter in litigation in
that case. Respondent Central Bank in G.R. No. L-29352 opposed petitioner Manuel Serrano's motion to intervene in that case, on the
ground that his claim as depositor of the Overseas Bank of Manila should properly be ventilated in the Court of First Instance, and if this
Court were to allow Serrano to intervene as depositor in G.R. No. L-29352, thousands of other depositors would follow and thus cause
an avalanche of cases in this Court. In the resolution dated October 4, 1968, this Court denied Serrano's, motion to intervene. The
contents of said motion to intervene are substantially the same as those of the present petition. 11
This Court rendered decision in G.R. No. L-29352 on October 4, 1971, which became final and executory on March 3, 1972, favorable
to the respondent Overseas Bank of Manila, with the dispositive portion to wit:
WHEREFORE, the writs prayed for in the petition are hereby granted and respondent Central Bank's resolution Nos.
1263, 1290 and 1333 (that prohibit the Overseas Bank of Manila to participate in clearing, direct the suspension of its
operation, and ordering the liquidation of said bank) are hereby annulled and set aside; and said respondent Central
Bank of the Philippines is directed to comply with its obligations under the Voting Trust Agreement, and to desist from
taking action in violation therefor. Costs against respondent Central Bank of the Philippines. 12
Because of the above decision, petitioner in this case filed a motion for judgment in this case, praying for a decision on the merits,
adjudging respondent Central Bank jointly and severally liable with respondent Overseas Bank of Manila to the petitioner for the
P350,000 time deposit made with the latter bank, with all interests due therein; and declaring all assets assigned or mortgaged by the
respondents Overseas Bank of Manila and the Ramos groups in favor of the Central Bank as trust funds for the benefit of petitioner and
other depositors. 13
By the very nature of the claims and causes of action against respondents, they in reality are recovery of time deposits plus interest
from respondent Overseas Bank of Manila, and recovery of damages against respondent Central Bank for its alleged failure to strictly
supervise the acts of the other respondent Bank and protect the interests of its depositors by virtue of the constructive trust created
when respondent Central Bank required the other respondent to increase its collaterals for its overdrafts said emergency loans, said
collaterals allegedly acquired through the use of depositors money. These claims shoud be ventilated in the Court of First Instance of
proper jurisdiction as We already pointed out when this Court denied petitioner's motion to intervene in G.R. No. L-29352. Claims of
these nature are not proper in actions for mandamus and prohibition as there is no shown clear abuse of discretion by the Central Bank
in its exercise of supervision over the other respondent Overseas Bank of Manila, and if there was, petitioner here is not the proper
party to raise that question, but rather the Overseas Bank of Manila, as it did in G.R. No. L-29352. Neither is there anything to prohibit
in this case, since the questioned acts of the respondent Central Bank (the acts of dissolving and liquidating the Overseas Bank of
Manila), which petitioner 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.
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 184778 October 2, 2009
BANGKO SENTRAL NG PILIPINAS MONETARY BOARD and CHUCHI FONACIER, Petitioners,

vs.
HON. NINA G. ANTONIO-VALENZUELA, in her capacity as Regional Trial Court Judge of Manila, Branch 28; RURAL BANK OF
PARAÑAQUE, INC.; RURAL BANK OF SAN JOSE (BATANGAS), INC.; RURAL BANK OF CARMEN (CEBU), INC.; PILIPINO
RURAL BANK, INC.; PHILIPPINE COUNTRYSIDE RURAL BANK, INC.; RURAL BANK OF CALATAGAN (BATANGAS), INC. (now
DYNAMIC RURAL BANK); RURAL BANK OF DARBCI, INC.; RURAL BANK OF KANANGA (LEYTE), INC. (now FIRST
INTERSTATE RURAL BANK); RURAL BANK OF BISAYAS MINGLANILLA (now BANK OF EAST ASIA); and SAN PABLO CITY
DEVELOPMENT BANK, INC., Respondents.
DECISION
VELASCO, JR., J.:
The Case
This is a Petition for Review on Certiorari under Rule 45 with Prayer for Issuance of a Temporary Restraining Order (TRO)/Writ of
Preliminary Injunction, questioning the Decision dated September 30, 2008 1 of the Court of Appeals (CA) in CA-G.R. SP No. 103935.
The CA Decision upheld the Order2 dated June 4, 2008 of the Regional Trial Court (RTC), Branch 28 in Manila, issuing writs of
preliminary injunction in Civil Case Nos. 08-119243, 08-119244, 08-119245, 08-119246, 08-119247, 08-119248, 08-119249, 08-
119250, 08-119251, and 08-119273, and the Order dated May 21, 2008 that consolidated the civil cases.
The Facts
In September of 2007, the Supervision and Examination Department (SED) of the Bangko Sentral ng Pilipinas (BSP) conducted
examinations of the books of the following banks: Rural Bank of Parañaque, Inc. (RBPI), Rural Bank of San Jose (Batangas), Inc.,
Rural Bank of Carmen (Cebu), Inc., Pilipino Rural Bank, Inc., Philippine Countryside Rural Bank, Inc., Rural Bank of Calatagan
(Batangas), Inc. (now Dynamic Rural Bank), Rural Bank of Darbci, Inc., Rural Bank of Kananga (Leyte), Inc. (now First Interstate Rural
Bank), Rural Bank de Bisayas Minglanilla (now Bank of East Asia), and San Pablo City Development Bank, Inc.
After the examinations, exit conferences were held with the officers or representatives of the banks wherein the SED examiners
provided them with copies of Lists of Findings/Exceptions containing the deficiencies discovered during the examinations. These banks
were then required to comment and to undertake the remedial measures stated in these lists within 30 days from their receipt of the
lists, which remedial measures included the infusion of additional capital. Though the banks claimed that they made the additional
capital infusions, petitioner Chuchi Fonacier, officer-in-charge of the SED, sent separate letters to the Board of Directors of each bank,
informing them that the SED found that the banks failed to carry out the required remedial measures. In response, the banks requested
that they be given time to obtain BSP approval to amend their Articles of Incorporation, that they have an opportunity to seek investors.
They requested as well that the basis for the capital infusion figures be disclosed, and noted that none of them had received the Report
of Examination (ROE) which finalizes the audit findings. They also requested meetings with the BSP audit teams to reconcile audit
figures. In response, Fonacier reiterated the banks’ failure to comply with the directive for additional capital infusions.
On May 12, 2008, the RBPI filed a complaint for nullification of the BSP ROE with application for a TRO and writ of preliminary
injunction before the RTC docketed as Civil Case No. 08-119243 against Fonacier, the BSP, Amado M. Tetangco, Jr., Romulo L. Neri,
Vicente B. Valdepenas, Jr., Raul A. Boncan, Juanita D. Amatong, Alfredo C. Antonio, and Nelly F. Villafuerte. RBPI prayed that
Fonacier, her subordinates, agents, or any other person acting in her behalf be enjoined from submitting the ROE or any similar report
to the Monetary Board (MB), or if the ROE had already been submitted, the MB be enjoined from acting on the basis of said ROE, on
the allegation that the failure to furnish the bank with a copy of the ROE violated its right to due process.
The Rural Bank of San Jose (Batangas), Inc., Rural Bank of Carmen (Cebu), Inc., Pilipino Rural Bank, Inc., Philippine Countryside
Rural Bank, Inc., Rural Bank of Calatagan (Batangas), Inc., Rural Bank of Darbci, Inc., Rural Bank of Kananga (Leyte), Inc., and Rural
Bank de Bisayas Minglanilla followed suit, filing complaints with the RTC substantially similar to that of RBPI, including the reliefs
prayed for, which were raffled to different branches and docketed as Civil Cases Nos. 08-119244, 08-119245, 08-119246, 08-119247,
08-119248, 08-119249, 08-119250, and 08-119251, respectively.
On May 13, 2008, the RTC denied the prayer for a TRO of Pilipino Rural Bank, Inc. The bank filed a motion for reconsideration the next
day.
On May 14, 2008, Fonacier and the BSP filed their opposition to the application for a TRO and writ of preliminary injunction in Civil
Case No. 08-119243 with the RTC. Respondent Judge Nina Antonio-Valenzuela of Branch 28 granted RBPI’s prayer for the issuance
of a TRO.
The other banks separately filed motions for consolidation of their cases in Branch 28, which motions were granted. Judge Valenzuela
set the complaint of Rural Bank of San Jose (Batangas), Inc. for hearing on May 15, 2008. Petitioners assailed the validity of the
consolidation of the nine cases before the RTC, alleging that the court had already prejudged the case by the earlier issuance of a TRO
in Civil Case No. 08-119243, and moved for the inhibition of respondent judge. Petitioners filed a motion for reconsideration regarding
the consolidation of the subject cases.
On May 16, 2008, San Pablo City Development Bank, Inc. filed a similar complaint against the same defendants with the RTC, and this
was docketed as Civil Case No. 08-119273 that was later on consolidated with Civil Case No. 08-119243. Petitioners filed an Urgent
Motion to Lift/Dissolve the TRO and an Opposition to the earlier motion for reconsideration of Pilipino Rural Bank, Inc.
On May 19, 2008, Judge Valenzuela issued an Order granting the prayer for the issuance of TROs for the other seven cases
consolidated with Civil Case No. 08-119243. On May 21, 2008, Judge Valenzuela issued an Order denying petitioners’ motion for
reconsideration regarding the consolidation of cases in Branch 28. On May 22, 2008, Judge Valenzuela granted the urgent motion for
reconsideration of Pilipino Rural Bank, Inc. and issued a TRO similar to the ones earlier issued.
On May 26, 2008, petitioners filed a Motion to Dismiss against all the complaints (except that of the San Pablo City Development Bank,
Inc.), on the grounds that the complaints stated no cause of action and that a condition precedent for filing the cases had not been
complied with. On May 29, 2008, a hearing was conducted on the application for a TRO and for a writ of preliminary injunction of San
Pablo City Development Bank, Inc.
The Ruling of the RTC
After the parties filed their respective memoranda, the RTC, on June 4, 2008, ruled that the banks were entitled to the writs of
preliminary injunction prayed for. It held that it had been the practice of the SED to provide the ROEs to the banks before submission to
the MB. It further held that as the banks are the subjects of examinations, they are entitled to copies of the ROEs. The denial by
petitioners of the banks’ requests for copies of the ROEs was held to be a denial of the banks’ right to due process.
The dispositive portion of the RTC’s order reads:
WHEREFORE, the Court rules as follows:
1) Re: Civil Case No. 08-119243. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court, plaintiff Rural Bank of
Paranaque Inc. is directed to post a bond executed to the defendants, in the amount of P500,000.00 to the effect that the
plaintiff will pay to the defendants all damages which they may sustain by reason of the injunction if the Court should finally
decide that the plaintiff was not entitled thereto. After posting of the bond and approval thereof, let a writ of preliminary
injunction be issued to enjoin and restrain the defendants from submitting the Report of Examination or any other similar report
prepared in connection with the examination conducted on the plaintiff, to the Monetary Board. In case such a Report on
Examination [sic] or any other similar report prepared in connection with the examination conducted on the plaintiff has been
submitted to the Monetary Board, the latter and its members (i.e. defendants Tetangco, Neri, Valdepenas, Boncan, Amatong,
Antonio, and Villafuerte) are enjoined and restrained from acting on the basis of said report.
2) Re: Civil Case No. 08-119244. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court, plaintiff Rural Bank of San
Jose (Batangas), Inc. is directed to post a bond executed to the defendants, in the amount of P500,000.00 to the effect that
the plaintiff will pay to the defendants all damages which they may sustain by reason of the injunction if the Court should finally
Carmen (Cebu), Inc. is directed to post a bond executed to the defendants, in the amount of P500,000.00 to the effect that the
plaintiff will pay to the defendants all damages which they may sustain by reason of the injunction if the Court should finally
4) Re: Civil Case No. 08-119246. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court, plaintiff Pilipino Rural Bank
Inc. is directed to post a bond executed to the defendants, in the amount of P500,000.00 to the effect that the plaintiff will pay
to the defendants all damages which they may sustain by reason of the injunction if the Court should finally decide that the
plaintiff was not entitled thereto. After posting of the bond and approval thereof, let a writ of preliminary injunction be issued to
enjoin and restrain the defendants from submitting the Report of Examination or any other similar report prepared in
connection with the examination conducted on the plaintiff, to the Monetary Board. In case such a Report on Examination [sic]
or any other similar report prepared in connection with the examination conducted on the plaintiff has been submitted to the
Monetary Board, the latter and its members (i.e. defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and
Villafuerte) are enjoined and restrained from acting on the basis of said report.
5) Re: Civil Case No. 08-119247. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court, plaintiff Philippine
Countryside Rural Bank Inc. is directed to post a bond executed to the defendants, in the amount of P500,000.00 to the effect
that the plaintiff will pay to the defendants all damages which they may sustain by reason of the injunction if the Court should
finally decide that the plaintiff was not entitled thereto. After posting of the bond and approval thereof, let a writ of preliminary
6) Re: Civil Case No. 08-119248. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court, plaintiff Dynamic Bank Inc.
(Rural Bank of Calatagan) is directed to post a bond executed to the defendants, in the amount of P500,000.00 to the effect
that the plaintiff will pay to the defendants all damages which they may sustain by reason of the injunction if the Court should
finally decide that the plaintiff was not entitled thereto. After posting of the bond and approval thereof, let a writ of preliminary
DARBCI, Inc. is directed to post a bond executed to the defendants, in the amount of P500,000.00 to the effect that the plaintiff
will pay to the defendants all damages which they may sustain by reason of the injunction if the Court should finally decide that
the plaintiff was not entitled thereto. After posting of the bond and approval thereof, let a writ of preliminary injunction be issued
to enjoin and restrain the defendants from submitting the Report of Examination or any other similar report prepared in
connection with the examination conducted on the plaintiff, to the Monetary Board. In case such a Report on Examination [sic]
or any other similar report prepared in connection with the examination conducted on the plaintiff has been submitted to the
Monetary Board, the latter and its members (i.e. defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and
Villafuerte) are enjoined and restrained from acting on the basis of said report.
Kananga Inc. (First Intestate Bank), is directed to post a bond executed to the defendants, in the amount of P500,000.00 to the
effect that the plaintiff will pay to the defendants all damages which they may sustain by reason of the injunction if the Court
should finally decide that the plaintiff was not entitled thereto. After posting of the bond and approval thereof, let a writ of
preliminary injunction be issued to enjoin and restrain the defendants from submitting the Report of Examination or any other
similar report prepared in connection with the examination conducted on the plaintiff, to the Monetary Board. In case such a
Report on Examination [sic] or any other similar report prepared in connection with the examination conducted on the plaintiff
has been submitted to the Monetary Board, the latter and its members (i.e. defendants Tetangco, Neri, Valdepenas, Boncan,
Amatong, Antonio, and Villafuerte) are enjoined and restrained from acting on the basis of said report.
9) Re: Civil Case No. 08-119251. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court, plaintiff Banco Rural De
Bisayas Minglanilla (Cebu) Inc. (Bank of East Asia) is directed to post a bond executed to the defendants, in the amount of
P500,000.00 to the effect that the plaintiff will pay to the defendants all damages which they may sustain by reason of the
injunction if the Court should finally decide that the plaintiff was not entitled thereto. After posting of the bond and approval
thereof, let a writ of preliminary injunction be issued to enjoin and restrain the defendants from submitting the Report of
Examination or any other similar report prepared in connection with the examination conducted on the plaintiff, to the Monetary
Board. In case such a Report on Examination [sic] or any other similar report prepared in connection with the examination
conducted on the plaintiff has been submitted to the Monetary Board, the latter and its members (i.e. defendants Tetangco,
Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are enjoined and restrained from acting on the basis of said
report.
10) Re: Civil Case No. 08-119273. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court, plaintiff San Pablo City
Development Bank, Inc. is directed to post a bond executed to the defendants, in the amount of P500,000.00 to the effect that
the plaintiff will pay to the defendants all damages which they may sustain by reason of the injunction if the Court should finally
Antonio, and Villafuerte) are enjoined and restrained from acting on the basis of said report.3
The Ruling of the CA
Petitioners then brought the matter to the CA via a petition for certiorari under Rule 65 claiming grave abuse of discretion on the part of
Judge Valenzuela when she issued the orders dated May 21, 2008 and June 4, 2008.
The CA ruled that the RTC committed no grave abuse of discretion when it ordered the issuance of a writ of preliminary injunction and
when it ordered the consolidation of the 10 cases.
It held that petitioners should have first filed a motion for reconsideration of the assailed orders, and failed to justify why they resorted to
a special civil action of certiorari instead.
The CA also found that aside from the technical aspect, there was no grave abuse of discretion on the part of the RTC, and if there was
a mistake in the assessment of evidence by the trial court, that should be characterized as an error of judgment, and should be
correctable via appeal.
The CA held that the principles of fairness and transparency dictate that the respondent banks are entitled to copies of the ROE.
Regarding the consolidation of the 10 cases, the CA found that there was a similarity of facts, reliefs sought, issues raised, defendants,
and that plaintiffs and defendants were represented by the same sets of counsels. It found that the joint trial of these cases would
prejudice any substantial right of petitioners.
Finding that no grave abuse of discretion attended the issuance of the orders by the RTC, the CA denied the petition.
On November 24, 2008, a TRO was issued by this Court, restraining the CA, RTC, and respondents from implementing and enforcing
the CA Decision dated September 30, 2008 in CA-G.R. SP No. 103935.4
By reason of the TRO issued by this Court, the SED was able to submit their ROEs to the MB. The MB then prohibited the respondent
banks from transacting business and placed them under receivership under Section 53 of Republic Act No. (RA) 8791 5 and Sec. 30 of
RA
76536 through MB Resolution No. 1616 dated December 9, 2008; Resolution Nos. 1637 and 1638 dated December 11, 2008;
Resolution Nos. 1647, 1648, and 1649 dated December 12, 2008; Resolution Nos. 1652 and 1653 dated December 16, 2008; and
Resolution Nos. 1692 and 1695 dated December 19, 2008, with the Philippine Deposit Insurance Corporation as the appointed
receiver.
Now we resolve the main petition.
Grounds in Support of Petition
I. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING THAT THE INJUNCTION ISSUED BY THE
REGIONAL TRIAL COURT VIOLATED SECTION 25 OF THE NEW CENTRAL BANK ACT AND EFFECTIVELY HANDCUFFED THE
BANGKO SENTRAL FROM DISCHARGING ITS FUNCTIONS TO THE GREAT AND IRREPARABLE DAMAGE OF THE COUNTRY’S
BANKING SYSTEM;
II. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT RESPONDENTS ARE ENTITLED TO BE
FURNISHED COPIES OF THEIR RESPECTIVE ROEs BEFORE THE SAME IS SUBMITTED TO THE MONETARY BOARD IN VIEW
OF THE PRINCIPLES OF FAIRNESS AND TRANSPARENCY DESPITE LACK OF EXPRESS PROVISION IN THE NEW CENTRAL
BANK ACT REQUIRING BSP TO DO THE SAME
III. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN DEPARTING FROM WELL-ESTABLISHED PRECEPTS OF LAW
AND JURISPRUDENCE
A. THE EXCEPTIONS CITED BY PETITIONER JUSTIFIED RESORT TO PETITION FOR CERTIORARI UNDER RULE 65
INSTEAD OF FIRST FILING A MOTION FOR RECONSIDERATION
B. RESPONDENT BANKS’ ACT OF RESORTING IMMEDIATELY TO THE COURT WAS PREMATURE SINCE IT WAS
MADE IN UTTER DISREGARD OF THE PRINCIPLE OF PRIMARY JURISDICTION AND EXHAUSTION OF
ADMINISTRATIVE REMEDY
C. THE ISSUANCE OF A WRIT OF PRELIMINARY INJUNCTION BY THE REGIONAL TRIAL COURT WAS NOT ONLY
IMPROPER BUT AMOUNTED TO GRAVE ABUSE OF DISCRETION 7
Our Ruling
The petition is meritorious.
In Lim v. Court of Appeals it was stated:
The requisites for preliminary injunctive relief are: (a) the invasion of right sought to be protected is material and substantial; (b) the right
of the complainant is clear and unmistakable; and (c) there is an urgent and paramount necessity for the writ to prevent serious
damage.
As such, a writ of preliminary injunction may be issued only upon clear showing of an actual existing right to be protected during the
pendency of the principal action. The twin requirements of a valid injunction are the existence of a right and its actual or threatened
violations. Thus, to be entitled to an injunctive writ, the right to be protected and the violation against that right must be shown.8
These requirements are absent in the present case.
In granting the writs of preliminary injunction, the trial court held that the submission of the ROEs to the MB before the respondent
banks would violate the right to due process of said banks.
This is erroneous.
The respondent banks have failed to show that they are entitled to copies of the ROEs. They can point to no provision of law, no
section in the procedures of the BSP that shows that the BSP is required to give them copies of the ROEs. Sec. 28 of RA 7653, or the
New Central Bank Act, which governs examinations of banking institutions, provides that the ROE shall be submitted to the MB; the
bank examined is not mentioned as a recipient of the ROE.
The respondent banks cannot claim a violation of their right to due process if they are not provided with copies of the ROEs. The same
ROEs are based on the lists of findings/exceptions containing the deficiencies found by the SED examiners when they examined the
books of the respondent banks. As found by the RTC, these lists of findings/exceptions were furnished to the officers or representatives
of the respondent banks, and the respondent banks were required to comment and to undertake remedial measures stated in said lists.
Despite these instructions, respondent banks failed to comply with the SED’s directive.
Respondent banks are already aware of what is required of them by the BSP, and cannot claim violation of their right to due process
simply because they are not furnished with copies of the ROEs. Respondent banks were held by the CA to be entitled to copies of the
ROEs prior to or simultaneously with their submission to the MB, on the principles of fairness and transparency. Further, the CA held
that if the contents of the ROEs are essentially the same as those of the lists of findings/exceptions provided to said banks, there is no
reason not to give copies of the ROEs to the banks. This is a flawed conclusion, since if the banks are already aware of the contents of
the ROEs, they cannot say that fairness and transparency are not present. If sanctions are to be imposed upon the respondent banks,
they are already well aware of the reasons for the sanctions, having been informed via the lists of findings/exceptions, demolishing that
particular argument. The ROEs would then be superfluities to the respondent banks, and should not be the basis for a writ of
preliminary injunction. Also, the reliance of the RTC on Banco Filipino v. Monetary Board 9 is misplaced. The petitioner in that case was
held to be entitled to annexes of the Supervision and Examination Sector’s reports, as it already had a copy of the reports themselves.
It was not the subject of the case whether or not the petitioner was entitled to a copy of the reports. And the ruling was made after the
petitioner bank was ordered closed, and it was allowed to be supplied with annexes of the reports in order to better prepare its defense.
In this instance, at the time the respondent banks requested copies of the ROEs, no action had yet been taken by the MB with regard to
imposing sanctions upon said banks.
The issuance by the RTC of writs of preliminary injunction is an unwarranted interference with the powers of the MB. Secs. 29 and 30 of
RA 765310 refer to the appointment of a conservator or a receiver for a bank, which is a power of the MB for which they need the ROEs
done by the supervising or examining department. The writs of preliminary injunction issued by the trial court hinder the MB from
fulfilling its function under the law. The actions of the MB under Secs. 29 and 30 of RA 7653 "may not be restrained or set aside by the
court except on petition for certiorari on the ground that the action taken was in excess of jurisdiction or with such grave abuse of
discretion as to amount to lack or excess of jurisdiction." The writs of preliminary injunction order are precisely what cannot be done
under the law by preventing the MB from taking action under either Sec. 29 or Sec. 30 of RA 7653.
As to the third requirement, the respondent banks have shown no necessity for the writ of preliminary injunction to prevent serious
damage. The serious damage contemplated by the trial court was the possibility of the imposition of sanctions upon respondent banks,
even the sanction of closure. Under the law, the sanction of closure could be imposed upon a bank by the BSP even without notice and
hearing. The apparent lack of procedural due process would not result in the invalidity of action by the MB. This was the ruling in
Central Bank of the Philippines v. Court of Appeals.11 This "close now, hear later" scheme is grounded on practical and legal
considerations to prevent unwarranted dissipation of the bank’s assets and as a valid exercise of police power to protect the depositors,
creditors, stockholders, and the general public. The writ of preliminary injunction cannot, thus, prevent the MB from taking action, by
preventing the submission of the ROEs and worse, by preventing the MB from acting on such ROEs.
The trial court required the MB to respect the respondent banks’ right to due process by allowing the respondent banks to view the
ROEs and act upon them to forestall any sanctions the MB might impose. Such procedure has no basis in law and does in fact violate
the "close now, hear later" doctrine. We held in Rural Bank of San Miguel, Inc. v. Monetary Board, Bangko Sentral ng Pilipinas:
It is well-settled that the closure of a bank may be considered as an exercise of police power. The action of the MB on this matter is
final and executory. Such exercise may nonetheless be subject to judicial inquiry and can be set aside if found to be in excess of
jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction.12
The respondent banks cannot—through seeking a writ of preliminary injunction by appealing to lack of due process, in a roundabout
manner— prevent their closure by the MB. Their remedy, as stated, is a subsequent one, which will determine whether the closure of
the bank was attended by grave abuse of discretion. Judicial review enters the picture only after the MB has taken action; it cannot
prevent such action by the MB. The threat of the imposition of sanctions, even that of closure, does not violate their right to due
process, and cannot be the basis for a writ of preliminary injunction.
The "close now, hear later" doctrine has already been justified as a measure for the protection of the public interest. Swift action is
called for on the part of the BSP when it finds that a bank is in dire straits. Unless adequate and determined efforts are taken by the
government against distressed and mismanaged banks, public faith in the banking system is certain to deteriorate to the prejudice of
the national economy itself, not to mention the losses suffered by the bank depositors, creditors, and stockholders, who all deserve the
protection of the government.13
The respondent banks have failed to show their entitlement to the writ of preliminary injunction. It must be emphasized that an
application for injunctive relief is construed strictly against the pleader. 14 The respondent banks cannot rely on a simple appeal to
procedural due process to prove entitlement. The requirements for the issuance of the writ have not been proved. No invasion of the
rights of respondent banks has been shown, nor is their right to copies of the ROEs clear and unmistakable. There is also no necessity
for the writ to prevent serious damage. Indeed the issuance of the writ of preliminary injunction tramples upon the powers of the MB and
prevents it from fulfilling its functions. There is no right that the writ of preliminary injunction would protect in this particular case. In the
absence of a clear legal right, the issuance of the injunctive writ constitutes grave abuse of discretion. 15 In the absence of proof of a
legal right and the injury sustained by the plaintiff, an order for the issuance of a writ of preliminary injunction will be nullified. 16
Courts are hereby reminded to take greater care in issuing injunctive relief to litigants, that it would not violate any law. The grant of a
preliminary injunction in a case rests on the sound discretion of the court with the caveat that it should be made with great
caution.17 Thus, the issuance of the writ of preliminary injunction must have basis in and be in accordance with law. All told, while the
grant or denial of an injunction generally rests on the sound discretion of the lower court, this Court may and should intervene in a clear
case of abuse.18
WHEREFORE, the petition is hereby GRANTED. The assailed CA Decision dated September 30, 2008 in CA-G.R. SP No. 103935 is
hereby REVERSED. The assailed order and writ of preliminary injunction of respondent Judge Valenzuela in Civil Case Nos. 08-
119243, 08-119244, 08-119245, 08-119246, 08-119247, 08-119248, 08-119249, 08-119250, 08-119251, and 08-119273 are hereby
declared NULL and VOID.
SO ORDERED.
SECOND DIVISION
G.R. No. 128703 October 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 ₱87,637.50 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 ₱390,000.00 in installments of "₱32,500.00 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: ₱32,500.00 on 25 September 1980, ₱32,500.00 on 27 October 1980 and ₱65,000.00 on 27 February 1981, or a total of
₱130,000.00. 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 ₱267,737.50 inclusive of interests and charges, and
₱66,909.38 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 ₱390,000.00 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 ₱390,000.00 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 ₱54,000.00 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 ₱390,000.00 defendants actually received only ₱329,185.00 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 ₱120,000.00 and D8-2U for ₱60,000.00 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 ₱87,637.50 at 14% interest per annum, and attorney's
fees equivalent to 25% of the monetary award.7
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 (₱390,000.00), Philippine Currency in the following manner:
₱32,500.00 due every 25th of the month starting from September 25, 1980 up to August 25, 1981.
I/We agree that if any of the said installments is not paid as and when it respectively falls due, all the installments covered hereby and
not paid as yet shall forthwith become due and payable at the option of the holder of this note with interest at the rate of 14% per
annum on each unpaid installment until fully paid.
If any amount due on this note is not paid at its maturity and this note is placed in the hands of an attorney for collection, I/We agree to
pay in addition to the aggregate of the principal amount and interest due, a sum equivalent to TEN PERCENT (10%) thereof as
Attorney's fees, in case no action is filed, otherwise, the sum will be equivalent to TWENTY FIVE (25%) of the said principal amount
and interest due x x x x
Makati, Metro Manila, August 25, 1980.
(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-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.1âwphi1 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
₱180,000.00,14 which was not enough to cover the unpaid balance of ₱267,637.50, 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
₱130,000.00 in addition to the ₱180,000.00 proceeds realized from the sale of the bulldozer crawler tractors at public auction.
Deducting these amounts from the principal obligation of ₱390,000.00 leaves a balance of ₱80,000.00, to which must be added
₱7,637.50 accrued interests and charges as of 20 March 1981, or a total unpaid balance of ₱87,637.50 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 ₱130,000.00 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), ₱87,637.50 representing the unpaid balance on the Promissory Note, with interest at fourteen percent (14%) per
annum computed from 20 March 1981 until fully paid, and fifteen percent (15%) of the principal obligation and interests due by way of
attorney's fees. Costs against petitioners.
SO ORDERED.
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 174134 July 30, 2008
FIRST PLANTERS PAWNSHOP, INC., Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
First Planters Pawnshop, Inc. (petitioner) contests the deficiency value-added and documentary stamp taxes imposed upon it by the
Bureau of Internal Revenue (BIR) for the year 2000. The core of petitioner's argument is that it is not a lending investor within the
purview of Section 108(A) of the National Internal Revenue Code (NIRC), as amended, and therefore not subject to value-added tax
(VAT). Petitioner also contends that a pawn ticket is not subject to documentary stamp tax (DST) because it is not proof of the pledge
transaction, and even assuming that it is so, still, it is not subject to tax since a documentary stamp tax is levied on the document issued
and not on the transaction.
The facts:
In a Pre-Assessment Notice dated July 7, 2003, petitioner was informed by the BIR that it has an existing tax deficiency on its VAT and
DST liabilities for the year 2000. The deficiency assessment was at ₱541,102.79 for VAT and ₱23,646.33 for DST. 1 Petitioner protested
the assessment for lack of legal and factual bases.2
Petitioner subsequently received a Formal Assessment Notice on December 29, 2003, directing payment of VAT deficiency in the
amount of ₱541,102.79 and DST deficiency in the amount of ₱24,747.13, inclusive of surcharge and interest. 3 Petitioner filed a
protest,4 which was denied by Acting Regional Director Anselmo G. Adriano per Final Decision on Disputed Assessment dated January
29, 2004.5
Petitioner then filed a petition for review with the Court of Tax Appeals (CTA). 6 In a Decision dated May 9, 2005, the 2nd Division of the
CTA upheld the deficiency assessment.7 Petitioner filed a motion for reconsideration8 which was denied in a Resolution dated October
7, 2005.9
Petitioner appealed to the CTA En Banc which rendered a Decision dated June 7, 2006, the dispositive portion of which reads as
follows:
WHEREFORE, premises considered, the Petition for Review is hereby DENIED for lack of merit. The assailed Decision dated May 9,
2005 and Resolution dated October 7, 2005 are hereby AFFIRMED.
SO ORDERED.10
Petitioner sought reconsideration but this was denied by the CTA En Banc per Resolution dated August 14, 2006.11
Hence, the present petition for review under Rule 45 of the Rules of Court based on the following grounds:
THE HONORABLE COURT OF TAX APPEALS EN BANC GRAVELY ERRED IN FINDING PETITIONER LIABLE FOR VAT.
II
THE HONORABLE COURT OF TAX APPEALS EN BANC GRAVELY ERRED IN RULING THAT PETITIONER IS LIABLE FOR DST
ON PAWN TICKETS.12
The determination of petitioner's tax liability depends on the tax treatment of a pawnshop business. Oddly, there has not been any
definitive declaration in this regard despite the fact that pawnshops have long been in existence. All that has been stated is what
pawnshops are not, but not what pawnshops are.
The BIR itself has maintained an ambivalent stance on this issue. Initially, in Revenue Memorandum Order No. 15-91 issued on March
11, 1991, a pawnshop business was considered as "akin to lending investor’s business activity" and subject to 5% percentage tax
beginning January 1, 1991, under Section 116 of the Tax Code of 1977, as amended by E.O. No. 273.13
With the passage of Republic Act (R.A.) No. 7716 or the EVAT Law in 1994, 14 the BIR abandoned its earlier position and maintained
that pawnshops are subject to 10% VAT, as implemented by Revenue Regulations No. 7-95. This was complemented by Revenue
Memorandum Circular No. 45-01 dated October 12, 2001, which provided that pawnshop operators are liable to the 10% VAT based on
gross receipts beginning January 1, 1996, while pawnshops whose gross annual receipts do not exceed ₱550,000.00 are liable for
percentage tax, pursuant to Section 109(z) of the Tax Code of 1997.
CTA decisions affirmed the BIR's position that pawnshops are subject to VAT. In H. Tambunting Pawnshop, Inc. v. Commissioner of
Internal Revenue,15 the CTA ruled that the petitioner therein was subject to 10% VAT under Section 108 of the Tax Code of
1997. Antam Pawnshop Corporation v. Commissioner of Internal Revenue 16 reiterates said ruling. It was the CTA's view that the
services rendered by pawnshops fall under the general definition of "sale or exchange of services" under Section 108(A) of the Tax
Code of 1997.
On July 15, 2003, the Court rendered Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop, Inc.17 in which it was
categorically ruled that while pawnshops are engaged in the business of lending money, they are not considered "lending investors" for
the purpose of imposing percentage taxes. 18 The Court gave the following reasons: first, under the 1997 Tax Code, pawnshops and
lending investors were subjected to different tax treatments; second, Congress never intended pawnshops to be treated in the same
way as lending investors; third, Section 116 of the NIRC of 1977 subjects to percentage tax dealers in securities and lending investors
only; and lastly, the BIR had ruled several times prior to the issuance of RMO No. 15-91 and RMC 43-91 that pawnshops were not
subject to the 5% percentage tax on lending investors imposed by Section 116 of the NIRC of 1977, as amended by Executive Order
No. 273.
In view of said ruling, the BIR issued Revenue Memorandum Circular No. 36-2004 dated June 16, 2004, canceling the previous lending
investor's tax assessments on pawnshops. Said Circular stated, inter alia:
In view of the said Supreme Court decision, all assessments on pawnshops for percentage taxes as lending investors are hereby
cancelled. This Circular is being issued for the sole purpose of resolving the tax liability of pawnshops to the 5% lending investors tax
provided under the then Section 116 of the NIRC of 1977, as amended, and shall not cover issues relating to their other tax liabilities.
All internal revenue officials are enjoined from issuing assessments on pawnshops for percentage taxes on lending investors, under the
then Section 116 of the NIRC of 1977, as amended.
For purposes of the gross receipt tax provided for under Republic Act No. 9294, the pawnshops are now subject thereof. This shall
however, be covered by another issuance.19
Revenue Memorandum Circular No. 37-2004 was issued on the same date whereby pawnshop businesses were allowed to settle their
VAT liabilities for the tax years 1996-2002 pursuant to a memorandum of agreement entered into by the Commissioner of Internal
Revenue and the Chambers of Pawnbrokers of the Philippines, Inc. The Circular likewise instructed all revenue officers to ensure that
"all VAT due from pawnshops beginning January 1, 2003, including increments thereto, if any, are assessed and collected from
pawnshops under its jurisdiction."
In the interim, however, Congress passed Republic Act (R.A.) No. 9238 on February 5, 2004 entitled, "An Act Amending Certain
Sections of the National Internal Revenue Code of 1997, as amended, by Excluding Several Services from the Coverage of the Value-
added Tax and Re-imposing the Gross Receipts Tax on Banks and Non-bank Financial Intermediaries Performing Quasi-banking
Functions and Other Non-bank Financial Intermediaries beginning January 01, 2004."20
Pending publication of R.A. No. 9238, the BIR issued Bank Bulletin No. 2004-01 on February 10, 2004 advising all banks and non-bank
financial intermediaries that they shall remain liable under the VAT system.
When R.A. No. 9238 took effect on February 16, 2004, the Department of Finance issued Revenue Regulations No. 10-2004 dated
October 18, 2004, classifying pawnshops as Other Non-bank Financial Intermediaries. The BIR then issued Revenue Memorandum
Circular No. 73-2004 on November 25, 2004, prescribing the guidelines and policies on the assessment and collection of 10% VAT for
gross annual sales/receipts exceeding ₱550,000.00 or 3% percentage tax for gross annual sales/receipts not exceeding ₱550,000.00
of pawnshops prior to January 1, 2005.
In fine, prior to the EVAT Law, pawnshops were treated as lending investors subject to lending investor's tax. Subsequently, with the
Court's ruling in Lhuillier, pawnshops were then treated as VAT-able enterprises under the general classification of "sale or exchange
of services" under Section 108(A) of the Tax Code of 1997, as amended. R.A. No. 9238 finally classified pawnshops as Other Non-
bank Financial Intermediaries.
The Court finds that pawnshops should have been treated as non-bank financial intermediaries from the very beginning, subject to the
appropriate taxes provided by law, thus –
· Under the National Internal Revenue Code of 1977, 21 pawnshops should have been levied the 5% percentage tax on gross
receipts imposed on bank and non-bank financial intermediaries under Section 119 (now Section 121 of the Tax Code of
1997);
· With the imposition of the VAT under R.A. No. 7716 or the EVAT Law, 22 pawnshops should have been subjected to the 10%
VAT imposed on banks and non-bank financial intermediaries and financial institutions under Section 102 of the Tax Code of
1977 (now Section 108 of the Tax Code of 1997);23
· This was restated by R.A. No. 8241,24 which amended R.A. No. 7716, although the levy, collection and assessment of the
10% VAT on services rendered by banks, non-bank financial intermediaries, finance companies, and other financial
intermediaries not performing quasi-banking functions, were made effective January 1, 1998;25
· R.A. No. 8424 or the Tax Reform Act of 1997 26 likewise imposed a 10% VAT under Section 108 but the levy, collection and
assessment thereof were again deferred until December 31, 1999;27
· The levy, collection and assessment of the 10% VAT was further deferred by R.A. No. 8761 until December 31, 2000, and by
R.A. No. 9010, until December 31, 2002;
· With no further deferments given by law, the levy, collection and assessment of the 10% VAT on banks, non-bank financial
intermediaries, finance companies, and other financial intermediaries not performing quasi-banking functions were finally
made effective beginning January 1, 2003;
· Finally, with the enactment of R.A. No. 9238, the services of banks, non-bank financial intermediaries, finance companies,
and other financial intermediaries not performing quasi-banking functions were specifically exempted from VAT, 28 and the 0%
to 5% percentage tax on gross receipts on other non-bank financial intermediaries was reimposed under Section 122 of the
Tax Code of 1997.29
At the time of the disputed assessment, that is, for the year 2000, pawnshops were not subject to 10% VAT under the general provision
on "sale or exchange of services" as defined under Section 108(A) of the Tax Code of 1997, which states: "'sale or exchange of
services' means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration x x x."
Instead, due to the specific nature of its business, pawnshops were then subject to 10% VAT under the category of non-bank financial
intermediaries, as provided in the same Section 108(A), which reads:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. -
(A) Rate and Base of Tax. - There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross
receipts derived from the sale or exchange of services, including the use or lease of properties.
The phrase "sale or exchange of services" means the performance of all kinds or services in the Philippines for others for a fee,
remuneration or consideration, including x x x services of banks, non-bank financial intermediaries and finance companies; and
non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity and bonding companies; and similar
services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. The
phrase 'sale or exchange of services' shall likewise include: x x x (Emphasis and underscoring supplied)
The tax treatment of pawnshops as non-bank financial intermediaries is not without basis.
R.A. No. 337, as amended, or the General Banking Act characterizes the terms banking institution and bank as synonymous and
interchangeable and specifically include commercial banks, savings bank, mortgage banks, development banks, rural banks, stock
savings and loan associations, and branches and agencies in the Philippines of foreign banks. 30 R.A. No. 8791 or the General Banking
Law of 2000, meanwhile, provided that banks shall refer to entities engaged in the lending of funds obtained in the form of
deposits.31 R.A. No. 8791 also included cooperative banks, Islamic banks and other banks as determined by the Monetary Board of
the Bangko Sentral ng Pilipinas in the classification of banks.32lavvphi1
Financial intermediaries, on the other hand, are defined as "persons or entities whose principal functions include the lending, investing
or placement of funds or evidences of indebtedness or equity deposited with them, acquired by them, or otherwise coursed through
them, either for their own account or for the account of others."33
It need not be elaborated that pawnshops are non-banks/banking institutions. Moreover, the nature of their business activities partakes
that of a financial intermediary in that its principal function is lending.
A pawnshop's business and operations are governed by Presidential Decree (P.D.) No. 114 or the Pawnshop Regulation Act and
Central Bank Circular No. 374 (Rules and Regulations for Pawnshops). Section 3 of P.D. No. 114 defines pawnshop as "a person or
entity engaged in the business of lending money on personal property delivered as security for loans and shall be synonymous, and
may be used interchangeably, with pawnbroker or pawn brokerage."
That pawnshops are to be treated as non-bank financial intermediaries is further bolstered by the fact that pawnshops are under the
regulatory supervision of the Bangko Sentral ng Pilipinas and covered by its Manual of Regulations for Non-Bank Financial Institutions.
The Manual includes pawnshops in the list of non-bank financial intermediaries, viz.:
§ 4101Q.1 Financial Intermediaries
xxx
Non-bank financial intermediaries shall include the following:
(1) A person or entity licensed and/or registered with any government regulatory body as a non-bank financial intermediary, such as
investment house, investment company, financing company, securities dealer/broker, lending investor, pawnshop, money broker x x x.
(Emphasis supplied)
Revenue Regulations No. 10-2004, in fact, recognized these bases, to wit:
SEC. 2. BASES OF QUALIFYING PAWNSHOPS AS NON-BANK FINANCIAL INTERMEDIARIES. - Whereas, in relation to Sec. 2.3 of
Rev. Regs No. 9-2004 defining "Non-bank Financial Intermediaries, the term "pawnshop" as defined under Presidential Decree No. 114
which authorized its creation, to be a person or entity engaged in the business of lending money, all fall within the classification of Non-
bank Financial Intermediaries and therefore, covered by Sec. 4 of R.A. No. 9238.
This classification is equally supported by Subsection 4101Q.1 of the BSP Manual of Regulations for Non-Bank Financial
Intermediaries and reiterated in BSP Circular No. 204-99, classifying pawnshops as one of Non-bank Financial Intermediaries within the
supervision of the Bangko Sentral ng Pilipinas.
Ultimately, R.A. No. 9238 categorically confirmed the classification of pawnshops as non-bank financial intermediaries.
Coming now to the issue at hand - Since petitioner is a non-bank financial intermediary, it is subject to 10% VAT for the tax years 1996
to 2002; however, with the levy, assessment and collection of VAT from non-bank financial intermediaries being specifically
deferred by law,34 then petitioner is not liable for VAT during these tax years. But with the full implementation of the VAT system
on non-bank financial intermediaries starting January 1, 2003, petitioner is liable for 10% VAT for said tax year. And beginning 2004 up
to the present, by virtue of R.A. No. 9238, petitioner is no longer liable for VAT but it is subject to percentage tax on gross receipts from
0% to 5 %, as the case may be.
Lastly, petitioner is liable for documentary stamp taxes.
The Court has settled this issue in Michel J. Lhuillier Pawnshop, Inc. v. Commissioner of Internal Revenue,35 in which it was ruled that
the subject of DST is not limited to the document alone. Pledge, which is an exercise of a privilege to transfer obligations, rights or
properties incident thereto, is also subject to DST, thus –
x x x the subject of a DST is not limited to the document embodying the enumerated transactions. A DST is an excise tax on the
exercise of a right or privilege to transfer obligations, rights or properties incident thereto. In Philippine Home Assurance Corporation v.
Court of Appeals, it was held that:
xxxx
Pledge is among the privileges, the exercise of which is subject to DST. A pledge may be defined as an accessory, real and unilateral
contract by virtue of which the debtor or a third person delivers to the creditor or to a third person movable property as security for the
performance of the principal obligation, upon the fulfillment of which the thing pledged, with all its accessions and accessories, shall be
returned to the debtor or to the third person. This is essentially the business of pawnshops which are defined under Section 3 of
Presidential Decree No. 114, or the Pawnshop Regulation Act, as persons or entities engaged in lending money on personal property
delivered as security for loans.
Section 12 of the Pawnshop Regulation Act and Section 21 of the Rules and Regulations For Pawnshops issued by the Central Bank to
implement the Act, require every pawnshop or pawnbroker to issue, at the time of every such loan or pledge, a memorandum or ticket
signed by the pawnbroker and containing the following details: (1) name and residence of the pawner; (2) date the loan is granted; (3)
amount of principal loan; (4) interest rate in percent; (5) period of maturity; (6) description of pawn; (7) signature of pawnbroker or his
authorized agent; (8) signature or thumb mark of pawner or his authorized agent; and (9) such other terms and conditions as may be
agreed upon between the pawnbroker and the pawner. In addition, Central Bank Circular No. 445, prescribed a standard form of pawn
tickets with entries for the required details on its face and the mandated terms and conditions of the pledge at the dorsal portion thereof.
Section 3 of the Pawnshop Regulation Act defines a pawn ticket as follows:
xxxx
True, the law does not consider said ticket as an evidence of security or indebtedness. However, for purposes of taxation, the same
pawn ticket is proof of an exercise of a taxable privilege of concluding a contract of pledge. At any rate, it is not said ticket that creates
the pawnshop’s obligation to pay DST but the exercise of the privilege to enter into a contract of pledge. There is therefore no basis in
petitioner’s assertion that a DST is literally a tax on a document and that no tax may be imposed on a pawn ticket.
The settled rule is that tax laws must be construed in favor of the taxpayer and strictly against the government; and that a tax cannot be
imposed without clear and express words for that purpose. Taking our bearing from the foregoing doctrines, we scrutinized Section 195
of the NIRC, but there is no way that said provision may be interpreted in favor of petitioner. Section 195 unqualifiedly subjects all
pledges to DST. It states that "[o]n every x x x pledge x x x there shall be collected a documentary stamp tax x x x." It is clear,
categorical, and needs no further interpretation or construction. The explicit tenor thereof requires hardly anything than a simple
application.
xxxx
In the instant case, there is no law specifically and expressly exempting pledges entered into by pawnshops from the payment of DST.
Section 199 of the NIRC enumerated certain documents which are not subject to stamp tax; but a pawnshop ticket is not one of them.
Hence, petitioner’s nebulous claim that it is not subject to DST is without merit. It cannot be over-emphasized that tax exemption
represents a loss of revenue to the government and must, therefore, not rest on vague inference. Exemption from taxation is never
presumed. For tax exemption to be recognized, the grant must be clear and express; it cannot be made to rest on doubtful implications.
Under the principle of stare decisis et non quieta movere (follow past precedents and do not disturb what has been settled), once a
case has been decided one way, any other case involving exactly the same point at issue, as in the case at bar, should be decided in
the same manner.36
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated June 7, 2006 and Resolution dated August 14, 2006 of the
Court of Tax Appeals En Banc is MODIFIED to the effect that the Bureau of Internal Revenue assessment for VAT deficiency in the
amount of ₱541,102.79 for the year 2000 is REVERSED and SET ASIDE, while its assessment for DST deficiency in the amount of
₱24,747.13, inclusive of surcharge and interest, is UPHELD.
SO ORDERED.
THIRD DIVISION
G.R. No. 156168 December 14, 2004
EQUITABLE BANKING CORPORATION, petitioner,

vs.
JOSE T. CALDERON, respondent.
DECISION
GARCIA, J.:
Thru this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Equitable Banking Corporation (EBC), seeks
the reversal and setting aside of the decision dated November 25, 20021 of the Court of Appeals in CA-G.R. CV No. 60016, which
partially affirmed an earlier decision of the Regional Trial Court at Makati City, Branch 61, insofar as it grants moral damages and costs
of suit to herein respondent, Jose T. Calderon.
The decision under review recites the factual background of the case, as follows:
Plaintiff-appellee [now respondent] Jose T. Calderon (Calderon for brevity), is a businessman engaged in several business
activities here and abroad, either in his capacity as President or Chairman of the Board thereon. In addition thereto, he is a
stockholder of PLDT and a member of the Manila Polo Club, among others. He is a seasoned traveler, who travels at least
seven times a year in the U.S., Europe and Asia. On the other hand, the defendant-appellant [now petitioner] Equitable
Banking Corporation (EBC for brevity), is one of the leading commercial banking institutions in the Philippines, engaged in
commercial banking, such as acceptance of deposits, extension of loans and credit card facilities, among others.
xxx xxx xxx
Sometime in September 1984, Calderon applied and was issued an Equitable International Visa card (Visa card for brevity).
The said Visa card can be used for both peso and dollar transactions within and outside the Philippines. The credit limit for the
peso transaction is TWENTY THOUSAND (P20,000.00) PESOS; while in the dollar transactions, Calderon is required to
maintain a dollar account with a minimum deposit of $3,000.00, the balance of dollar account shall serve as the credit limit.
In April 1986, Calderon together with some reputable business friends and associates, went to Hongkong for business and
pleasure trips. Specifically on 30 April 1986, Calderon accompanied by his friend, Ed De Leon went to Gucci Department
Store located at the basement of the Peninsula Hotel (Hongkong). There and then, Calderon purchased several Gucci items
(t-shirts, jackets, a pair of shoes, etc.). The cost of his total purchase amounted to HK$4,030.00 or equivalent to US$523.00.
Instead of paying the said items in cash, he used his Visa card (No. 4921 6400 0001 9373) to effect payment thereof on credit.
He then presented and gave his credit card to the saleslady who promptly referred it to the store cashier for verification.
Shortly thereafter, the saleslady, in the presence of his friend, Ed De Leon and other shoppers of different nationalities,
informed him that his Visa card was blacklisted. Calderon sought the reconfirmation of the status of his Visa card from the
saleslady, but the latter simply did not honor it and even threatened to cut it into pieces with the use of a pair of scissors.
Deeply embarrassed and humiliated, and in order to avoid further indignities, Calderon paid cash for the Gucci goods and
items that he bought.
Upon his return to the Philippines, and claiming that he suffered much torment and embarrassment on account of EBC’s wrongful act of
blacklisting/suspending his VISA credit card while at the Gucci store in Hongkong, Calderon filed with the Regional Trial Court at Makati
City a complaint for damages2 against EBC.
In its Answer,3 EBC denied any liability to Calderon, alleging that the latter’s credit card privileges for dollar transactions were earlier
placed under suspension on account of Calderon’s prior use of the same card in excess of his credit limit, adding that Calderon failed to
settle said prior credit purchase on due date, thereby causing his obligation to become past due. Corollarily, EBC asserts that Calderon
also failed to maintain the required minimum deposit of $3,000.00.
To expedite the direct examination of witnesses, the trial court required the parties to submit affidavits, in question-and-answer form, of
their respective witnesses, to be sworn to in court, with cross examination to be made in open court.
Eventually, in a decision dated October 10, 1997,4 the trial court, concluding that "defendant bank was negligent if not in bad faith, in
suspending, or ‘blacklisting’ plaintiff’s credit card without notice or basis", rendered judgment in favor of Calderon, thus:
WHEREFORE PREMISES ABOVE CONSIDERED, judgment is hereby rendered in favor of plaintiff as against defendant
EQUITABLE BANKING CORPORATION, which is hereby ORDERED to pay plaintiff as follows:
1. the sum of US$150.00 as actual damages;
2. the sum of P200,000.00 as and by way of moral damages;
3. the amount of P100,000.00 as exemplary damages;
4. the sum of P100,000.00 as attorney’s fees plus P500.00 per court hearing and
5. costs of suit.
SO ORDERED.
Therefrom, EBC went to the Court of Appeals (CA), whereat its recourse was docketed as CA G.R. CV No. 60016.
After due proceedings, the CA, in a decision dated November 25, 2002,5 affirmed that of the trial court but only insofar as the awards
of moral damages, the amount of which was even reduced, and the costs of suits are concerned. More specifically, the CA decision
dispositively reads:6
WHEREFORE, in consideration of the foregoing disquisitions, the decision of the court a quo dated 10 October 1997
is AFFIRMED insofar as the awards of moral damages and costs of suit are concerned. However, anent the award of moral
damages, the same is reduced to One Hundred Thousand (P100,000.00) Pesos.
The rest of the awards are deleted.
SO ORDERED.
Evidently unwilling to accept a judgment short of complete exemption from any liability to Calderon, EBC is now with us via the instant
petition on its lone submission that "THE COURT OF APPEALS ERRED IN HOLDING THAT THE RESPONDENT IS ENTITLED TO
MORAL DAMAGES NOTWITHSTANDING ITS FINDING THAT PETITIONER’S ACTIONS HAVE NOT BEEN ATTENDED WITH ANY
MALICE OR BAD FAITH."7
The petition is impressed with merit.
In law, moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings,
moral shock, social humiliation and similar injury.8 However, to be entitled to the award thereof, it is not enough that one merely suffered
sleepless nights, mental anguish or serious anxiety as a result of the actuations of the other party. 9 In Philippine Telegraph & Telephone
Corporation vs. Court of Appeals,10 we have had the occasion to reiterate the conditions to be met in order that moral damages may be
recovered, viz:
An award of moral damages would require, firstly, evidence of besmirched reputation, or physical, mental or psychological
suffering sustained by the claimant; secondly, a culpable act or omission factually established; thirdly, proof that the wrongful
act or omission of the defendant is the proximate cause of the damages sustained by the claimant; and fourthly, that the case
is predicated on any of the instances expressed or envisioned by Articles 2219 and 2220 of the Civil Code.
Particularly, in culpa contractual or breach of contract, as here, moral damages are recoverable only if the defendant has acted
fraudulently or in bad faith,11 or is found guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual
obligations.12 Verily, the breach must be wanton, reckless, malicious or in bad faith, oppressive or abusive.13
Here, the CA ruled, and rightly so, that no malice or bad faith attended petitioner’s dishonor of respondent’s credit card. For, as found
no less by the same court, petitioner was justified in doing so under the provisions of its Credit Card Agreement 14 with respondent,
paragraph 3 of which states:
xxx the CARDHOLDER agrees not to exceed his/her approved credit limit, otherwise, all charges incurred including charges
incurred through the use of the extension CARD/S, if any in excess of credit limit shall become due and demandable and the
credit privileges shall be automatically suspended without notice to the CARDHOLDER in accordance with Section 11 hereof.
We are thus at a loss to understand why, despite its very own finding of absence of bad faith or malice on the part of the petitioner, the
CA nonetheless adjudged it liable for moral damages to respondent.
Quite evidently, in holding petitioner liable for moral damages, the CA justified the award on its assessment that EBC was negligent in
not informing Calderon that his credit card was already suspended even before he left for Hongkong, ratiocinating that petitioner’s right
to automatically suspend a cardholder’s privileges without notice should not have been indiscriminately used in the case of respondent
because the latter has already paid his past obligations and has an existing dollar deposit in an amount more than the required
minimum for credit card at the time he made his purchases in Hongkong. But, as explained by the petitioner in the memorandum it filed
with this Court,15 which explanations were never controverted by respondent:
"xxx prior to the incident in question (i.e., April 30, 1986 when the purchases at the Gucci store in Hongkong were made),
respondent made credit purchases in Japan and Hongkong from August to September 1985 amounting to US$14,226.12,
while only having a deposit of US$3,639.00 in his dollar account as evidenced by the pertinent monthly statement of
respondent’s credit card transactions and his bank passbook, thus exceeding his credit limit; these purchases were
accommodated by the petitioner on the condition that the amount needed to cover the same will be deposited in a few days as
represented by respondent’s secretary and his company’s general manager – a certain Mrs. Zamora and Mr. F.R. Oliquiano;
respondent however failed to make good on his commitment; later, respondent likewise failed to make the required deposit on
the due date of the purchases as stated in the pertinent monthly statement of account; as a consequence thereof, his card
privileges for dollar transactions were suspended; it was only four months later – on 31 January 1986, that respondent
deposited the sum of P14,501.89 in his dollar account to cover his purchases; the said amount however was not sufficient to
maintain the required minimum dollar deposit of $3,000.00 as the respondent’s dollar deposit stood at only US$2,704.94 after
satisfaction of his outstanding accounts; a day before he left for Hongkong, respondent made another deposit of
US$14,000.00 in his dollar account but did not bother to request the petitioner for the reinstatement of his credit card privileges
for dollar transactions, thus the same remained under suspension."16
The foregoing are based on the sworn affidavit of petitioner’s Collection Manager, a certain Lourdes Canlas, who was never cross
examined by the respondent nor did the latter present any evidence to refute its veracity.
Given the above, and with the express provision on automatic suspension without notice under paragraph 3, supra, of the parties’
Credit Card Agreement, there is simply no basis for holding petitioner negligent for not notifying respondent of the suspended status of
his credit card privileges.
It may be so that respondent, a day before he left for Hongkong, made a deposit of US$14,000.00 to his dollar account with petitioner.
The sad reality, however, is that he never verified the status of his card before departing for Hongkong, much less requested petitioner
to reinstate the same.17
And, certainly, respondent could not have justifiably assumed that petitioner must have reinstated his card by reason alone of his
having deposited US$14,000.00 a day before he left for Hongkong. As issuer of the card, petitioner has the option to decide whether to
reinstate or altogether terminate a credit card previously suspended on considerations which the petitioner deemed proper, not the
least of which are the cardholder’s payment record, capacity to pay and compliance with any additional requirements imposed by it.
That option, after all, is expressly embodied in the same Credit Card Agreement, paragraph 12 of which unmistakably states:
The issuer shall likewise have the option of reinstating the card holder’s privileges which have been terminated for any reason
whatsoever upon submission of a new accomplished application form if required by the issuer and upon payment of an
additional processing fee equivalent to annual fee.18
Even on the aspect of negligence, therefore, petitioner could not have been properly adjudged liable for moral damages.
Unquestionably, respondent suffered damages as a result of the dishonor of his card. There is, however, a material distinction between
damages and injury. To quote from our decision in BPI Express Card Corporation vs. Court of Appeals:19
Injury is the illegal invasion of a legal right; damage is the loss, hurt or harm which results from the injury; and damages are
the recompense or compensation awarded for the damage suffered. Thus, there can be damage without injury in those
instances in which the loss or harm was not the result of a violation of a legal duty . In such cases the consequences
must be borne by the injured person alone, the law affords no remedy for damages resulting from an act which does not
amount to a legal injury or wrong. These situations are often called damnum absque injuria.
In other words, in order that a plaintiff may maintain an action for the injuries of which he complains, he must establish that
such injuries resulted from a breach of duty which the defendant owed to the plaintiff- a concurrence of injury to the plaintiff
and legal responsibility by the person causing it. The underlying basis for the award of tort damages is the premise that an
individual was injured in contemplation of law. Thus, there must first be a breach of some duty and the imposition of
liability for that breach before damages may be awarded; and the breach of such duty should be the proximate cause of the
injury. (Emphasis supplied).
In the situation in which respondent finds himself, his is a case of damnum absque injuria.
We do not take issue with the appellate court in its observation that the Credit Card Agreement herein involved is a contract of
adhesion, with the stipulations therein contained unilaterally prepared and imposed by the petitioner to prospective credit card holders
on a take-it-or-leave-it basis. As said by us in Polotan, Sr. vs. Court of Appeals:20
A contract of adhesion is one in which one of the contracting parties imposes a ready-made form of contract which the other
party may accept or reject, but cannot modify. One party prepares the stipulation in the contract, while the other party merely
affixes his signature or his ‘adhesion’ thereto giving no room for negotiation and depriving the latter of the opportunity to
bargain on equal footing.
On the same breath, however, we have equally ruled that such a contract is "as binding as ordinary contracts, the reason being that the
party who adheres to the contract is free to reject it entirely."21
Moreover, the provision on automatic suspension without notice embodied in the same Credit Card Agreement is couched in clear and
unambiguous term, not to say that the agreement itself was entered into by respondent who, by his own account, is a reputable
businessman engaged in business activities here and abroad.
On a final note, we emphasize that "moral damages are in the category of an award designed to compensate the claim for actual injury
suffered and not to impose a penalty on the wrongdoer."22
WHEREFORE, the instant petition is hereby GRANTED and the decision under review REVERSED and SET ASIDE.
SO ORDERED.
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 102970 May 13, 1993
LUZAN SIA, petitioner,
vs.
COURT OF APPEALS and SECURITY BANK and TRUST COMPANY, respondents.
Asuncion Law Offices for petitioner.
Cauton, Banares, Carpio & Associates for private respondent.
DAVIDE, JR., J.:
The Decision of public respondent Court of Appeals in CA-G.R. CV No. 26737, promulgated on 21 August 1991, 1 reversing and setting
aside the Decision, dated 19 February 1990, 2 of Branch 47 of the Regional Trial Court (RTC) of Manila in Civil Case No. 87-42601,
entitled "LUZAN SIA vs. SECURITY BANK and TRUST CO.," is challenged in this petition for review on certiorari under Rule 45 of the
Rules Court.
Civil Case No. 87-42601 is an action for damages arising out of the destruction or loss of the stamp collection of the plaintiff (petitioner
herein) contained in Safety Deposit Box No. 54 which had been rented from the defendant pursuant to a contract denominated as a
Lease Agreement. 3 Judgment therein was rendered in favor of the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendant,
Security Bank & Trust Company, ordering the defendant bank to pay the plaintiff the sum of —
a) Twenty Thousand Pesos (P20,000.00), Philippine Currency, as actual damages;
b) One Hundred Thousand Pesos (P100,000.00), Philippine Currency, as moral damages; and
c) Five Thousand Pesos (P5,000.00), Philippine Currency, as attorney's fees and legal expenses.
The counterclaim set up by the defendant are hereby dismissed for lack of merit.
No costs.
SO ORDERED.4
The antecedent facts of the present controversy are summarized by the public respondent in its challenged decision as follows:
The plaintiff rented on March 22, 1985 the Safety Deposit Box No. 54 of the defendant bank at its Binondo Branch
located at the Fookien Times Building, Soler St., Binondo, Manila wherein he placed his collection of stamps. The
said safety deposit box leased by the plaintiff was at the bottom or at the lowest level of the safety deposit boxes of
the defendant bank at its aforesaid Binondo Branch.
During the floods that took place in 1985 and 1986, floodwater entered into the defendant bank's premises, seeped
into the safety deposit box leased by the plaintiff and caused, according to the plaintiff, damage to his stamps
collection. The defendant bank rejected the plaintiff's claim for compensation for his damaged stamps collection, so,
the plaintiff instituted an action for damages against the defendant bank.
The defendant bank denied liability for the damaged stamps collection of the plaintiff on the basis of the "Rules and
Regulations Governing the Lease of Safe Deposit Boxes" (Exhs. "A-1", "1-A"), particularly paragraphs 9 and 13,
which reads (sic):
"9. The liability of the Bank by reason of the lease, is limited to the exercise of the diligence to prevent the opening of
the safe by any person other than the Renter, his authorized agent or legal representative;
xxx xxx xxx
"13. The Bank is not a depository of the contents of the safe and it has neither the possession nor the control of the
same. The Bank has no interest whatsoever in said contents, except as herein provided, and it assumes absolutely
no liability in connection therewith."
The defendant bank also contended that its contract with the plaintiff over safety deposit box No. 54 was one of lease
and not of deposit and, therefore, governed by the lease agreement (Exhs. "A", "L") which should be the applicable
law; that the destruction of the plaintiff's stamps collection was due to a calamity beyond obligation on its part to notify
the plaintiff about the floodwaters that inundated its premises at Binondo branch which allegedly seeped into the
safety deposit box leased to the plaintiff.
The trial court then directed that an ocular inspection on (sic) the contents of the safety deposit box be conducted,
which was done on December 8, 1988 by its clerk of court in the presence of the parties and their counsels. A report
thereon was then submitted on December 12, 1988 (Records, p. 98-A) and confirmed in open court by both parties
thru counsel during the hearing on the same date (Ibid., p. 102) stating:
"That the Safety Box Deposit No. 54 was opened by both plaintiff Luzan Sia and the Acting Branch
Manager Jimmy B. Ynion in the presence of the undersigned, plaintiff's and defendant's counsel.
Said Safety Box when opened contains two albums of different sizes and thickness, length and
width and a tin box with printed word 'Tai Ping Shiang Roast Pork in pieces with Chinese designs
and character."
Condition of the above-stated Items —
"Both albums are wet, moldy and badly damaged.
1. The first album measures 10 1/8 inches in length, 8 inches in width and 3/4 in thick. The leaves of the album are
attached to every page and cannot be lifted without destroying it, hence the stamps contained therein are no longer
visible.
2. The second album measure 12 1/2 inches in length, 9 3/4 in width 1 inch thick. Some of its pages can still be lifted.
The stamps therein can still be distinguished but beyond restoration. Others have lost its original form.
3. The tin box is rusty inside. It contains an album with several pieces of papers stuck up to the cover of the box. The
condition of the album is the second abovementioned album."5
The SECURITY BANK AND TRUST COMPANY, hereinafter referred to as SBTC, appealed the trial court's decision to the public
respondent Court of Appeals. The appeal was docketed as CA-G.R. CV No. 26737.
In urging the public respondent to reverse the decision of the trial court, SBTC contended that the latter erred in (a) holding that the
lease agreement is a contract of adhesion; (b) finding that the defendant had failed to exercise the required diligence expected of a
bank in maintaining the safety deposit box; (c) awarding to the plaintiff actual damages in the amount of P20,000.00, moral damages in
the amount of P100,000.00 and attorney's fees and legal expenses in the amount of P5,000.00; and (d) dismissing the counterclaim.
On 21 August 1991, the respondent promulgated its decision the dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby REVERSED and instead the appellee's complaint is hereby
DISMISSED. The appellant bank's counterclaim is likewise DISMISSED. No costs.6
In reversing the trial court's decision and absolving SBTC from liability, the public respondent found and ruled that:
a) the fine print in the "Lease Agreement " (Exhibits "A" and "1" ) constitutes the terms and conditions of the contract of lease which the
appellee (now petitioner) had voluntarily and knowingly executed with SBTC;
b) the contract entered into by the parties regarding Safe Deposit Box No. 54 was not a contract of deposit wherein the bank became a
depositary of the subject stamp collection; hence, as contended by SBTC, the provisions of Book IV, Title XII of the Civil Code on
deposits do not apply;
c) The following provisions of the questioned lease agreement of the safety deposit box limiting SBTC's liability:
9. The liability of the bank by reason of the lease, is limited to the exercise of the diligence to prevent the opening of
the Safe by any person other than the Renter, his authorized agent or legal representative.
xxx xxx xxx
13. The bank is not a depository of the contents of the Safe and it has neither the possession nor the control of the
same. The Bank has no interest whatsoever in said contents, except as herein provided, and it assumes absolutely
no liability in connection therewith.
are valid since said stipulations are not contrary to law, morals, good customs, public order or public policy; and
d) there is no concrete evidence to show that SBTC failed to exercise the required diligence in maintaining the safety deposit box; what
was proven was that the floods of 1985 and 1986, which were beyond the control of SBTC, caused the damage to the stamp collection;
said floods were fortuitous events which SBTC should not be held liable for since it was not shown to have participated in the
aggravation of the damage to the stamp collection; on the contrary, it offered its services to secure the assistance of an expert in order
to save most of the stamps, but the appellee refused; appellee must then bear the lose under the principle of "res perit domino."
Unsuccessful in his bid to have the above decision reconsidered by the public respondent, 7 petitioner filed the instant petition wherein
he contends that:
IT WAS A GRAVE ERROR OR AN ABUSE OF DISCRETION ON THE PART OF THE RESPONDENT COURT
WHEN IT RULED THAT RESPONDENT SBTC DID NOT FAIL TO EXERCISE THE REQUIRED DILIGENCE IN
MAINTAINING THE SAFETY DEPOSIT BOX OF THE PETITIONER CONSIDERING THAT SUBSTANTIAL
EVIDENCE EXIST (sic) PROVING THE CONTRARY.
II
THE RESPONDENT COURT SERIOUSLY ERRED IN EXCULPATING PRIVATE RESPONDENT FROM ANY
LIABILITY WHATSOEVER BY REASON OF THE PROVISIONS OF PARAGRAPHS 9 AND 13 OF THE
AGREEMENT (EXHS. "A" AND "A-1").
III
THE RESPONDENT COURT SERIOUSLY ERRED IN NOT UPHOLDING THE AWARDS OF THE TRIAL COURT
FOR ACTUAL AND MORAL DAMAGES, INCLUDING ATTORNEY'S FEES AND LEGAL EXPENSES, IN FAVOR OF
THE PETITIONER.8
We subsequently gave due course the petition and required both parties to submit their respective memoranda, which they complied
with.9
Petitioner insists that the trial court correctly ruled that SBTC had failed "to exercise the required diligence expected of a bank
maintaining such safety deposit box . . . in the light of the environmental circumstance of said safety deposit box after the floods of 1985
and 1986." He argues that such a conclusion is supported by the evidence on record, to wit: SBTC was fully cognizant of the exact
location of the safety deposit box in question; it knew that the premises were inundated by floodwaters in 1985 and 1986 and
considering that the bank is guarded twenty-four (24) hours a day , it is safe to conclude that it was also aware of the inundation of the
premises where the safety deposit box was located; despite such knowledge, however, it never bothered to inform the petitioner of the
flooding or take any appropriate measures to insure the safety and good maintenance of the safety deposit box in question.
SBTC does not squarely dispute these facts; rather, it relies on the rule that findings of facts of the Court of Appeals, when supported
by substantial exidence, are not reviewable on appeal by certiorari. 10
The foregoing rule is, of course, subject to certain exceptions such as when there exists a disparity between the factual findings and
conclusions of the Court of Appeals and the trial court. 11 Such a disparity obtains in the present case.
As We see it, SBTC's theory, which was upheld by the public respondent, is that the "Lease Agreement " covering Safe Deposit Box
No. 54 (Exhibit "A and "1") is just that — a contract of lease — and not a contract of deposit, and that paragraphs 9 and 13 thereof,
which expressly limit the bank's liability as follows:
9. The liability of the bank by reason of the lease, is limited to the exercise of the diligence to prevent the opening of
the Safe by any person other than the Renter, his autliorized agent or legal representative;
xxx xxx xxx
13. The bank is not a depository of the contents of the Safe and it has neither the possession nor the control of the
same. The Bank has no interest whatsoever said contents, except as herein provided, and it assumes absolutely no
liability in connection therewith. 12
are valid and binding upon the parties. In the challenged decision, the public respondent further avers that even without such a
limitation of liability, SBTC should still be absolved from any responsibility for the damage sustained by the petitioner as it appears that
such damage was occasioned by a fortuitous event and that the respondent bank was free from any participation in the aggravation of
the injury.
We cannot accept this theory and ratiocination. Consequently, this Court finds the petition to be impressed with merit.
In the recent case CA Agro-Industrial Development Corp. vs. Court of Appeals, 13 this Court explicitly rejected the contention that a
contract for the use of a safety deposit box is a contract of lease governed by Title VII, Book IV of the Civil Code. Nor did We fully
subscribe to the view that it is a contract of deposit to be strictly governed by the Civil Code provision on deposit; 14 it is, as We
declared, a special kind of deposit. The prevailing rule in American jurisprudence — that the relation between a bank renting out safe
deposit boxes and its customer with respect to the contents of the box is that of a bailor and bailee, the bailment for hire and mutual
benefit 15 — has been adopted in this jurisdiction, thus:
In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear that in this
jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of the General Banking Act [R.A.
337, as amended] pertinently provides:
"Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than
building and loan associations may perform the following services:
(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for
the safequarding of such effects.
xxx xxx xxx
The banks shall perform the services permitted under subsections (a), (b) and (c) of this section as depositories or as
agents. . . ."(emphasis supplied)
Note that the primary function is still found within the parameters of a contract of deposit, i.e., the receiving in custody
of funds, documents and other valuable objects for safekeeping. The renting out of the safety deposit boxes is not
independent from, but related to or in conjunction with, this principal function. A contract of deposit may be entered
into orally or in writing (Art. 1969, Civil Code] and, pursuant to Article 1306 of the Civil Code, the parties thereto may
establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order or public policy. The depositary's responsibility for the
safekeeping of the objects deposited in the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly,
the depositary would be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or
contravention of the tenor of the agreement [Art. 1170, id.]. In the absence of any stipulation prescribing the degree of
diligence required, that of a good father of a family is to be observed [Art. 1173, id.]. Hence, any stipulation exempting
the depositary from any liability arising from the loss of the thing deposited on account of fraud, negligence or delay
would be void for being contrary to law and public policy. In the instant case, petitioner maintains that conditions 13
and l4 of the questioned contract of lease of the safety deposit box, which read:
"13. The bank is a depositary of the contents of the safe and it has neither the possession nor control of the same.
"14. The bank has no interest whatsoever in said contents, except as herein expressly provided, and it assumes
absolutely no liability in connection therewith."
are void as they are contrary to law and public policy. We find Ourselves in agreement with this proposition for
indeed, said provisions are inconsistent with the respondent Bank's responsibility as a depositary under Section 72
(a) of the General Banking Act. Both exempt the latter from any liability except as contemplated in condition 8 thereof
which limits its duty to exercise reasonable diligence only with respect to who shall be admitted to any rented safe, to
wit:
"8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented
safe and beyond this, the Bank will not be responsible for the contents of any safe rented from it."
Furthermore condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank. It is not
correct to assert that the Bank has neither the possession nor control of the contents of the box since in fact, the
safety deposit box itself is located in its premises and is under its absolute control; moreover, the respondent Bank
keeps the guard key to the said box. As stated earlier, renters cannot open their respective boxes unless the Bank
cooperates by presenting and using this guard key. Clearly then, to the extent above stated, the foregoing conditions
in the contract in question are void and ineffective. It has been said:
"With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company,

the parties, since the relation is a contractual one, may by special contract define their respective
duties or provide for increasing or limiting the liability of the deposit company, provided such
contract is not in violation of law or public policy. It must clearly appear that there actually was such
a special contract, however, in order to vary the ordinary obligations implied by law from the
relationship of the parties; liability of the deposit company will not be enlarged or restricted by
words of doubtful meaning. The company, in renting safe-deposit boxes, cannot exempt itself from
liability for loss of the contents by its own fraud or negligence or that, of its agents or servants, and
if a provision of the contract may be construed as an attempt to do so, it will be held ineffective for
the purpose. Although it has been held that the lessor of a safe-deposit box cannot limit its liability
for loss of the contents thereof through its own negligence, the view has been taken that such a
lessor may limit its liability to some extent by agreement or stipulation ."[10 AM JUR 2d., 466].
(citations omitted) 16
It must be noted that conditions No. 13 and No. 14 in the Contract of Lease of Safety Deposit Box in CA Agro-Industrial Development
Corp. are strikingly similar to condition No. 13 in the instant case. On the other hand, both condition No. 8 in CA Agro-Industrial
Development Corp. and condition No. 9 in the present case limit the scope of the exercise of due diligence by the banks involved to
merely seeing to it that only the renter, his authorized agent or his legal representative should open or have access to the safety
deposit box. In short, in all other situations, it would seem that SBTC is not bound to exercise diligence of any kind at all. Assayed in the
light of Our aforementioned pronouncements in CA Agro-lndustrial Development Corp., it is not at all difficult to conclude that both
conditions No. 9 and No. 13 of the "Lease Agreement" covering the safety deposit box in question (Exhibits "A" and "1") must be
stricken down for being contrary to law and public policy as they are meant to exempt SBTC from any liability for damage, loss or
destruction of the contents of the safety deposit box which may arise from its own or its agents' fraud, negligence or delay. Accordingly,
SBTC cannot take refuge under the said conditions.
Public respondent further postulates that SBTC cannot be held responsible for the destruction or loss of the stamp collection because
the flooding was a fortuitous event and there was no showing of SBTC's participation in the aggravation of the loss or injury. It states:
Article 1174 of the Civil Code provides:
"Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or
when the nature of the obligation requires the assumption of risk, no person shall be responsible for
those events which could not be foreseen, or which, though foreseen, were inevitable.'
In its dissertation of the phrase "caso fortuito" the Enciclopedia Jurisdicada Española 17 says: "In a legal sense and,
consequently, also in relation to contracts, a "caso fortuito" prevents (sic) 18 the following essential characteristics: (1)
the cause of the unforeseen ands unexpected occurrence, or of the failure of the debtor to comply with his obligation,
must be independent of the human will; (2) it must be impossible to foresee the event which constitutes the "caso
fortuito," or if it can be foreseen, it must be impossible to avoid; (3) the occurrence must be such as to render it
impossible for one debtor to fulfill his obligation in a normal manner; and (4) the obligor must be free from any
participation in the aggravation of the injury resulting to the creditor." (cited in Servando vs. Phil., Steam Navigation
Co., supra). 19
Here, the unforeseen or unexpected inundating floods were independent of the will of the appellant bank and the
latter was not shown to have participated in aggravating damage (sic) to the stamps collection of the appellee. In fact,
the appellant bank offered its services to secure the assistance of an expert to save most of the then good stamps
but the appelle refused and let (sic) these recoverable stamps inside the safety deposit box until they were ruined. 20
Both the law and authority cited are clear enough and require no further elucidation. Unfortunately, however, the public respondent
failed to consider that in the instant case, as correctly held by the trial court, SBTC was guilty of negligence. The facts constituting
negligence are enumerated in the petition and have been summarized in this ponencia. SBTC's negligence aggravated the injury or
damage to the stamp collection. SBTC was aware of the floods of 1985 and 1986; it also knew that the floodwaters inundated the room
where Safe Deposit Box No. 54 was located. In view thereof, it should have lost no time in notifying the petitioner in order that the box
could have been opened to retrieve the stamps, thus saving the same from further deterioration and loss. In this respect, it failed to
exercise the reasonable care and prudence expected of a good father of a family, thereby becoming a party to the aggravation of the
injury or loss. Accordingly, the aforementioned fourth characteristic of a fortuitous event is absent Article 1170 of the Civil Code, which
reads:
Those who in the performance of their obligation are guilty of fraud, negligence, or delay, and those who in any
manner contravene the tenor thereof, are liable for damages,
thus comes to the succor of the petitioner. The destruction or loss of the stamp collection which was, in the language of the trial court,
the "product of 27 years of patience and diligence" 21 caused the petitioner pecuniary loss; hence, he must be compensated therefor.
We cannot, however, place Our imprimatur on the trial court's award of moral damages. Since the relationship between the petitioner
and SBTC is based on a contract, either of them may be held liable for moral damages for breach thereof only if said party had acted
fraudulently or in bad faith. 22 There is here no proof of fraud or bad faith on the part of SBTC.
WHEREFORE, the instant petition is hereby GRANTED. The challenged Decision and Resolution of the public respondent Court of
Appeals of 21 August 1991 and 21 November 1991, respectively, in CA-G.R. CV No. 26737, are hereby SET ASIDE and the Decision
of 19 February 1990 of Branch 47 of the Regional Trial Court of Manila in Civil Case No. 87-42601 is hereby REINSTATED in full,
except as to the award of moral damages which is hereby set aside.
Costs against the private respondent.
SO ORDERED.
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 90027 March 3, 1993
CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner,

vs.
THE HONORABLE COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents.
Dolorfino & Dominguez Law Offices for petitioner.
Danilo B. Banares for private respondent.
DAVIDE, JR., J.:
Is the contractual relation between a commercial bank and another party in a contract of rent of a safety deposit box with respect to its
contents placed by the latter one of bailor and bailee or one of lessor and lessee?
This is the crux of the present controversy.
On 3 July 1979, petitioner (through its President, Sergio Aguirre) and the spouses Ramon and Paula Pugao entered into an agreement
whereby the former purchased from the latter two (2) parcels of land for a consideration of P350,625.00. Of this amount, P75,725.00
was paid as downpayment while the balance was covered by three (3) postdated checks. Among the terms and conditions of the
agreement embodied in a Memorandum of True and Actual Agreement of Sale of Land were that the titles to the lots shall be
transferred to the petitioner upon full payment of the purchase price and that the owner's copies of the certificates of titles thereto,
Transfer Certificates of Title (TCT) Nos. 284655 and 292434, shall be deposited in a safety deposit box of any bank. The same could
be withdrawn only upon the joint signatures of a representative of the petitioner and the Pugaos upon full payment of the purchase
price. Petitioner, through Sergio Aguirre, and the Pugaos then rented Safety Deposit Box No. 1448 of private respondent Security Bank
and Trust Company, a domestic banking corporation hereinafter referred to as the respondent Bank. For this purpose, both signed a
contract of lease (Exhibit "2") which contains, inter alia, the following conditions:
13. The bank is not a depositary of the contents of the safe and it has neither the possession nor control of the same.
14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it assumes
absolutely no liability in connection therewith.1
After the execution of the contract, two (2) renter's keys were given to the renters — one to Aguirre (for the petitioner) and the other to
the Pugaos. A guard key remained in the possession of the respondent Bank. The safety deposit box has two (2) keyholes, one for the
guard key and the other for the renter's key, and can be opened only with the use of both keys. Petitioner claims that the certificates of
title were placed inside the said box.
Thereafter, a certain Mrs. Margarita Ramos offered to buy from the petitioner the two (2) lots at a price of P225.00 per square meter
which, as petitioner alleged in its complaint, translates to a profit of P100.00 per square meter or a total of P280,500.00 for the entire
property. Mrs. Ramos demanded the execution of a deed of sale which necessarily entailed the production of the certificates of title. In
view thereof, Aguirre, accompanied by the Pugaos, then proceeded to the respondent Bank on 4 October 1979 to open the safety
deposit box and get the certificates of title. However, when opened in the presence of the Bank's representative, the box yielded no
such certificates. Because of the delay in the reconstitution of the title, Mrs. Ramos withdrew her earlier offer to purchase the lots; as a
consequence thereof, the petitioner allegedly failed to realize the expected profit of P280,500.00. Hence, the latter filed on 1 September
1980 a complaint2 for damages against the respondent Bank with the Court of First Instance (now Regional Trial Court) of Pasig, Metro
Manila which docketed the same as Civil Case No. 38382.
In its Answer with Counterclaim,3 respondent Bank alleged that the petitioner has no cause of action because of paragraphs 13 and 14
of the contract of lease (Exhibit "2"); corollarily, loss of any of the items or articles contained in the box could not give rise to an action
against it. It then interposed a counterclaim for exemplary damages as well as attorney's fees in the amount of P20,000.00. Petitioner
subsequently filed an answer to the counterclaim.4
In due course, the trial court, now designated as Branch 161 of the Regional Trial Court (RTC) of Pasig, Metro Manila, rendered a
decision5 adverse to the petitioner on 8 December 1986, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered dismissing plaintiff's complaint.
On defendant's counterclaim, judgment is hereby rendered ordering plaintiff to pay defendant the amount of FIVE
THOUSAND (P5,000.00) PESOS as attorney's fees.
With costs against plaintiff.6
The unfavorable verdict is based on the trial court's conclusion that under paragraphs 13 and 14 of the contract of lease, the Bank has
no liability for the loss of the certificates of title. The court declared that the said provisions are binding on the parties.
Its motion for reconsideration7 having been denied, petitioner appealed from the adverse decision to the respondent Court of Appeals
which docketed the appeal as CA-G.R. CV No. 15150. Petitioner urged the respondent Court to reverse the challenged decision
because the trial court erred in (a) absolving the respondent Bank from liability from the loss, (b) not declaring as null and void, for
being contrary to law, public order and public policy, the provisions in the contract for lease of the safety deposit box absolving the Bank
from any liability for loss, (c) not concluding that in this jurisdiction, as well as under American jurisprudence, the liability of the Bank is
settled and (d) awarding attorney's fees to the Bank and denying the petitioner's prayer for nominal and exemplary damages and
attorney's fees.8
In its Decision promulgated on 4 July 1989,9 respondent Court affirmed the appealed decision principally on the theory that the contract
(Exhibit "2") executed by the petitioner and respondent Bank is in the nature of a contract of lease by virtue of which the petitioner and
its co-renter were given control over the safety deposit box and its contents while the Bank retained no right to open the said box
because it had neither the possession nor control over it and its contents. As such, the contract is governed by Article 1643 of the Civil
Code 10 which provides:
Art. 1643. In the lease of things, one of the parties binds himself to give to another the enjoyment or use of a thing for
a price certain, and for a period which may be definite or indefinite. However, no lease for more than ninety-nine
years shall be valid.
It invoked Tolentino vs. Gonzales 11 — which held that the owner of the property loses his control over the property leased
during the period of the contract — and Article 1975 of the Civil Code which provides:
Art. 1975. The depositary holding certificates, bonds, securities or instruments which earn interest shall be bound to
collect the latter when it becomes due, and to take such steps as may be necessary in order that the securities may
preserve their value and the rights corresponding to them according to law.
The above provision shall not apply to contracts for the rent of safety deposit boxes.
and then concluded that "[c]learly, the defendant-appellee is not under any duty to maintain the contents of the box. The
stipulation absolving the defendant-appellee from liability is in accordance with the nature of the contract of lease and cannot
be regarded as contrary to law, public order and public policy." 12 The appellate court was quick to add, however, that under
the contract of lease of the safety deposit box, respondent Bank is not completely free from liability as it may still be made
answerable in case unauthorized persons enter into the vault area or when the rented box is forced open. Thus, as expressly
provided for in stipulation number 8 of the contract in question:
8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe and beyond
this, the Bank will not be responsible for the contents of any safe rented from it. 13
Its motion for reconsideration 14 having been denied in the respondent Court's Resolution of 28 August 1989, 15 petitioner took this
recourse under Rule 45 of the Rules of Court and urges Us to review and set aside the respondent Court's ruling. Petitioner avers that
both the respondent Court and the trial court (a) did not properly and legally apply the correct law in this case, (b) acted with grave
abuse of discretion or in excess of jurisdiction amounting to lack thereof and (c) set a precedent that is contrary to, or is a departure
from precedents adhered to and affirmed by decisions of this Court and precepts in American jurisprudence adopted in the Philippines.
It reiterates the arguments it had raised in its motion to reconsider the trial court's decision, the brief submitted to the respondent Court
and the motion to reconsider the latter's decision. In a nutshell, petitioner maintains that regardless of nomenclature, the contract for the
rent of the safety deposit box (Exhibit "2") is actually a contract of deposit governed by Title XII, Book IV of the Civil Code of the
Philippines. 16 Accordingly, it is claimed that the respondent Bank is liable for the loss of the certificates of title pursuant to Article 1972
of the said Code which provides:
Art. 1972. The depositary is obliged to keep the thing safely and to return it, when required, to the depositor, or to his
heirs and successors, or to the person who may have been designated in the contract. His responsibility, with regard
to the safekeeping and the loss of the thing, shall be governed by the provisions of Title I of this Book.
If the deposit is gratuitous, this fact shall be taken into account in determining the degree of care that the depositary
must observe.
Petitioner then quotes a passage from American Jurisprudence 17 which is supposed to expound on the prevailing rule in the
United States, to wit:
The prevailing rule appears to be that where a safe-deposit company leases a safe-deposit box or safe and the
lessee takes possession of the box or safe and places therein his securities or other valuables, the relation of bailee
and bail or is created between the parties to the transaction as to such securities or other valuables; the fact that the
safe-deposit company does not know, and that it is not expected that it shall know, the character or description of the
property which is deposited in such safe-deposit box or safe does not change that relation. That access to the
contents of the safe-deposit box can be had only by the use of a key retained by the lessee ( whether it is the sole
key or one to be used in connection with one retained by the lessor) does not operate to alter the foregoing rule. The
argument that there is not, in such a case, a delivery of exclusive possession and control to the deposit company,
and that therefore the situation is entirely different from that of ordinary bailment, has been generally rejected by the
courts, usually on the ground that as possession must be either in the depositor or in the company, it should
reasonably be considered as in the latter rather than in the former, since the company is, by the nature of the
contract, given absolute control of access to the property, and the depositor cannot gain access thereto without the
consent and active participation of the company. . . . (citations omitted).
and a segment from Words and Phrases 18 which states that a contract for the rental of a bank safety deposit box in
consideration of a fixed amount at stated periods is a bailment for hire.
Petitioner further argues that conditions 13 and 14 of the questioned contract are contrary to law and public policy and should be
declared null and void. In support thereof, it cites Article 1306 of the Civil Code which provides that parties to a contract may establish
such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order or public policy.
After the respondent Bank filed its comment, this Court gave due course to the petition and required the parties to simultaneously
submit their respective Memoranda.
The petition is partly meritorious.
We agree with the petitioner's contention that the contract for the rent of the safety deposit box is not an ordinary contract of lease as
defined in Article 1643 of the Civil Code. However, We do not fully subscribe to its view that the same is a contract of deposit that is to
be strictly governed by the provisions in the Civil Code on deposit; 19 the contract in the case at bar is a special kind of deposit. It cannot
be characterized as an ordinary contract of lease under Article 1643 because the full and absolute possession and control of the safety
deposit box was not given to the joint renters — the petitioner and the Pugaos. The guard key of the box remained with the respondent
Bank; without this key, neither of the renters could open the box. On the other hand, the respondent Bank could not likewise open the
box without the renter's key. In this case, the said key had a duplicate which was made so that both renters could have access to the
box.
Hence, the authorities cited by the respondent Court 20 on this point do not apply. Neither could Article 1975, also relied upon by the
respondent Court, be invoked as an argument against the deposit theory. Obviously, the first paragraph of such provision cannot apply
to a depositary of certificates, bonds, securities or instruments which earn interest if such documents are kept in a rented safety deposit
box. It is clear that the depositary cannot open the box without the renter being present.
We observe, however, that the deposit theory itself does not altogether find unanimous support even in American jurisprudence. We
agree with the petitioner that under the latter, the prevailing rule is that the relation between a bank renting out safe-deposit boxes and
its customer with respect to the contents of the box is that of a bail or and bailee, the bailment being for hire and mutual benefit. 21 This
is just the prevailing view because:
There is, however, some support for the view that the relationship in question might be more properly characterized
as that of landlord and tenant, or lessor and lessee. It has also been suggested that it should be characterized as that
of licensor and licensee. The relation between a bank, safe-deposit company, or storage company, and the renter of
a safe-deposit box therein, is often described as contractual, express or implied, oral or written, in whole or in part.
But there is apparently no jurisdiction in which any rule other than that applicable to bailments governs questions of
the liability and rights of the parties in respect of loss of the contents of safe-deposit boxes. 22 (citations omitted)
In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear that in this jurisdiction, the
prevailing rule in the United States has been adopted. Section 72 of the General Banking Act 23 pertinently provides:
Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than
building and loan associations may perform the following services:
(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for
the safeguarding of such effects.
xxx xxx xxx
The banks shall perform the services permitted under subsections (a), (b) and (c) of this section as depositories or as
agents. . . . 24 (emphasis supplied)
Note that the primary function is still found within the parameters of a contract of deposit, i.e., the receiving in custody of funds,
documents and other valuable objects for safekeeping. The renting out of the safety deposit boxes is not independent from, but related
to or in conjunction with, this principal function. A contract of deposit may be entered into orally or in writing 25 and, pursuant to Article
1306 of the Civil Code, the parties thereto may establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs, public order or public policy. The depositary's responsibility for
the safekeeping of the objects deposited in the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary
would be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the
agreement. 26 In the absence of any stipulation prescribing the degree of diligence required, that of a good father of a family is to be
observed. 27 Hence, any stipulation exempting the depositary from any liability arising from the loss of the thing deposited on account of
fraud, negligence or delay would be void for being contrary to law and public policy. In the instant case, petitioner maintains that
conditions 13 and 14 of the questioned contract of lease of the safety deposit box, which read:
13. The bank is not a depositary of the contents of the safe and it has neither the possession nor control of the same.
14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it assumes
absolutely no liability in connection therewith. 28
are void as they are contrary to law and public policy. We find Ourselves in agreement with this proposition for indeed, said
provisions are inconsistent with the respondent Bank's responsibility as a depositary under Section 72(a) of the General
Banking Act. Both exempt the latter from any liability except as contemplated in condition 8 thereof which limits its duty to
exercise reasonable diligence only with respect to who shall be admitted to any rented safe, to wit:
8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe and beyond
this, the Bank will not be responsible for the contents of any safe rented from it. 29
Furthermore, condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank. It is not correct to
assert that the Bank has neither the possession nor control of the contents of the box since in fact, the safety deposit box itself
is located in its premises and is under its absolute control; moreover, the respondent Bank keeps the guard key to the said
box. As stated earlier, renters cannot open their respective boxes unless the Bank cooperates by presenting and using this
guard key. Clearly then, to the extent above stated, the foregoing conditions in the contract in question are void and
ineffective. It has been said:
With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company, the parties, since
the relation is a contractual one, may by special contract define their respective duties or provide for increasing or
limiting the liability of the deposit company, provided such contract is not in violation of law or public policy. It must
clearly appear that there actually was such a special contract, however, in order to vary the ordinary obligations
implied by law from the relationship of the parties; liability of the deposit company will not be enlarged or restricted by
words of doubtful meaning. The company, in renting
safe-deposit boxes, cannot exempt itself from liability for loss of the contents by its own fraud or negligence or that of
its agents or servants, and if a provision of the contract may be construed as an attempt to do so, it will be held
ineffective for the purpose. Although it has been held that the lessor of a safe-deposit box cannot limit its liability for
loss of the contents thereof through its own negligence, the view has been taken that such a lessor may limits its
liability to some extent by agreement or stipulation. 30 (citations omitted)
Thus, we reach the same conclusion which the Court of Appeals arrived at, that is, that the petition should be dismissed, but on
grounds quite different from those relied upon by the Court of Appeals. In the instant case, the respondent Bank's exoneration cannot,
contrary to the holding of the Court of Appeals, be based on or proceed from a characterization of the impugned contract as a contract
of lease, but rather on the fact that no competent proof was presented to show that respondent Bank was aware of the agreement
between the petitioner and the Pugaos to the effect that the certificates of title were withdrawable from the safety deposit box only upon
both parties' joint signatures, and that no evidence was submitted to reveal that the loss of the certificates of title was due to the fraud
or negligence of the respondent Bank. This in turn flows from this Court's determination that the contract involved was one of deposit.
Since both the petitioner and the Pugaos agreed that each should have one (1) renter's key, it was obvious that either of them could
ask the Bank for access to the safety deposit box and, with the use of such key and the Bank's own guard key, could open the said box,
without the other renter being present.
Since, however, the petitioner cannot be blamed for the filing of the complaint and no bad faith on its part had been established, the trial
court erred in condemning the petitioner to pay the respondent Bank attorney's fees. To this extent, the Decision (dispositive portion) of
public respondent Court of Appeals must be modified.
WHEREFORE, the Petition for Review is partially GRANTED by deleting the award for attorney's fees from the 4 July 1989 Decision of
the respondent Court of Appeals in CA-G.R. CV No. 15150. As modified, and subject to the pronouncement We made above on the
nature of the relationship between the parties in a contract of lease of safety deposit boxes, the dispositive portion of the said Decision
is hereby AFFIRMED and the instant Petition for Review is otherwise DENIED for lack of merit.
No pronouncement as to costs.
SO ORDERED.
THIRD DIVISION
March 7, 2018
G.R. No. 227990
CITYSTATE SAVINGS BANK, Petitioner

vs.
TERESITA TOBIAS and SHELLIDIE VALDEZ, Respondents
DECISION
REYES, JR., J.:
This is a petition for review on certiorari1 under Rule 45 of the Rules of Court seeking to annul and set aside the Decision 2 dated May
31, 2016 and Resolution3 dated October 10, 2016 issued by the Court of Appeals (CA) in CA-G.R. CV No. 102545.
The Antecedent Facts
Rolando Robles (hereinafter referred to as Robles), a certified public accountant, has been employed with Citystate Savings Bank
(hereinafter referred to as the petitioner) since July 1998 then as Accountant-trainee for its Chino Roces Branch. On September 6,
2000, Robles was promoted as acting manager for petitioner's Baliuag, Bulacan branch, and eventually as manager.4
Sometime in 2002, respondent Teresita Tobias (hereinafter referred to as Tobias), a meat vendor at the Baliuag Public Market, was
introduced by her youngest son to Robles, branch manager of petitioner's Baliuag, Bulacan branch.5
Robles persuaded Tobias to open an account with the petitioner, and thereafter to place her money in some high interest rate
mechanism, to which the latter yielded.6
Thereafter, Robles would frequent Tobias' stall at the public market to deliver the interest earned by her deposit accounts in the amount
of Php 2,000.00. In turn, Tobias would hand over her passbook to Robles for updating. The passbook would be returned the following
day with typewritten entries but without the corresponding counter signatures. 7
Tobias was later offered by Robles to sign-up in petitioner's back-to-back scheme which is supposedly offered only to petitioner's most
valued clients. Under the scheme, the depositors authorize the bank to use their bank deposits and invest the same in different
business ventures that yield high interest. Robles allegedly promised that the interest previously earned by Tobias would be doubled
and assured her that he will do all the paper work. Lured by the attractive offer, Tobias signed the pertinent documents without reading
its contents and invested a total of Php 1,800,000.00 to petitioner through Robles. Later, Tobias became sickly, thus she included her
daughter and herein respondent Shellidie Valdez (hereinafter referred to as Valdez), as co-depositor in her accounts with the
petitioner.8
In 2005, Robles failed to remit to respondents the interest as scheduled. Respondents tried to reach Robles but he can no longer be
found; their calls were also left unanswered. In a meeting with Robles' siblings, it was disclosed to the respondents that Robles
withdrew the money and appropriated it for personal use. Robles later talked to the respondents, promised that he would return the
money by installments and pleaded that they do not report the incident to the petitioner. Robles however reneged on his promise.
Petitioner also refused to make arrangements for the return of respondents' money despite several demands.9
On January 8, 2007, respondents filed a Complaint for sum of money and damages against Robles and the petitioner. 10 In their
Complaint, respondents alleged that Robles committed fraud in the performance of his duties as branch manager when he lured Tobias
in signing several pieces of blank documents, under the assurance as bank manager of petitioner, everything was in order. 11
After due proceedings, the Regional Trial Court (RTC), on February 12, 2014, rendered its Decision,12 viz.:
WHEREFORE, in light of the foregoing, judgment is hereby rendered ordering defendant Robles to pay plaintiff the following:
1. the amount of Php1,800,000.00 as actual damages plus legal rate of interest from the filing of the complaint until fully paid;
2. the amount of Php100,000.00 as moral damages; and
3. the amount of Php50,000.00 as exemplary damages.

The plaintiffs claim for attorney's fees and litigation expenses are DENIED for lack of merit.
Further, defendant bank is absolved of any liability. Likewise, all counterclaims and cross-claims are DENIED for lack of merit.
SO ORDERED. 13
Ruling of the CA
The matter was elevated to the CA. The CA in its Decision 14 dated , May 31, 2016, found the appeal meritorious and accordingly,
reversed and set aside the RTC's decision, in this wise:
WHEREFORE, the Appeal is hereby GRANTED. The Decision Dated 12 February 2014 of the [RTC], Third Judicial Region, Malolos
City, Bul!:ican, Branch 83, in Civil Case No. 1 l-M-07, is MODIFIED in that [petitioner] and [Robles] are JOINTLY and SOLIDARILY to
pay [respondents] the amounts set forth in the assailed Decisions as well as attorney's fees in the amount of ONE HUNDRED
THOUSAND PESOS (₱100,000.00).
SO ORDERED.15
Petitioner sought a reconsideration of the decision, but it was denied by the CA in its Resolution16 dated October 10, 2016.
In the instant petition, respondents put forward the · following 1arguments to support their position:
ARGUMENTS
IN RENDERING THE ASSAILED DECISION AND RESOLUTION, THE CA DECIDED QUESTIONS OF SUBSTANCE WHICH ARE
NOT IN ACCORD WITH APPLICABLE LAWS AND JURISPRUDENCE.
[A]
THE CA SERIOUSLY ERRED IN RULING THAT THE DOCTRINE OF APPARENT AUTHORITY IS APPLICABLE IN THIS CASE.
[B]
THE CA SERIOUSLY ERRED IN RULING THAT RESPONDENT TOBIAS IS NOT GUILTY OF CONTRIBUTORY NEGLIGENCE.
[C]
THE CA SERIOUSLY ERRED IN RULING THAT CITYSTATE IS JOINTLY AND SOLIDARILY LIABLE WITH ROBLES TO PAY FOR
THE DAMAGE SUPPOSEDLY SUFFERED BY RESPONDENTS.
[D]
THE CA SERIOUSLY ERRED IN RULING THAT CITYSTATE IS JOINTLY AND SOLIDARILY LIABLE FOR ATTORNEY'S FEES. 17
In this petition for review on certiorari, petitioner alleged that it 'should not be held liable considering that it has exercised a high degree
of 1diligence in the selection and supervision of its employees, including Robles, and that it took proper measures in hiring the latter.
Further, it posits that it has complied with standard bank operating procedures in the .conduct of its operations.
Petitioner also argues that Robles acted in his personal capacity in dealing with Tobias, who agreed with· full knowledge and consent to
the back-to-back loans and that it was not privy to the transactions between them. Therefore, petitioner submits that the CA erred in
applying the doctrine of apparent authority.
Ruling of the Court
The petition is denied.
The business of banking is one imbued with public interest. As such, banking institutions are obliged to exercise the highest degree of
diligence as well as high standards of integrity and performance in all its transactions.18
The law expressly imposes upon the banks a fiduciary duty towards its clients 19 and to treat in this regard the accounts of its depositors
with meticulous care. 20
The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan or mutuum, with the
bank as the debtor and the depositor as the creditor.21
In light of these, banking institutions may be held liable for damages for failure to exercise the diligence required of it resulting to
contractual breach or where the act or omission complained of constitutes an actionable tort.22
The nature of a bank's liability is illustrated in the consolidated cases .of Philippine Commercial International Bank v. CA, et al., Ford
Philippines, Inc. v. CA, et al. and Ford Philippines, Inc. v. Citibank, NA., et al.23 The original actions a quo were instituted by Ford
Philippines, Inc. (Ford) to recover the value of several checks it issued payable to the Commissioner of Internal Revenue (CIR) which
were allegedly embezzled by an organized syndicate.
The first two of the three consolidated cases mentioned above involve twin petitions for review assailing the decision and resolution of
the CA,ordering the collecting bank, Philippine Commercial International Bank PCIB) to pay the amount of a crossed Citibank N.A.
(Citibank) check (No. SN-04867) drawn by Ford in favor of CIR as payment for its taxes.
The said check was deposited with PCIB and subsequently cleared by the Central Bank. Upon presentment with Citibank, the proceeds
of the check were released to PCIB as the collecting/depository bank.
However, it was later discovered that the check was not paid to the CIR. Ford was then forced to make another payment to the CIR.
Investigation revealed that the check was recalled by the. General Ledger Accountant of Ford on the pretext that there has been an
error in the computation of tax, he then directed PCIB to issue two manager's checks in replacement thereof.
Both Citibank and PCIB deny liability, the former arguing that payment was in due course as it merely relied on the latter's guarantee as
to "all prior indorsements and/or lack of indorsements." Thus, Citibank submits that the proximate cause of the injury is the gross
negligence of PCIB in indorsing the check in question. The CA agreed and adjudged PCIB solely liable for the amount of the check.
On the other hand, the last of the three consolidated cases, assails the decision and resolution of the CA which held Citibank, the
drawee bank, solely liable for the amount of crossed check nos. SN-10597 and 16508 as actual damages, the proceeds of which have
been misappropriated by a syndicate involving the employees of the drawer Ford, and the collecting bank PCIB.
This Court in resolving the issue of liability in PCIB v. CA, considered the degree of negligence of the parties.
While recognizing that the doctrine· of imputed negligence makes a principal liable for the wrongful acts of its agents, this Court noted
that the liability of the principal would nonetheless depend on whether the act of its agent is the proximate cause of the injury to the
third person.
In the case of Ford, this Court ruled that its negligence, if any, cannot be considered as the proximate cause, emphasizing in this regard
the absence of confirmation on the part of Ford to the request of its General Ledger Accountant for replacement of the checks issued as
payment to the.CIR. In absolving Ford from liability, this Court clarified that the mere fact that the forgery was committed by the
drawer/principal's employee or agent, who by, virtue of his position had unusual facilities for perpetrating the fraud and imposing the
forged paper upon the bank, does not automatically shift the loss to such drawer-principal, in the absence of some circumstance raising
estoppel against the latter.
In contrast, this Court found PCIB liable for failing to exercise the necessary care and prudence required under the circumstances. This
Court noted that the action of Ford's General Ledger Accountant in asking for the replacement of the crossed Citibank check No. SN-
04867, was not in the ordinary course of business and thus should have prompted PCIB to validate the same. Likewise, considering
that the questioned crossed ,check was deposited with PCIB in its capacity as collecting agent for the Bureau of Internal Revenue, it
has the responsibility to ensure that the check is deposited in the payee's account only; and is bound to consult BIR, as its principal, of
unwarranted instructions given by the payor or its agent, especially so as neither of the .latter is its client. Having established PCIB's
negligence, this Court then held the latter solely liable for the proceeds of Citibank check (No. SN-04867).
Insofar as Citibank check Nos. SN-I 0597 and 16508, this Court affirmed the findings of the CA and the trial court that PCIB cannot be
faulted for the embezzlement as it did not actually receive nor held the subject checks. Adopting the conclusion of the trial court', this
Court advanced that the act of misappropriation was in fact "the clandestine or hidden actuations performed by the members of the
syndicate in their own personal, covert and private capacity and done without the knowledge of the defendant PCIB."24
While this Court admitted that there was no evidence confirming the conscious participatipn of PCIB in the embezzlement, it
nonetheless found the latter liable pursuant to the doctrine of imputed negligence, as it was established that its employees performed
the acts causing the loss in their official capacity or authority albeit for their personal and private gain or benefit.
Yet, finding that the drawee, Citibank was remiss of its contractual duty to pay the proceeds of the crossed checks only to its
designated payee, this Court ruled that Citibank should also bear liability for the loss incurred by Ford. It ratiocinated:
Citibank should have scrutinized Citibank Check Numbers SN 10597 and 16508 before paying the amount of the proceeds thereof to
the collecting bank of the BIR. One thing is clear from the record: the clearing stamps at the back of Citibank Check Nos. SN 10597 and
16508 do not bear any initials. Citibank failed to notice and verify the absence of the clearing stamps. Had this been duly examined, the
switching of the worthless checks to Citibank Check Nos. 10597 and 16508 would have been discovered in time. For this reason,
Citibank had indeed failed to perform what was incumbent upon it, which is to ensure that the amount of the checks should be paid only
to its designated payee. The fact that the drawee bank did not discover the irregularity seasonably, in our view, constitutes negligence
in carrying out the bank's duty to its depositors. The point is that as a business affected with public interest and because of the nature of
its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the
fiduciary nature of their relationship.25
Then, applying the doctrine of comparative negligence, this Court adjudged PCIB and Citibank equally liable for the proceeds of
Citibank Check Nos. SN 10597 and 16508.
It is without question that when the action against the bank is premised on breach of contractual obligations, a bank's liability as debtor
is not merely vicarious but primary, in that the defense of exercise of due diligence in the selection and supervision of its employees is
not available.26 Liability of banks is also primary and sole when the loss or damage to its depositors is directly attributable to its acts,
finding that the proximate cause of the loss was due to the bank's negligence or breach.27
The bank, in its capacity as principal, may also be adjudged liable under the doctrine of apparent authority. The principal's liability in this
case however, is solidary with that of his employee.28
The doctrine of apparent authority or what is sometimes referred to as the "holding out" theory, or the doctrine of ostensible agency,
imposes liability, not "as the result of the reality of a contractual relationship, but rather because of the actions of a principal or an
employer in somehow misleading the public into believing that the relationship or the authority exists."29 It is defined as:
[T]he power to affect the legal relations of another person by transactions with third persons arising from the other's manifestations to
such third person such that the liability of the principal for the acts and contracts of his agent extends to those which are within the
apparent scope of the authority conferred on him, although no actual authority to do such acts or to make such contracts has been
conferred.30 (Citations omitted)
Succinctly stating the foregoing principles, the liability of a bank to third persons for acts done by its agents or employees is limited to
the consequences of the latter's acts which it has ratified, or those that resulted in performance of acts within the scope of actual or
apparent authority it has vested.
In PCIB v. CA, 31 however, it is evident and striking that for purposes of holding the principal/banks liable, no distinction has been made
whether the act resulting to injury to third persons was performed by the agent/employee was pursuant to, or outside the scope of an
apparent or actual official authority. It must be noted nonetheless that this is because of the peculiar circumstance attendant in that
case, that is, the direct perpetrators of the offense therein are fugitives from justice. Thus, this Court is left to determine who of the
parties must bear the burden for the loss incurred by Ford.
In the case at bar, petitioner does not deny the validity of respondents' accounts, in fact it suggests that transactions with it have all
been accounted for as it is based on official documents containing authentic signatures of Tobias. The point is well-taken. In fine,
respondents' claim for damages is not predicated on breach of their contractual relationship with petitioner, but rather on Robles' act of
misappropriation.
At any rate, it cannot be said that the petitioner is guilty of breach of contract so as to warrant the imposition of liability solely upon it.32
Records show that respondents entered into two types of transactions with the petitioner, the first involving savings accounts, and the
other loan agreements. Both of these transactions were entered into outside the petitioner bank's premises, through Robles.
In the first, the respondents, as the depositors, acts as the creditor, and the petitioner, as the debtor. 33 In these agreements, the
petitioner, by receiving the deposit impliedly agrees to pay upon demand and only upon the depositor's order. 34 Failure by the bank to
comply with these obligations 'would be considered as breach of contract.
The second transaction which involves three loan agreements, are the, subject of contention. These loans were obtained by
respondents, secured by their deposits with the petitioner, and executed with corresponding authorization letters allowing the latter to
debit from their account in case of default. Respondents do not contest the genuineness of their signature in the relevant documents;
rather they submit that they were merely lured by Robles into signing the same without knowing their import. The loans were approved
and released by the petitioner, but instead of reinvesting the same, the proceeds were misappropriated by Robles, as a result,
respondents' accounts were debited and applied as payment for the loan.
Under the premises, the petitioner had the authority to debit from the respondents' accounts having been appointed as their attorney-in-
fact in a duly signed authentic document.35 Furthermore, there is nothing irregular or striking that transpired which should have impelled
petitioner into further inquiry as to the authenticity of the attendant transactions. Suffice it is to state that the questioned withdrawal was
not the first time in which Robles has acted as the authorized representative of the petitioner or as intermediary between the petitioner
and the respondents, who is also not merely an employee but petitioner's branch manager.
Moreover, that the respondents have been lured by Robles into signing the said documents without knowing the implications thereof
does not prove complicity or knowledge on the part of the petitioner of Robles' inappropriate acts.
Nonetheless, while it is clear that the proximate cause of respondents' loss is the misappropriation of Robles, petitioner is still liable
under Article 1911 of the Civil Code, to wit:
Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter
to act as though he had full powers.
The case of Prudential Bank v. CA36 lends support to this conclusion. There, this Court first laid down the doctrine of apparent authority,
with specific reference to banks, viz.:
Conformably, we have declared in countless decisions that the principal is liable for obligations contracted by the agent. The agent's
apparent representation yields to the principal's true representation and the contract is considered as entered into between the principal
and the third person.
A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of dealings of the officers in their
representative capacity but not for acts outside the scope of their authority. A bank holding out its officers and agent as worthy of
confidence will not be permitted to profit by the frauds they may thus be enabled to perpetuate in the apparent scope of their
employment; nor will it be permitted to shirk
its responsibility for such frauds, even though no benefit may accrue to the bank therefrom. Accordingly, a banking corporation is
liable to innocent third persons where the representation is made in the course of its business by an agent acting within the
general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting
to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit.
Application of these principles in especially necessary because banks have a fiduciary relationship with the public and their stability
depends on the confidence of the people in their honesty and efficiency. Such faith will be eroded where banks do not exercise strict
care in the selection and supervision of its employees, resulting in prejudice to their depositors. 37 (Citations omitted, and emphasis and
underscoring Ours)
Petitioner, in support of its position, cites Banate v. Philippine Countryside Rural Bank (Liloan, Cebu), Inc., 38 this Court finds however
that , the case presents a different factual milieu and is not applicable in the case at bar.
In Banate, this Court ruled that the doctrine of apparent authority does not apply and absolved the bank from liability resulting from the
alteration by its branch manager of the terms of a mortgage contract which secures a , loan obtained from the bank. In so ruling, this
Court found "[n]o proof of the course of business, usages and practices of the bank about, or knowledge that the board had or is
presumed to have of its responsible officers' acts regarding the branch manager's apparent authority" 39 to cause such alteration.
Further, "[n]either was there any allegation, much less proof' 40 that the bank ratified its manager's acts or is estopped to make a
contrary claim.
In contrast, in this controversy, the evidence on record sufficiently established that Robles as branch manager was 'clothed' or 'held out'
as having the power to enter into the subject agreements with the respondents.
The existence of apparent or implied authority is measured by previous acts that have been ratified or approved or where the accruing
benefits have been accepted by the principal. It may also be established by proof of the course of business, usages and practices of
the bank; or knowledge that the bank or its officials have, or is presumed to have of its responsible officers' acts regarding bank branch
affairs.41
The testimonies of the witnesses presented by petitioner establish that there was nothing irregular in the manner in which Robles
transacted with the respondents.42 In fact, petitioner's witnesses admitted that while the bank's general policy requires that transactions
be completed inside the bank premises, exceptions are made in favor of valued clients, such as the respondents. In which case,
banking transactions are allowed to be done in the residence or place of business of the depositor, since the same are verified
subsequently by the bank cashier.43
Moreover, petitioner admitted that for valued clients, the branch manager has the authority to transact outside of the bank premises. 44 In
fact, Robles previously transacted business on behalf of the petitioner as when it sought and facilitated the opening of respondents'
accounts. Petitioner acknowledged Robles' authority and it honored the accounts so opened outside the bank premises.
To recall, prior to the alleged back-to-back scheme entered into by the respondents, Robles has consistently held himself out as
representative of the petitioner in seeking and signing respondents as depositors to various accounts. 45 It bears to stress that in the
course of the said investment, the practice has been for Tobias to surrender the passbook to Robles' for updating. 46 All of which
accounts have been in order until after the respondents was lured into entering the back-to-back scheme.
In this light, respondents cannot be blamed for believing that Robles has the authority to transact for and on behalf of the
petitioner47 and for relying upon the representations made by him. After all, Robles as branch manager is recognized "within his field
and as to third persons as the general agent and is in general charge of the corporation, with apparent authority commensurate with the
ordinary business entrusted him and the usual course and conduct thereof."48
Consequently, petitioner is estopped from denying Robles' authority.49 As the employer of Robles, petitioner is solidarily liable to the
respondents for damages caused by the acts of the former, pursuant to Article 1911 of the Civil Code.50
The ruling in PCIB v. CA51 insofar as it imposes liability directly and , solely upon the employer does not apply considering that Robles,
while not a petitioner in this case, has been validly been served with summons by ,publication 52 and joined as party in the case before
the trial court53 and the CA.54 Jurisdiction having been acquired over his person, this Court consequently has the authority to rule upon
his liability. 55
On a final note, it must be pointed out that the irregularity has only been discovered by the petitioner on March 30, 2006 when Valdez
went to petitioner's Mabini branch to have her account with Tobias updated. 56 It bears to stress that petitioner had the opportunity to
discover such , irregularity at the time the loan application was submitted for its approval or at the latest, when the respondents
defaulted with the payment of their , obligation. With the extreme repercussions of the transactions entered into by the respondents,
instead of just relying on the supposed authority of Robles and examining the documents submitted, petitioner should have at 'least
communicated with the respondents in order to verify with them the genuineness of their signatures therein and whether they
understood the .implications of affixing the same. Nothing short is expected of petitioner considering that the nature of the banking
business is imbued with public interest, and as such the highest degree of diligence is demanded.57
WHEREFORE, in view of the foregoing disquisitions, the petition for review on certiorari is hereby DENIED. The Decision dated May
31, 2016 and Resolution dated October 10, 2016 issued by the Court of Appeals in CA-G.R. CV No. 102545 are AFFIRMED.
SO ORDERED.
THIRD DIVISION
G.R. No. 205590, September 02, 2015
PHILIPPINE NATIONAL BANK, Petitioner, v. GAYAM. PAS IMIO, Respondent.
DECISION
VELASCO JR., J.:
In this petition for review under Rule 45, the Philippine National Bank (PNB) assails and seeks to set aside the January 23, 2013
Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 94079 dismissing petitioner's appeal from the decision of the Regional Trial
Court (RTC) of Parañaque City, Branch 196, which ruled for respondent Ligaya Pasimio (Pasimio) in an action for a sum of money she
commenced thereat against the bank.
The Facts
From the petition, the comment thereon, their respective annexes, and other pleadings filed by the parties, the Court gathers the
following relevant facts:chanRoblesvirtualLawlibrary
On May 19, 2005, Pasimio filed suit against PNB for the recovery of a sum of money and damages before the RTC of Parañaque City.
In her complaint,2 docketed as Civil Case No. CV-05-0195 and eventually raffled to Branch 196 of the court, she alleged having a peso
and dollar time deposit accounts with PNB in the total amount of P4,322,057.57 and US$5,170.80, respectively; that both investment
placements have matured; and when she sought to withdraw her deposit money with accrued interests, PNB refused to oblige.
In its Answer with Counterclaim,3 with annexes, PNB admitted the fact of deposit placement for the amount aforestated. But it claimed
that Pasimio is without right to insist on their withdrawal, the deposited amount having already been used in payment of her outstanding
loan obligations to the bank. PNB narrated how the set off of sort came about: Pasimio and her husband took out three "loans against
deposit hold-out"4 from the PNB Sucat branch, as follows: a Three Million One Hundred Thousand Peso (P3,100,000) loan on March
21, 2001; a One Million Seven Hundred Thousand Peso (P1,700,000) loan on April 2, 2001; and a Thirty-One Thousand One Hundred
US Dollar (US$31,1 00) loan on December 7, 2001.
PNB further alleged the following: (1) each loan accommodation was secured by a deposit account of Pasimio; (2) the proceeds of the
first and second loans were released to and received by the Pasimio spouses in the form of PNB Manager's Checks (MCs) while the
proceeds of the third loan were released and received in cash; (3) the loan proceeds were acknowledged by Pasimio in corresponding
notarized promissory notes (PNs) and Disclosure Statements of Loan/Credit Transaction; (4) Pasimio then re-lent the proceeds of the
third loan to a certain Paolo Sun; (5) contrary to Pasimio's allegations on maturing deposit instruments, she in fact renewed/rolled over
her placements several times; and (6) Pasimio had failed to pay her outstanding loan obligations forcing the bank to apply her deposits
to the unpaid loans pursuant to the legal compensation arrangement embodied in the "hold-out" proviso under Clause 5 of the PN. 5
To this answer, Pasimio filed her reply and answer to counterclaim alleging facts she would also later venture to prove.
During the trial following the joinder of issues, Pasimio denied obtaining any loan from PNB, let alone receiving the corresponding loan
proceeds. While conceding signing certain documents which turned out to be the Peso Loans Against Peso/FX Deposit Loan
Applications, the Promissory Notes and Hold-out on Savings Deposit/Peso/FX Time Deposit and Assignment of Deposit Substitute and
the Disclosure Statements of Loan/Credit Transaction (Loan Documents), she professed not understanding what they really meant. She
agreed to affix her signature on these loan documents in blank or in an incomplete state, she added, only because the PNB Sucat
branch manager, Teresita Gregorio (Gregorio), and Customer Relations Officer, Gloria Miranda (Miranda), led her to believe that what
she was signing were related to new high-yielding PNB products.
Pasimio would also deny re-lending the loan proceeds to Paolo Sun. She asserted in this regard that Gregorio repaired to her
residence with a duly accomplished affidavit detailing the re-lending event and urged her to sign the same if she wished to recover her
placements.
In all, Pasimio depicted herself as victim of a nefarious lending scam, orchestrated by Gregorio and Miranda who PNB had ordered
dismissed following the exposure of their involvement in anomalous loan transactions with unsuspecting PNB depositors.
Pasimio submitted the following as evidence:chanRoblesvirtualLawlibrary
1. Passbook for PNB Mint Placement No. 61281001164164 (same as PNB Mint Placement No. 6128100115590) - to prove that
she invested P3,100,000 with PNB-Sucat under PNB Mint Placement No. 6128100115590;ChanRoblesVirtualawlibrary
2. Passbook for PNB Mint Placement No. 61281001164688 (same as PNB Mint Placement No. 6128100115632) - to prove that
she invested P1,700,000 with PNB-Sucat under PNB Mint Placement No. 6128100115632;ChanRoblesVirtualawlibrary
3. Certificate of Time Deposit for $CTD No. 6628100116575 - to prove that she invested US$5,160.84 with PNB-Sucat under
Certificate of Time Deposit $CTD No. 66281001 16575;ChanRoblesVirtualawlibrary
4. Letter dated April 22, 2004 addressed to the PNB Sucat branch manager to prove that she made a demand for the release of
her investments;ChanRoblesVirtualawlibrary
5. Letters dated July 21, 2004 from PNB's Internal Auditor to Pasimio -to prove that PNB confirmed her deposits and investment
with PNB-Sucat but that she corrected entries pertaining to their amounts and denied having a deposit hold-out on any of her
investments;ChanRoblesVirtualawlibrary
6. Engagement letter dated February 2, 2005 from the law firm Rondain & Mendiola;ChanRoblesVirtualawlibrary
7. An unsigned affidavit - to prove that Gregorio had prepared an affidavit to make it appear that Pasimio and other depositors
entered into loan agreements with a certain Paolo Sun, to cover her (Gregorio's) illegal schemes and that Gregorio went to the
homes of these depositors begging them to sign the affidavit as she was already being audited by PNB's main office;6 and
8. A Memorandum on Irregular Lending Operation on Loans vs. Deposit Hold-Out (Sucat Branch) dated February 18, 2003
detailing the alleged modus operandi of Gregorio and Miranda and stating that the latter were dismissed for their involvement
in shady loan practices.7
On the other hand, PNB offered the following for purposes as stated:chanRoblesvirtualLawlibrary
1. Peso Loans Against Peso/FX Deposit Loan Application Form dated March 21, 2001 - to prove that Pasimio applied for a PNB
loan and voluntarily executed a loan application form dated March 21, 2001 for the amount: of P3,100,000 secured by her own
PNB Mint Account No. 612810011393 as loan collateral;ChanRoblesVirtualawlibrary
2. PN and Hold-out on Peso/FX Savings Deposit/Peso/FX Time Deposit and Assignment of Deposit Substitute dated March 21,
2001 - to prove that Pasimio's P 3,100,000 loan was supported with a PN which she and her husband voluntarily signed and
executed on March 21, 2001 and that she renewed the said loan on different dates;ChanRoblesVirtualawlibrary
3. Disclosure Statement of Loan/Credit Transaction dated March 21, 2001 - to prove that Pasimio's loan for P3,100,000 was also
supported with a Disclosure Statement, a copy of which she acknowledged to have received prior to the consummation of the
credit transaction, where she voluntarily agreed to the terms and conditions of her loan by signing the said
statement;ChanRoblesVirtualawlibrary
4. MC No. 0000166650 dated March 21, 2001 for P3,049,188.94 - to prove that Pasimio encashed this check and received the
proceeds of her P3,100,000 loan, net of bank charges;ChanRoblesVirtualawlibrary
5. Peso Loans Against Peso/FX Deposit Loan Application/Approval Form dated April 2, 2001 - to prove that Pasimio applied for
another loan on April 2, 2001 in the amount of PI,700,000 and that the same was secured by Pasimio's own PNB Mint Account
No. 6128100113429. As in the first loan, Pasimio also voluntarily affixed her signature on the
document;ChanRoblesVirtualawlibrary
6. PN and Hold-out on Peso/FX Savings Deposit/Peso/FX Time Deposit and Assignment of Deposit Substitute dated April 2,
2001 - to prove that Pasimio's second loan of LP1,700,000 is supported by a PN which she voluntarily signed and executed on
April 2, 2001 together with her husband and that she renewed the said loan on different dates;ChanRoblesVirtualawlibrary
7. Disclosure Statement of Loan/Credit Transaction dated April 2, 2001 - to prove that Pasimio's loan for P1,700,000 was also
supported with a Disclosure Statement, a copy of which she acknowledged to have received prior to the consummation of the
credit transaction, where she voluntarily agreed to the terms and conditions of her loan by signing the said
8. MC No. 0000166682 dated April 2, 2001 in the amount of P1,672,797.50 - to prove that Pasimio encashed this check and
received the proceeds of her P1,700,000 loan, net of bank charges;ChanRoblesVirtualawlibrary
9. Peso Loans Against Peso/FX Deposit Loan Application/Approval Form dated December 7, 200 - to prove that Pasimio applied
for a US$31,100 loan which her own PNB FX CTD No. 6628100115637 (US$20,393.78) and CTD No. 6628100115716
(US$10,766.25) secured as collateral. As in the first two loans, Pasimio also voluntarily affixed her signature on the
document;ChanRoblesVirtualawlibrary
10. PN and Hold-Out on Peso/FX Savings Deposit/Peso/FX Time Deposit and Assignment of Deposit Substitute dated December
7, 2001 - to prove that Pasimio's US$3 1,100 loan is supported by a PN note which she and her husband voluntarily signed
and executed on December 7, 2001 and that she renewed the said loan on different dates;ChanRoblesVirtualawlibrary
11. Disclosure Statement of Loan/Credit Transaction dated December 7, 2001 - to prove that Pasimio's loan for US $31,100 was
also supported with a Disclosure Statement, a copy of which she acknowledged to have received prior to the consummation of
the credit transaction, where she voluntarily agreed to the terms and conditions of her loan by signing the said
12. Miscellaneous Ticket dated December 7, 2001 in the amount of US$30,981.28 - to prove that Pasimio received the proceeds
of her US$31,100 loan, net of bank charges;ChanRoblesVirtualawlibrary
13. Bills Payment Form dated July 26, 2004 - to prove that her failure to settle her peso/dollar loan obligations was subsequently
settled by offsetting the available balance of her deposit accounts that were used as collaterals against these loans, in
accordance with the PNs she executed;ChanRoblesVirtualawlibrary
14. Demand letter addressed to Pasimio dated July 5, 2004 signed by Noel R. Millares on behalf of the bank -- to prove that PNB
demanded payment of her loans in the aggregate amount of P4,623,458.03 and US$5,277.34 which had already become due
and payable;ChanRoblesVirtualawlibrary
15. Pasimio's Affidavit dated April 10, 2003 - to prove Pasimio's execution of an affidavit lending US$3 1,100 to Paolo
Sun;ChanRoblesVirtualawlibrary
16. Pasimio's letter dated February 25, 2003 - to prove that the Pasimios effected a change in their PNB Mint Account Nos.
deposited at PNB Sucat from the old account number 6128100113393 to the new account number 6128100116464
(pertaining to the deposit of F3,100,000); and from the old account number 6128100113429 to the new account number
61281001.16488 (pertaining to the deposit of P1,700,000);ChanRoblesVirtualawlibrary
17. PNB Mint Savings Account Passbook with Serial No. 046783 - to prove that the deposit covered by this passbook in the
amount of P3,100,000 was used as collateral for Pasimio's f3,100,000 loan. As proof of this fact, the passbook is stamped with
the notation "HOLDOUT" to indicate a withdrawal restriction on this account;ChanRoblesVirtualawlibrary
18. PNB Mint Savings Account Passbook with Serial Number 046781 - to prove that the deposit covered by this, passbook in the
amount of P1,700,000 was used as collateral for Pasimio's P1,700,000 loan. As proof of this fact, the passbook is stamped
with the notation "HOLDOUT" to indicate a withdrawal restriction on this account;ChanRoblesVirtualawlibrary
19. Portion of PNB Mint Passbook stamped "Hold Out" - to prove that the savings account covered by this passbook is under a
hold-out restriction;ChanRoblesVirtualawlibrary
20. Pasimio's Certificate of Time Deposit Ledger for PNBig Savings Account No. 222-5476838-7 - to prove that Pasimio opened
an account with PNB-Sucat on March 21, 2001 under Account No. 222- 5476838-7 which was constituted as collateral of the
P3,100,000 loan;ChanRoblesVirtualawlibrary
21. PNBig Savings Account from October 29, 2003 up to May 3, 2004 - to prove that Pasimio opened an account with PNB-Sucat
under Account No. 281-5254913 which constituted as collateral for the P1,700,000 loan;ChanRoblesVirtualawlibrary
22. The Certificate of Deposit Ledger from June 4, 2001 to July 25, 2004 - to prove that the amounts covered by this deposit
document were used as collateral for Pasimio's dollar loan of US$31,100;ChanRoblesVirtualawlibrary
23. CTD dated June 4, 2001 in the amount of US$34,030.18 - to prove that Pasimio was issued a Certificate of Time Deposit for
the amount of US$34,030.18 with an annual interest rate of 4.5%;ChanRoblesVirtualawlibrary
24. CTD dated July 27, 2001 in the amount of US$20,187.10 - to prove that Pasimio was issued a Certificate of Time Deposit for
the amount of US$20,187.10 with an annual interest rate of 4.125%;ChanRoblesVirtualawlibrary
25. CTD dated December 23, 2003 in the amount of US$5,136.03 - to prove that Pasimio had an existing dollar time deposit with
PNB which she used as collateral for the dollar hold-out loan that she took out. The dollar certificate is stamped with a notation
that reads "HOLD-OUT";ChanRoblesVirtualawlibrary
26. Statement of Account (SOA) - to prove that PNB-Sucat issued a SOA for Pasimio's Dollar Hold-Out Loan, which showed an
outstanding balance of US$5,100. This SOA was used as basis for the offsetting of Pasimio's past due loan obligation with her
PNB Mint Account as collateral; and
27. Statement of Account (SOA) - to prove that PNB-Sucat issued a SOA for Pasimio's Dollar Hold-Out Loan, which showed an
outstanding balance of P4,321,781.06. This SOA was used as basis for the offsetting of Pasimio's past due loan obligation
with her PNB Mint Account as collateral.8
RTC Decision
On October 30, 2009, the RTC' rendered judgment9 in favor of Pasimio, as plaintiff, disposing:cralawlawlibrary
WHEREFORE, premises considered, this court finds the Complaint dated May 16, 2005 with merit, and Defendant, Philippine National
Bank is ordered to pay plaintiff, LIGAYA M. P[A]SIMIO[,] the amount of x x x (P3,100,000.00), x x x (P1,222,000.00) and x x x
(US$5,170), respectively, representing her peso/dollar time deposit placements with said bank, with legal interest on said amounts,
and, the amount of x x x (P180,000.00) representing attorney's fees, and costs.
SO ORDERED.10
chanrobleslaw
The disposition is predicated on the postulate that Pasimio had proven by convincing evidence that she did not obtain any loan
accommodation from PNB. As a corollary, the trial court held that there was no evidence snowing the release by PNB of the loan
proceeds to Pasimio. Pushing the point, the RTC stated that the transaction documents were highly questionable for the reasons stated
in some detail in its decision to be reproduced by the CA in its assailed decision.
Therefrom, PNB appealed to the CA, the recourse docketed as CA-GR. CV No. 94079.
CA Decision
In its assailed Decision dated January 23, 2013, the CA affirmed that the RTC, to wit:chanRoblesvirtualLawlibrary
WHEREFORE, the instant appeal is DENIED. The Decision dated 30 October 2009 rendered by the [RTC], Branch 196, Parañaque
City in Civil Case No. 05-0195 is hereby AFFIRMED. 11
Even as it found and declared PNB's bank personnel grossly negligent and their transactions with Pasimio highly unacceptable, 12 the
appellate court held that no loan proceeds were ever released to Pasimio, thus sustaining the RTC appreciation of the evidence thus
presented on the matter by Pasimio.13 The CA wrote:cralawlawlibrary
Hence, We are one with the RTC when it ruled that there was no release of proceeds of bank loans to plaintiff-appellee [Pasimio], viz:
No release of proceeds of purported bank loans to plaintiff. The evidence at hand does not show that any amount of the loans, if there
were any, were ever released by [PNB] to plaintiff.
The [PNB] presented a miscellaneous ticket dated December 7, 2001 for the discounted amount of x x x (US$ 30,981.28) attending the
release of such funds over the purported third loan in the amount of x x x (US$ 31.100.00) extended to plaintiff and as affecting her FX
dollar time deposits. This document remains to be a simple ticket advice and | would] not amount to fact of payment of loan proceeds in
the absence of any cogent and better evidence which is available to (he bank. There is no statement of account or a corresponding
check document presented to compliment such ticket advice to clearly show an amount was debited from the account of the bank to
ably pay off the amount of the loan proceeds. The miscellaneous ticket standing by itself is no[t] an adequate proof of fact of payment of
a loan x x x.
The [PNB] presented a document for Manager Check No. 166650 dated March 21, 2001 at a discounted amount of x x x
(P3,049,188.94) to prove the possible release of proceeds of a first loan allegedly secured by plaintiff for the amount of x x x
(P3,100,000.00). Looking over the dorsal portion of the check, it is highly unnatural and irregular that the very check in question does
not have a machine printed validation of the transaction to reflect the debit entry of the account from which the release "of funds might
have been secured. With exception to the stamp marking and a few signatures at the back of the check, it becomes highly
inconceivable for a bank teller to forget a machine validation of a check, not unless the checks was not properly cleared but was only
received by the teller. The check standing out as evidence docs not proffer (that the amount indicated therein was properly released for
the purpose, to only draw a farce conclusion that it was properly transacted and funds was indeed released to plaintiff.
The [PNB] presented a document for Manager Check No. 166682 dated April 2, 2001 in the discounted amount of x x x
(P1,679,797.50) to prove the alleged release of proceeds of a second loan allegedly secured by plaintiff for the amount x x x
(P1,700,000.00). Looking over the dorsal portion of the check, the machine validation entry by the teller reads of entry '005 502
281 02AP01 PCOUT 1,672,797.50 A N 14021226' in comparison with the front portion of the very check does not tally with the check
no. '166682' neither the checking account from which the amount is drawn at reference number '00-281-022222-2' which makes it an
invalid validation entry and will not prove the fact that debited amounts were made from the bank account number '00-281-022222-2' [to
cover the release to plaintiff of proceeds] of the second loan. There being no explanation by the very bank employees presented by the
bank on the discrepancy of the teller validation entries with the checking account used to possible pay off the release of loan proceeds,
there can be no indication that the loan was properly paid for to plaintiff.
Simply stated, there is really no loan ever released by defendant bank in favor of plaintiff to engage the operative right to hold-out on
the deposits of the latter.14
chanrobleslaw
On a related matter, the CA found, as highly irregular, the PNB personnel's act of securing Pasimio's signature and consent to have the
proceeds of the US$3 1,100 loan re-lent to Paolo Sun. ft expounded:cralawlawlibrary
Second, it can be gleaned from the facts of the case that [PNB] was able to obtain the signature and assent of plaintiff-appellee in re-
lending the loan proceeds to a certain Paolo Sun, in a manner not in accordance with the ordinary course of business of banks.
According to plaintiff-appellee, Bank Manager Gregorio went to her house for her to sign a document, telling her that it was the only way
for plaintiff-appellee to get her money back by re-lending her money deposits with [PNB] to a certain Paolo Sun whom she does not
know. Plaintiff-appellee also contends that she was not aware that the document she signed was notarized.
For that alone, the action performed by the bank manager in the transactions is definitely exposed to a high incident of negligence. It
bears stressing that banks must exercise the highest degree of diligence and by doing the transactions outside the bank without any
proper explanation of the consequences of the document to be signed by plaintiff-appellee as client of the bank is reprehensible x x x.
The bank personnel misrepresented the true nature of the transaction which deprived plaintiff-appellee to evaluate the consequences of
the transaction offered to her by the bank personnel of [PNB].15chanrobleslaw
And agreeing with the RTC on what it viewed as the questionable nature of the transactions PNB entered into with Pasimio, as
purportedly evidenced by a combination of related circumstances reflecting documentary tampering, the CA quoted with approval the
ensuing excerpts from the RTC's decision:cralawlawlibrary
The transaction documents are highly questionable. The loan application form dated March 21, 2001 over the purported first peso loan
in the amount of x x x (P3,100,000.00) which was verified with a notary public on April 30, 2001 did not utilize any residence
certificate of plaintiff x x x which also missed out for a residence certificate number in the promissory note dated March 21, 2001, the
same former document carried bolder typewritten entries for the names of depositors but faint entries for the amount and the
security deposit account which only shows that such entries were made on different dates using different typesets compounded by the
column side for the verified balance of deposit and the recommendation of interest were left unfilled. Which circumstances bring in a
question on the validity and veracity of the loan documents when in fact the entries and the missing items thereto [do] not speak
well of a fully accomplished and perfected loan document between the parties. Sad to say, this court cannot even believe [PNB's]
witness, Edna Palomares in stating that she checked the entries [in] the loan approval form be lore she placed her signature
considering there are valuable and important entries that are left unfulfilled by a bank officer as herself to even downgrade her line of
credibility on the true circumstances to the execution of such document.
The same circumstances attend the loan documents that allegedly covered the second loan in the amount of x x x (P1,700,000.00) and
the third loan in the amount of x x x (US$31,100.00), and, this court need not discuss further to emphasize the line of anomalous
circumstances attending the execution and existence of such documents.16 (emphasis added)chanrobleslaw
The CA explained that even if both parties may have been negligent in the conduct of their respective affairs, PNB cannot evade liability
for its shortcomings. As stressed by the appellate court, the banking industry is impressed with public interest. Accordingly, all banks
and their personnel are burdened with a high level of responsibility and expected to be more careful than ordinary persons. The CA
held that since PNB was grossly negligent, it should bear the consequences:cralawlawlibrary
Third, although it may be argued that both parties seemed to have been negligent in their own affairs, [PNB] cannot put all the blame to
cover its negligence on plaintiff-appellee. The degree of care is more paramount and expected with that of banks than that of an
ordinary person.
As the banking industry is impressed with public interest, all bank personnel are burdened with a high level of responsibility insofar as
care and diligence in the custody and management of funds are concerned. Banks handle transactions involving millions of pesos and
properties x x x. Indeed, by the very nature of their work, the degree of responsibility, care and trustworthiness expected of officials and
employees of the bank is tar greater than those of ordinary officers and employees in the other business firms.
Unquestionably, [PNB] x x x had the direct obligation to supervise very closely the employees handling its depositors' accounts, and
should always be mindful of the fiduciary nature of its relationship with the depositors. Such relationship required it and its employees to
record accurately every single transaction, and as promptly as possible, considering that the depositors' accounts should always reflect
the amounts of money the depositors could dispose of as they saw fit x x x. If it fell short of that obligation, it should bear the
responsibility for the consequences to the depositor x x x.
In this case. [PNB's] personnel were in violation of their duties and responsibilities as its employees. They have committed gross
negligence in dealing with their bank transactions which connotes "want of care in the performance of one's duties." [PNB's] failure to
observe basic procedure constituted serial negligence. The repealed failure to carefully observe the duties of its personnel clearly
showed utter want of care. As gathered from the records of the case, it was shown that this is not an isolated transaction as other
clients of the bank have been likewise victimized. Witness Virginia Pollard has stated in her testimony before the RTC that at one point,
she too, was a victim of irregular bank transactions of the same branch of [PNB] as offered by its bank personnel. Thus, it was [PNB's]
action that defies the ordinary banking transactions and between an ordinary person like plaintiff-appellee and a bank like [PNB], [PNB]
carries more burden, which unfortunately, it failed to overcome.
Verily, from the foregoing instances, (PNB] was indeed grossly negligent in its transactions with plaintiff-appellee. Even assuming that
plaintiff-appellee was concocting her version of the facts, We still find irregularities and inconsistencies that have attributed to the
unjustified refusal to return the investment placement and to the commission of negligence. 17
Finally, the CA would state the observation, citing City trust Banking Corporation v. Cruz18 and Typoco v. Commission on
Elections,19 that the errors PNB sought reviewed relate to the RTC's factual findings when the appellate court is not a trier of facts,
necessarily implying that it is improper for the CA under the premises to do what PNB seeks. The CA explained that 'the stated doctrine
regarding the factual findings of the RTC applies within force in the instant case."20chanrobleslaw
Issue
Whether or not the CA erred in affirming the RTC Decision granting Pasimio's complaint for a sum of money.
The Court's Ruling
The findings of Fact of the CA are subject to well-defined exceptions,21 among which are when such findings are not supported by
substantial evidence, grounded on surmises or conjectures or are patently arbitrary, binding and conclusive and this Court will not
review them on appeal. This case squarely falls under the exceptions of the general rule.
The petition is impressed with merit.
The CA has the power to

resolve factual issues
Before proceeding to the main issue of this case, there is a need to clarify the assailed decision's perplexing but flawed pronouncement
that the CA, not being a trier of facts, is without competence to review the factual determination of the RTC. Section 9 of Bates
Pambansa Blg. (BP) 129, otherwise known as the Judiciary Reorganization Act of 1980, categorically states that the CA has, inter alia,
the power to try cases, receive evidence and perform any and all acts necessary to resolve factual issues raised in cases falling within
its original and appellate jurisdiction, thus:cralawlawlibrary
Sec. 9. Jurisdiction. - The Court of Appeals shall exercise:chanRoblesvirtualLawlibrary
x x x x
The Court of Appeals shall have the power to try cases and conduct hearings, receive evidence and perform any and all acts necessary
to resolve factual issues raised in cases falling within its original and appellate jurisdiction, including the power to grant and conduct
new trials or further proceedings. Trials or hearings in the Court of Appeals must be continuous and must be completed within three (3)
months unless extended by the Chief Justice.chanrobleslaw
To be sure, the cases22 the CA cited to support its adverted pronouncement are inapposite. In context, the issue involved
in Citytrust and Typoco relates to the nature and extent of this Court's, and not the CA's, power to review factual findings of lower courts
and administrative agencies in petitions for review and in original certiorari and prohibition cases. Clearly, Citytrust and Typoco have
been misread and consequently misapplied.
It is also worthy to note that the appellate court's reliance on the factual findings of the trial court is hinged on the latter's firsthand
opportunity to hear the witnesses and to observe their demeanor during the trial. However, when such findings are not anchored on
their credibility and their testimonies, but on the assessment of documents that are available to appellate magistrates and subject to
their scrutiny, reliance on the trial courts factual findings finds no application.23
The CA's regrettable cavalier treatment of PNB's appeal is inconsistent with Rule 41 of the Rules of Court and with the usual course of
judicial proceedings. Be reminded that the parties in Rule 41 appeal proceedings may raise questions of fact or mixed questions of fact
and law.24 Thus, in insisting that it is not a trier of facts and implying that it had no choice but to adopt the RTC's factual findings, the CA
shirked from its function as an appellate court to independently evaluate the merits of this case. To accept the CA's aberrant stance is
to trivialize its review function, but, perhaps worse, render useless one of the reasons for its institution.
Pasimio failed to prove her claim

by preponderance of evidence
It is settled that the burden of proof lies with the party who asserts a right and the quantum of evidence required by law in civil cases is
preponderance of evidence. "Preponderance of evidence" is the weight, credit, and value of the aggregate evidence on either side and
is usually considered to be synonymous with the term "greater weight of evidence" or "greater weight of credible evidence."25 Section 1,
Rule 133 of the Rules of Court provides:cralawlawlibrary
Section 1. Preponderance of evidence, how determined. - In civil cases, the party having the burden of proof must establish his case by
a preponderance of evidence. In determining where the preponderance of evidence or superior weight of evidence on the issues
involved lies, the court may consider all the facts and circumstances of the case, the witnesses' manner of testifying, their intelligence,
their means and opportunity of knowing the facts to which they are testifying, the nature of the facts to which they testify, the probability
or improbability of their testimony, their interest or want of interest, and also their personal credibility so far as the same may
legitimately appear upon the trial. The court may also consider the number of witnesses, though the preponderance is not necessarily
with the greater number.chanrobleslaw
Just as settled is the rule that the plaintiff in civil cases must rely on strength of his or her own evidence and not upon the weakness of
that of the defendant. In the case at bench, this means that on Pasimio rests the burden of proof and the onus to produce the required
quantum of evidence to support her cause/s of action.26
With the view we take of the case, Pasimio has failed to discharge this burden.
There can be no quibbling that Pasimio had, during the time material, opened and maintained deposit accounts with PNB. For this
purpose, she submitted two passbooks and one certificate of time deposit to establish her peso and dollar placements with the bank.
However, PNB also succeeded in substantiating its defense for refusing to release Pasimio's funds by presenting documents showing
that her accounts were, pursuant to hold-out arrangement, made collaterals for the loans she obtained from the bank and were
eventually used to pay her outstanding loan obligations. Unfortunately, Pasimio failed to trump PNB's defense after the burden of
evidence shifted back to her.
To recall, PNB, to bolster its case, presented these documents: loan application forms, PNs and disclosure statements to prove that
Pasimio obtained the disputed bank loans; manager's checks and a miscellaneous ticket to establish the release of the loan proceeds
to Pasimio; passbooks and a certificate of time deposit with the stamp "HOLD-OUT" to indicate restrictions on the withthrawal of
Pasimio's deposit; a bills payment form to prove that Pasimio's deposits were made to pay for her outstanding obligations in
accordance with the provisions of Pasimio's promissory notes; and a signed and notarized affidavit recounting that she lent the
proceeds of her dollar loan to Paolo Sun.
On the witness stand, PNB's witness Edna Palomares, the bank's Per Pro Officer, categorically testified having prepared and
processed all. of Pasimio's loan documents, and witnessed Pasimio and her husband signing the same. 27 Palomares also testified
about Pasimio's receipt of the proceeds of the subject loans and identified the signatures appearing on the dorsal portion of the PNB
manager's checks and miscellaneous ticket covering the loan processed as genuine signatures of Pasimio.28
Pasimio, on the other hand, denied applying for any loan with PNB and receiving any loan proceeds or authorizing the bank to use her
deposit as collateral. While admitting to signing certain papers, she professed unawareness that what she signed were in fact loan
documents as nobody came forward to explain what they were, adding that she was convinced to sign them only because she was
made to believe by bank officers that the documents were related to a new PNB high-yielding investment product.
Unfortunately, the courts a quo chose to disregard all of PNB's documentary evidence and ruled in favor of Pasimio. This to us is a
blatant mistake on the part of the RTC and the CA because all that Pasimio put forward against PNB's evidence, for the most part
documentary, were unsubstantiated denials and bare, self-serving assertions. To borrow from Pecson v. Commission on
Elections,29 citing Almeida v. Court of Appeals,30 the use of wrong or irrelevant considerations, reliance on clearly erroneous factual
findings or giving too much weight to one factor in deciding an issue is sufficient to taint a decision-maker's action with grave abuse of
discretion.
As between Pasimio's barefaced denials and Palomares' positive assertions, the trial court ought to have accorded greater weight to
Palomares' testimony, especially considering that Pasimio never put in issue the due execution and authenticity of the loan documents.
As between a positive and categorical testimony which has a truth, on one hand, and a bare denial, on the other, the former is generally
held to prevail.31
ft cannot be stressed enough that Pasimio unequivocally admitted that the signatures appearing in the Loan Application/Approval
Forms dated March 21, 2001, April 2, 2001 and December 7, 2001, 32 in all three Promissory Notes,33 and the Disclosure Statement
dated December 7, 2001 were hers and her husband's. She also was aware of the consequences of her act of signing. Her testimonies
on the matter are quoted hereunder:cralawlawlibrary
Atty. Banzuela:
Q: Thank you. Madam Witness, you testified that you signed these documents which are blank in its details, what do yon
mean by blank in details.
A: Nothing. Blank as in it's a pro-forma form but blank.
Q: Madam Witness, but you read what these documents were?
A: No, I did not read.
Q: You entrusted to PNB that huge amount of US$31,100, P1,700,000 and US$3,100 without going through the documents
that you were signing with PNB?
A: That's right.
Q: Why is this so. Madam Witness?
A: Because I trusted the bank, I trusted the employees of the bank having been a depositor for the past two (2) decades.
Q: But you know. Madam Witness, the consequences of your acts in signing pro-forma documents?
A: Well, I trusted those people. So...
Q: But you know the consequences of signing blank documents?
A: Yes.34
Pasimio had tagged as forgeries her signatures appearing in the Disclosure Statements of March 21, 2001 and April 2, 2001. She,
however, never presented any competent proof to successfully support her contention. While testimonies of handwriting experts are not
a must to prove forgeries, Pasimio did not submit any evidence for the RTC to consider and readily conclude that the signatures in
these Disclosure Statements were forged.
Likewise, Pasimio also denied, having appeared before a notary public to subscribe and swear to the loan documents, but never
substantiated this allegation. It is settled that a notarial document, guaranteed by public attestation in accordance with the law, must be
sustained in full force and effect, absent strong, complete, and conclusive proof of its falsity or nullity on account of some flaw or defect
provided by law.35
The RTC and the CA, for unexplained reason, ignored Pasimio's admissions in her April 10, 2003 Affidavit in which she stated that she
relent the proceeds of the US$31,10 loan to Paolo Sun. A portion of this affidavit reads:cralawlawlibrary
2. I agreed to lend (lie amount of Dollars: Thirty One Thousand One Hundred Only ($31,100.00) to PAOLO SUN, payable on an agreed
maturity date and at an agreed interest rate out of a Loan Against Deposit Holdout that I will secure from PNB using my time deposits
as collateral.
3. PAOLO SUN and I agreed that should ( lend him the proceeds of my Loan Against Deposit Holdout from PNB, he would pay all the
bank charges and interest on such PNB loan, which he agreed to do so by authorizing PNB to debit his deposit account for such
amount equivalent to the charges/interest due on my loan.
4. PNB approved my loan application, and so, after I have lent the loan proceeds to PAOLO SUN, the latter has dutifully and promptly
paid all bank charges and interest under the aforesaid arrangement;36chanrobleslaw
Again, Pasimio did not deny the due execution of this affidavit. Rather, she lamely insisted she was only forced to sign this affidavit
upon Gregorio's representations that this was the only way that she would recover her investments. Pasimio denied knowing Paolo Sun
and having loan arrangements with him. She would stick to her story that she signed the document under duress, needing, as she did
at that time, money to support a dying spouse. Gregorio also allegedly divulged that she needed Pasimio to sign the Affidavit as she
(Gregorio) was already being audited and investigated by the PNB Main office.
As between Pasimio's empty assertions about the above affidavit and its contents and the categorical statements in the notarized
affidavit detailing her arrangement with PNB and Paolo Sun, the choice as to which is more credible should be clear and simple. In fact,
Pasimio ought to have been estopped from denying the contents of that affidavit.
Verily, Pasimio's version of the case taxes credulity. By her own testimonial account, she is a holder of a BS Commerce degree and
used to work as a personnel director of an advertising agency. 37 It is, therefore, not believable that a person of her educational
attainment and stature, who appeared to be of good physical and mental health, would simply hand over millions of pesos, no mean
amount by ordinary standards, to a bank and then blindly sign documents involving her money without exercising a modicum of care by
verifying, or at least taking a cursory look at what these documents mean. And yet, the courts a quo chose to close their eyes to these
absurdities.
Lest it be overlooked, Pasimio's husband Rene also affixed his signature on the subject promissory notes and loan application forms to
signify his consent to his wife's financial dealings. There is no allegation, let alone proof; that Rene did not likewise understand what he
was signing and giving his consent to. These loan documents have, on their face, the words "Peso Loans Against Peso/FX Deposit
Loan Application/Approval Form," "Promissory Note and Hold-out on Peso/FX Savings Deposit/ Peso/FX Time Deposit and Assignment
of Deposit Substitute," and "Disclosure Statements of Loan/Credit Transaction" printed in big letters. Thus, it is reasonable to assume
that, at first glance, Pasimio and husband Rene would have been put on notice of what these documents were. What they signed
were pro-forma bank documents, printed in full but with blanks to be filled up with specific terms thereof such as loan amount, interest
rate, and security, among others. They were not, in fine, empty white sheets of paper. It may be that Pasimio was indeed made to sign
the blank spaces of the loan documents. Be that as it may, it is well-nigh impossible that she had absolutely no idea what they actually
were, she having testified being a PNB depositor for some twenty years. Indeed, the Court is hard-pressed to believe that she has not
encountered these documents before, just as it is also hard to imagine that her husband did not notice the titles of these documents
and had no clue what they were.
Pasimio would parlay the idea that she signed certain loan documents and the April 10, 2003 affidavit under duress or undue influence.
Like her other unsubstantiated assertions, her allegations of improper influence, duress or fraud practised on her by bank officers
deserve scant consideration. Undue influence is described under the Civil Code, thus:cralawlawlibrary
Art. 1337. There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter
of a reasonable freedom of choice. The following circumstances shall be considered: the confidential, family, spiritual and other
relations between the parties, or the fact that the person alleged to have been unduly influenced was suffering from menial weakness,
or was ignorant or in financial distress.chanrobleslaw
As regards fraud, the Civil Code says:cralawlawlibrary
Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter
into a contract which without them, he would not have agreed to.
Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not have been employed by both
contracting parties.chanrobleslaw
The employment of fraud, duress, or undue influence is a serious charge, and to be sustained it must be supported by clear and
convincing proof; it cannot be presumed.38 There is no allegation or evidence that Gregorio and Miranda influenced Pasimio by
employing means she could not well resist, and which controlled her volition and induced her to sign the loan documents and the April
10, 2003 Affidavit, which otherwise she would not have executed. Also, there was no evidence showing that Gregorio and Miranda's
influence interfered with Pasimio's exercise of independent discretion necessary to determine the advantage or disadvantage of signing
these documents.
Then, too, Pasimio failed to prove that Gregorio and Miranda defrauded her. Taking into consideration the personal conditions of
Pasimio, there is no clear and convincing evidence establishing serious fraud or deceit, insidious words or machinations on the part of
PNB or its officers, sufficient to impress or lead her into error; 39
It is germane to observe at this juncture that PNB has, in its favor, certain presumptions which Pasimio failed to overturn. Rule 131,
Sec. 3 of the Rules of Court specifies that a disputable presumption is satisfactory if uncontradicted and not overcome by other
evidence. Corollary thereto, paragraphs (r) and (s) thereof read:cralawlawlibrary
SBC. 3. Disputable presumptions.— The following presumptions are satisfactory if uncontradicted, but may be contradicted and
overcome by other evidence:chanRoblesvirtualLawlibrary
x x x x
(r) That there was sufficient consideration for a contract;

(s) That a negotiable instrument was given or indorsed for a sufficient consideration;chanrobleslaw
and Sec. 24 of the Negotiable Instruments Law reads:cralawlawlibrary
SEC. 24. Presumption of consideration.— Every negotiable instrument is deemed prima facie to have been issued for a valuable
consideration; and every person whose signature appears thereon to have become a party thereto for value.chanrobleslaw
Pasimio also failed to overcome the presumptions that a person takes ordinary care of his concerns,40 that private transactions have
been fair and regular,41 and that the ordinary course of business has been followed.42
Certainly, the trial court erred in saying that Pasimio "had proved by convincing evidence that she had not secured any loan
accommodations from the defendant bank x x x and, thus, is entitled for the return of said deposit x x x" and that "[t]he factum
probans to sustain parties cause has been successfully hurdled and undertaken by plaintiff, in contradistinction to defendant's mere
denial of a transport obligation, the latter failing to overcome the quantum of evidence presented by plaintiff to tilt the scale of justice in
favor of plaintiff herein."43 In truth, other than her self-serving statements, Pasimio had nothing else to show against PNB's evidence.
The greater weight of credible evidence as to whether Pasimio secured from PNB loans covered by promissory notes with hold-out
provisions is decidedly in favor of petitioner bank.
To be sure, the RTC did not explain its reasons for coming up with these conclusions and did not even bother to discuss its evaluation
of the merits of Pasimio's evidence. The Court also notes that the trial court never even declared that, indeed, Pasimio and her
husband were fooled into signing the loan documents and made to believe that the loan documents were related to a high-yielding PNB
product.
Hence, it may be said that the trial court violated in a sense the constitutional caveat enjoining courts from rendering a decision "without
expressing therein clearly and distinctly the facts and the law on which it is based." The RTC had 1 ailed to discharge its duty to inform
parties to litigation on how the case was decided, with an explanation of the factual and legal reasons that led to the conclusions of the
court.
The dismissal of PNB's petition is

based on mere speculations and
surmises
In denying Pasimio's appeal, the CA adopted verbatim the trial court's findings that there was no evidence proving Pasimio's receipt of
the loan proceeds and that the loan documents were highly questionable. The appellate court also reasoned that since PNB was
grossly negligent in transacting with Pasimio, the bank should suffer the consequences.
In upholding the RTC's finding respecting Pasimio's never having received any loan proceeds, the CA doubtless disregarded the rule
holding that a promissory note is the best evidence of the transaction embodied therein; also, to prove the existence of the loan, there
is no need to submit a separate receipt to prove that the borrower received the loan proceeds.44 Indeed, a promissory note represents a
solemn acknowledgment of a debt and a formal commitment to repay it on the date and under the conditions agreed upon by the
borrower and the lender. As has been held, a person who signs such an instrument is bound to honor it as a legitimate obligation duly
assumed by him through the signature he affixes thereto as a token of his good faith. If he reneges on his promise without cause, he
forfeits the sympathy and assistance of this Court and deserves instead its sharp repudiation.45
The Court has also declared that a mere denial of the receipt of the loan, which is stated in a clear and unequivocal manner in a public
instrument, is not sufficient to assail its validity. To overthrow the recitals of such instrument, convincing and more than merely
preponderant evidence is necessary. A contrary rule would throw wide open doors to fraud.46 Following this doctrine, Pasimio's
notarized promissory notes bearing her signature and that of her husband must be upheld, absent, as here, strong, complete, and
conclusive proof of their nullity.
The promissory notes, bearing Pasimio's signature, speak for themselves. To repeat, Pasimio has not questioned the genuineness and
due execution of the notes. By signing the promissory notes, she is deemed to acknowledge receipt of the corresponding loan
proceeds. Withal, she cannot plausibly set up the defense that she did not apply for any loan, and receive the value of the notes or any
consideration therefor in order to escape her liabilities under these promissory notes.47
But the foregoing is not all. PNB presented evidence that strengthened its allegation on the existence of the loan. Here, each
promissory note was supported by a corresponding loan application form and disclosure statement, all of which carried Pasimio's
signatures. Isolated from each other, these documents might not prove the existence of the loan, but when taken together, collectively,
they show that Pasimio took the necessary steps to contract loans from PNB and was aware of their terms and conditions.
Further, this Court does not agree that the loan documents were "highly questionable." The trial court arrived at this conclusion upon
observing that the March 21, 2001, April 2, 2001, and December 7, 2001 loan application forms and promissory notes did not bear
Pasimio's community tax certificate number and because it appeared that the blanks for the specific terms of these loan documents
were filled up on different dates considering that some typewritten entries appeared to be bolder or darker than the others.
These reasons are specious as they are flimsy.
First, the authenticity of these loan documents should not be affected merely because their blank spaces appeared to have been filled
up, if that be the case, on different dates, using different typewriters. As PNB aptly puts it, there is nothing suspicious or inherently
wrong about bank forms being filled up on different dates since these are usually pre-typed, with the blanks thereon to be filled up
subsequently, depending on the specific terms of the transaction with a client, and thereafter presented to the latter for signing.
Second, the absence of Pasimio's community tax certificate number in : said loan documents neither vitiates the transaction nor
invalidates the document. If at all, such absence renders the notarization of the loan documents defective. Under the notarial rules at
that time, i.e., Sec. 163 (a) of Republic Act No. 7160, otherwise known as the Local Government Code of 1991, where an individual
subject to the community tax acknowledges any document before a notary public, it shall be the duty of the administering officer to
require such individual to exhibit the community tax certificate. The defective notarization of the loan documents only means that these
documents would not be carrying the evidentiary weight conferred upon it with respect to its due execution; that they should be treated
as a private document to be examined in appropriate cases under the parameters of Sec. 20, Rule 132 of the Rules of Court which
provides that "before any private document offered as authentic is received in evidence, its due execution and authenticity must be
proved either: (a) by anyone who saw the document executed or written; or (b) by evidence of the genuineness of the signature or
handwriting of the maker x x x." Settled is the rule that a defective notarization will strip the document of its public character and reduce
it to a private instrument, and the evidentiary standard of its validity shall be based on preponderance of evidence.48
It must be stressed that the adverted defective notarization should not have been made an issue at all in the first place, for Pasimio
already admitted executing the documents in question, or to put it in another way, she did not deny that the signatures appearing
thereon were hers and her husband's. Thus, the requirements of Sec. 20, Rule 132 of the Rules of Court have been sufficiently met and
all doubts as to their authenticity and due execution should have been put to rest.
More importantly, the records do not show that Pasimio alleged the regoing defects and presented any proof for the trial court to
consider and rule on.
Furthermore, the Court does not find sufficient evidence to support the CA's finding that PNB is guilty of gross negligence and, thus,
must suffer the consequences of its transactions with Pasimio. In this regard, the CA explained that PNB foiled to exercise the highest
degree of diligence required of banks because allegedly, Gregorio was able to obtain Pasimio's signature and assent to re-lend the
dollar loan proceeds to Paolo Sun in a manner not in accordance with the ordinary course of business of hanks. Also, the appellate
court found PNB reprehensible for doing transactions outside the bank without any proper explanation of the consequences of the
document to be signed by [Pasimio] and because the bank personnel misrepresented the true nature of the transaction.49
There is no sufficient evidence to support the foregoing. It must be stressed that these were solely drawn from Pasimio's testimony that
Gregorio went to her house for her to sign the April 10, 2003 Affidavit and that the latter told her that the only way she could get her
money back was to re-lend her money deposits to Paolo Sun. Other than Pasimio's story, the CA had no other evidence to bolster
these findings.
Further, the CA's conclusions that PNB's personnel were in violation of their duties and responsibilities as its employees; that
they committed gross negligence in dealing with their bank transactions; and that the bank repeatedly failed to observe basic
procedures thus, was guilty of serial negligence, are not supported by sufficient evidence.
It was wrong for the CA to make the foregoing conclusions merely because another bank client, Virginia Pollard (Pollard), testified to
being a victim of irregular bank transactions of PNB Sucat. Even if Pollard were telling the truth, her testimony should not have been
considered proof that what she underwent is what actually transpired between Pasimio and PNB. Res inter alios acta. Acts and
declarations of persons strangers to a suit should, as a rule, be irrelevant as evidence. Pollard's transaction with PNB is entirely
different and totally unrelated to Pasimio's dealings with the bank.
What may be true in the case of Pollard may not hold true for Pasimio. It was quite erroneous for the appellate court to declare PNB
grossly negligent in its transactions with Pasimio when the only evidence it had discussed on the matter was Pollard's testimony. It may
be true that the PNB was grossly negligent in dealing with Pollard, but this does not automatically mean that PNB was grossly negligent
toward Pasimio as well. Hence, the CA had no basis in saying that "[e]ven assuming that [Pasimio] was concocting her version of the
facts, fit] still find[s] irregularities and inconsistencies that have attributed to the unjustified refusal to return the investment placement
and to the commission of negligence."
Much is attempted to be made by the Memorandum on Irregular Lending Operation on Loans v. Deposit Hold-Out (Sucat Branch) dated
February 18, 2003. The memorandum does not pertain to Pasimio or her accounts and transactions with the bank, albeit it discusses
Garcia and Miranda's sham dealings with other bank clients. Hence, the memorandum is really not determinative of the critical question
of whether or not Pasimio sought and eventually secured loan accommodations from PNB.
Here, the RTC and the CA focused on finding trivial Haws and weaknesses in PNB's evidence and totally disregarded the bank's most
telling proof, foremost of which are the notarized notes Had the courts a quo looked at and considered the totality of the bank's
evidence, then it would have realized how preposterous the story that Pasimio spun was, a story featuring, at bottom, a well-educated,
accomplished woman signing several pieces of bank documents involving millions of pesos, without knowing, nay even reading, what
she is signing.
Finally, it is well to consider this rule: that when the terms of an agreement have been reduced to writing, it is to be considered as
containing all such terms, and, therefore, there can be, between the parties and their successors-in-interest, no evidence of the terms of
the agreement other than the contents of the writing.50
Under this rule, parol evidence or oral evidence cannot be given to contradict, change or vary a written document, except if a party
presents evidence to modify, explain, or add to the terms of a written agreement and puts in issue in his pleadings: (a) an intrinsic
ambiguity, mistake, or imperfection in the written agreement; (b) the failure of the written agreement to express the true intent and
agreement of the parties; (c) the validity of the written agreement; and (d) the existence of other terms agreed to by the parties or their
successors-in-interest after the execution of the written agreement.51
Such evidence, however, must be clear and convincing and of such sufficient credibility as to overturn the written agreement.52 Since no
evidence of such nature is before the Court, the documents embodying the loan agreement of the parties should be upheld.
WHEREFORE, premises considered, the petition is GRANTED. The assailed Decision of the Court of Appeals dated January 23, 2013
in CA-G.R. CV No. 94079 is REVERSED and SET ASIDE. Respondent Ligaya M. Pasimio's complaint in Civil Case No. CV-05-0195
before the egional Trial Court of Paranaque City, Branch 196 is DISMISSED for lack of merit.
No costs.
SO ORDERED.
THIRD DIVISION
August 1, 2016
G.R. No. 213241
PHILIPPINE NATIONAL BANK, Petitioner

vs.
JUAN F. VILLA, Respondent
DECISION
PEREZ, J.:
For resolution of the Court is the instant Petition for Review on Certiorari1 filed by petitioner Philippine National Bank (PNB), seeking to
reverse and set aside the Decision2 dated 18 December 2013 and Resolution3 dated 13 June 2014 of the Court of Appeals (CA) in CA-
G.R. CV No. 97612. The assailed decision and resolution affirmed the 22 June 2011 Decision 4 of the Regional Trial. Court (RTC) of
Villasis, Pangasinan, Branch 50 which found that petitioner PNB is not a mortgagee in good faith.
The Facts
Petitioner PNB is a universal banking corporation duly authorized by Bangko Sentral ng Pilipinas (BSP) to engage in banking business.
Sometime in 1986, Spouses Reynaldo Comista and Erlinda Gamboa Comista (Spouses Comista) obtained a loan from Traders Royal
Bank (Traders Bank).5 To secure the said obligation, the Spouses Comista mortgaged to the bank a parcel of land with an area of 451
square meters designated as Lot 555-A-2 and registered under Transfer Certificate of Title (TCT) No. 131498 in their names by the
Register of Deeds of Pangasinan.
For failure of the Spouses Comista to make good of their loan obligation after it has become due, Traders Bank foreclosed the
mortgage constituted on the security of the loan. After the notice and publication requirements were complied with, the subject property
was sold at the public auction on 23 December 1987. During the public sale, respondent Juan F. Vila (Vila) was declared as the highest
bidder after he offered to buy the subject property for P50,000.00. The Certificate of Sale dated 13 January 1988 was duly recorded in
TCT No. 131498 under Entry No. 623599.6
To exercise his right of ownership, Vila immediately took possession of the subject property and paid the real estate taxes
corresponding thereon.
On 11 February 1989, a Certificate of Final Sale was issued to Vila after the one-year redemption period had passed without the
Spouses Comista exercising their statutory right to redeem the subject property. He was, however, prevented from consolidating the
ownership of the property under his name because the owner's copy of the certificate of title was not turned over to him by the Sheriff.
Despite the lapse of the redemption period and the fact of issuance of a Certificate of Final Sale to Vila, the Spouses Comista were
nonetheless allowed to buy back the subject property by tendering the amount of ₱50,000.00. A Certificate of Redemption 7 dated 14
March 1989 was issued for this purpose and was duly annotated in the title under Entry No. 708261.
Claiming that the Spouses Cornista already lost their right to redeem the subject property, Vila filed an action for nullification of
redemption, transfer of title and damages against the Spouses Comista and Alfredo Vega in his capacity as the Register of Deeds of
Pangasinan. The case was docketed as Civil Case No. V-0242 on 10 January 1992 and was raffled to Branch 50. A Notice of Lis
Pendens was issued for this purpose and was duly recorded in the certificate of title of the property on 19 October 1992 under Entry
No. 759302.8
On 3 February 1995, the RTC rendered a Decision9 in Civil Case No. V-0242 in favor of Vila thereby ordering the Register of Deeds to
cancel the registration of the certificate of redemption and the annotation thereof on TCT No. 131498. The said decision was affirmed
by the CA on 19 October 1997 in CA-G.R. CV No. 49463. 10 The decision of the appellate court became final and executory on 19
November 1997.
In order to enforce the favorable decision, Vila filed before the RTC a Motion for the Issuance of Writ of Execution which was granted by
the court. Accordingly, a Writ of Execution 11 was issued by the RTC on 14 December 1997.
By unfortunate tum of events, the Sheriff could not successfully enforce the decision because the certificate of title covering the subject
property was no longer registered under the names of the Spouses Comista. Hence, the judgment was returned unsatisfied as shown
in Sheriffs Retum12 dated 13 July 1999.
Upon investigation it was found out that during the interregnum the Spouses Comista were able to secure a loan from the PNB in the
amount of ₱532,000.00 using the same property subject of litigation as security. The Real Estate Mortgage (REM) was recorded on 28
September 1992 under Entry No. 758171 13 or month before the Notice of Lis Pendens was annotated.
Eventually, the Spouses Comista defaulted in the payment of their loan obligation with the PNB prompting the latter to foreclose the
property offered as security. The bank emerged as the highest bidder during the public sale as shown at the Certificate of Sale issued
by the Sheriff. As with the prior mortgage, the Spouses Comista once again failed to exercise their right of redemption within the
required period allowing PNB to consolidate its ownership over the subject property. Accordingly, TCT No. 131498 14 in
the name of the Spouses Comista was cancelled and a new one under TCT No. 216771 15 under the name of the PNB was issued.
The foregoing tum of events left Vila with no other choice but to commence another round of litigation against the Spouses Comista and
PNB before the RTC of Villasis, Pangasinan, Branch 50. In his Complaint docketed as Civil Case No. V-0567, Vila sought for the
nullification of TCT No. 216771 issued under the name of PNB and for the payment of damages.
To refute the allegations of Vila, PNB pounded that it was a mortgagee in good faith pointing the fact that at the time the subject
property was mortgaged to it, the same was still free from any liens and encumbrances and the Notice of Lis Pendens was registered
only a month after the REM was annotated on the title. PNB meant to say that at the time of the transaction, the Spouses Cornista were
still the absolute owners of the property possessing all the rights to mortgage the same to third persons. PNB also harped on the fact
that a close examination of title was conducted and nowhere was it shown that there was any cloud in the title of the Spouses Cornista,
the latter having redeemed the property after they have lost it in a foreclosure sale. 16
After the Pre-Trial Conference, trial on the merits ensued. The court a quo then proceeded to receive documentary and testimonial
evidence from the opposing parties. Thereafter, the parties submitted their respective memorandum and the case was submitted for
decision.
On 22 June 2011, the RTC rendered a Decision 17 in favor of Vila and ruled that PNB is not a mortgagee in good faith. As a financial
institution, the trial court held that PNB is expected to observe a higher degree of diligence. In hastily granting the loan, the trial court
declared that PNB failed in this regard. Had the bank exercised due diligence, it could have easily discovered that the Spouses Comista
were not the possessors of the subject property which could lead it to the fact that at the time the subject property was mortgaged to it,
a litigation involving the same was already commenced before the court. ·It was further ratiocinated by the RTC that "[a] mortgagee
cannot close his eyes to facts which should put a reasonable man upon his guard" in ascertaining the status of a mortgaged property.
The dispositive portion of the decision reads:
"WHEREFORE, judgment is hereby rendered:
1. Declaring the Real Estate Mortgage dated September 28, 1992, executed by the Spouses Reynaldo Comista and Erlinda Gamboa in
favor of the Philippine National Bank, Tayug, Pangasinan Branch, over the parcel of land covered by TCT No. 131498 null and void;
2. Declaring the Deed of Sale dated September 27, 1996, in favor of the PNB null and void;
3. Ordering the nullification and cancellation of Transfer Certificate of Title No. 216771 in the name of PNB;
4. Ordering the Register of Deeds of Pangasinan to issue a new certificate of title covering the property subject matter of this case in
the name.of Juan F. Vila; and
5. Ordering [the] defendant PNB to pay the plaintiff P-50,000.00 moral damages, P-50,000.00 exemplary damages and P-100,000.00
attorney's fees and litigation expenses.
Costs against defendant Philippine National Bank.
SO ORDERED." 18
In a Resolution19 dated 13 June 2014, the RTC refused to reconsider its earlier decision and thereby denied the Motion for
Reconsideration interposed by PNB.
On appeal, the CA Decision 20 dated 18 December 2013 affirmed the RTC ruling. In failing to exercise greater care and diligence in
approving the loan of the Spouses Comista without first ascertaining if there were any defects in their title, tlre appellate court held that
PNB could not be afforded the status of a mortgagee in good faith. It went further by declaring that "[a] bank whose business is
impressed with public interest is expected to exercise more care and prudence in its dealings than a private individual, even in cases
involving registered lands. A bank cannot assume that, simply because the title offered as security is on its face free of any
encumbrances of lien, it is relieved of the responsibility of taking further steps to verify the title and inspect the properties to be
mortgaged. "21 The CA thus disposed:
"WHEREFORE, the instant appeal is DENIED. The assailed Decision dated June 22, 2011 and the Resolution dated August 11, 2011
of the Regional Trial Court of Villasis, Pangasinan, Branch 50, in Civil Case No, V-0567 are hereby AFFIRMED."22
On 13 June 2014, the CA issued a Resolution23 denying the Motion for Reconsideration of the PNB prompting the bank to seek
recourse before the Court via instant Petition for Review on Certiorari. For Our resolution are the following issues:
The Issues
I.
WHETHER OR NOT PNB IS A MORTGAGEE IN GOOD FAITH;
II.
WHETHER OR NOT PNB IS LIABLE FOR DAMAGES.24
The Court's Ruling
We resolve to deny the petition.
In general, the issue of whether a mortgagee is in good faith cannot be entertained in a Rule 45 petition. This is because the
ascertainment of good faith or the lack thereof, and the determination of negligence are factual matters which lay outside the scope of a
petition for review on certiorari. Good faith, or the lack of it, is a question of intention. In ascertaining intention, courts are necessarily
controlled by the evidence as to the conduct and outward facts by which alone the inward motive may, with safety, be determined. 25 A
recognized. exception to the rule is when there are conflicting findings of fact by the CA and the RTC. 26 In the case at bar, RTC and the
CA agreed on their findings.
The RTC, which possessed the first hand opportunity to observe the demeanor of the witnesses and admit the documentary evidence,
found that PNB accepted outright the collateral offered by the Spouses Cornista without making further inquiry as to the real status of
the subject property. Had the bank been prudent and diligent enough in ascertaining the condition of the property, it could have
discovered that the same was in the possession of Vila who, at that time, possessed a colorable title thereon being a holder of a Final
Certificate of Sale. The RTC further exposed the frailty of PNB' s claim by pointing to the fact that it was Vila who was paying the realty
tax on the property, a crucial information that the bank could have easily discovered had it exercised due diligence.
Resonating the findings of the RTC, the CA also declared that PNB fell short in exercising the degree of diligence expected from bank
and financial institutions. We hereby quote with approval the disquisition of the appellate court:
Thus, before approving a loan application, it is a standard operating practice for these institutions to conduct an ocular inspection of the
property offered for mortgage and to verify the genuineness of the title to determine the real owner thereof. The apparent purpose of an
ocular inspection is to protect the "true owner" of the property as well as innocent third parties with a right, interest or claim thereon from
a usurper who may have acquired a fraudulent certificate of title thereto. Here, [the] PNB has failed to exercise the requisite due
diligence in ascertaining the status and condition of the property being offered to it as security for the loan before it approved the same.
xxx. 27
Clearly, the PNB failed to observe the exacting standards required of banking institutions which are behooved by statutes and
jurisprudence to exercise greater care and prudence before entering into a mortgage contract.
No credible proof on the records could substantiate the claim of PNB that a physical inspection of the property was conducted. We
agree with both the RTC and CA that if in fact it were true that ocular inspection was conducted, a suspicion could have been raised as
to the real status of the property. By failing to uncover a crucial fact that the mortgagors were not the possessors of the subject
property, We could not lend credence to the claim of the bank that an ocular inspection of the property was conducted.1âwphi1 What
further tramples upon PNB' s claim is the fact that, as shown on the records, it was Vila who was religiously paying the real property tax
due on the property from 1989 to 1996, another significant fact that could have raised a red flag as to the real ownership of the
property. The failure of the mortgagee to take precautionary steps would mean negligence on his part and would thereby preclude it
from invoking that it is a mortgagee in good faith.
Before approving a loan application, it is standard operating procedure for banks and financial institutions to conduct an ocular
inspection of the property offered for mortgage and to determine the real owner(s) thereof. The apparent purpose of an ocular
inspection is to protect the "true owner" of the property as well as innocent third parties with a right, interest or claim thereon from a
usurper who may have acquired a fraudulent certificate of title thereto.28
In this case, it was adjudged by the courts of competent jurisdiction in a final and executory .decision that the Spouses Cornista's
reacquisition of the property after the lapse of the redemption period is fraudulent and the property used by the mortgagors as collateral
rightfully belongs to Vila, an innocent third party with a right, could have been protected if PNB only observed the degree diligence
expected from it.
In Land Bank of the Philippines v. Belle Corporation,29 the Court exhorted banks to exercise the highest degree of diligence in its
dealing with properties offered as securities for the loan obligation:
When the purchaser or the mortgagee is a bank, the rule on innocent purchasers or mortgagees for value is applied more strictly. Being
in the business of extending loans secured by real estate mortgage, banks are presumed to be familiar with the rules on land
registration. Since the banking business· is impressed with public interest, they are expected to be more cautious, to exercise a higher
degree of diligence, care and prudence, than private individuals in their dealings, even those involving registereo lands. Banks may not
simply rely on the face of the certificate of title. Hence, they cannot assume that, xxx the title offered as security is on its face free of any
encumbrances or lien, they are relieved of the responsibility of taking further steps to verify the title and inspect the properties to be
mortgaged. As expected, the ascertainment of the status or condition of a property offered to it as security for a loan must be a
standard and indispensable part of the bank's operations. xxx. (Citations omitted)
We never fail to stress the remarkable significance of a banking institution to commercial transactions, in particular, and to the country's
economy in general. 30 The banking system is an indispensable institution in the modern world and plays a vital role in the economic life
of every civilized nation.31 Whether as mere passive entities for the safekeeping and saving of money or as active instruments of
business and commerce, banks have become an ubiquitous presence among the people, who have come to regard them with respect
and even gratitude and, most of all, confidence. 32 Consequently, the highest degree of diligence is expected, and high standards of
integrity and performance are even required, of it. 33
PNB clearly failed to observe the required degree of caution in readily approving the loan and accepting the collateral offered by the
Spouses Comista without first ascertaining the real ownership of the property. It should not have simply relied on the face of title but
went further to physically ascertain the actual condition of the property. That the property offered as security was in the possession of
the person other than the one applying for the loan and the taxes were declared not in their names could have raised a suspicion. A
person who deliberately ignores a significant fact that could create suspicion in an otherwise reasonable person is not an innocent
purchaser for value.34
Having laid down that the PNB is not in good faith, We are led to affirm the award of moral damages, exemplary damages, attorney's
fees and costs of litigation in favor of Vila. Moral damages are not awarded to penalize the defendant but to compensate the plaintiff for
the injuries he may have suffered.35 Willful 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. 36 In the instant case, we find that the award of moral damages is
proper. 37 As for the award of exemplary damages, we deem that the same is proper for the PNB was remiss in its obligation to inquire
the real status of the subject property, causing damage to Vila.38 Finally, we rule that the award of attorney's fees and litigation
expenses is valid since Vila was compelled to litigate and thus incur expenses in order to protect its rights over the subject property. 39
WHEREFORE, premises considered, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals are
hereby AFFIRMED. Accordingly, the decision of the RTC dated 22 June 2011 STANDS as the final resolution of this case.
SO ORDERED.
SECOND DIVISION
July 3, 2017
G.R. No. 191458
CHINATRUST (PHILS.) COMMERCIAL BANK, Petitioner

vs.
PHILIP TURNER, Respondent
DECISION
LEONEN, J.:
Issues that were not alleged or proved before the lower court cannot be decided for the first time on appeal. This rule ensures fairness
in proceedings.
This Petition for Review assails the Court of Appeals' (a) December 14, 2009 Decision 1 affirming the Regional Trial Court's Decision
dated January 29, 2007 and (b) its March 2, 2010 Resolution 2 denying petitioner Chinatrust (Philippines) Commercial Bank's
(Chinatrust) Motion for Reconsideration.3 The Regional Trial Court set aside the Metropolitan Trial Court's dismissal 4 of the complaint. It
ordered Chinatrust to restore to the account of respondent Philip Turner (Turner) the following amounts: 1) US$430 or ₱24,129.88, its
peso equivalent as of September 13, 2004; and 2) US$30 or ₱l,683.48, its peso equivalent as of September 13, 2004. It also ordered
Chinatrust to pay ₱20,000.00 as moral damages, ₱l0,000.00 as exemplary damages, and ₱5,000.00 as attorney's fees.
On September 13, 2004, British national Turner initiated via Chinatrust-Ayala Branch the telegraphic transfer of US$430.00 to the
account of "MIN TRAVEL/ESMAT AZMY, Account No. 70946017, Citibank, Heliopolis Branch" in Cairo, Egypt.5 The amount was partial
payment to Turner's travel agent for his and his wife's 11-day tour in Egypt. 6 Turner paid a service fee of US$30.00. Both amounts were
debited from his dollar savings account with Chinatrust.7
On the same day, Chinatrust remitted the funds through the Union Bank of California, its paying bank, to Citibank-New York, to credit
them to the bank account of Min Travel/EsmatAzmy in Citibank-Cairo, Egypt.8
On September 17, 2004, Chinatrust received Citibank-Cairo's telexnotice about the latter's inability to credit the funds it received
because the "beneficiary name d[id] not match their books (referred to as the 'discrepancy notice')." 9 In other words, the beneficiary's
name "Min Travel/Esmat Azmy" given by Turner did not match the account name on file of Citibank-Cairo. 10 Chinatrust relayed this
information to Turner on September 20, 2004, "the next succeeding business day."11
Chinatrust claimed that it relayed the discrepancy to Turner and requested him to verify from his beneficiary the correct bank account
name.12 On September 22, 2004, Turner allegedly informed Chinatrust that he was able to contact Esmat Azmy, who acknowledged
receipt of the transferred funds. Turner, however, had to cancel his travel-tour because his wife got ill and requested from Chinatrust
the refund of his money.13
According to Chinatrust, it explained to Turner that since the funds were already remitted to his beneficiary's account, they could no
longer be withdrawn or retrieved without Citibank-Cairo's consent. Turner was, thus, advised to seek the refund of his payment directly
from his travel agency.14
Turner allegedly insisted on withdrawing the funds from Chinatrust explaining that the travel agency would forfeit fifty percent (50%) as
penalty for the cancellation of the booking, as opposed to the minimal bank fees he would shoulder if he withdrew the money through
Chinatrust.15 Hence, Chinatrust required Turner to secure, at least, his travel agency's written certification denying receipt of the funds
so that it could act on his request. However, Turner purportedly failed to submit the required certification despite repeated reminders.16
On October 28, 2004, Chinatrust received Citibank-Cairo's Swift telex reply, which confirmed receipt of Chinatrust's telegraphic funds
transfer and its credit to the bank account of Min Travel, not "Min Travel/Esmat Azmy" as indicated by the respondent, as early as
September 15, 2004.17 This information was relayed to Turner on October 29, 2004.18
Despite this official confirmation, Turner allegedly continued to insist on his demand for a refund.19
On March 7, 2005, Turner filed a Complaint 20 against Chinatrust before the Metropolitan Trial Court of Makati City, demanding the
refund of his telegraphic transfer of ₱24,129.88 plus damages.21
Upon further queries, Chinatrust received another telex on September 28, 2005 from Citibank-Cairo confirming again and
acknowledging receipt of Turner's remittance and its credit to the account of Min Travel on September 15, 2004.22
After the parties had submitted their respective position papers in accordance with the Rules on Summary Procedure, the Metropolitan
Trial Court of Makati City, Branch 61 rendered a Decision 23 on January 15, 2006, dismissing Turner's complaint for lack of merit as well
as Chinatrust's counterclaim. The Metropolitan Trial Court found sufficient evidence to prove that Chinatrust complied with its
contractual obligation to transmit the funds to Citibank-Cairo and that these funds were actually credited to the intended beneficiary's
account.24
Turner filed an appeal. On the substantive matters, Turner argued that the Metropolitan Trial Court erred in ruling that he had no basis
in claiming a refund from Chinatrust and in not awarding him damages and attorney's fees.25
Branch 137, Regional Trial Court of Makati City rendered a Decision 26 on January 29, 2007, reversing and setting aside the decision of
the Metropolitan Trial Court. While it agreed with the Metropolitan Trial Court's findings that the funds had been deposited to the
account of the beneficiary as early as September 15, 2004, the Regional Trial Court ruled that this was not sufficient basis to absolve
Chinatrust of any responsibility.27 The trial court found insufficient evidence to show that Chinatrust was not negligent in the
performance of its obligation under the telegraphic transfer agreement. It held that no "discrepancy notice" from Citibank-Cairo was
even presented in evidence.28
The Regional Trial Court further held that Chinatrust failed to render its services in a manner that could have mitigated, if not prevented,
the monetary loss, emotional stress, and mental anguish that Turner suffered for six (6) weeks while waiting for his intended
beneficiary's confirmation of receipt of his money.29 Hence, Chinatrust was found liable for the monetary loss suffered by Turner and for
damages. The Decision disposed as follows:
WHEREFORE, in view of all the foregoing, the Decision of the Metropolitan Trial Court of Makati City, Branch 61, in Civil Case No.
87471, is hereby REVERSED and SET ASIDE, and a new one entered finding for plaintiff-appellant PHILIP TURNER, and against
defendant-appellee CHINA TRUST (PHILS.) COMMERCIAL BANK CORPORATION by ordering the latter to pay, or restore to PHILIP
TURNER's account with said Bank, the following amounts:
(1) US $ 430.00 or ₱24,129.88, the Peso equivalent at the rate of ₱56.l160/US $1.00, as of 13 September 2004; and
(2) US $ 30.00 or ₱l,683.48, the Peso equivalent at the rate of ₱56.1160/US $1.00, as of 13 September 2004.
The defendant-appellee bank is further ordered to pay plaintiff-appellant Philip Turner ₱20,000.00 as and for moral damages;
₱10,000.00 as and for exemplary damages; and ₱5,000.00 as and for reasonable attorney's fees.
SO ORDERED.30
Chinatrust filed a motion for reconsideration, but it was denied by the Regional Trial Court in a Resolution31 dated June 4, 2007.
On July 4, 2007, Chinatrust filed a Petition for Review32 under Rule 42 of the 1997 Rules of Civil Procedure before the Court of Appeals.
In its Decision33 dated December 14, 2009, the Court of Appeals dismissed the petition and upheld the decision of the Regional Trial
Court. Chinatrust's subsequent Motion for Reconsideration34 was likewise denied in the Court of Appeals' Resolution 35 dated March 2,
2010.
Hence, this Petition36 was filed. In compliance with this Court's directive, respondent filed his Comment, 37 to which petitioner filed its
Reply.38
Petitioner stresses that based on the allegations in the Complaint, the real issue is "whether or not the petitioner-bank has legally
complied with its contractual obligation with respondent in remitting his telegraphic fund to the latter's beneficiary account with Citibank-
Cairo."39 It reasons that as respondent has failed to prove his allegation that his telegraphic transfer funds were not received or credited
to his intended beneficiary's Citibank-Cairo account, the Court of Appeals should have dismissed respondent's complaint.40
Instead, the Court of Appeals adjudged petitioner liable for negligence: (1) when it did not immediately refund the telexed funds to
respondent upon receipt of the discrepancy notice from Citibank-Cairo; and (2) when it did not immediately relay to Citibank-Cairo
respondent's demand for the cancellation of the transaction.41 According to petitioner, this was erroneous because the Court of Appeals
ruled upon matters not alleged in the complaint or raised as an issue42 and awarded damages not prayed for in the complaint.43
Petitioner further argues that respondent demanded for the return of his money long after-and not immediately after-he was informed of
the discrepancy in the beneficiary's name. Moreover, respondent made the demand (1) only because he had changed his mind about
the tour because his wife was ill, (2) after he had personally known that his beneficiary had received the transferred funds, and (3) to
avoid the 50% forfeiture penalty.44
Petitioner adds that Article 1172 of the Civil Code was erroneously applied by the Court of Appeals because this provision refers to an
obligor's negligence in performing the obligation. Here, the "acts of negligence" attributed to petitioner were those that transpired after it
had fully performed its obligation to transfer the funds.45
Finally, petitioner contends that the Court of Appeals erred "when it unjustly enriched the respondent by making the petitioner liable to
refund the amount already legally transferred to, and received by respondent's beneficiary, for his benefit."46
Respondent counters that the issues raised by petitioner are factual, which are not reviewable by this Court. 47 He further denies that he
disclosed to the petitioner that he was able to contact his travel agency, which admitted that it had received the funds. On the contrary,
respondent avers that he "demanded for the return of his money when the petitioner informed him that the funds could not be deposited
to the beneficiary account."48
The issues for resolution are:
First, whether the Court of Appeals erred in affirming the Regional Trial Court's Decision, granting the refund of respondent's
US$430.00 telegraphic funds transfer despite its successful remittance and credit to respondent's beneficiary Min Travel's account with
Citibank-Cairo;
Second, whether petitioner Chinatrust (Philippines) Commercial Bank was negligent in the performance of its obligation under the
telegraphic transfer agreement; and
Finally, whether the subsequent acts of petitioner after compliancewith its obligation can be considered "negligent" to justify the award
of damages by the Regional Trial Court, as affirmed by the Court of Appeals.
The Regional Trial Court and the Court of Appeals erred in holding that petitioner was negligent in failing to immediately address
respondent's queries and return his money and was consequently liable for the anguish suffered by respondent. They ruled on an issue
that was not raised by respondent in the lower court, thereby violating petitioner's right to due process.
It is an established principle that "courts cannot grant a relief not prayed for in the pleadings or in excess of what is being sought by the
party."49 The rationale for the rule was explained in Development Bank of the Philippines v. Teston,50 where this Court held that it is
improper to enter an order which exceeds the scope of the relief sought by the pleadings:
The Court of Appeals erred in ordering [Development Bank of the Philippines] to return to respondent "the ₱l,000,000.00" alleged down
payment, a matter not raised in respondent's Petition for Review before it. In Jose Clavano, Inc. v. Housing and Land Use Regulatory
Board, this Court held:
It is elementary that a judgment must conform to, and be supported by, both the pleadings and the evidence, and must be in
accordance with the theory of the action on which the pleadings are framed and the case was tried. The judgment must be secudum
allegata et probata.
Due process considerations justify this requirement. It is improper to enter an order which exceeds the scope of relief sought by the
pleadings, absent notice which affords the opposing party an opportunity to be heard with respect to the proposed relief. The
fundamental purpose of the requirement that allegations of a complaint must provide the measure of recovery is to prevent surprise to
the defendant.51 (Emphasis supplied, citations omitted)
The bank's supposed negligence in the handling of respondent's concerns was not among respondent's causes of action and was
never raised in the Metropolitan Trial Court. Respondent's cause of action was based on the theory that the telexed funds transfer did
not materialize, and the relief sought was limited to the refund of his money and damages as a result of the purported non-remittance of
the funds to the correct beneficiary account.52
"[T]he purpose of an action ... and the law to govern it ... is to be determined . . . by the complaint itself, its allegations and the prayer for
relief."53 The complaint states "the theory of a cause of action which forms the bases of the plaintiff's claim of liability."54
A review of the Complaint filed before the Metropolitan Trial Court reveals that respondent originally sued upon a breach of contract
consisting in the alleged failure of petitioner to remit the funds to his travel agency's account in Cairo-Egypt.
Respondent's cause of action was based on paragraphs 5 and 6 of his Complaint:
5. That after a few days, the plaintiff verified from the defendant whether the telegraphic transfer was sent but the plaintiff was told that
the fund was not applied to the intended account number and name as "THE BENE TITLE DOES NOT MATCH WITH THEIR BOOKS";
6. That the plaintiff talked with the President of the defendant and asked what was meant by that and was told that they did not succeed
in sending the telegraphic transfer to the beneficiary account[.]55
Respondent further alleged:
10. That because of the refusal of the defendant to return the amounts given by the plaintiff, the latter suffered sleepless nights, worry
and anxiety because of his fear that he lost the money that he entrusted to the defendant for transfer to the beneficiary account for
which the plaintiff should be awarded moral damages on the amount of ₱20,000.00;
11. That the defendant was guilty of gross negligence in failing to comply with its obligation to send the telegraphic transfer to the
intended beneficiary account;
12. That by way of example, the defendant should be ordered to pay exemplary damages in the amount of ₱20,000.00. 56 (Emphasis
supplied)
In both his Complaint and Position Paper,57 respondent anchored his claim for refund and damages on the "discrepancy notice" and the
manager's explanation that the funds were not successfully credited to the beneficiary's account. Respondent demanded for the return
of his money having the impression that the bank was not successful in remitting it.
The parties' pleadings and position papers submitted before the Metropolitan Trial Court raised the factual issue of whether petitioner
had complied with its obligation to remit the funds of the respondent to his intended beneficiary's account with Citibank-Cairo. They
likewise raised the legal issue of whether respondent was entitled to rescind the contract.
Furthermore, during the preliminary conference, the following issues were defined: (a) "whether or not the amount was remitted to the
correct beneficiary's account," and (b) "whether or not the parties are entitled to their respective claims." 58 This does not include the
issue of negligence on the part of petitioner in attending to respondent's queries or the purported one (1)-month delay in the
confirmation of the remittance.
The case was decided by the Metropolitan Trial Court pursuant to the Revised Rules on Summary Procedure. 59 Accordingly, no trial
was conducted as, after the conduct of a preliminary conference, the parties were made to submit their position papers. 60 There was,
thus, no opportunity to present witnesses during an actual trial. However, Section 9 of the Revised Rules on Summary Procedure calls
for the submission of witnesses' affidavits together with a party's position paper after the conduct of a preliminary conference:
Section 9. Submission of Affidavits and Position Papers. - Within ten (10) days from receipt of the order mentioned in the next
preceding section, the parties shall submit the affidavits of their witnesses and other evidence on the factual issues defined in the order,
together with their position papers setting forth the law and the facts relied upon by them.
The determination of issues at the preliminary conference bars the consideration of other questions on appeal. 61 This is because under
Section 9 above, the parties were required to submit their affidavits and other evidence on the factual issues as defined in the
preliminary conference order. Thus, either of the parties cannot raise a new factual issue on appeal, otherwise it would be unfair to the
adverse party, who had no opportunity to present evidence against it.
II
The Metropolitan Trial Court correctly absolved petitioner from liability and dismissed the complaint upon its finding that the bank had
duly proven that it had complied with its obligation under the telegraphic transfer. It found that despite the earlier advice of Citibank-
Cairo that the beneficiary name did not match their files, Chinatrust and respondent Turner were subsequently informed that the
amount sent had been credited to the account of the beneficiary as early as September 15, 2004.62
However, on appeal, the Regional Trial Court reversed the dismissal of the complaint. While the Regional Trial Court affirmed the
court a quo's ruling that indeed the funds were credited to the intended beneficiary's account, it went further and touched upon an issue
that was beyond the cause of action framed by the respondent. It adjudged petitioner liable not because it failed to perform its
obligation to remit the funds but because it purportedly did not exercise due diligence in attending to respondent's queries and demands
with regard to the telegraphic funds transfer. Specifically, it found petitioner negligent in its failure to promptly inform respondent that the
money was, in fact, credited to the account of the beneficiary. 63 According to the Regional Trial Court, "it is but right that the [petitioner]
bank be held liable for the monetary loss, as well as the emotional stresses and mental anguish that [respondent] Turner had to go
through as a result thereof."64 Hence, the Regional Trial Court awarded respondent's claims for refund and damages.
The Regional Trial Court also faulted the petitioner for not submitting in evidence the "discrepancy notice," which according to the trial
court "puts the ... bank's position in a cloud of doubt."65
Contrary to the observation of the Regional Trial Court, however, the discrepancy notice's existence and content were not the core of
the controversy. In fact, they were never put in issue. The discrepancy notice only came up because it was the basis for Turner's claim
for refund insisting that the funds were not credited to his travel agency's account. Hence, it is understandable that both parties did not
present it in evidence.
Similarly, the purported negligence of the bank personnel in attending to his concerns was neither raised by respondent in any of his
pleadings nor asserted as an issue in the preliminary conference. Hence, it was improper for the Regional Trial Court to consider this
issue on negligence in determining the respective claims of the parties.
Basic rules of fair play, justice, and due process require that arguments or issues not raised in the trial court may not be raised for the
first time on appeal.66
In Philippine Ports Authority v. City of Iloilo:67
As a rule, a party who deliberately adopts a certain theory upon which the case is tried and decided by the lower court will not be
permitted to change theory on appeal. Points of law, theories, issues and arguments not brought to the attention of the lower court need
not be, and ordinarily will not be, considered by a reviewing court, as these cannot be raised for the first time at such late stage. Basic
considerations of due process underlie this rule. It would be unfair to the adverse party who would have no opportunity to present
further evidence material to the new theory, which it could have done had it been aware of it at the time of the hearing before the trial
court. To permit petitioner in this case to change its theory on appeal would thus be unfair to respondent, and offend the basic rules of
fair play, justice and due process.68 (Citations omitted)
There is more reason for a reviewing court to refrain from resolving motu proprio an issue that was not even raised by a party. This
Court has previously declared that:
"[C]ourts of justice have no jurisdiction or power to decide a question not in issue" and that a judgment going outside the issues and
purporting to adjudicate something upon which the parties were not heard is not merely irregular, but extrajudicial and
invalid.69 (Citations omitted)
As pointed out earlier, respondent's cause of action was anchored on the alleged non-remittance of the funds to his travel agency's
account or based on a breach of contract.
On appeal, however, the Regional Trial Court motu proprio found that petitioner was negligent in addressing respondent's concerns,
which justified the award of damages against it. This was unfair to petitioner who had no opportunity to introduce evidence to
counteract this new issue. The factual bases of this change of theory would certainly require presentation of further evidence by the
bank in order to enable it to properly meet the issue raised.
III
The Regional Trial Court and the Court of Appeals erred in awarding damages to respondent.
Petitioner was not remiss in the performance of its contractual obligation to remit the funds. It was established that the funds were
credited to the account of Min Travel on September 15, 2004, or two (2) days from respondent's application.70
Petitioner cannot likewise be faulted for the discrepancy notice sent by Citibank-Cairo, assuming there was a mistake in its sending. It
merely relayed its contents to respondent. Citibank-Cairo is not an agent of petitioner but a beneficiary bank designated by respondent,
upon the instruction of the beneficiary, Min Travel.
The Regional Trial Court, as affirmed by the Court of Appeals, found petitioner negligent in addressing the concerns and queries of
respondent. It specifically faulted petitioner for failure to submit any letters, tracers, cables, or other evidence of communication sent to
Citibank-Cairo to inquire about the status of the remittance and adjudged petitioner liable for the anxieties suffered by respondent.71
The rule that factual findings of the Court of Appeals are not reviewable by this Court is subject to certain exceptions such as when
there is a misapprehension of facts and when the conclusions are contradicted by the evidence on record. 72 Here, there is insufficient
evidence to show negligence on the part of petitioner.
The one (1 )-month delay in receiving the telex reply from Citibank-Cairo does not sufficiently prove petitioner's fault or negligence,
especially since "[p]etitioner's communications were coursed thru a third-party-correspondent bank, Union Bank of Califomia."73
Furthermore, the lower courts overlooked the fact that respondent knew all along, or as early as September 22, 2004, that his funds
were already received by his beneficiary. Despite this, he insisted on demanding the retrieval of the funds after he opted not to pursue
with his travel abroad.
Respondent did not specifically deny paragraphs 8 and 9 of petitioner's Answer with Counterclaims, which alleged the following:
8. However, on September 22, 2004, the Plaintiff, despite being aware that his foregoing remittance was already received by the
beneficiary MIN TRAVEL, changed his mind, and stated that he will no longer push though with his tour travel, and thus, requested for
the retrieval of said funds. Defendant relayed said request through the foregoing channel to Citibank-Cairo. Considering that said fund
was already transferred, Citibank-Cairo refused to honor said request, and consider the transmittal closed and accomplished;
9. Plaintiff, however, insisted on demanding refund of said amount from the Defendant, who politely denied such demand, and
repeatedly explained to the Plaintiff that Citibank-Cairo will not honor such request, and that there is nothing that the Defendant can do
under the circumstances[.]74
The Affidavit of Rosario C. Astrologo (Astrologo), Branch Service Head, Chinatrust-Ayala Branch, was never rebutted by respondent by
submitting his counter evidence. Portions of it stated:
7. On September 22, 2004, when he visited our branch office, which he has been doing almost everyday, he mentioned to our Ms. Rina
Chua, the bank's Senior Service Assistant, Ayala Branch, that he [was] able to contact Mr. Esmat Azmy who already confirmed having
received the said remittance;
8. When I also talked to him, also on the same date, he, stated that he changed his mind and will no longer push through with his said
travel because his wife, who is supposed to accompany him, became sick, injured, or something to such effect. He also mentioned that
if he will cancel his travel agreement, the travel agency will only return to him fifty [percent] (50%) of his foregoing down-payment, but if
he will be able to retrieve and withdraw such remittance from the bank, he will only pay the bank charges, which is minimal. He,
therefore, insisted, that said fund be withdrawn and returned to him by the bank;
9. He was also told that if such fund was already received by the travel agency and credited to its bank account of said travel agency at
Citibank, it cannot be returned anymore, and I advised him to contact his travel agency and negotiate for the refund of his entire
proceeds. I do not know if he later made such plea to his travel agency for we were not told what happened later. I promised, however,
that we will relay his request for its retrieval of such fund to Citibank, which we did thru various telexes[.]75
The successful remittance was later confirmed by the telex-reply from Citibank-Cairo on October 28, 2004, stating that the funds were
credited to the account of Min Travel on September 15, 2004. 76 This telex-reply confirms that petitioner indeed made a follow up with
Citibank-Cairo regarding the status of respondent's funds.
Moreover, the refusal of petitioner's personnel to accede to respondent's demand for a refund cannot be considered an actionable
wrong. Their refusal was due primarily to lack of information or knowledge of the effective cancellation of the remittance and not from a
deliberate intent to ignore or disregard respondent's rights. When respondent insisted on asking for the refund, he was repeatedly
requested to submit a certification or, at least, a written denial from his beneficiary that the funds were not in fact received. They cannot
be faulted for wanting to verify with Citibank-Cairo the status of the remittance before acting upon his request, especially since the
funds have actually been received by Citibank-Cairo. The written denial would also be the basis for petitioner's demand upon Citibank-
Cairo.
The Court of Appeals erred in ruling that petitioner had the duty to immediately return the money to Turner together with the service fee
upon the first instance that it relayed the discrepancy notice to him. Turner could no longer rescind the telegraphic transfer agreement.
In Republic of the Philippines v. Philippine National Bank,77 thisCourt described the nature of a telegraphic transfer agreement:
"[C]redit" in its usual meaning is a sum credited on the books of a company to a person who appears to be entitled to it. It presupposes
a creditor-debtor relationship, and may be said to imply ability, by reason of property or estates, to make a promised payment.
....
[A]s the transaction is for the establishment of a telegraphic or cable transfer, the agreement to remit creates a contractual obligation
and has been termed a purchase and sale transaction (9 C.J.S. 368). The purchaser of a telegraphic transfer upon making payment
completes the transaction insofar as he is concerned, though insofar as the remitting bank is concerned the contract is executory until
the credit is established.78
Thus, once the amount represented by the telegraphic transfer order is credited to the account of the payee or appears in the name of
the payee in the books of the receiving bank, the ownership of the telegraphic transfer order is deemed to have been transmitted to the
receiving bank. The local bank is deemed to have fully executed the telegraphic transfer and is no longer the owner of this telegraphic
transfer order.
It is undisputed that on September 13, 2004, the funds were remitted to Citibank-New York through petitioner's paying bank, Union
Bank of California. Citibank-New York, in turn, credited Citibank-Cairo, Egypt, Heliopolis Branch.
Moreover, it was established that the amount of US$430.00 was actually credited to the account of Min Travel on September 15,
2004,79 or merely two (2) days after respondent applied for the telegraphic transfer and even before petitioner received its "discrepancy
notice" on September 17, 2004. Chinatrust is, thus, deemed to have fully executed the telegraphic transfer agreement and its obligation
to respondent was extinguished.80 Hence, respondent could no longer ask for rescission of the agreement' on September 22, 2004.
When the funds were credited to the account of Min Travel at Citibank-Cairo, ownership and control of these funds were transferred to
Min Travel.1âwphi1 Thus, the funds could not be withdrawn without its consent.
The Court of Appeals, in affirming the decision of the Regional Trial Court, held that petitioner was obliged to immediately return the
money to respondent as early as September 17, 2004 when it received the "discrepancy notice" from Citibank-Cairo. 81 It held that
petitioner's failure to do so even upon respondent's demand constituted an actionable negligence under Article 1172.82
The Court of Appeals misappreciated the true import of the discrepancy notice when it held that the notice was an "effective
cancellation of the remittance by the Citibank-Cairo"83 that gave rise to the legal obligation of petitioner to return the funds to
respondent.
The discrepancy notice does not mean that the funds were not received by the beneficiary bank. On the contrary, what it implies is that
these funds were actually received by Citibank-Cairo but it could not apply it because the account name of the beneficiary indicated in
the telex instruction does not match the account name in its books. In short, it cannot find in its file the beneficiary account name "Min
Travel/Esmat Azmy" pursuant to the telex instruction, for which reason, Citibank-Cairo asked for clarifications. Petitioner, in turn, had to
clarify from respondent, because it was respondent himself, upon instruction of his travel agency, who indicated such beneficiary's
name in his telegraphic transfer form. True enough, as later shown, the beneficiary account name was not '"Min Travel/Esmat Azmy"
but only "Min Travel." Petitioner, therefore, had nothing to do with the mismatch of the beneficiary name and could not be made liable
for it.
The information initially relayed by Citibank-Cairo and received by petitioner on September 17, 2004-that the funds were not applied to
the intended account because the beneficiary name did not match its books-proved to be no longer true. This is because Citibank-Cairo
later confirmed that respondent's remittance was duly credited to the account of Min Travel on September 15, 2004.
As stated earlier, respondent's request for retrieval of the funds was because he changed his mind about the travel rather than the
discrepancy notice sent by Citibank-Cairo. The Affidavit of Astrologo was never refuted.
The tour travel arrangement, which brought about the remittance of the funds, is a separate and private arrangement between
respondent and Min Travel. Respondent's change of mind and claim for refund, therefore, should have been properly addressed to Min
Travel: which already had possession of the funds and not to petitioner, who was not privy to the arrangement.
WHEREFORE, the Petition is GRANTED. The Court of Appeals' Decision dated December 14, 2009 and Resolution dated March 2,
2010 are set aside and the Decision dated January 15, 2006 of the Metropolitan Trial Court, Branch 61, Makati City is reinstated.
SO ORDERED.
SECOND DIVISION
G.R. No. 121413 January 29, 2001
PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF ASIA AND AMERICA), petitioner,
vs.
COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A., respondents.
G.R. No. 121479 January 29, 2001
FORD PHILIPPINES, INC., petitioner-plaintiff,

vs.
COURT OF APPEALS and CITIBANK, N.A. and PHILIPPINE COMMERCIAL INTERNATIONAL BANK, respondents.
G.R. No. 128604 January 29, 2001
FORD PHILIPPINES, INC., petitioner,

vs.
CITIBANK, N.A., PHILIPPINE COMMERCIAL INTERNATIONAL BANK and COURT OF APPEALS, respondents.
QUISUMBING, J.:
These consolidated petitions involve several fraudulently negotiated checks.
The original actions a quo were instituted by Ford Philippines to recover from the drawee bank, CITIBANK, N.A. (Citibank) and
collecting bank, Philippine Commercial International Bank (PCIBank) [formerly Insular Bank of Asia and America], the value of several
checks payable to the Commissioner of Internal Revenue, which were embezzled allegedly by an organized syndicate.1âwphi1.nêt
G.R. Nos. 121413 and 121479 are twin petitions for review of the March 27, 1995 Decision 1 of the Court of Appeals in CA-G.R. CV No.
25017, entitled "Ford Philippines, Inc. vs. Citibank, N.A. and Insular Bank of Asia and America (now Philipppine Commercial
International Bank), and the August 8, 1995 Resolution,2 ordering the collecting bank, Philippine Commercial International Bank, to pay
the amount of Citibank Check No. SN-04867.
In G.R. No. 128604, petitioner Ford Philippines assails the October 15, 1996 Decision 3 of the Court of Appeals and its March 5, 1997
Resolution4 in CA-G.R. No. 28430 entitled "Ford Philippines, Inc. vs. Citibank, N.A. and Philippine Commercial International Bank,"
affirming in toto the judgment of the trial court holding the defendant drawee bank, Citibank, N.A., solely liable to pay the amount of
P12,163,298.10 as damages for the misapplied proceeds of the plaintiff's Citibanl Check Numbers SN-10597 and 16508.
I. G.R. Nos. 121413 and 121479
The stipulated facts submitted by the parties as accepted by the Court of Appeals are as follows:
"On October 19, 1977, the plaintiff Ford drew and issued its Citibank Check No. SN-04867 in the amount of P4,746,114.41, in
favor of the Commissioner of Internal Revenue as payment of plaintiff;s percentage or manufacturer's sales taxes for the third
quarter of 1977.
The aforesaid check was deposited with the degendant IBAA (now PCIBank) and was subsequently cleared at the Central
Bank. Upon presentment with the defendant Citibank, the proceeds of the check was paid to IBAA as collecting or depository
bank.
The proceeds of the same Citibank check of the plaintiff was never paid to or received by the payee thereof, the Commissioner
of Internal Revenue.
As a consequence, upon demand of the Bureau and/or Commissioner of Internal Revenue, the plaintiff was compelled to
make a second payment to the Bureau of Internal Revenue of its percentage/manufacturers' sales taxes for the third quarter of
1977 and that said second payment of plaintiff in the amount of P4,746,114.41 was duly received by the Bureau of Internal
Revenue.
It is further admitted by defendant Citibank that during the time of the transactions in question, plaintiff had been maintaining a
checking account with defendant Citibank; that Citibank Check No. SN-04867 which was drawn and issued by the plaintiff in
favor of the Commissioner of Internal Revenue was a crossed check in that, on its face were two parallel lines and written in
between said lines was the phrase "Payee's Account Only"; and that defendant Citibank paid the full face value of the check in
the amount of P4,746,114.41 to the defendant IBAA.
It has been duly established that for the payment of plaintiff's percentage tax for the last quarter of 1977, the Bureau of Internal
Revenue issued Revenue Tax Receipt No. 18747002, dated October 20, 1977, designating therein in Muntinlupa, Metro
Manila, as the authorized agent bank of Metrobanl, Alabang branch to receive the tax payment of the plaintiff.
On December 19, 1977, plaintiff's Citibank Check No. SN-04867, together with the Revenue Tax Receipt No. 18747002, was
deposited with defendant IBAA, through its Ermita Branch. The latter accepted the check and sent it to the Central Clearing
House for clearing on the samd day, with the indorsement at the back "all prior indorsements and/or lack of indorsements
guaranteed." Thereafter, defendant IBAA presented the check for payment to defendant Citibank on same date, December 19,
1977, and the latter paid the face value of the check in the amount of P4,746,114.41. Consequently, the amount of
P4,746,114.41 was debited in plaintiff's account with the defendant Citibank and the check was returned to the plaintiff.
Upon verification, plaintiff discovered that its Citibank Check No. SN-04867 in the amount of P4,746,114.41 was not paid to
the Commissioner of Internal Revenue. Hence, in separate letters dated October 26, 1979, addressed to the defendants, the
plaintiff notified the latter that in case it will be re-assessed by the BIR for the payment of the taxes covered by the said
checks, then plaintiff shall hold the defendants liable for reimbursement of the face value of the same. Both defendants denied
liability and refused to pay.
In a letter dated February 28, 1980 by the Acting Commissioner of Internal Revenue addressed to the plaintiff - supposed to
be Exhibit "D", the latter was officially informed, among others, that its check in the amount of P4, 746,114.41 was not paid to
the government or its authorized agent and instead encashed by unauthorized persons, hence, plaintiff has to pay the said
amount within fifteen days from receipt of the letter. Upon advice of the plaintiff's lawyers, plaintiff on March 11, 1982, paid to
the Bureau of Internal Revenue, the amount of P4,746,114.41, representing payment of plaintiff's percentage tax for the third
quarter of 1977.
As a consequence of defendant's refusal to reimburse plaintiff of the payment it had made for the second time to the BIR of its
percentage taxes, plaintiff filed on January 20, 1983 its original complaint before this Court.
On December 24, 1985, defendant IBAA was merged with the Philippine Commercial International Bank (PCI Bank) with the
latter as the surviving entity.
Defendant Citibank maintains that; the payment it made of plaintiff's Citibank Check No. SN-04867 in the amount of
P4,746,114.41 "was in due course"; it merely relied on the clearing stamp of the depository/collecting bank, the defendant
IBAA that "all prior indorsements and/or lack of indorsements guaranteed"; and the proximate cause of plaintiff's injury is the
gross negligence of defendant IBAA in indorsing the plaintiff's Citibank check in question.
It is admitted that on December 19, 1977 when the proceeds of plaintiff's Citibank Check No. SN-048867 was paid to
defendant IBAA as collecting bank, plaintiff was maintaining a checking account with defendant Citibank."5
Although it was not among the stipulated facts, an investigation by the National Bureau of Investigation (NBI) revealed that Citibank
Check No. SN-04867 was recalled by Godofredo Rivera, the General Ledger Accountant of Ford. He purportedly needed to hold back
the check because there was an error in the computation of the tax due to the Bureau of Internal Revenue (BIR). With Rivera's
instruction, PCIBank replaced the check with two of its own Manager's Checks (MCs). Alleged members of a syndicate later deposited
the two MCs with the Pacific Banking Corporation.
Ford, with leave of court, filed a third-party complaint before the trial court impleading Pacific Banking Corporation (PBC) and
Godofredo Rivera, as third party defendants. But the court dismissed the complaint against PBC for lack of cause of action. The course
likewise dismissed the third-party complaint against Godofredo Rivera because he could not be served with summons as the NBI
declared him as a "fugitive from justice".
On June 15, 1989, the trial court rendered its decision, as follows:
"Premises considered, judgment is hereby rendered as follows:
"1. Ordering the defendants Citibank and IBAA (now PCI Bank), jointly and severally, to pay the plaintiff the amount
of P4,746,114.41 representing the face value of plaintiff's Citibank Check No. SN-04867, with interest thereon at the
legal rate starting January 20, 1983, the date when the original complaint was filed until the amount is fully paid, plus
costs;
"2. On defendant Citibank's cross-claim: ordering the cross-defendant IBAA (now PCI Bank) to reimburse defendant
Citibank for whatever amount the latter has paid or may pay to the plaintiff in accordance with next preceding
paragraph;
"3. The counterclaims asserted by the defendants against the plaintiff, as well as that asserted by the cross-
defendant against the cross-claimant are dismissed, for lack of merits; and
"4. With costs against the defendants.
SO ORDERED."6
Not satisfied with the said decision, both defendants, Citibank and PCIBank, elevated their respective petitions for review on certiorari
to the Courts of Appeals. On March 27, 1995, the appellate court issued its judgment as follows:
"WHEREFORE, in view of the foregoing, the court AFFIRMS the appealed decision with modifications.
The court hereby renderes judgment:
1. Dismissing the complaint in Civil Case No. 49287 insofar as defendant Citibank N.A. is concerned;
2. Ordering the defendant IBAA now PCI Bank to pay the plaintiff the amount of P4,746,114.41 representing the face
value of plaintiff's Citibank Check No. SN-04867, with interest thereon at the legal rate starting January 20, 1983, the
date when the original complaint was filed until the amount is fully paid;
3. Dismissing the counterclaims asserted by the defendants against the plaintiff as well as that asserted by the cross-
defendant against the cross-claimant, for lack of merits.
Costs against the defendant IBAA (now PCI Bank).
IT IS SO ORDERED."7
PCI Bank moved to reconsider the above-quoted decision of the Court of Appeals, while Ford filed a "Motion for Partial
Reconsideration." Both motions were denied for lack of merit.
Separately, PCIBank and Ford filed before this Court, petitions for review by certiorari under Rule 45.
In G.R. No. 121413, PCIBank seeks the reversal of the decision and resolution of the Twelfth Division of the Court of Appeals
contending that it merely acted on the instruction of Ford and such casue of action had already prescribed.
PCIBank sets forth the following issues for consideration:
I. Did the respondent court err when, after finding that the petitioner acted on the check drawn by respondent Ford on the said
respondent's instructions, it nevertheless found the petitioner liable to the said respondent for the full amount of the said
check.
II. Did the respondent court err when it did not find prescription in favor of the petitioner.8
In a counter move, Ford filed its petition docketed as G.R. No. 121479, questioning the same decision and resolution of the Court of
Appeals, and praying for the reinstatement in toto of the decision of the trial court which found both PCIBank and Citibank jointly and
severally liable for the loss.
In G.R. No. 121479, appellant Ford presents the following propositions for consideration:
I. Respondent Citibank is liable to petitioner Ford considering that:
1. As drawee bank, respondent Citibank owes to petitioner Ford, as the drawer of the subject check and a depositor
of respondent Citibank, an absolute and contractual duty to pay the proceeds of the subject check only to the payee
thereof, the Commissioner of Internal Revenue.
2. Respondent Citibank failed to observe its duty as banker with respect to the subject check, which was crossed and
payable to "Payee's Account Only."
3. Respondent Citibank raises an issue for the first time on appeal; thus the same should not be considered by the
Honorable Court.
4. As correctly held by the trial court, there is no evidence of gross negligence on the part of petitioner Ford.9
II. PCI Bank is liable to petitioner Ford considering that:
1. There were no instructions from petitioner Ford to deliver the proceeds of the subject check to a person other than
the payee named therein, the Commissioner of the Bureau of Internal Revenue; thus, PCIBank's only obligation is to
deliver the proceeds to the Commissioner of the Bureau of Internal Revenue.10
2. PCIBank which affixed its indorsement on the subject check ("All prior indorsement and/or lack of indorsement
guaranteed"), is liable as collecting bank.11
3. PCIBank is barred from raising issues of fact in the instant proceedings.12
4. Petitioner Ford's cause of action had not prescribed.13
II. G.R. No. 128604
The same sysndicate apparently embezzled the proceeds of checks intended, this time, to settle Ford's percentage taxes appertaining
to the second quarter of 1978 and the first quarter of 1979.
The facts as narrated by the Court of Appeals are as follows:
Ford drew Citibank Check No. SN-10597 on July 19, 1978 in the amount of P5,851,706.37 representing the percentage tax due for the
second quarter of 1978 payable to the Commissioner of Internal Revenue. A BIR Revenue Tax Receipt No. 28645385 was issued for
the said purpose.
On April 20, 1979, Ford drew another Citibank Check No. SN-16508 in the amount of P6,311,591.73, representing the payment of
percentage tax for the first quarter of 1979 and payable to the Commissioner of Internal Revenue. Again a BIR Revenue Tax Receipt
No. A-1697160 was issued for the said purpose.
Both checks were "crossed checks" and contain two diagonal lines on its upper corner between, which were written the words "payable
to the payee's account only."
The checks never reached the payee, CIR. Thus, in a letter dated February 28, 1980, the BIR, Region 4-B, demanded for the said tax
payments the corresponding periods above-mentioned.
As far as the BIR is concernced, the said two BIR Revenue Tax Receipts were considered "fake and spurious". This anomaly was
confirmed by the NBI upon the initiative of the BIR. The findings forced Ford to pay the BIR a new, while an action was filed against
Citibank and PCIBank for the recovery of the amount of Citibank Check Numbers SN-10597 and 16508.
The Regional Trial Court of Makati, Branch 57, which tried the case, made its findings on the modus operandi of the syndicate, as
follows:
"A certain Mr. Godofredo Rivera was employed by the plaintiff FORD as its General Ledger Accountant. As such, he prepared
the plaintiff's check marked Ex. 'A' [Citibank Check No. Sn-10597] for payment to the BIR. Instead, however, fo delivering the
same of the payee, he passed on the check to a co-conspirator named Remberto Castro who was a pro-manager of the San
Andres Branch of PCIB.* In connivance with one Winston Dulay, Castro himself subsequently opened a Checking Account in
the name of a fictitious person denominated as 'Reynaldo reyes' in the Meralco Branch of PCIBank where Dulay works as
Assistant Manager.
After an initial deposit of P100.00 to validate the account, Castro deposited a worthless Bank of America Check in exactly the
same amount as the first FORD check (Exh. "A", P5,851,706.37) while this worthless check was coursed through PCIB's main
office enroute to the Central Bank for clearing, replaced this worthless check with FORD's Exhibit 'A' and accordingly
tampered the accompanying documents to cover the replacement. As a result, Exhibit 'A' was cleared by defendant
CITIBANK, and the fictitious deposit account of 'Reynaldo Reyes' was credited at the PCIB Meralco Branch with the total
amount of the FORD check Exhibit 'A'. The same method was again utilized by the syndicate in profiting from Exh. 'B' [Citibank
Check No. SN-16508] which was subsequently pilfered by Alexis Marindo, Rivera's Assistant at FORD.
From this 'Reynaldo Reyes' account, Castro drew various checks distributing the sahres of the other participating conspirators
namely (1) CRISANTO BERNABE, the mastermind who formulated the method for the embezzlement; (2) RODOLFO R. DE
LEON a customs broker who negotiated the initial contact between Bernabe, FORD's Godofredo Rivera and PCIB's Remberto
Castro; (3) JUAN VASTILLO who assisted de Leon in the initial arrangements; (4) GODOFREDO RIVERA, FORD's
accountant who passed on the first check (Exhibit "A") to Castro; (5) REMERTO CASTRO, PCIB's pro-manager at San Andres
who performed the switching of checks in the clearing process and opened the fictitious Reynaldo Reyes account at the PCIB
Meralco Branch; (6) WINSTON DULAY, PCIB's Assistant Manager at its Meralco Branch, who assisted Castro in switching the
checks in the clearing process and facilitated the opening of the fictitious Reynaldo Reyes' bank account; (7) ALEXIS
MARINDO, Rivera's Assistant at FORD, who gave the second check (Exh. "B") to Castro; (8) ELEUTERIO JIMENEZ, BIR
Collection Agent who provided the fake and spurious revenue tax receipts to make it appear that the BIR had received
FORD's tax payments.
Several other persons and entities were utilized by the syndicate as conduits in the disbursements of the proceeds of the two
checks, but like the aforementioned participants in the conspiracy, have not been impleaded in the present case. The manner
by which the said funds were distributed among them are traceable from the record of checks drawn against the original
"Reynaldo Reyes" account and indubitably identify the parties who illegally benefited therefrom and readily indicate in what
amounts they did so."14
On December 9, 1988, Regional Trial Court of Makati, Branch 57, held drawee-bank, Citibank, liable for the value of the two checks
while adsolving PCIBank from any liability, disposing as follows:
"WHEREFORE, judgment is hereby rendered sentencing defendant CITIBANK to reimburse plaintiff FORD the total amount of
P12,163,298.10 prayed for in its complaint, with 6% interest thereon from date of first written demand until full payment, plus
P300,000.00 attorney's fees and expenses litigation, and to pay the defendant, PCIB (on its counterclaim to crossclaim) the
sum of P300,000.00 as attorney's fees and costs of litigation, and pay the costs.
SO ORDERED."15
Both Ford and Citibank appealed to the Court of Appeals which affirmed, in toto, the decision of the trial court. Hence, this petition.
Petitioner Ford prays that judgment be rendered setting aside the portion of the Court of Appeals decision and its resolution dated
March 5, 1997, with respect to the dismissal of the complaint against PCIBank and holding Citibank solely responsible for the proceeds
of Citibank Check Numbers SN-10597 and 16508 for P5,851,706.73 and P6,311,591.73 respectively.
Ford avers that the Court of Appeals erred in dismissing the complaint against defendant PCIBank considering that:
I. Defendant PCIBank was clearly negligent when it failed to exercise the diligence required to be exercised by it as a banking
insitution.
II. Defendant PCIBank clearly failed to observe the diligence required in the selection and supervision of its officers and
employees.
III. Defendant PCIBank was, due to its negligence, clearly liable for the loss or damage resulting to the plaintiff Ford as a
consequence of the substitution of the check consistent with Section 5 of Central Bank Circular No. 580 series of 1977.
IV. Assuming arguedo that defedant PCIBank did not accept, endorse or negotiate in due course the subject checks, it is
liable, under Article 2154 of the Civil Code, to return the money which it admits having received, and which was credited to it
its Central bank account.16
The main issue presented for our consideration by these petitions could be simplified as follows: Has petitioner Ford the right to recover
from the collecting bank (PCIBank) and the drawee bank (Citibank) the value of the checks intended as payment to the Commissioner
of Internal Revenue? Or has Ford's cause of action already prescribed?
Note that in these cases, the checks were drawn against the drawee bank, but the title of the person negotiating the same was
allegedly defective because the instrument was obtained by fraud and unlawful means, and the proceeds of the checks were not
remitted to the payee. It was established that instead of paying the checks to the CIR, for the settlement of the approprite quarterly
percentage taxes of Ford, the checks were diverted and encashed for the eventual distribution among the mmbers of the syndicate. As
to the unlawful negotiation of the check the applicable law is Section 55 of the Negotiable Instruments Law (NIL), which provides:
"When title defective -- The title of a person who negotiates an instrument is defective within the meaning of this Act when he
obtained the instrument, or any signature thereto, by fraud, duress, or fore and fear, or other unlawful means, or for an illegal
consideration, or when he negotiates it in breach of faith or under such circumstances as amount to a fraud."
Pursuant to this provision, it is vital to show that the negotiation is made by the perpetator in breach of faith amounting to fraud. The
person negotiating the checks must have gone beyond the authority given by his principal. If the principal could prove that there was no
negligence in the performance of his duties, he may set up the personal defense to escape liability and recover from other parties who.
Though their own negligence, alowed the commission of the crime.
In this case, we note that the direct perpetrators of the offense, namely the embezzlers belonging to a syndicate, are now fugitives from
justice. They have, even if temporarily, escaped liability for the embezzlement of millions of pesos. We are thus left only with the task of
determining who of the present parties before us must bear the burden of loss of these millions. It all boils down to thequestion of
liability based on the degree of negligence among the parties concerned.
Foremost, we must resolve whether the injured party, Ford, is guilty of the "imputed contributory negligence" that would defeat its claim
for reimbursement, bearing ing mind that its employees, Godofredo Rivera and Alexis Marindo, were among the members of the
syndicate.
Citibank points out that Ford allowed its very own employee, Godofredo Rivera, to negotiate the checks to his co-conspirators, instead
of delivering them to the designated authorized collecting bank (Metrobank-Alabang) of the payee, CIR. Citibank bewails the fact that
Ford was remiss in the supervision and control of its own employees, inasmuch as it only discovered the syndicate's activities through
the information given by the payee of the checks after an unreasonable period of time.
PCIBank also blames Ford of negligence when it allegedly authorized Godofredo Rivera to divert the proceeds of Citibank Check No.
SN-04867, instead of using it to pay the BIR. As to the subsequent run-around of unds of Citibank Check Nos. SN-10597 and 16508,
PCIBank claims that the proximate cause of the damge to Ford lies in its own officers and employees who carried out the fradulent
schemes and the transactions. These circumstances were not checked by other officers of the company including its comptroller or
internal auditor. PCIBank contends that the inaction of Ford despite the enormity of the amount involved was a sheer negligence and
stated that, as between two innocent persons, one of whom must suffer the consequences of a breach of trust, the one who made it
possible, by his act of negligence, must bear the loss.
For its part, Ford denies any negligence in the performance of its duties. It avers that there was no evidence presented before the trial
court showing lack of diligence on the part of Ford. And, citing the case of Gempesaw vs. Court of Appeals,17 Ford argues that even if
there was a finding therein that the drawer was negligent, the drawee bank was still ordered to pay damages.
Furthermore, Ford contends the Godofredo rivera was not authorized to make any representation in its behalf, specifically, to divert the
proceeds of the checks. It adds that Citibank raised the issue of imputed negligence against Ford for the first time on appeal. Thus, it
should not be considered by this Court.
On this point, jurisprudence regarding the imputed negligence of employer in a master-servant relationship is instructive. Since a
master may be held for his servant's wrongful act, the law imputes to the master the act of the servant, and if that act is negligent or
wrongful and proximately results in injury to a third person, the negligence or wrongful conduct is the negligence or wrongful conduct of
the master, for which he is liable.18 The general rule is that if the master is injured by the negligence of a third person and by the
concuring contributory negligence of his own servant or agent, the latter's negligence is imputed to his superior and will defeat the
superior's action against the third person, asuming, of course that the contributory negligence was the proximate cause of the injury of
which complaint is made.19
Accordingly, we need to determine whether or not the action of Godofredo Rivera, Ford's General Ledger Accountant, and/or Alexis
Marindo, his assistant, was the proximate cause of the loss or damage. AS defined, proximate cause is that which, in the natural and
continuous sequence, unbroken by any efficient, intervening cause produces the injury and without the result would not have
occurred.20
It appears that although the employees of Ford initiated the transactions attributable to an organized syndicate, in our view, their
actions were not the proximate cause of encashing the checks payable to the CIR. The degree of Ford's negligence, if any, could not
be characterized as the proximate cause of the injury to the parties.
The Board of Directors of Ford, we note, did not confirm the request of Godofredo Rivera to recall Citibank Check No. SN-04867.
Rivera's instruction to replace the said check with PCIBank's Manager's Check was not in theordinary course of business which could
have prompted PCIBank to validate the same.
As to the preparation of Citibank Checks Nos. SN-10597 and 16508, it was established that these checks were made payable to the
CIR. Both were crossed checks. These checks were apparently turned around by Ford's emploees, who were acting on their own
personal capacity.
Given these circumstances, the mere fact that the forgery was committed by a drawer-payor's confidential employee or agent, who by
virtue of his position had unusual facilities for perpertrating the fraud and imposing the forged paper upon the bank, does notentitle the
bank toshift the loss to the drawer-payor, in the absence of some circumstance raising estoppel against the drawer.21 This rule likewise
applies to the checks fraudulently negotiated or diverted by the confidential employees who hold them in their possession.
With respect to the negligence of PCIBank in the payment of the three checks involved, separately, the trial courts found variations
between the negotiation of Citibank Check No. SN-04867 and the misapplication of total proceeds of Checks SN-10597 and 16508.
Therefore, we have to scrutinize, separately, PCIBank's share of negligence when the syndicate achieved its ultimate agenda of
stealing the proceeds of these checks.
G.R. Nos. 121413 and 121479
Citibank Check No. SN-04867 was deposited at PCIBank through its Ermita Branch. It was coursed through the ordinary banking
transaction, sent to Central Clearing with the indorsement at the back "all prior indorsements and/or lack of indorsements guaranteed,"
and was presented to Citibank for payment. Thereafter PCIBank, instead of remitting the proceeds to the CIR, prepared two of its
Manager's checks and enabled the syndicate to encash the same.
On record, PCIBank failed to verify the authority of Mr. Rivera to negotiate the checks. The neglect of PCIBank employees to verify
whether his letter requesting for the replacement of the Citibank Check No. SN-04867 was duly authorized, showed lack of care and
prudence required in the circumstances.
Furthermore, it was admitted that PCIBank is authorized to collect the payment of taxpayers in behalf of the BIR. As an agent of BIR,
PCIBank is duty bound to consult its principal regarding the unwarranted instructions given by the payor or its agent. As aptly stated by
the trial court, to wit:
"xxx. Since the questioned crossed check was deposited with IBAA [now PCIBank], which claimed to be a
depository/collecting bank of BIR, it has the responsibility to make sure that the check in question is deposited in Payee's
account only.
xxx xxx xxx
As agent of the BIR (the payee of the check), defendant IBAA should receive instructions only from its principal BIR and not
from any other person especially so when that person is not known to the defendant. It is very imprudent on the part of the
defendant IBAA to just rely on the alleged telephone call of the one Godofredo Rivera and in his signature considering that the
plaintiff is not a client of the defendant IBAA."
It is a well-settled rule that the relationship between the payee or holder of commercial paper and the bank to which it is sent for
collection is, in the absence of an argreement to the contrary, that of principal and agent. 22 A bank which receives such paper for
collection is the agent of the payee or holder.23
Even considering arguendo, that the diversion of the amount of a check payable to the collecting bank in behalf of the designated
payee may be allowed, still such diversion must be properly authorized by the payor. Otherwise stated, the diversion can be justified
only by proof of authority from the drawer, or that the drawer has clothed his agent with apparent authority to receive the proceeds of
such check.
Citibank further argues that PCI Bank's clearing stamp appearing at the back of the questioned checks stating that ALL PRIOR
INDORSEMENTS AND/OR LACK OF INDORSEMENTS GURANTEED should render PCIBank liable because it made it pass through
the clearing house and therefore Citibank had no other option but to pay it. Thus, Citibank had no other option but to pay it. Thus,
Citibank assets that the proximate cause of Ford's injury is the gross negligence of PCIBank. Since the questione dcrossed check was
deposited with PCIBank, which claimed to be a depository/collecting bank of the BIR, it had the responsibility to make sure that the
check in questions is deposited in Payee's account only.
Indeed, the crossing of the check with the phrase "Payee's Account Only," is a warning that the check should be deposited only in the
account of the CIR. Thus, it is the duty of the collecting bank PCIBank to ascertain that the check be deposited in payee's account only.
Therefore, it is the collecting bank (PCIBank) which is bound to scruninize the check and to know its depositors before it could make the
clearing indorsement "all prior indorsements and/or lack of indorsement guaranteed".
In Banco de Oro Savings and Mortgage Bank vs. Equitable Banking Corporation,24 we ruled:
"Anent petitioner's liability on said instruments, this court is in full accord with the ruling of the PCHC's Board of Directors that:
'In presenting the checks for clearing and for payment, the defendant made an express guarantee on the validity of "all prior
endorsements." Thus, stamped at the back of the checks are the defedant's clear warranty: ALL PRIOR ENDORSEMENTS
AND/OR LACK OF ENDORSEMENTS GUARANTEED. Without such warranty, plaintiff would not have paid on the checks.'
No amount of legal jargon can reverse the clear meaning of defendant's warranty. As the warranty has proven to be false and
inaccurate, the defendant is liable for any damage arising out of the falsity of its representation."25
Lastly, banking business requires that the one who first cashes and negotiates the check must take some percautions to learn whether
or not it is genuine. And if the one cashing the check through indifference or othe circumstance assists the forger in committing the
fraud, he should not be permitted to retain the proceeds of the check from the drawee whose sole fault was that it did not discover the
forgery or the defect in the title of the person negotiating the instrument before paying the check. For this reason, a bank which cashes
a check drawn upon another bank, without requiring proof as to the identity of persons presenting it, or making inquiries with regard to
them, cannot hold the proceeds against the drawee when the proceeds of the checks were afterwards diverted to the hands of a third
party. In such cases the drawee bank has a right to believe that the cashing bank (or the collecting bank) had, by the usual proper
investigation, satisfied itself of the authenticity of the negotiation of the checks. Thus, one who encashed a check which had been
forged or diverted and in turn received payment thereon from the drawee, is guilty of negligence which proximately contributed to the
success of the fraud practiced on the drawee bank. The latter may recover from the holder the money paid on the check.26
Having established that the collecting bank's negligence is the proximate cause of the loss, we conclude that PCIBank is liable in the
amount corresponding to the proceeds of Citibank Check No. SN-04867.
G.R. No. 128604
The trial court and the Court of Appeals found that PCIBank had no official act in the ordinary course of business that would attribute to
it the case of the embezzlement of Citibank Check Numbers SN-10597 and 16508, because PCIBank did not actually receive nor hold
the two Ford checks at all. The trial court held, thus:
"Neither is there any proof that defendant PCIBank contributed any official or conscious participation in the process of the
embezzlement. This Court is convinced that the switching operation (involving the checks while in transit for "clearing") were
the clandestine or hidden actuations performed by the members of the syndicate in their own personl, covert and private
capacity and done without the knowledge of the defendant PCIBank…"27
In this case, there was no evidence presented confirming the conscious particiapation of PCIBank in the embezzlement. As a general
rule, however, a banking corporation is liable for the wrongful or tortuous acts and declarations of its officers or agents within the course
and scope of their employment.28 A bank will be held liable for the negligence of its officers or agents when acting within the course and
scope of their employment. It may be liable for the tortuous acts of its officers even as regards that species of tort of which malice is an
essential element. In this case, we find a situation where the PCIBank appears also to be the victim of the scheme hatched by a
syndicate in which its own management employees had particiapted.
The pro-manager of San Andres Branch of PCIBank, Remberto Castro, received Citibank Check Numbers SN-10597 and 16508. He
passed the checks to a co-conspirator, an Assistant Manager of PCIBank's Meralco Branch, who helped Castro open a Checking
account of a fictitious person named "Reynaldo Reyes." Castro deposited a worthless Bank of America Check in exactly the same
amount of Ford checks. The syndicate tampered with the checks and succeeded in replacing the worthless checks and the eventual
encashment of Citibank Check Nos. SN 10597 and 16508. The PCIBank Ptro-manager, Castro, and his co-conspirator Assistant
Manager apparently performed their activities using facilities in their official capacity or authority but for their personal and private gain
or benefit.
A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds these officers or agents
were enabled to perpetrate in the apparent course of their employment; nor will t be permitted to shirk its responsibility for such frauds,
even though no benefit may accrue to the bank therefrom. For the general rule is that a bank is liable for the fraudulent acts or
representations of an officer or agent acting within the course and apparent scope of his employment or authority. 29 And if an officer or
employee of a bank, in his official capacity, receives money to satisfy an evidence of indebetedness lodged with his bank for collection,
the bank is liable for his misappropriation of such sum.30
Moreover, as correctly pointed out by Ford, Section 531 of Central Bank Circular No. 580, Series of 1977 provides that any theft
affecting items in transit for clearing, shall be for the account of sending bank, which in this case is PCIBank.
But in this case, responsibility for negligence does not lie on PCIBank's shoulders alone.
The evidence on record shows that Citibank as drawee bank was likewise negligent in the performance of its duties. Citibank failed to
establish that its payment of Ford's checjs were made in due course and legally in order. In its defense, Citibank claims the
genuineness and due execution of said checks, considering that Citibank (1) has no knowledge of any informity in the issuance of the
checks in question (2) coupled by the fact that said checks were sufficiently funded and (3) the endorsement of the Payee or lack
thereof was guaranteed by PCI Bank (formerly IBAA), thus, it has the obligation to honor and pay the same.
For its part, Ford contends that Citibank as the drawee bank owes to Ford an absolute and contractual duty to pay the proceeds of the
subject check only to the payee thereof, the CIR. Citing Section 62 32 of the Negotiable Instruments Law, Ford argues that by accepting
the instrument, the acceptro which is Citibank engages that it will pay according to the tenor of its acceptance, and that it will pay only to
the payee, (the CIR), considering the fact that here the check was crossed with annotation "Payees Account Only."
As ruled by the Court of Appeals, Citibank must likewise answer for the damages incurred by Ford on Citibank Checks Numbers SN
10597 and 16508, because of the contractual relationship existing between the two. Citibank, as the drawee bank breached its
contractual obligation with Ford and such degree of culpability contributed to the damage caused to the latter. On this score, we agree
with the respondent court's ruling.
Citibank should have scrutinized Citibank Check Numbers SN 10597 and 16508 before paying the amount of the proceeds thereof to
the collecting bank of the BIR. One thing is clear from the record: the clearing stamps at the back of Citibank Check Nos. SN 10597 and
16508 do not bear any initials. Citibank failed to notice and verify the absence of the clearing stamps. Had this been duly examined, the
switching of the worthless checks to Citibank Check Nos. 10597 and 16508 would have been discovered in time. For this reason,
Citibank had indeed failed to perform what was incumbent upon it, which is to ensure that the amount of the checks should be paid only
to its designated payee. The fact that the drawee bank did not discover the irregularity seasonably, in our view, consitutes negligence in
carrying out the bank's duty to its depositors. The point is that as a business affected with public interest and because of the nature of
its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the
fiduciary nature of their relationship.33
Thus, invoking the doctrine of comparative negligence, we are of the view that both PCIBank and Citibank failed in their respective
obligations and both were negligent in the selection and supervision of their employees resulting in the encashment of Citibank Check
Nos. SN 10597 AND 16508. Thus, we are constrained to hold them equally liable for the loss of the proceeds of said checks issued by
Ford in favor of the CIR.
Time and again, we have stressed that banking business is so impressed with public interest where the trust and confidence of the
public in general is of paramount umportance such that the appropriate standard of diligence must be very high, if not the highest,
degree of diligence.34 A bank's liability as obligor is not merely vicarious but primary, wherein the defense of exercise of due diligence in
the selection and supervision of its employees is of no moment.35
Banks handle daily transactions involving millions of pesos.36 By the very nature of their work the degree of responsibility, care and
trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and employees. 37 Banks are
expected to exercise the highest degree of diligence in the selection and supervision of their employees.38
On the issue of prescription, PCIBank claims that the action of Ford had prescribed because of its inability to seek judicial relief
seasonably, considering that the alleged negligent act took place prior to December 19, 1977 but the relief was sought only in 1983, or
seven years thereafter.
The statute of limitations begins to run when the bank gives the depositor notice of the payment, which is ordinarily when the check is
returned to the alleged drawer as a voucher with a statement of his account, 39 and an action upon a check is ordinarily governed by the
statutory period applicable to instruments in writing.40
Our laws on the matter provide that the action upon a written contract must be brought within ten year from the time the right of action
accrues.41 hence, the reckoning time for the prescriptive period begins when the instrument was issued and the corresponding check
was returned by the bank to its depositor (normally a month thereafter). Applying the same rule, the cause of action for the recovery of
the proceeds of Citibank Check No. SN 04867 would normally be a month after December 19, 1977, when Citibank paid the face value
of the check in the amount of P4,746,114.41. Since the original complaint for the cause of action was filed on January 20, 1984, barely
six years had lapsed. Thus, we conclude that Ford's cause of action to recover the amount of Citibank Check No. SN 04867 was
seasonably filed within the period provided by law.
Finally, we also find thet Ford is not completely blameless in its failure to detect the fraud. Failure on the part of the depositor to
examine its passbook, statements of account, and cancelled checks and to give notice within a reasonable time (or as required by
statute) of any discrepancy which it may in the exercise of due care and diligence find therein, serves to mitigate the banks' liability by
reducing the award of interest from twelve percent (12%) to six percent (6%) per annum. As provided in Article 1172 of the Civil Code of
the Philippines, respondibility arising from negligence in the performance of every kind of obligation is also demandable, but such
liability may be regulated by the courts, according to the circumstances. In quasi-delicts, the contributory negligence of the plaintiff shall
reduce the damages that he may recover.42
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 25017 are AFFIRMED. PCIBank,
know formerly as Insular Bank of Asia and America, id declared solely responsible for the loss of the proceeds of Citibank Check No SN
04867 in the amount P4,746,114.41, which shall be paid together with six percent (6%) interest thereon to Ford Philippines Inc. from
the date when the original complaint was filed until said amount is fully paid.
However, the Decision and Resolution of the Court of Appeals in CA-G.R. No. 28430 are MODIFIED as follows: PCIBank and Citibank
are adjudged liable for and must share the loss, (concerning the proceeds of Citibank Check Numbers SN 10597 and 16508 totalling
P12,163,298.10) on a fifty-fifty ratio, and each bank is ORDERED to pay Ford Philippines Inc. P6,081,649.05, with six percent (6%)
interest thereon, from the date the complaint was filed until full payment of said amount.1âwphi1.nêt
Costs against Philippine Commercial International Bank and Citibank N.A.
SO ORDERED.
THIRD DIVISION
G.R. No. 235511, June 20, 2018
METROPOLITAN BANK AND TRUST COMPANY, Petitioner, v. JUNNEL'S MARKETING CORPORATION, PURIFICACION

DELIZO, AND BANK OF COMMERCE, Respondents.
G.R. No. 235565, June 20, 2018
BANK OF COMMERCE, Petitioner, v. JUNNEL'S MARKETING CORPORATION, PURIFICACION DELIZO, AND METROPOLITAN

BANK AND TRUST COMPANY, Respondents.
DECISION
VELASCO JR., J.:
At bench are two appeals1 assailing the Decision2 dated 22 March 2017 and Resolution3 dated 19 October 2017 of the Court of Appeals
(CA) in CA-G.R. CV No. 102462. The first appeal was filed by the Metropolitan Bank and Trust Company (Metrobank), while the second
by the Bank of Commerce (Bankcom).
The facts are as follows:
Respondent Junnel's Marketing Corporation (JMC) is a domestic corporation engaged in the business of selling wines and liquors. It
has a current account with Metrobank 4 from which it draws checks to pay its different suppliers. Among JMC's suppliers are Jardine
Wines and Spirits (Jardine) and Premiere Wines (Premiere).
In 2000, during an audit of its financial records,5 JMC discovered an anomaly involving eleven (11) checks (subject checks) it had
issued to the orders of Jardine and Premiere on various dates between October 1998 to May 1999. As it was, the subject checks had
already been charged against JMC's current account but were, for some reason, not covered by any official receipt from Jardine or
Premiere. The subject checks, which are all crossed checks and amounting to P1,481,292.00 in total, are as follows:
Checks Payable to the Order of Jardine:
1. Check No. 3010048953 - issued on 11 October 1998 in the amount of P181,440.00
2. Check No. 3010048955 - issued on 24 October 1998 in the amount of P195,840.00
3. Check No. 3010069098 - issued on 18 May 1999 in the amount of P58,164.56
7. Check No. 3010048954 - issued on 29 December 1998 in the amount of P195,840.00
Checks Payable to the Order of Premiere:
3. Check No. 3010049410 - issued on 18 April 1999 in the amount of P189,336.00.
4. Check No. 3010049150 - issued on 27 November 1998 in the amount of P136,220.00
Examination of the dorsal portion of the subject checks revealed that all had been deposited with Bankcom, Dau branch, under Account
No. 0015-32987-7.6 Upon inquiring with Jardine and Premiere, however, JMC was able to confirm that neither of the said suppliers
owns Bankcom Account No. 0015-32987-7.
Meanwhile, on 30 April 2000, respondent Purificacion Delizo (Delizo), a former accountant of JMC, executed a handwritten
letter7 addressed to one Nelvia Yusi, President of JMC. In the said letter, Delizo confessed that, during her time as an accountant for
JMC, she stole several company checks drawn against JMC's current account. She professed that the said checks were never given to
the named payees but were forwarded by her to one Lita Bituin (Bituin). Delizo further admitted that she, Bituin and an unknown bank
manager colluded to cause the deposit and encashing of the stolen checks and shared in the proceeds thereof.
JMC surmised that the subject checks are among the checks purportedly stolen by Delizo.
On 28 January 2002, JMC filed before the Regional Trial Court (RTC) of Pasay City a complaint for sum of money 8 against Delizo,
Bankcom and Metrobank. The complaint was raffled to Branch 115 and was docketed as Civil Case No. 02-0193.
In its complaint, JMC alleged that the wrongful conversion of the subject checks was caused by a combination of the " tortious and
felonious" scheme of Delizo and the "negligent and unlawful acts" of Bankcom and Metrobank, to wit:9
1. Delizo, by her own admission, stole the company checks of JMC. Among these checks, as confirmed by JMC's audit, are the
subject checks.
2. After stealing the subject checks, Delizo and her accomplices, Bituin and an unknown bank manager, caused the subject
checks to be deposited in Bankcom, Dau branch, under Account No. 0015-32987-7. Bankcom, on the other hand, negligently
accepted the subject checks for deposit under the said account despite the fact that they are crossed checks payable to the
orders of Jardine and Premiere and neither of them owns the concerned account.
3. Thereafter, Bankcom presented the subject checks for payment to Metrobank which, also in negligence, decided to honor the
said checks even though Bankcom Account No. 0015-32987-7 belongs to neither Jardine nor Premiere.
On the basis of the foregoing averments, JMC prayed that Delizo, Bankcom and Metrobank be held solidarily liable in its favor for the
amount of the subject checks.
Delizo, Bankcom and Metrobank filed their individual answers denying liability. 10 Incorporated in Metrobank's answer, moreover, is a
cross-claim against Bankcom and Delizo wherein Metrobank asks for the right to be reimbursed in the event it is ordered liable in favor
of JMC.11
On 28 May 2013, the RTC rendered a decision 12 holding both Bankcom and Metrobank liable to JMC-on a 2/3 to 1/3 ratio, respectively-
for the amount of subject checks plus interest as well as attorney's fees, but absolving Delizo from any liability.13 The trial court, in the
same decision, also dismissed Metrobank's cross-claim against Bankcom. The dispositive portion of the decision reads:14
WHEREFORE, judgment is rendered against defendants [Bankcom] and [Metrobank] for the total value of the 11 checks. [Bankcom]
and Metrobank are adjudged solidarily liable to pay [JMC] at the ratios of 2/3 and 1/3, respectively:
1. The actual loss of P 1,481,292 including 6% legal interest from the filing of the complaint;
2. Plus 12% interest on the principal of P 1,481,292 including 6% interest on the principal, from the date this Decision becomes final
and executory;
3. The attorney's fees of 15% of the total of number one and two above;
4. Costs against [Bankcom] and Metrobank.
Metrobank's cross-claim against [Bankcom] is DISMISSED, both being negligent.
SO ORDERED.
The RTC's decision was hinged on the following findings:15
1. The subject checks were complete and not forged. They were, however, stolen by unknown malefactors and were wrongfully
encashed due to the negligence of Bankcom and Metrobank.
2. Delizo's complicity in the acquisition and negotiation of the subject checks was not proven. No direct evidence linking Delizo to
the deeds was presented. Moreover, Delizo's supposed handwritten confession must be discredited for being made under
duress, intimidation and threat. It was established during trial that Delizo was only forced by Yusi to confess about the missing
checks and to execute the handwritten confession. Hence, Delizo must be absolved from any liability.
3. The involvement of Bankcom and Metrobank on the wrongful encashment of the subject checks, however, were clearly
established:
a. Bankcom accepted the subject checks for deposit under Account No. 0015-32987-7, endorsed them and sent them
for clearance with the Philippine Clearing House Corporation (PCHC). Bankcom did all these despite the fact that the
subject checks were ll crossed checks and that Account No. 0015-32987-7 neither belongs to Jardine nor Premiere-
the payees named in the subject checks. In this regard, Bankcom was clearly negligent.
b. Metrobank, on the other hand, is also negligent for its failure to scrutinize the subject checks before clearing and
honoring them. Had Metrobank done so, it would have noticed that Bankcom's ID band stamped at the back of the
subject checks did not contain any initials and are, therefore, defective. In this regard, Metrobank was remiss in its
duty to ensure that the subject checks are paid only to the named payees.
In view of the comparative negligence of Bankcom and Metrobank, they should be held liable to JMC, on a 2/3 to 1/3 ratio,
respectively, for the amount of subject checks plus interest.
Bankcom and Metrobank filed their respective appeals with the CA.
On 22 March 2017, the CA rendered its decision16 affirming, albeit with modification, the decision of the RTC. The disposition of the
decision reads:17
WHEREFORE, the Decision dated 28 May 2013 of the [RTC] in Civil Case NO. 02-0193 is AFFIRMED with MODIFICATION in that: (a)
the award of attorney's fees is DELETED; and (b) [Bankcom] and [Metrobank] are ordered to pay interest at the rate of 12% per annum
on the principal of P 1,481,292 including 6% interest on the principal, from the date of the Decision (28 May 2013) until June 2013 and
6% per annum from 1 July 2013 until full satisfaction. The Decision is affirmed in all other respects.
SO ORDERED.
The CA agreed with the RTC that Bankcom and Metrobank should be held liable to JMC, on a 2/3 to 1/3 ratio, respectively, for the
amount of subject checks. The appellate court, however, differed with the trial court with respect to the basis of Metrobank's liability.
According to the CA, Metrobank's negligence consisted, not in its inability to notice that Bankcom's ID band does not contain any
initials, but in its failure to ascertain that only four (4) out of the 11 subject checks were stamped by Bankcom with the express
guarantees "ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENT GUARANTEED" and "NON-NEGOTIABLE" as
required by Section 17 of the PCHC Rules and Regulations. 18
The CA also sustained the ruling of the RTC anent the absolution of Delizo and the dismissal of Metrobank's cross-claim.
Finally, the CA modified the rate of interest due on the amount of the subject checks that was fixed by the RTC and also deleted the
RTC's award of attorney's fees in favor of JMC. 19
Bankcom and Metrobank filed their motions for reconsideration, but the CA remained steadfast. Hence the present consolidated
appeals.
Both Metrobank and Bankcom pray for absolution but they differ in the arguments they raise in support of their prayer:20
1. Metrobank posits that it should be absolved because it had exercised absolute diligence in verifying the genuineness of the
subject checks. Metrobank argues that the RTC erred in holding it negligent on its failure to ascertain that only four (4) out of
the 11 subject checks were stamped with Bankcom's express guarantees. Metrobank claims that while Section 17 of the
PCHC Rules and Regulations does require all checks cleared through the PCHC to contain the collecting bank's express
guarantees, the same provision precludes it, as a drawee bank, to return any checks presented to it for payment just because
the same does not contain such express guarantees "for as long as there is evidence appearing on the cheque itself that the
same had been deposited with the [collecting] [b]ank e.g., PCHC machine sprayed tracer/ID band." In this regard, Metrobank
points out that all the subject checks had been stamped in their dorsal portion with PCHC's tracer ID for Bankcom.
Metrobank submits that, under the circumstances, it should be Bankcom-as the last indorser of the subject checks-that should
bear the loss and be held solely liable to JMC.
2. Bankcom, on the other hand, argues that it should be absolved because it was never a party to the wrongful encashment of
the subject checks. It claims that Account No. 0015-32987-7 does not exist in its system and, therefore, denies that the subject
checks were ever deposited with it.
Bankcom proffers the view that it is JMC that should bear the loss of the subject checks. Bankcom argues that it was JMC's
faulty accounting procedures which led to the subject checks being stolen and misappropriated.
Our Ruling
The consolidated appeals must be denied as neither Metrobank nor Bankcom are entitled to absolution.
Be that as it may, there is a need to modify the decision of the CA and the RTC with respect to the manner by which Metrobank and
Bankcom are held liable under the circumstances. Instead of holding both Metrobank and Bankcom liable to JMC in accordance with a
fixed ratio, we find that the two banks should have been ordered sequentially liable for the entire amount of the subject checks pursuant
to the seminal case of Bank of America v. Associated Citizens Bank.21
Accordingly, we rule: (1) Metrobank liable to return to JMC the entire amount of the subject checks plus interest and (2) Bankcom liable
to reimburse Metrobank the same amount plus interest.
The Rule on Sequence of Recovery in Cases of Unauthorized Payment of Checks; The Case of Bank of America
The instant case involves the unauthorized payment of valid checks, i.e., the payment of checks to persons other than the payee
named therein or his order. The subject checks herein are considered valid because they are complete and bear genuine signatures.
Bank of America is the leading jurisprudence that illustrates the respective liabilities of a collecting bank and a drawee bank in cases of
unauthorized payment of valid checks. Notably, the facts of Bank America are parallel to the facts of the present case. Both Bank of
America and the present case involved crossed checks payable to the order of a specified payee that were deposited in a
collecting bank under an account not belonging to the payee or his indorsee but which, upon presentment, were
subsequently honored by the drawee bank, thus:
1. Bank of America involved four (4) crossed checks drawn against the Bank of America (the drawee bank) and made payable to
the order of a Miller Offset Press, Inc. (the designated payee). These checks were then deposited to the Associated Citizens
Bank (the collecting bank) under a joint bank account of one Ching Uy Seng and a certain Uy Chung Guan Seng (an account
that does not belong to the payee or its indorsee). The checks were then presented to the Bank of America, which honored it,
resulting to loss on the part of BA Finance Corporation (the drawer.)
2. The instant case involves eleven (11) crossed checks that were drawn against Metrobank (the drawee bank) and made
payable to the orders of Jardine and Premiere (the designated payees). These checks were deposited with Bankcom (the
collecting bank) under Account No. 0015-32987-7 (an account that does not belong to either payee or their indorsees). The
checks were then presented to Metrobank, which honored it, resulting to loss on the part of JMC (the drawer.)
Bank of America held that, in cases involving the unauthorized payment of valid checks, the drawee bank becomes liable to the
drawer for the amount of the checks but the drawee bank, in turn, can seek reimbursement from the collecting bank. The
rationale of this rule on sequence of recovery lies in the very basis and nature of the liability of a drawee bank and a collecting bank in
said cases. As the recent case of BDO Unibank v. Lao22 explains:
The liability of the drawee bank is based on its contract with the drawer and its duty to charge to the latter's accounts only those
payables authorized by him. A drawee bank is under strict liability to pay the check only to the payee or to the payee's order. When the
drawee bank pays a person other than the payee named in the check, it does not comply with the terms of the check and violates its
duty to charge the drawer's account only for properly payable items.
On the other hand, the liability of the collecting bank is anchored on its guarantees as the last endorser of the check. Under Section 66
of the Negotiable Instruments Law, an endorser warrants "that the instrument is genuine and in all respects what it purports to be; that
he has good title to it; that all prior parties had capacity to contract; and that the instrument is at the time of his endorsement valid and
subsisting."
It has been repeatedly held that in check transactions, the collecting bank generally suffers the loss because it has the duty to ascertain
the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion
that the party making the presentment has done its duty to ascertain the genuineness of the endorsements. If any of the warranties
made by the collecting bank turns out to be false, then the drawee bank may recover from it up to the amount of the check. (Citations
omitted).
This rule should have been applied to the case at bench.
Metrobank is Liable to JMC
Metrobank, as drawee bank, is liable to return to JMC the amount of the subject checks.
A drawee bank is contractually obligated to follow the explicit instructions of its drawer-clients when paying checks issued by
them.23 The drawer's instructions-including the designation of the payee or to whom the check should be paid-are reflected on the face
and by the terms thereof.24 When a drawee bank pays a person other than the payee named on the check, it essentially commits a
breach of its obligation and renders the payment it made unauthorized. 25 In such cases and under normal circumstances, the drawee
bank may be held liable to the drawer for the amount charged against the latter's account. 26
The liability of the drawee bank to the drawer in cases of unauthorized payment of checks has been regarded in jurispn1dence to
be strict by nature.27 This means that once an unauthorized payment on a check has been made, the resulting liability of the drawee
bank to the drawer for such payment attaches even if the former had acted merely upon the guarantees of a collecting bank. 28 Indeed, it
is only when the unauthorized payment of a check had been caused or was attended by the fault or negligence of the drawer
himself can the drawee bank be excused, whether wholly or partially, from being held liable to the drawer for the said payment. 29
In the present case, it is apparent that Metrobank had breached JMC's instructions when it paid the value of the subject checks to
Bankcom for the benefit of a certain Account No. 0015-32987-7. The payment to Account No. 0015-32987-7 was unauthorized as it
was established that the said account does not belong to Jardine or Premiere, the payees of the subject checks, or to their indorsees.
In addition, causal or concurring negligence on the part of JMC had not been proven. Under such circumstances, Metrobank is clearly
liable to return to JMC the amount of the subject checks.
Metrobank's insistence that it should be absolved for it merely complied with Section 17 of the PCHC Rules and Regulations and
thereby only relied upon the concomitant guarantees of Bankcom when it paid the subject checks, cannot stand insofar as JMC is
concerned. In Bank of America, we rejected a similar argument interposed by a drawee bank (Bank of America) precisely on the ground
of the latter's strict liability to its drawer (BA-Finance) viz:30
Bank of America denies liability for paying the amount of the four checks issued by BA-Finance to Miller, alleging that it (Bank of
America) relied on the stamps made by Associated Bank stating that all prior endorsement and/or lack of endorsement
guaranteed, through which Associated Bank assumed the liability of a general endorser under Section 66 of the Negotiable
Instruments Law. Moreover, Bank of America contends that the proximate cause of BA-Finances injury, if any, is the gross
negligence of Associated Bank which allowed Ching Uy Seng (Robert Ching) to deposit the four checks issued to Miller in the personal
joint bank account of Ching Uy Seng and Uy Chung Guan Seng.
We are not convinced.
The bank on which a check is drawn, known as the drawee bank, is under strict liability, based on the contract between the
bank and its customer (drawer), to pay the check only to the payee or the payee's order. x x x.
x x x x
In this case, the four checks were drawn by BA-Finance and made payable to the Order of Miller Offset Press, Inc. The checks were
also crossed and issued For Payee's Account Only. Clearly, the drawer intended the check for deposit only by Miller Offset Press, Inc.
in the latter's bank account. Thus, when a person other than Miller, i.e., Ching Uy Seng, a.k.a. Robert Ching, presented and
deposited the checks in his own personal account (Ching Uy Sengs joint account with Uy Chung Guan Seng), and the drawee
bank, Bank of America, paid the value of the checks and charged BA-Finances account therefor, the drawee Bank of America
is deemed to have violated the instructions of the drawer, and therefore, is liable for the amount charged to the drawer's
account (Citations omitted. Emphasis supplied).
Accordingly, we find Metrobank liable to return to JMC the amount of the subject checks.
Bankcom is Liable to Metrobank
While Metrobank's reliance upon the guarantees of Bankcom does not excuse it from being liable to JMC, such reliance does enable
Metrobank to seek reimbursement from Bankcom-the collecting bank.
A collecting or presenting bank-i.e., the bank that receives a check for deposit and that presents the same to the drawee bank for
payment-is an indorser of such check.31 When a collecting bank presents a check to the drawee bank for payment, the former thereby
assumes the same warranties assumed by an indorser of a negotiable instrument pursuant to Section 66 of the Negotiable Instruments
Law. These warranties are: (1) that the instrument is genuine and in all respects what it purports to be; (2) that the indorser has good
title to it; (3) that all prior parties had capacity to contract; and (4) that the instrument is, at the time of the indorsement, valid and
subsisting.32 If any of the foregoing warranties turns out to be false, a collecting hank becomes liable to the drawee bank for payments
made under such false warranty.
Here, it is clear that Bankcom had assumed the warranties of an indorser when it forwarded the subject checks to PCHC for
presentment to Metrobank. By such presentment, Bankcom effectively guaranteed to Metrobank that the subject checks had been
deposited with it to an account that has good title to the same. This guaranty, however, is a complete falsity because the subject checks
were, in truth, deposited to an account that neither belongs to the payees of the subject checks nor to their indorsees. Hence, as the
subject checks were paid under Bankcom's false guaranty, the latter-as collecting bank-stands liable to return the value of such checks
to Metrobank.
Bankcom's assertion that it should be absolved as the subject checks were allegedly never deposited with it must fail. Such allegation is
readily disproved by the fact that the subject checks all contained, at their dorsal side, a stamp bearing Bankcom's tracer/ID
band.33 Under the PCHC Rules and Regulations, the stamped tracer/ID band of Bankcom signifies that the checks had been deposited
with it and that Bankcom indorsed the said checks and sent them to PCHC.34 As observed by the RTC:35
Record shows that the pieces of evidence presented by [JMC], particularly the 11 subject checks were endorsed and were allowed to
be encashed by [Bankcom], as indicated in the dorsal portion of the checks where [PCHC] machine's tracer, or the ID band of
[Bankcom] was stamped. And this stamped tracer ID band of [Bankcom] signifies that [Bankcom] certified that the checks were
deposited to [Bankcom] and [Bankcom] endorsed these checks and sent them to PCHC.
Neither do we find the liability of Bankcom to be affected by the fact that only four (4) out of the eleven (11) subject checks were
actually stamped with the guarantees "ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENT GUARANTEED" and
"NON-NEGOTIABLE" as required under Section 17 of the PCHC Rules and Regulations. The stamping of such guarantees is not
necessary to fix the liability of Bankcom as an indorser for all the subject checks.
To begin with, jurisprudence has it that a collecting bank's mere act of presenting a check for payment to the drawee bank is itself an
assertion, on the part of the former, that it had done its duty to ascertain the validity of prior indorsements. Hence, in Banco De Oro v.
Equitable Banking Corporation,36 we stated:
Apropos the matter of forgery in endorsements, this Court has presently succinctly emphasized that the collecting bank or last endorser
generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of
presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to
ascertain the genuineness of the endorsements. This is laid down in the case of PNB v. National City Bank. (Citations omitted.
Emphasis supplied).
More than such pronouncement, however, Section 17 of the PCHC Rules and Regulations expressly provides that checks "cleared
through the PCHC" that do not bear the mentioned guarantees shall nonetheless "be deemed guaranteed by the [collecting bank] as to
all prior endorsements and/or lack of endorsement" such that "no drawee bank shall return any [check] received by it through clearing
by reason only of the absence or lack of such guarantee ... as long as there is evidence appearing on the [check] itself that the same
had been deposited with the [collecting bank] x x x." The full provision reads:
Sec. 17. Bank Guarantee. All checks cleared through the PCHC shall bear the guarantee affixed thereto by the Presenting
Bank/Branch which shall read as follows:
Cleared thru the Philippine Clearing House Corporation all prior endorsements and/or lack of endorsement guaranteed NAME OF
BANK/BRANCH BRSTN (Date of Clearing). Checks to which said guarantee has not been affixed shall, nevertheless, be deemed
guaranteed by the Presenting Bank as to all prior endorsement and/or lack of endorsement.
No drawee bank shall return any cheque received by it through clearing by reason only of the absence or lack of such
guarantee stamped at the back of said cheque, for as long as there is evidence appearing on the cheque itself that the same
had been deposited with the Presenting Bank, e.g. PCHC machine sprayed tracer/ID band. (Emphasis supplied)
In the present case, all the subject checks have been transmitted by Bankcom to the PCHC for clearing and presentment to Metrobank.
As earlier adverted to, all of the said checks also bear the PCHC machine sprayed tracer/ID band of Bankcom. Such circumstances,
pursuant to prevailing banking practices as laid out under the PCHC Rules and Regulations, are enough to fix the liability of Bankcom
as an indorser of the subject checks even sans the stamp "ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENT
GUARANTEED" and "NON-NEGOTIABLE." As the stamping of such guarantees are not required before the warranties of an indorser
could attach against Bankcom, we find the latter liable to reimburse Metrobank the value of all the subject checks.
Recourse of Bankcom
The sequence of recovery in cases of unauthorized payment of checks, however, does not ordinarily stop with the collecting bank. In
the event that it is made to reimburse the drawee bank, the collecting bank can seek similar reimbursement from the very persons who
caused the checks to be deposited and received the unauthorized payments.37 Such persons are the ones ultimately liable for the
unauthorized payments and their liability rests on their absolute lack of valid title to the checks that they were able to encash.
Verily, Bankcom ought to have a right of recourse against the persons that caused the anomalous deposit of the subject checks and
received payments therefor. Unfortunately-as none of such persons were impleaded in the case before us-no pronouncement as to this
matter can be made in favor of Bankcom.
At this juncture, we express our concurrence to the absolution of Delizo. The RTC and the CA were uniform in their finding that the
participation of Delizo-as the supposed thief of the subject checks-had not been established in this case. We reviewed the evidence on
hand and saw no cogent reason to deviate from this factual finding.
Doctrine of Comparative Negligence Does Not Apply to the Instant Case
Instead of applying the rule on the sequence of recovery to the case at bench, the RTC and the CA held both Metrobank and Bankcom
liable to JMC in accordance with a fixed ratio. In so doing, the RTC and the CA seemingly relied on the doctrine of comparative
negligence38 as applied in the cases of Bank of the Philippine Islands v. Court of Appeals 39 and Allied Banking Corporation v. Lio Sim
Wan.40 In both cases, the Court held the drawee bank and collecting bank liable for the wrongful encashment of checks under a 60%
and 40% ratio.
It must be emphasized, however, that the factual contexts of Bank of the Philippine Islands and Allied Banking Corporation are starkly
different from the instant case:
1. Bank of the Philippine Islands involved two (2) cashier's checks issued by the Bank of the Philippine Islands (BPI) in favor of a
certain Eligia Fernando (Eligia). The checks are supposed to represent the proceeds of a pre-terminated money market placement of
Eligia with BPI. BPI issued the checks upon the mere phone request of a person who introduced herself as Eligia. The checks were
subsequently deposited with the China Banking Corporation (CBC) under an account that was opened by a person who identified
herself as Eligia. This person thereafter encashed the checks.
It was later established, however, that Eligia never requested the pre-termination of her money market placement nor opened an
account with the CBC. It was an impostor who did so.
2. Allied Banking Corporation, on the other hand, involved a manager's check issued by the Allied Banking Corporation (ABC) in favor
of a certain Lim Sio Wan (Lim). The check is supposed to represent the proceeds of a pre-terminated money market placement of Lim
with ABC. ABC issued the checks upon the mere phone request of a person who introduced herself as Lim. The checks, now bearing
an indorsement of Lim, were then deposited with the Metrobank under the account of a certain Filipinas Cement Corporation. The
checks were eventually encashed.
It was later established, however, that Lim never requested the pre-termination of his money market placement and that his
indorsement in the check was forged.
A glaring peculiarity in the cases of Bank of the Philippine Islands and Allied Banking Corporation is that the drawee bank-which is
essentially also the drawer in the scenario-is not only guilty of wrongfully paying a check but also of negligence in issuing
such check. Indeed, this is the very reason why the drawee bank in the two cases were adjudged co-liable with the collecting bank
under a fixed ratio and the former was not allowed to claim reimbursement from the latter. 41 The drawee bank cannot claim that its
participation in the wrongful payment of a check was merely limited to its reliance on the guarantees of the collecting bank. In other
words, the drawee bank was held liable in its own right because it was the one that negligently issued the checks in the first place.
That, however, is clearly not the situation in the case at bench. Here, no negligence similar to that committed by the drawee banks
in Bank of the Philippine Islands and Allied Banking Corporation-whether in type or in magnitude-can be attributed to Metrobank.
Metrobank, though guilty of the unauthorized check payments, only acted upon the guarantees deemed made by Bankcom under
prevailing banking practices. While Metrobank's reliance upon the guarantees of Bankcom did not excuse it from being answerable to
JMC, such reliance does enable Metrobank to seek reimbursement from Bankcom on the ground of the breach in the latter's warranties
as a collecting bank. Under such circumstances, we cannot deny Metrobank's right to seek reimbursement from Bankcom.
Hence, given the differences in the factual milieu between this case on one hand arid the cases of Bank of the Philippine
Islands and Allied Banking Corporation on the other, we find that the doctrine of comparative negligence cannot be applied so as to
apportion the respective liabilities of Metrobank and Bankcom. The liabilities of Metrobank and Bankcom, as already discussed in
length, must be governed by the rule on sequential recovery pursuant to Bank of America.
Interests
As a final matter, we also saw it fit to impose legal interest upon the respective principal liabilities of Metrobank and Bankcom.
In Nacar v. Gallery Frames,42 wlaid out the following guidelines for the imposition and computation of legal interests:
To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Lines are accordingly modified to
embody BSP MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or quasi-delicts is breached, the contravener
can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of
recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as
the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 6% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount
of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages, except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest
shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when
such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run
only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to
have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the
amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
credit.
And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not be
disturbed and shall continue to be implemented applying the rate of interest fixed therein. (Citations omitted.
Emphasis supplied).
Applying the foregoing guidelines to the case at bench, we fix the legal interests due against Metrobank and Bankcom thusly:
1. The liability of Metrobank to JMC consists in returning the amount it charged against JMC's current account. Current accounts,
like all bank deposits, are considered under the law as loans. 43 Normally, current accounts are interest-bearing by express
contract. However, the actual interest rate, if any, for the current account opened by JMC with Metrobank was not given in
evidence.44
Under these circumstances, we find it proper to subject Metrobank's principal liability to JMC to a legal interest of 6% per
annum from 28 January 2002 until full satisfaction. 45 The date 28 January 2002 is the date when JMC filed its complaint with
the RTC.
2. The liability of Bankcom to Metrobank, on the other hand, consists in returning the amount it was paid by Metrobank. This
stems from a breach by Bankcom of its warranties as a collecting bank.
Accordingly, we find it proper to subject Bankcom's principal liability to Metrobank to a legal interest of 6% per annum from 5
March 2003 until full satisfaction.46 The date 5 March 2003 is the date when Metrobank filed its answer with cross-claim
against Bankcom.
WHEREFORE, the consolidated appeals are DENIED. The Decision dated 22 March 2017 and Resolution dated 19 October 2017 of
the Court of Appeals (CA) in CA-G.R. CV No. 102462 are herein MODIFIED with respect to the individual liabilities of the Metropolitan
Bank and Trust Company and the Bank of Commerce, as follows:
1. The Metropolitan Bank and Trust Company is adjudged liable to pay respondent Junnel's Marketing Corporation the following:
a. The principal amount of P 1,481,292.00, and
b. Interest on the said principal at the rate of 6% per annum from 28 January 2002 until full satisfaction.
2. The Bank of Commerce is adjudged liable to pay the Metropolitan Bank and Trust Company the following:
a. The principal amount of P 1,481,292.00, and
b. Interest on the said principal at the rate of 6% per annum from 5 March 2003 until full satisfaction.
Other findings and pronouncements of the Court of Appeals in its Decision dated 22 March 2017 and Resolution dated 19 October
2017 in CA-G.R. CV No. 102462 that are not contrary to this Decision are AFFIRMED.
Costs against the Metropolitan Bank and Trust Company and the Bank of Commerce.
SO ORDERED.
THIRD DIVISION
April 26, 2017
G.R. No. 178467
SPS. CRISTINO & EDNA CARBONELL, Petitioners,

vs.
METROPOLITAN BANK AND TRUST COMPANY, Respondent.
DECISION
BERSAMIN, J.:
The petitioners assail the decision promulgated on December 7, 2006, 1 whereby the Court of Appeals (CA) affirmed with modification
the decision rendered on May 22, 19982 by the Regional Trial Court, Branch 157, in Pasig City (RTC) dismissing the petitioners'
complaint in Civil Case No. 65725 for its lack of merit, and awarded attorney's fees under the respondent's counterclaim.
Antecedents
The petitioners initiated against the respondent Civil Case No. 65725, an action for damages, alleging that they had experienced
emotional shock, mental anguish, public ridicule, humiliation, insults and embarrassment during their trip to Thailand because of the
respondent's release to them of five US$ 100 bills that later on turned out to be counterfeit. They claimed that they had travelled to
Bangkok, Thailand after withdrawing US$ l ,000.00 in US$ 100 notes from their dollar account at the respondent's Pateros branch; that
while in Bangkok, they had exchanged five US$ 100 bills into Baht, but only four of the US$ 100 bills had been accepted by the foreign
exchange dealer because the fifth one was "no good;" that unconvinced by the reason for the rejection, they had asked a companion to
exchange the same bill at Norkthon Bank in Bangkok; that the bank teller thereat had then informed them and their companion that the
dollar bill was fake; that the teller had then confiscated the US$ 100 bill and had threatened to report them to the police if they insisted
in getting the fake dollar bill back; and that they had to settle for a Foreign Exchange Note receipt.3
The petitioners claimed that later on, they had bought jewelry from a shop owner by using four of the remaining US$100 bills as
payment; that on the next day, however, they had been confronted by the shop owner at the hotel lobby because their four US$ 100
bills had turned out to be counterfeit; that the shop owner had shouted at them: "You Filipinos, you are all cheaters!;" and that the
incident had occurred within the hearing distance of fellow travelers and several foreigners.
The petitioners continued that upon their return to the Philippines, they had confronted the manager of the respondent's Pateros branch
on the fake dollar bills, but the latter had insisted that the dollar bills she had released to them were genuine inasmuch as the bills had
come from the head office; that in order to put the issue to rest, the counsel of the petitioners had submitted the subject US$ 100 bills to
the Bangko Sentral ng Pilipinas (BSP) for examination; that the BSP had certified that the four US$100 bills were near perfect genuine
notes;4 and that their counsel had explained by letter their unfortunate experience caused by the respondent's release of the fake US
dollar bills to them, and had demanded moral damages of ₱10 Million and exemplary damages.5
The petitioners then sent a written notice to the respondent, attaching the BSP certification and informing the latter that they were giving
it five days within which to comply with their demand, or face court action.6 In response, the respondent's counsel wrote to the
petitioners on March 1996 expressing sympathy with them on their experience but stressing that the respondent could not absolutely
guarantee the genuineness of each and every foreign currency note that passed through its system; that it had also been a victim like
them; and that it had exercised the diligence required in dealing with foreign currency notes and in the selection and supervision of its
employees.7
Prior to the filing of the suit in the RTC, the petitioners had two meetings with the respondent's representatives. In the course of the two
meetings, the latter's representatives reiterated their sympathy and regret over the troublesome experience that the petitioners had
encountered, and offered to reinstate US$500 in their dollar account, and, in addition, to underwrite a round-trip all-expense-paid trip to
Hong Kong, but they were adamant and staged a walk-out.8
In its judgment rendered on May 22, 1998,9 the RTC ruled in favor of the respondent, disposing as follows:
WHEREFORE, in the light of all the foregoing, judgment is hereby rendered:
1. Dismissing plaintiff’s complaint for lack of merit;
2. On the counterclaim, awarding Metrobank the amount of ₱20,000.00 as attorney's fees.

SO ORDERED.10
The petitioners appealed, but the CA ultimately promulgated its assailed decision on December 7, 2006 affirming the judgment of the
RTC with the modification of deleting the award of attorney's fees, 11 to wit:
As to the award of attorneys fees, we agree with appellants that there is simply no factual and legal basis thereto.
Unquestionably, appellants filed the present case for the humiliation and embarrassment they suffered in Bangkok. They instituted the
complaint in their honest belief that they were entitled to damages as a result of appellee's issuance of counterfeit dollar notes. Such
being the case, they should not be made answerable to attorney's fees. It is not good public policy to put a premium on the right to
litigate where such right is exercised in good faith, albeit erroneously.
WHEREFORE, the appealed decision is AFFIRMED with modification that the award of attorney's fees is deleted.
SO ORDERED.
Issues
Hence, this appeal, with the petitioners contending that the CA gravely erred in affirming the judgment of the RTC. They insist that
inasmuch as the business of banking was imbued with public interest, the respondent's failure to exercise the degree of diligence
required in handling the affairs of its clients showed that it was liable not just for simple negligence but for misrepresentation and bad
faith amounting to fraud; that the CA erred in giving weight and relying on the news clippings allegedly showing that the "supernotes"
had deceived even the U.S. Secret Service and Central Intelligence Agency, for such news were not based on facts. 12
Ruling of the Court
The appeal is partly meritorious.
The General Banking Act of 2000 demands of banks the highest standards of integrity and performance. As such, the banks are under
obligation to treat the accounts of their depositors with meticulous care. 13 However, the banks' compliance with this degree of diligence
is to be determined in accordance with the particular circumstances of each case.
The petitioners argue that the respondent was liable for failing to observe the diligence required from it by not doing an act from which
the material damage had resulted by reason of inexcusable lack of precaution in the performance of its duties. 14 Hence, the respondent
was guilty of gross negligence, misrepresentation and bad faith amounting to fraud.
The petitioners' argument is unfounded.
Gross negligence connotes want of care in the performance of one's duties; it is a negligence characterized by the want of even slight
care, acting or omitting to act in a situation where there is duty to act, not inadvertently but wilfully and intentionally, with a conscious
indifference to consequences insofar as other persons may be affected. It evinces a thoughtless disregard of consequences without
exe1iing any effort to avoid them. 15
In order for gross negligence to exist as to warrant holding the respondent liable therefor, the petitioners must establish that the latter
did not exert any effort at all to avoid unpleasant consequences, or that it wilfully and intentionally disregarded the proper protocols or
procedure in the handling of US dollar notes and in selecting and supervising its employees.
The CA and the RTC both found that the respondent had exercised the diligence required by law in observing the standard operating
procedure, in taking the necessary precautions for handling the US dollar bills in question, and in selecting and supervising its
employees. 16 Such factual findings by the trial court are entitled to great weight and respect especially after being affirmed by the
appellate court, and could be overturned only upon a showing of a very good reason to warrant deviating from them.
In this connection, it is significant that the BSP certified that the falsity of the US dollar notes in question, which were "near perfect
genuine notes," could be detected only with extreme difficulty even with the exercise of due diligence. Ms. Nanette Malabrigo, BSP's
Senior Currency Analyst, testified that the subject dollar notes were "highly deceptive" inasmuch as the paper used for them were
similar to that used in the printing of the genuine notes. She observed that the security fibers and the printing were perfect except for
some microscopic defects, and that all lines were clear, sharp and well defined. 17
Nonetheless, the petitioners contend that the respondent should be liable for moral and exemplary damages18 on account of their
suffering the unfortunate experience abroad brought about by their use of the fake US dollar bills withdrawn from the latter.
The contention cannot be upheld.

The relationship existing between the petitioners and the respondent that resulted from a contract of loan was that of a creditor-
debtor. 19 Even if the law imposed a high standard on the latter as a bank by vi1iue of the fiduciary nature of its banking business, bad
faith or gross negligence amounting to bad faith was absent. Hence, there simply was no legal basis for holding the respondent liable
for moral and exemplary damages. In breach of contract, moral damages may be awarded only where the defendant acted fraudulently
or in bad faith. That was not true herein because the respondent was not shown to have acted fraudulently or in bad faith. This is
pursuant to Article 2220 of the Civil Code, to wit:
Article 2220. Willful 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 defendant acted fraudulently
or in bad faith.
With the respondent having established that the characteristics of the subject dollar notes had made it difficult even for the BSP itself as
the country's own currency note expert to identify the counterfeiting with ease despite adhering to all the properly laid out standard
operating procedure and precautions in the handling of US dollar bills, holding it liable for damages in favor of the petitioners would be
highly unwarranted in the absence of proof of bad faith, malice or fraud on its part. That it formally apologized to them and even offered
to reinstate the USD$500.00 in their account as well as to give them the all-expense-paid round trip ticket to Hong Kong as means to
assuage their inconvenience did not necessarily mean it was liable. In civil cases, an offer of compromise is not an admission of liability,
and is inadmissible as evidence against the offeror. 20
Even without taking into consideration the news clippings to the effect that the US Secret Service and Central Intelligence Agency had
themselves been deceived by the 1990 series of the US dollar notes infamously known as the "supernotes," the record had enough to
show in that regard, not the least of which was the testimony of Ms. Malabrigo as BSP's Senior Currency Analyst about the highly
deceptive nature of the subject US dollar notes and the possibility for them to pass undetected.
Also, the petitioners' allegation of misrepresentation on the part of the respondent was factually unsupported.1âwphi1 They had been
satisfied with the services of the respondent for about three years prior to the incident in question. 21 The incident was but an isolated
one. Under the law, moral damages for culpa contractual or breach of contract are recoverable only if the defendant acted fraudulently
or in bad faith, or is found guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligations. 22 The
breach must be wanton, reckless, malicious or in bad faith, oppressive or abusive. 23 In order to maintain their action for damages, the
petitioners must establish that their injury resulted from a breach of duty that the respondent had owed to them, that is, there must be
the concurrence of injury caused to them as the plaintiffs and legal responsibility on the part of the respondent. Underlying the award of
damages is the premise that an individual was injured in contemplation of law. In this regard, there must first be a breach of some duty
and the imposition of liability for that breach before damages may be awarded; and the breach of such duty should be the proximate
cause of the injury. 24 That was not so in this case.
It is true that the petitioners suffered embarrassment and humiliation in Bangkok. Yet, we should distinguish between damage and
injury. In The Orchard Golf & Country Club, Inc. v. Yu, 25 the Court has fittingly pointed out the distinction, viz.:
x x x Injury is the illegal invasion of a legal right, damage is the loss, hurt, or harm which results from the injury; and damages are the
recompense or compensation awarded for the damage suffered. Thus, there can be damage without injury in those instances in which
the loss or harm was not the result of a violation of a legal duty. These situations are often called dmimum absque injuria. 26
In every situation of damnum absque injuria, therefore, the injured person alone bears the consequences because the law affords no
remedy for damages resulting from an act that does not amount to a legal injury or wrong. For instance, in BP I Express Card
Corporation v. Court of Appeals ,27 the Court turned down the claim for damages of a cardholder whose credit card had been
cancelled after several defaults in payment, holding therein that there could be damage without injury where the loss or harm was not
the result of a violation of a legal duty towards the plaintiff. In such situation, the injured person alone should bear the consequences
because the law afforded no remedy for damages resulting from an act that did not
amount to a legal injury or wrong.28 Indeed, the lack of malice in the conduct complained of precluded the recovery of damages.29
Here, although the petitioners suffered humiliation resulting from their unwitting use of the counterfeit US dollar bills, the respondent, by
virtue of its having observed the proper protocols and procedure in handling the US dollar bills involved, did not violate any legal duty
towards them. Being neither guilty of negligence nor remiss in its exercise of the degree of diligence required by law or the nature of its
obligation as a banking institution, the latter
was not liable for damages. Given the situation being one of damnum absque injuria, they could not be compensated for the damage
sustained.
WHEREFORE, the Court AFFIRMS the decision promulgated on December 7, 2006; and ORDERS the petitioners to pay the costs of
suit.
SO ORDERED.
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 118917 December 22, 1997
PHILIPPINE DEPOSIT INSURANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS, ROSA AQUERO, GERARD YU, ERIC YU, MINA YU, ELIZABETH NGKAION, MERLY CUESCANO, LETICIA
TAN, FELY RUMBANA, LORNA ACUB, represented by their Attorney-in-Fact, JOHN FRANCIS COTAOCO, respondents.
KAPUNAN, J.:
Petitioner Philippine Deposit Insurance Corporation (PDIC) seeks the reversal of the decision of the Court of Appeals affirming with
modification the decision of the Regional Trial Court holding petitioner liable for the value of thirteen (13) certificates of time deposit
(CTDs) in the possession of private respondents.
The facts, as found by the Court of Appeals, are as follows:
On September 22, 1983, plaintiffs-appellees invested in money market placements with the Premiere Financing
Corporation (PFC) in the sum of P10,000.00 each for which they were issued by the PFC corresponding promissory
notes and checks. On the same date (September 22, 1983), John Francis Cotaoco, for and in behalf of plaintiffs-
appellees, went to the PFC to encash the promissory notes and checks, but the PFC referred him to the Regent
Saving Bank (RSB). Instead of paying the promissory notes and checks, the RSB, upon agreement of Cotaoco,
issued the subject 13 certificates of time deposit with Nos. 09648 to 09660, inclusive, each stating, among others,
that the same certifies that the bearer thereof has deposited with the RSB the sum of P10,000.00; that the certificate
shall bear 14% interest per annum; that the certificate is insured up to P15,000.00 with the PDIC; and that the
maturity date thereof is on November 3, 1983 (Exhs. "B", "B-1 to "B-12").
On the aforesaid maturity dated (November 3, 1983), Cotaoco went to the RSB to encash the said certificates.
Thereat, RSB Executive Vice President Jose M. Damian requested Cotaoco for a deferment or an extension of a few
days to enable the RSB to raise the amount to pay for the same (Exh. "D"). Cotaoco agreed. Despite said extension,
the RSB still failed to pay the value of the certificates. Instead, RSB advised Cotaoco to file a claim with the PDIC.
Meanwhile, on June 15, 1984, the Monetary Board of the Central Bank issued Resolution No. 788 (Exh. "2", Records,
p. 159) suspending the operations of the RSB. Eventually, the records of RSB were secured and its deposit liabilities
were eventually determined. On December 7, 1984, the Monetary Board issued Resolution No. 1496 (Exh. "1")
liquidating the RSB. Subsequently, a masterlist or inventory of the RSB assets and liabilities was prepared. However,
the certificates of time deposit of plaintiffs-appellees were not included in the list on the ground that the certificates
were not funded by the PFC or duly recorded as liabilities of RSB.
On September 4, 1984, plaintiffs-appellees filed with the PDIC their respective claims for the amount of the
certificates (Exhs. "C," "C-1" to "C-12"). Sabina Yu, James Ngkaion, Elaine Ngkaion and Jeffrey Ngkaion, who have
similar claims on their certificates of time deposit with the RSB, likewise filed their claims with the PDIC. To their
dismay, PDIC refused the aforesaid claims on the ground that the Traders Royal Bank Check No. 299255 dated
September 22, 1983 for the amount of P125,846.07 (Exh. "B") issued by PFC for the aforementioned certificates was
returned by the drawee bank for having been drawn against insufficient funds; and said check was not replaced by
the PFC, resulting in the cancellation of the certificates as indebtedness or liabilities of
RSB. 1
Consequently, on March 31, 1987, private respondents filed an action for collection against PDIC, RSB and the Central Bank.
On September 14, 1987, the trial court, declared the Central Bank in default for failing to file an answer.
On May 29, 1989, the trial court rendered its decision ordering the defendants therein to pay plaintiffs, jointly and severally, the amount
corresponding to the latter's certificates of time deposit.
Both PDIC and RSB appealed. The Central Bank, on the other hand, filed a petition for certiorari, prohibition and mandamus before the
Court of Appeals praying that the writ of execution issued by the trial court against it be set aside.
On February 8, 1995, the Court of Appeals rendered its decision granting the Central Bank's petition but dismissing the appeals of
PDIC and RSB. Hence, this petition by PDIC assigning the following errors:
THE CA ERRED IN HOLDING THAT THE SUBJECT CTDS ARE NEGOTIABLE INSTRUMENTS
II
THE CA ERRED IN HOLDING THAT THE CTDS WERE ACQUIRED FOR VALUE AND CONSIDERATION
III
THE CA ERRED WHEN IT HELD THAT BECAUSE THE CTDS STATE THAT THESE WERE INSURED PETITIONER SHOULD BE
HELD LIABLE FOR THE SAME.
We deal jointly with petitioner's first and third assigned errors.
Relying on this Court's ruling in Caltex (Philippines), Inc. v. Court of Appeals and Security Bank and Trust Company, 2 the Court of
Appeals concluded that the subject CTDs are negotiable. Petitioner, on the other hand, contends that the CTDs are non-negotiable
since they do not contain an unconditional promise or order to pay a sum certain in money nor are they made payable to order or
bearer, as required by Section 1 of the Negotiable Instruments Law.
Whether the CTDs in question are negotiable or not is, however, immaterial in the present case. The Philippine Deposit Insurance
Corporation was created by law and, as such, is governed primarily by the provisions of the special law creating it. 3 The liability of the
PDIC for insured deposits therefore is statutory and, under Republic Act No. 3591,4 as amended, such liability rests upon the existence
of deposits with the insured bank, not on the negotiability or non-negotiability of the certificates evidencing these deposits.
The authority for this conclusion finds support in decisions by American state courts applying their respective bank guaranty laws.
Invariably, the plaintiffs in these cases argued that the negotiability of the certificates of deposit in their possession entitled them to be
paid out of the bank guaranty fund, a contention that the courts uniformly rejected.
Thus, the plaintiffs in Fourth Nat. Bank of Wichita v. Wilson5 argued that:
. . . the court should hold the certificates to be guaranteed because they are negotiable instruments, and were
acquired by the present holders in due course; otherwise it is said certificates of deposit will be deprived of the quality
of commercial paper. Certificates of deposit have been regarded as the highest form of collateral. They are of wide
currency in the banking and business worlds, and are particularly useful to persons of small means, because they
bear interest, and may be readily cashed; therefore to deprive them of the benefit of the guaranty fund would be a
calamity. . . .
The Supreme Court of Kansas, however, found the plaintiffs' contention to be without merit, ruling thus:
. . . The argument confuses negotiability of commercial paper with statutory guaranty of deposits. The guaranty is
something extrinsic to all forms of evidence of bank obligation; and negotiability of instruments has no dependence
on existence or nonexistence of the guaranty.
. . . Whatever the status of the plaintiffs may be as holders in due course under the Negotiable Instruments Law, they
cannot be assignees of a deposit which was not made, and cannot be entitled to the benefit of a guaranty which did
not come into existence. . . .
In arriving at the above decision, the Kansas Supreme Court relied on its earlier ruling in American State Bank v. Foster,6 which arose
from the same facts as the Fourth National Bank case. There, the Court held:
. . . Even if the plaintiff were to be regarded as an innocent purchaser of the certificates as negotiable instruments, its
situation would be in no wise bettered so far as relate to a claim against the guaranty fund. The fund protects
deposits only. And if no deposit is made, or no deposit within the protection of the guaranty law, the transfer of a
certificate cannot impose a liability on the fund. . . . where a certificate of deposit is given under such circumstances
that it is not protected by the guaranty fund, although that fact is not indicated by anything on its face, its indorsement
to an innocent holder cannot confer that quality upon it.
In like fashion did the Supreme Court of Nebraska brush aside a similar contention in State v. Farmers' Stale Bank:7
In this contention we think the appellants fail to distinguish between the liability of the maker of a negotiable
instrument, which rests upon the law pertaining to negotiable paper, and the liability of the guaranty fund, which is
purely statutory. The circumstances under which the guaranty fund may be liable are entirely apart from the law
pertaining to negotiable paper. A holder of a certificate of deposit in a bank who seeks to hold the guaranty fund liable
for its payment must show that the transaction leading up to the issuance of the certificate was such that the law
holds the guaranty fund liable for its payment. . . .
The Farmers' State Bank ruling was reiterated by the Nebraska Supreme Court in State v. Home State Bank of Dunning 8 and in State
v. Kilgore State Bank. 9 The same ruling was adopted by the Supreme Court of South Dakota in Mildenstein v. Hirning. 10
In the case at bar, the Court of Appeals initially found the subject CTDs to be negotiable. Subsequently, however, respondent court
deemed the issue immaterial, albeit for entirely different reasons.
. . . Besides, whether the certificates are negotiable or not is of no moment. The fact remains that the certificates
categorically state that their bearer [sic] have a deposit in the RSB; that the same will mature on November 3, 1993;
and that the certificates are insured by PDIC. 11
We disagree with respondent court's rationale. The fact that the certificates state that the certificates are insured by PDIC does not ipso
facto make the latter liable for the same should the contingency insured against arise. As stated earlier, the deposit liability of PDIC is
determined by the provisions of R.A. No. 3519, and statements in the certificates that the same are insured by PDIC are not binding
upon the latter.
. . . The mere fact that a certificate recites on its face that a certain sum has been deposited, or that officers of the
bank may have stated that the deposit is protected by the guaranty law, does not make the guaranty fund liable for
payment, if in fact a deposit has not been made . . . . The banks have nothing to do with the guaranty fund as such. It
is a fund raised by assessments against all state banks, administered by officers of the state to protect deposits in
banks. . . . 12
We come now to petitioner's second assigned error.
In order that a claim for deposit insurance with the PDIC may prosper, the law requires that a corresponding deposit be placed in the
insured bank. This is implicit from a reading of the following provisions of R.A. 3519:
Sec. 1. There is hereby created a Philippine Deposit Insurance Corporation . . . which shall insure, as provided,
the deposits of all banks which are entitled to the benefits of insurance under this Act . . . . (Emphasis supplied).
xxx xxx xxx
Sec. 10(a) . . .
xxx xxx xxx
(c) Whenever an insured bank shall have been closed on account of insolvency, payment of the insured deposits in
such bank shall be made by the Corporation as soon as possible . . . .(Emphasis supplied.)
A deposit as defined in Section 3(f) of R.A. No. 3591, may be constituted only if money or the equivalent of money is received by a
bank:
Sec. 3. As used in this Act —
(f) The term "deposit" means the unpaid balance of money or its equivalent received by a bank in the usual course of
business and for which it has given or is obliged to give credit to a commercial, checking, savings, time or thrift
account or which is evidenced by passbook, check and/or certificate of deposit printed or issued in accordance with
Central Bank rules and regulations and other applicable laws, together with such other obligations of a bank which,
consistent with banking usage and practices, the Board of Directors shall determine and prescribe by regulations to
be deposit liabilities of the Bank . . . . (Emphasis ours.)
Did RSB receive money or its equivalent when it issued the certificates of time deposit? The Court of Appeals, in resolving who
between RSB and PFC issued the certificates to private respondents, answered this question in the negative. A perusal of the
impugned decision, however, reveals that such finding is grounded entirely on speculation, and thus, cannot bind this Court: 13
Equally unimpressive is the contention of PDIC and RSB that the certificates were issued to PFC which did not
acquire the same for value because the check issued by the latter for the certificates bounced for insufficiency of
funds. First, granting arguendo that the certificates were originally issued in favor of PFC, such issuance could only
give rise to the presumption that the amount stated in the certificates have been deposited to RSB. Had not PFC
deposited the amount stated therein, then RSB would have surely refused to issue the certificates certifying to such
fact. Second, why did not RSB demand that PFC pay the certificates or file a claim against PFC on the ground that
the latter failed to pay for the value of the certificates? It could very well be that the reason why RSB did not run after
PFC for payment of the value of the certificates was because the instruments were issued to the latter by RSB for
value or were already paid to RSB by plaintiffs-appellees. Third, if it is true that at the time RSB issued the certificates
to PFC, the instruments were paid for with checks still to be encashed, then why did not RSB specifically state in the
certificates that the validity thereof hinges on the encashment of said check? Fourth, even if it is true that PFC did not
deposit with or pay the RSB the amount stated in the certificates, the latter is not be such reason freed from civil
liability to plaintiffs-appellees. For, by issuing the certificates, RSB bound itself to pay the amount stated therein to
whoever is the bearer upon its presentment for encashment. Truly, there is no reason to depart from the established
principle that where a bank issues a certificate of deposit acknowledging a deposit made with a third person or an
officer of the bank, or with another bank representing it to be the certificate of the bank, upon which assurance the
depositor accepts it, the bank is liable for the amount of the deposit (Michis, Banks and Banking, Vol. 5A, pp. 48-49,
as cited in the Decision on p. 3 thereof). 14
Moreover, such finding totally ignores the evidence presented by defendants. Cardola de Jesus, RSB Deputy Liquidator, testified that
RSB received three (3) checks in consideration for the issuance of several CTDs, including the ones in dispute. The first check
amounted to P159,153.93, the second, P121,665.95, and the third, P125,846.07 In consideration of the third check, private
respondents received thirteen (13) certificates of deposit with Nos. 09648 to 09660, inclusive, with a value of P10,000.00 each or a total
of P130,000.00. To conform with the value of the third check, CTD No. 09648 was "chopped," and only the sum of P5,846.07 was
credited in favor of private respondents. The first two checks "made good in the clearing" while the third was returned for being "drawn
against insufficient funds."
The check in question appears on the records as Exhibit "3" (for

Regent), 15 and is described in RSB's offer or evidence as "Traders Royal Bank Check No. 292555 dated September 22, 1983 covering
the amount or P125,846.07 . . . issued by Premiere Financing Corporation." 16 At the back of said check are the words "Refer to
Drawer," 17 indicating that the drawee bank (Traders Royal Bank) refused to pay the value represented by said check. By reason of the
check's dishonor, RSB cancelled the corresponding as evidence by an RSB "ticket" dated November 4, 1983. 18
These pieces of evidence convincingly show that the subject CTDs were indeed issued without RSB receiving any money therefor. No
deposit, as defined in Section 3 (f) of R.A. No. 3591, therefore came into existence. Accordingly, petitioner PDIC cannot be held liable
for value of the certificates of time deposit held by private respondents.
ACCORDINGLY, the instant petition is hereby GRANTED and the decision of the Court of Appeals REVERSED. Petitioner is absolved
from any liability to private respondents.
SO ORDERED.
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 176438 January 24, 2011
PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC), Petitioner,

vs.
PHILIPPINE COUNTRYSIDE RURAL BANK, INC., RURAL BANK OF CARMEN (CEBU), INC., BANK OF EAST ASIA
(MINGLANILLA, CEBU), INC., and PILIPINO RURAL BANK (CEBU), INC., Respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by the Philippine Deposit Insurance
Corporation (PDIC) assailing the September 18, 2006 Decision of the Court of Appeals-Cebu (CA-Cebu), which granted the petition for
injunction filed by respondents Philippine Countryside Rural Bank, Inc. (PCRBI), Rural Bank of Carmen (Cebu), Inc. (RBCI), Bank of
East Asia (Minglanilla, Cebu), Inc. (BEAI), and Pilipino Rural Bank (Cebu), Inc. (PRBI), all collectively referred to as "Banks." The
dispositive portion of the CA-Cebu decision reads:
WHEREFORE, in view of all the foregoing premises, the petition for injunction is hereby GRANTED. The respondent PDIC is restrained
from further conducting investigations or examination on petitioners-banks without the requisite approval from the Monetary Board.
SO ORDERED.1
In a resolution dated January 25, 2007, the CA-Cebu denied petitioner’s motion for reconsideration for "lack of merit."2
THE FACTS
On March 9, 2005, the Board of Directors of the PDIC (PDIC Board) adopted Resolution No. 2005-03-0323 approving the conduct of an
investigation, in accordance with Section 9(b-1) of Republic Act (R.A.) No. 3591, as amended, on the basis of the Reports of
Examination of the Bangko Sentral ng Pilipinas (BSP) on ten (10) banks, four (4) of which are respondents in this petition for review.
The said resolution also created a Special Investigation Team to conduct the said investigation, with the authority to administer oaths,
to examine, take and preserve testimony of any person relating to the subject of the investigation, and to examine pertinent bank
records.
On May 25, 2005, the PDIC Board adopted another resolution, Resolution No. 2005-05-056, 4 approving the conduct of an investigation
on PCRBI based on a Complaint-Affidavit filed by a corporate depositor, the Philippine School of Entrepreneurship and
Management (PSEMI) through its president, Jacinto L. Jamero.
On June 3, 2005, in accordance with the two PDIC Board resolutions, then PDIC President and Chief Executive Officer Ricardo M. Tan
issued the Notice of Investigation5 to the President or The Highest Ranking Officer of PCRBI.
On June 7, 2005, the PDIC Investigation Team personally served the Notice of Investigation on PCRBI at its Head Office in Pajo, Lapu-
Lapu City.6
According to PDIC, in the course of its investigation, PCRBI was found to have granted loans to certain individuals, which were settled
by way of dacion of properties. These properties, however, had already been previously foreclosed and consolidated under the names
of PRBI, BEAI and RBCI.7
On June 15, 2005, PDIC issued similar notices of investigation to PRBI8 and BEAI.9
The notices stated that the investigation was to be conducted pursuant to Section 9 (b-1) of the PDIC Charter and upon authority of
PDIC Board Resolution No. 2005-03-032 authorizing the twelve (12) named representatives of PDIC to conduct the investigation.10
The investigation was sought because the Banks were found to be among the ten (10) banks collectively known as "Legacy Banks."
The Reports of General and Special Examinations of the BSP as of June 30, 2004, disclosed, among others, that the Legacy Banks
were commonly owned and/or controlled by Legacy Plans Inc. (now Legacy Consolidated Plans, Inc.), and Celso Gancayco delos
Angles, Jr. and his family.11
The notice of investigation was served on PRBI the next day, June 16, 2005.12
On June 25, 2005, a separate notice of investigation 13 was served on RBCI. The latter provided the PDIC Investigation Team with
certified copies of the loan documents they had requested, until its president received an order directing him not to allow the
investigation.14
Subsequently, PRBI and BEAI refused entry to their bank premises and access to their records and documents by the PDIC
Investigation Team, upon advice of their respective counsels.15
On June 16 and 17, 2005, Atty. Victoria G. Noel (Atty. Noel) of the Tiongson & Antenor Cruz Law Office sent letters to the
PDIC16 informing it of her legal advice to PCRBI and BEAI not to submit to PDIC investigation on the ground that its investigatory power
pursuant to Section 9(b-1) of R.A. No. 3591, as amended (An Act Establishing The Philippine Deposit Insurance Corporation, Defining
Its Powers And Duties And For Other Purposes), cannot be differentiated from the examination powers accorded to PDIC under
Section 8, paragraph 8 of the same law, under which, prior approval from the Monetary Board is required.
On June 17, 2005, PDIC General Counsel Romeo M. Mendoza sent a reply to Atty. Noel stating that "PDIC’s investigation power, as
distinguished from the examination power of the PDIC under Section 8 of the same law, does not need prior approval of the Monetary
Board."17 PDIC then urged PRBI and BEAI "not to impede the conduct of PDIC’s investigation" as the same "constitutes a violation of
the PDIC Charter for which PRBI and BEAI may be held criminally and/or administratively liable."18
On June 27 and 28, 2005, the Banks, through counsel, sought further clarification from PDIC on its source of authority to conduct the
impending investigations and requested that PDIC refrain from proceeding with the investigations.19
Simultaneously, the Banks wrote to the Monetary Board requesting a clarification on the parameters of PDIC’s power of
investigation/examination over the Banks and for an issuance of a directive to PDIC not to pursue the investigations pending the
requested clarification.20
On June 28, 2005, PRBI and BEAI again received letters from PDIC, dated June 24, 2005, which appeared to be final demands on
them to allow its investigation.21 PRBI and BEAI replied that letters of clarification had been sent to PDIC and the Monetary
Board.22 Pending action on such requests, PDIC was requested to refrain from proceeding with the investigation.23
Notwithstanding, on July 11, 2005, the Banks received a letter, dated July 8, 2005, from the PDIC General Counsel reiterating its
position that prior Monetary Board approval was not a pre-requisite to PDIC’s exercise of its investigative power.24
Not in conformity, on July 28, 2005, the Banks filed a Petition for Declaratory Relief with a Prayer for the Issuance of a TRO and/or Writ
of Preliminary Injunction (RTC Petition) before the Regional Trial Court of Makati (RTC-Makati) which was docketed as Civil Case No.
05-697.25
In the RTC Petition, the Banks prayed for a judgment interpreting Section 9(b-1) of the PDIC Charter, as amended, to require prior
Monetary Board approval before PDIC could exercise its investigation/examination power over the Banks.26
PDIC filed a motion to dismiss alleging that the RTC had no jurisdiction over the said petition since a breach had already been
committed by the Banks when they received the notices of investigation, and because PDIC need not secure prior Monetary Board
approval since "examination" and "investigation" are two different terms.27
Later, the Banks withdrew their application for a temporary restraining order (TRO) reasoning that lower courts cannot issue injunctions
against PDIC. Thus, the Banks instituted a petition for injunction with application for TRO and/or Preliminary Injunction (CA-Manila
petition) before the Court of Appeals-Manila (CA-Manila). The case was docketed as CA-G.R. SP No. 91038.28
Even before the CA-Manila could rule on the application for a TRO and/or writ of preliminary injunction, the RTC-Makati dismissed the
petition on the ground that there already existed a breach of law that isolated the case from the jurisdiction of the trial court.29
The Banks filed a motion for reconsideration but it was denied by the RTC for lack of merit. 30 On February 10, 2006, the Banks filed a
notice of appeal31 which they later withdrew on February 28, 2006.32
In view of the dismissal of the RTC-Makati petition, the CA-Manila dismissed the petition for injunction for being moot and academic. In
its Decision, dated February 1, 2006,33 the CA-Manila wrote:
What remained for the petitioners to do was to litigate over the breach or violation by ordinary action, as the circumstances ensuing
from the breach or violation warrant. The ordinary action may either be in the same case, if the RTC permitted the conversion, in which
event the RTC may allow the parties to file such pleadings as may be necessary or proper, pursuant to Sec. 5, Rule 63; or the
petitioners may file another action in the proper court (e.g. including the Court of Appeals, should injunction be among the reliefs to be
sought) upon some cause of action that has arisen from the breach or violation.34
Thereafter, on March 14, 2006, the Banks filed their Petition for Injunction with Prayer for Preliminary Injunction 35 (CA-Cebu
Petition) with the CA-Cebu (CA-Cebu).
On March 15, 2006, the CA-Cebu issued a resolution granting the Bank’s application for a TRO. This enjoined the PDIC, its
representatives or agents or any other persons or agency assisting them or acting for and in their behalf from conducting
examinations/investigations on the Banks’ head and branch offices without securing the requisite approval from the Monetary Board of
BSP.36
During the pendency of the CA-Cebu petition, PDIC filed with this Court a Petition for Certiorari, Prohibition and Mandamus with Prayer
for Issuance of Temporary Restraining Order and/or Writ of Preliminary Injunction under Rule 65 docketed as G.R. No. 173370. 37 It
alleged that the CA-Cebu committed grave abuse of discretion amounting to lack or excess of jurisdiction in taking cognizance of the
Banks’ petition, and in issuing a TRO and a writ of preliminary injunction.38
On July 31, 2006, this Court issued a resolution dismissing the petition for certiorari in G.R. No. 173370. The Resolution reads:
Considering the allegations, issues and arguments adduced in the petition for certiorari, prohibition and mandamus with prayer for
preliminary injunction and/or restraining order dated 19 July 2006, the Court resolves to DISMISS the petition for failure to sufficiently
show that the questioned resolution of the Court of Appeals is tainted with grave abuse of discretion. Moreover, the petition failed to
conform with Rule 65 and other related provisions of the 1997 Rules of Civil Procedure, as amended, governing petitions for certiorari,
prohibition and mandamus filed with the Supreme Court, since petitioner failed to submit a verified statement of material date of receipt
of the assailed resolution dated 16 May 2006 in accordance with Section 4, Rule 65 in relation to the second paragraph of Section 3,
Rule 46. In any event, the petition is premature since no motion for reconsideration of the questioned resolution of the Court of Appeals
was filed prior to the availment of this special civil action and there are no sufficient allegations to bring the case within the recognized
exceptions to this rule.39
On September 18, 2006, after both parties had submitted their respective memoranda, the CA-Cebu rendered a decision granting the
writ of preliminary injuction,40 pertinent portions of which read:
[A]fter undergoing a series of amendments, the controlling law with respect to PDIC’s power to conduct examination of banks is-prior
approval of the Monetary Board is a condition sine qua non for PDIC to exercise its power of examination. To rule otherwise would
disregard the amendatory law of the PDIC’s charter.
The Court is not also swayed by the contention of respondent that what it seeks to conduct is an investigation and not an examination
of petitioners’ transactions, hence prior approval of the Monetary Board is a mere surplusage.
The ordinary definition of the words "examination" and "investigation" would lead one to conclude that both pertain to the same thing
and there seems to be no fine line differentiating one from the other. Black’s Law Dictionary defines the word "investigate" as "to
examine and inquire into with care and accuracy; to find out by careful inquisition; examination and the word "examination" as an
investigation. In Collin’s Dictionary of Banking and Finance, the word "investigation" is defined as an "examination to find out what is
wrong."
In the case of Anti-Graft League of the Philippines, Inc. vs. Hon. Ortega, et al., 41 the Supreme Court using Ballentine’s Law Dictionary
defines an "investigation" as an inquiry, judicial or otherwise, for the discovery or collection of facts concerning the matter or matters
involved. Such common definitions would show that there is really nothing to distinguish between these two (2) terms as to support the
PDIC view differentiating Section 9 (b-1) from paragraph 8, Section 8 of the PDIC Charter.
In the realm of the PDIC rules, specifically under Section 3 of PDIC Regulatory Issuance No. 2205-02 42 "investigation" is defined as:
Investigation shall refer to fact-finding examination, study, inquiry, for determining whether the allegations in a complaint or findings in a
final report of examination may properly be the subject of an administrative, criminal or civil action.
From the foregoing definition alone, it can be easily deduced that investigation and examination are synonymous terms. Simply stated,
investigation encompasses a fact-finding examination. Thus, it is inconsistent with the rules if respondent PDIC be (sic) allowed to
conduct an investigation without the approval of the Monetary Board.
Moreover, the Court sees that the rationale of the law in requiring a (sic) prior approval from the Monetary Board whenever an
examination or in this case an investigation needs to be conducted by the PDIC is obviously to ensure that there is no overlapping of
efforts, duplication of functions and more importantly to provide a check and balance to the otherwise unrestricted power of respondent
PDIC to conduct investigations on banks insured by it.
With the foregoing premises, this Court rules that a prior approval from the Monetary Board is necessary before respondent PDIC can
proceed with its investigations on petitioners-banks.43
PDIC moved for reconsideration but it was denied in a resolution dated January 25, 2007.44
Hence, this petition.
THE ISSUES
I.
WHETHER RESPONDENT BANKS VIOLATED THE RULE AGAINST FORUM SHOPPING WHEN THEY FILED THE PETITION FOR
INJUNCTION BEFORE THE COURT OF APPEALS-CEBU.
II.
WHETHER THE PRONOUNCEMENT OF THE REGIONAL TRIAL COURT OF MAKATI IN THE PETITION FOR DECLARATORY
RELIEF CONSTITUTES RES JUDICATA TO THE PETITION FOR INJUNCTION IN THE COURT OF APPEALS-CEBU.
III.
WHETHER PETITIONER WAS DEPRIVED OF ITS OPPORTUNITY TO BE HEARD WHEN THE COURT OF APPEALS-CEBU
ISSUED THE WRIT OF INJUNCTION.
IV.
WHETHER THE ISSUES RAISED BY PETITIONERS ARE THE SAME ISSUES RAISED IN G.R. NO. 173370 WHICH WAS
EARLIER DISMISSED BY THIS COURT.
V.
WHETHER THE COURT OF APPEALS ERRED IN FINDING THAT PRIOR APPROVAL OF THE MONETARY BOARD OF THE
BANGKO SENTRAL NG PILIPINAS IS NECESSARY BEFORE THE PDIC MAY CONDUCT AN INVESTIGATION OF RESPONDENT
BANKS.
THE COURT’S RULING
I - Whether respondent banks violated the rule against forum shopping when they filed the petition for injunction before the
Court of Appeals-Cebu.
II - Whether the pronouncement of the Regional Trial Court of Makati in the petition for declaratory relief constitutes res
judicata to the petition for injunction in the Court of Appeals-Cebu.
In the recent case of Sameer Oversees Placement Agency, Inc. v. Mildred R. Santos, 45 the Court discussed the matter of forum
shopping:
Forum shopping is defined as an act of a party, against whom an adverse judgment or order has been rendered in one forum, of
seeking and possibly getting a favorable opinion in another forum, other than by appeal or special civil action for certiorari. It may also
be the institution of two or more actions or proceedings grounded on the same cause on the supposition that one or the other court
would make a favorable disposition. There is forum shopping where the elements of litis pendentia are present, namely: (a) there is
identity of parties, or at least such parties as represent the same interest in both actions; (b) there is identity of rights asserted and relief
prayed for, the relief being founded on the same set of facts; and (c) the identity of the two preceding particulars is such that any
judgment rendered in the pending case, regardless of which party is successful, would amount to res judicata in the other. It is
expressly prohibited by this Court because it trifles with and abuses court processes, degrades the administration of justice, and
congests court dockets. A willful and deliberate violation of the rule against forum shopping is a ground for summary dismissal of the
case, and may also constitute direct contempt.46
Juxtaposing the RTC-Makati, CA-Manila and CA-Cebu petitions, what must be determined here, is whether the elements of litis
pendentia are present between and among these petitions, i.e. whether (a) there is identity of parties, or at least such parties as
represent the same interest in both actions; (b) there is identity of rights asserted and relief prayed for, the relief being founded on the
same set of facts; and (c) the identity of the two preceding particulars is such that any judgment rendered in the pending case,
regardless of which party is successful, would amount to res judicata in the other.
The first element is clearly present as between the RTC-Makati petition and the CA-Cebu petition. Both involved the Banks on one
hand, and the PDIC on the other.
The second and third elements of litis pendentia, however, are patently wanting. The rights asserted and reliefs prayed for were
different, though founded on the same set of facts. The RTC-Makati Petition was one for declaratory relief while the CA-Manila Petition
was one for injunction with a prayer for preliminary injunction.
A petition for declaratory relief is filed by any person interested under a deed, will, contract or other written instrument, or whose rights
are affected by a statute, executive order or regulation, ordinance, or any other governmental regulation, before breach or violation,
thereof, to determine any question of construction or validity arising, and for a declaration of his rights or duties thereunder.47
Injunction, on the other hand, is "a judicial writ, process or proceeding whereby a party is directed either to do a particular act, in which
case it is called a mandatory injunction, or to refrain from doing a particular act, in which case it is called a prohibitory injunction. As a
main action, injunction seeks to permanently enjoin the defendant through a final injunction issued by the court and contained in the
judgment."48
Clearly, there is a marked difference between the reliefs sought under an action for declaratory relief and an action for injunction. While
an action for declaratory relief seeks a declaration of rights or duties, or the determination of any question or validity arising under a
statute, executive order or regulation, ordinance, or any other governmental regulation, or under a deed, will, contract or other written
instrument, under which his rights are affected, and before breach or violation, an action for injunction ultimately seeks to enjoin or to
compel a party to perform certain acts.
Moreover, as stated in the RTC-Makati Decision, because the Banks had already breached the provisions of law on which declaratory
judgment was being sought, it was without jurisdiction to take cognizance of the same. Any judgment rendered in the RTC-Makati
petition would not amount to res judicata in the CA-Manila Petition. Thus, the RTC was correct in dismissing the case, having been
bereft of jurisdiction to take cognizance of the action for declaratory judgment.
As between the CA-Manila and the CA-Cebu petitions, the second and third elements of litis pendentia are absent. The rights asserted
and reliefs prayed for were different, although founded on the same set of facts.
The CA-Manila Petition is a petition for injunction wherein the Banks prayed that:
1) Immediately upon filing of this Petition, a Writ of Preliminary Injunction and/or Temporary Restraining Order be
issued commanding the respondent and all its officers, employees and agents to cease and desist from proceeding
with the investigations sought to be conducted on the petitioners’ head and branch offices while the Petition for
Declaratory Relief before Branch 58 of the Makati Regional Trial Court is pending.
2) After due proceedings, judgment be rendered declaring as permanent the Writ of Preliminary Injunction and/or
Temporary Restraining Order prayed for above.
Other equitable reliefs are likewise prayed for.49
[Underscoring supplied]
The CA-Cebu Petition, on the other hand, is denominated as a Petition for Injunction With Prayer for Writ of Preliminary Injunction
and/or Restraining Order. The Banks prayed therein that:
1) Upon filing of this Petition, a Writ of Preliminary Injunction and/or Temporary Restraining Order be issued forthwith,
enjoining Respondent PDIC and all its officers, employees and agents to cease and desist from conducting
examinations/investigations on Petitioner Banks’ head and branch offices without securing the requisite approval from
the Monetary Board of the Bangko Sentral ng Pilipinas, as required by Sec. 8, Paragraph 8 of the PDIC Charter, as
amended;
2) After due proceedings, judgment be rendered declaring as permanent the Writ of Preliminary Injunction and/or
Temporary Restraining Order prayed for above.
Other equitable reliefs are likewise prayed for.50
As can be gleaned from the above-cited portions of the CA-Manila and CA-Cebu petitions, the petitions seek different reliefs.
Therefore, as between and among the RTC Makati, and the CA-Manila and CA-Cebu petitions, there is no forum shopping.
III - Whether petitioner was deprived of its opportunity to be heard when the Court of Appeals-Cebu issued the writ of
injunction.
PDIC alleges that the CA-Cebu, in issuing the TRO in its March 15, 2006 Resolution, and subsequently, the preliminary injunction in its
May 16, 2006 Resolution, violated the fundamental rule that courts should avoid issuing injunctive relief which would in effect dispose of
the main case without trial.51 PDIC argues that a TRO is intended only as a restraint until the propriety of granting a temporary
injunction can be determined, and it goes no further than to preserve the status until that determination. 52 Moreover, its purpose is
merely to suspend proceedings until such time when there may be an opportunity to inquire whether any injunction should be granted,
and it is not intended to operate as an injunction pendente lite, and should not, in effect, determine the issues involved before the
parties can have their day in court, or give an advantage to either party by proceeding in the acquisition or alteration of the property the
right to which is disputed while the hands of the other party are tied.53
On the other hand, the Banks claim that PDIC was given every opportunity to present its arguments against the issuance of the
injunction.54 Its active participation in the proceedings negates its assertion that it was denied procedural due process in the issuance of
the writ of injunction.55 Citing Salonga v. Court of Appeals,56 the Banks state that the essence of due process is the reasonable
opportunity to be heard and to submit evidence one may have in support of one’s defense,57 and PDIC was able to do so.
On March 15, 2006, the CA-Cebu issued a resolution granting their prayer for a 60-day TRO, and requiring PDIC to file its
comment.58 The latter thereafter filed its Comment ad Cautelam dated March 30, 2006.59 [Underscoring ours]
On May 16, 2006, the CA-Cebu issued another resolution, this time granting the prayer for a preliminary injunction and requiring the
parties to file their respective memoranda. PDIC thereafter filed its memorandum dated July 31, 2006.60
On September 18, 2006, the CA-Cebu promulgated its Decision granting the Petition for Injunction. 61 PDIC filed a motion for
reconsideration dated October 10, 2006,62 which was subsequently denied.
The essence of procedural due process is found in the reasonable opportunity to be heard and submit one’s evidence in support of his
defense.63 The Court finds that procedural due process was observed by the CA-Cebu. The parties were afforded equal opportunity to
present their arguments. In the absence of any indication to the contrary, the CA-Cebu must be accorded the presumption of regularity
in the performance of their functions. However, as discussed herein, the matter of whether it erred in its conclusion and issuance of the
TRO, preliminary injunction and final injunction is another matter altogether.
IV – Whether the issues raised by petitioner are the same issues raised in G.R. No. 173370 which was earlier dismissed by
this Court.
In G.R. 173370, a petition for certiorari under Rule 65 of the Rules of Court, PDIC alleged that the CA-Cebu committed grave abuse of
discretion amounting to lack or excess of jurisdiction in taking cognizance of the Bank’s petition, and in issuing a TRO and a writ of
preliminary injunction.64
In the case at bench, a petition for review under Rule 45, PDIC’s core contention is that the CA-Cebu erred in finding that prior approval
of the Monetary Board of the BSP is necessary before it may conduct an investigation of the Banks.
Clearly then, the two petitions were of different nature raising different issues.
G.R. 173370 challenged the CA-Cebu’s having taken cognizance of the Bank’s petition and interlocutory orders on the issuance of a
TRO and a writ of preliminary injunction. This case, however, strikes at the core of the final decision on the merits of the CA-Cebu, and
not merely the interlocutory orders. While both G.R. 173370 and the present case may have been anchored on the same set of facts,
that is, the refusal of the Banks to allow PDIC to conduct an investigation without the prior consent of the Monetary Board, the issues
raised in the two petitions are not identical. Moreover, the disposal of the first case does not amount to res judicata in this case.
V – Whether the Court of Appeals-Cebu erred in finding that prior approval of the Monetary Board of the Bangko Sentral ng
Pilipinas is necessary before the PDIC may conduct an investigation of respondent banks.
PDIC is of the position that in order for it to exercise its power of investigation, the law requires that:
(a) The investigation is based on a complaint of a depositor or any other government agency, or on the report of
examination of [the] Bangko Sentral ng Pilipinas (BSP) and/or PDIC; and,
(b) The complaint alleges, or the BSP and/or PDIC Report of Examination contains adverse findings of, fraud,
irregularities or anomalies committed by the Bank and/or its directors, officers, employees or agents; and,
(c) The investigation is upon the authority of the PDIC Board of Directors.65
It argues that when it commenced its investigation on the Banks, all of the aforementioned requirements were met. PDIC stresses that
its power of examination is different from its power of investigation, in such that the former requires prior approval of the Monetary
Board while the latter requires merely the approval of the PDIC Board. 66 It further claims that the power of examination cannot be
exercised within twelve (12) months from the last examination conducted, whereas the power of investigation is without limitation as to
the frequency of its conduct. It states that the purpose of the PDIC’s power of examination is merely to look into the condition of the
bank, whereas the power of investigation aims to address fraud, irregularities and anomalies based on complaints from depositors and
other government agencies or upon reports of examinations conducted by the PDIC itself or by the BSP.67
The Banks, on the other hand, are of the opinion that a holistic reading of the PDIC charter shows that petitioner’s power of examination
is synonymous with its power of investigation. 68 They cite, as bases, the law dictionary definitions, Section 8, Eighth paragraph 69 and
Section 9(b-1)70 of the PDIC Charter, and Rule 1, Section 3(1) of PDIC Regulatory Issuance No. 2005-02, which defines "investigation"
as follows:
(l) ‘Investigation’ shall refer to fact-finding examination, study or inquiry for determining whether the allegations in a complaint or
findings in a final report of examination may properly be the subject of an administrative, criminal or civil action.
The Banks further cite Section X658 of the Manual of Regulations for Banks, which states:
Sec. X658 - Examination by the BSP. The term ‘examination’ shall, henceforth, refer to an investigation of an institution under the
supervisory authority of the BSP to determine compliance with laws and regulations. It shall include determination that the institution is
conducting its business on a safe and sound basis. Examination requires full and comprehensive looking into the operations and books
of institutions, and shall include, but need not be limited to the following:
a. Determination of the bank’s solvency and liquidity position;
b. Evaluation of asset quality as well as determination of sufficiency of valuation reserves on loans and other risk assets;
c. Review of all aspects of bank operations;
d. Assessment of risk management system, including the evaluation of the effectiveness of the bank management’s oversight
functions, policies, procedures, internal control and audit;
e. Appraisal of overall management of the bank;
f. Review of compliance and applicable laws, rules and regulations; and any other activities relevant to the above."
After an evaluation of the respective positions of the parties, the Court is of the view that the Monetary Board approval is not required
for PDIC to conduct an investigation on the Banks.
The disagreement stems from the interpretation of these two key provisions of the PDIC Charter. The confusion can be attributed to the
fact that although "investigation" and "examination" are two separate and distinct procedures under the charter of the PDIC and the
BSP, the words seem to be used loosely and interchangeably.
It does not help that indeed these terms are very closely related in a generic sense. However, while "examination" connotes a mere
generic perusal or inspection, "investigation" refers to a more intensive scrutiny for a more specific fact-finding purpose. The latter term
is also usually associated with proceedings conducted prior to criminal prosecution.
The PDIC was created by R.A. No. 3591 on June 22, 1963 as an insurer of deposits in all banks entitled to the benefits of insurance
under the PDIC Charter to promote and safeguard the interests of the depositing public by way of providing permanent and continuing
insurance coverage of all insured deposits. It is a government instrumentality that operates under the Department of Finance. Its
primary purpose is to act as deposit insurer, as a co-regulator of banks, and as receiver and liquidator of closed banks.71
Section 1 of the PDIC Charter states:
SECTION 1. There is hereby created a Philippine Deposit Insurance Corporation hereinafter referred to as the "Corporation" which
shall insure, as herein provided, the deposits of all banks which are entitled to the benefits of insurance under this Act, and which shall
have the powers hereinafter granted.
The Corporation shall, as a basic policy, promote and safeguard the interests of the depositing public by way of providing permanent
and continuing insurance coverage on all insured deposits.
Section 1 of R.A. No. 9576 further provides: An Act Increasing the Maximum Deposit Insurance Coverage, and in connection therewith,
to Strengthen the Regulatory and Administrative Authority, and Financial Capability of the Philippine Deposit Insurance Corporation
(PDIC), amending for this purpose R.A. No. 3591, as Amended, otherwise known as the PDIC Charter.
SECTION 1. Statement of State Policy and Objectives. - It is hereby declared to be the policy of the State to strengthen the
mandatory deposit insurance coverage system to generate, preserve, maintain faith and confidence in the country’s banking system,
and protect it from illegal schemes and machinations.
Towards this end, the government must extend all means and mechanisms necessary for the Philippine Deposit Insurance Corporation
to effectively fulfill its vital task of promoting and safeguarding the interests of the depositing public by way of providing permanent and
continuing insurance coverage on all insured deposits, and in helping develop a sound and stable banking system at all times.1âwphi1
Under its charter, the PDIC is empowered to conduct examination of banks with prior approval of the Monetary Board:
Eighth – To conduct examination of banks with prior approval of the Monetary Board: Provided, That no examination can be conducted
within twelve (12) months from the last examination date: Provided, however, That the Corporation may, in coordination with the
Bangko Sentral, conduct a special examination as the Board of Directors, by an affirmative vote of a majority of all its members, if there
is a threatened or impending closure of a bank; Provided, further, That, notwithstanding the provisions of Republic Act No. 1405, as
amended, Republic Act No. 6426, as amended, Republic Act No. 8791, and other laws, the Corporation and/or the Bangko Sentral,
may inquire into or examine deposit accounts and all information related thereto in case there is a finding of unsafe or unsound banking
practice; Provided, That to avoid overlapping of efforts, the examination shall maximize the efficient use of the relevant reports,
information, and findings of the Bangko Sentral, which it shall make available to the Corporation; (As amended by R.A. 9302, 12 August
2004, R.A. 9576, 1 June 2009)
xxx. [Underlining supplied]
Section 9(b-1) of the PDIC Charter further provides that the PDIC Board shall have the power to:
POWERS AND RESPONSIBILITIES AND PROHIBITIONS
SECTION 9. xxx
(b) The Board of Directors shall appoint examiners who shall have power, on behalf of the Corporation to examine any insured bank.
Each such examiner shall have the power to make a thorough examination of all the affairs of the bank and in doing so, he shall have
the power to administer oaths, to examine and take and preserve the testimony of any of the officers and agents thereof, and, to
compel the presentation of books, documents, papers, or records necessary in his judgment to ascertain the facts relative to the
condition of the bank; and shall make a full and detailed report of the condition of the bank to the Corporation. The Board of Directors in
like manner shall appoint claim agents who shall have the power to investigate and examine all claims for insured deposits and
transferred deposits. Each claim agent shall have the power to administer oaths and to examine under oath and take and preserve
testimony of any person relating to such claim. (As amended by E.O. 890, 08 April 1983; R.A. 7400, 13 April 1992)
(b-1) The investigators appointed by the Board of Directors shall have the power on behalf of the Corporation to conduct investigations
on frauds, irregularities and anomalies committed in banks, based on reports of examination conducted by the Corporation and Bangko
Sentral ng Pilipinas or complaints from depositors or from other government agency. Each such investigator shall have the power to
administer oaths, and to examine and take and preserve the testimony of any person relating to the subject of investigation. (As added
by R.A. 9302, 12 August 2004)
xxx. [Underscoring supplied]
As stated above, the charter empowers the PDIC to conduct an investigation of a bank and to appoint examiners who shall have the
power to examine any insured bank. Such investigators are authorized to conduct investigations on frauds, irregularities and anomalies
committed in banks, based on an examination conducted by the PDIC and the BSP or on complaints from depositors or from other
government agencies.
The distinction between the power to investigate and the power to examine is emphasized by the existence of two separate sets of
rules governing the procedure in the conduct of investigation and examination. Regulatory Issuance (RI) No. 2005-02 or the
PDIC Rules on Fact-Finding Investigation of Fraud, Irregularities and Anomalies Committed in Banks covers the procedural
requirements of the exercise of the PDIC’s power of investigation. On the other hand, RI No. 2009-05 sets forth the guidelines for the
conduct of the power of examination.
The definitions provided under the two aforementioned regulatory issuances elucidate on the distinction between the power of
examination and the power of investigation.
Section 2 of RI No. 2005-02 states that its coverage shall be applicable to "all fact-finding investigations on fraud, irregularities and/or
anomalies committed in banks that are conducted by PDIC based on: [a] complaints from depositors or other government agencies;
and/or [b] final reports of examinations of banks conducted by the Bangko Sentral ng Pilipinas and/or PDIC."
The same issuance states that the Final Report of Examination 72 is one of the three pre-requisites to the conduct of an investigation, in
addition to the authorization of the PDIC Board73 and a complaint.74 Juxtaposing this provision with Section 9(b-1) of the PDIC Charter,
since an examination is explicitly made the basis of a fact-finding examination, then clearly examination and investigation are two
different proceedings. It would obviously defy logic to make the result of an "investigation" the basis of the same proceeding. Thus, RI
No. 2005-02 defines an "investigation" as a "fact-finding examination, study or inquiry for determining whether the allegations in a
complaint or findings in a final report of examination may properly be the subject of an administrative, criminal or civil action."75
The Banks cite the dictionary definitions of "examination" and "investigation" to justify their conclusion that these terms refer to one and
the same proceeding. It is tempting to use these two terms interchangeably, which practice may be perfectly justified in a purely literary
sense. Indeed, a reading of the PDIC Charter shows that the two terms have been used interchangeably at some point. However,
based on the provisions aforecited, the intention of the laws is clearly to differentiate between the process of investigation and that of
examination.
In 2009, to clarify procedural matters, PDIC released RI No. 2009-05 or the Rules and Regulations on Examination of Banks. Section 2
thereof differentiated between the two types of examination as follows:
Section 2. Types of Examination
a. Regular Examination - An examination conducted independently or jointly with the BSP. It requires the prior approval of the
PDIC Board of Directors and the Monetary Board (MB). It may be conducted only after an interval of at least twelve (12)
months from the closing date of the last Regular Examination.
b. Special Examination – An examination conducted at any time in coordination with the BSP, by an affirmative vote of a
majority of all the members of the PDIC Board of Directors, without need of prior MB approval, if there is a threatened or
impending bank closure as determined by the PDIC Board of Directors. [Underscoring supplied]
Section 3 of RI No. 2009-05 provides for the general scope of the PDIC examination:
Section 3. Scope of Examination
The examination shall include, but need not be limited to, the following:
a. Determination of the bank’s solvency and liquidity position;
b. Evaluation of asset quality as well as determination of sufficiency of valuation reserves on loans and other risk assets;
c. Review of all aspects of bank operations;
d. Assessment of risk management system, including the evaluation of the effectiveness of the bank management’s oversight
functions, policies, procedures, internal control and audit;
e. Appraisal of overall management of the bank;
f. Review of compliance with applicable banking laws, and rules and regulations, including PDIC issuances;
g. Follow-through of specific exceptions/ violations noted during a previous examination; and
h. Any other activity relevant to the above.
Rule 2, Section 1 of PDIC RI No. 2005-02 or the PDIC Rules on Fact-Finding Investigation of Fraud, Irregularities and Anomalies
Committed in Banks provides for the scope of fact-finding investigations as follows:
SECTION 1. Scope of the Investigation.
Fact-finding Investigations shall be limited to the particular acts or omissions subject of a complaint or a Final Report of Examination.
From the above-cited provisions, it is clear that the process of examination covers a wider scope than that of investigation.
Examination involves an evaluation of the current status of a bank and determines its compliance with the set standards regarding
solvency, liquidity, asset valuation, operations, systems, management, and compliance with banking laws, rules and regulations.
Investigation, on the other hand, is conducted based on specific findings of certain acts or omissions which are subject of a complaint or
a Final Report of Examination.
Clearly, investigation does not involve a general evaluation of the status of a bank.1âwphi1 An investigation zeroes in on specific acts
and omissions uncovered via an examination, or which are cited in a complaint.
An examination entails a review of essentially all the functions and facets of a bank and its operation. It necessitates poring through
voluminous documents, and requires a detailed evaluation thereof. Such a process then involves an intrusion into a bank’s records.
In contrast, although it also involves a detailed evaluation, an investigation centers on specific acts of omissions and, thus, requires a
less invasive assessment.
The practical justification for not requiring the Monetary Board approval to conduct an investigation of banks is the administrative
hurdles and paperwork it entails, and the correspondent time to complete those additional steps or requirements. As in other types of
investigation, time is always of essence, and it is prudent to expedite the proceedings if an accurate conclusion is to be arrived at, as an
investigation is only as precise as the evidence on which it is based. The promptness with which such evidence is gathered is always of
utmost importance because evidence, documentary evidence in particular, is remarkably fungible. A PDIC investigation is conducted to
"determine[e] whether the allegations in a complaint or findings in a final report of examination may properly be the subject of an
administrative, criminal or civil action." 76 In other words, an investigation is based on reports of examination and an examination is
conducted with prior Monetary Board approval. Therefore, it would be unnecessary to secure a separate approval for the conduct of an
investigation. Such would merely prolong the process and provide unscrupulous individuals the opportunity to cover their tracks.
Indeed, while in a literary sense, the two terms may be used interchangeably, under the PDIC Charter, examination and investigation
refer to two different processes. To reiterate, an examination of banks requires the prior consent of the Monetary Board, whereas an
investigation based on an examination report, does not.
WHEREFORE, the petition is GRANTED. The Decision and Resolution of the Court of Appeals in CA G.R. CEB SP. No. 01550, dated
September 18, 2006 and January 25, 2007 are REVERSED and SET ASIDE.
SO ORDERED.
SUPREME COURT
Baguio
THIRD DIVISION
G.R. No. 170290 April 11, 2012
PHILIPPINE DEPOSIT INSURANCE CORPORATION, Petitioner,

vs.
CITIBANK, N.A. and BANK OF AMERICA, S.T. & N.A., Respondents.
DECISION
MENDOZA, J.:
This is a petition for review under Rule 45 of the 1997 Revised Rules of Civil Procedure, assailing the October 27, 2005 Decision 1 of the
Court of Appeals (CA) in CA-G.R. CV No. 61316, entitled "Citibank, N.A. and Bank of America, S.T. & N.A. v. Philippine Deposit
Insurance Corporation."
The Facts
Petitioner Philippine Deposit Insurance Corporation (PDIC) is a government instrumentality created by virtue of Republic Act (R.A.) No.
3591, as amended by R.A. No. 9302.2
Respondent Citibank, N.A. (Citibank) is a banking corporation while respondent Bank of America, S.T. & N.A. (BA) is a national banking
association, both of which are duly organized and existing under the laws of the United States of America and duly licensed to do
business in the Philippines, with offices in Makati City.3
In 1977, PDIC conducted an examination of the books of account of Citibank. It discovered that Citibank, in the course of its banking
business, from September 30, 1974 to June 30, 1977, received from its head office and other foreign branches a total of
₱11,923,163,908.00 in dollars, covered by Certificates of Dollar Time Deposit that were interest-bearing with corresponding maturity
dates.4 These funds, which were lodged in the books of Citibank under the account "Their Account-Head Office/Branches-Foreign
Currency," were not reported to PDIC as deposit liabilities that were subject to assessment for insurance. 5 As such, in a letter dated
March 16, 1978, PDIC assessed Citibank for deficiency in the sum of ₱1,595,081.96.6
Similarly, sometime in 1979, PDIC examined the books of accounts of BA which revealed that from September 30, 1976 to June 30,
1978, BA received from its head office and its other foreign branches a total of ₱629,311,869.10 in dollars, covered by Certificates of
Dollar Time Deposit that were interest-bearing with corresponding maturity dates and lodged in their books under the account "Due to
Head Office/Branches."7 Because BA also excluded these from its deposit liabilities, PDIC wrote to BA on October 9, 1979, seeking the
remittance of ₱109,264.83 representing deficiency premium assessments for dollar deposits.8
Believing that litigation would inevitably arise from this dispute, Citibank and BA each filed a petition for declaratory relief before the
Court of First Instance (now the Regional Trial Court) of Rizal on July 19, 1979 and December 11, 1979, respectively. 9 In their petitions,
Citibank and BA sought a declaratory judgment stating that the money placements they received from their head office and other
foreign branches were not deposits and did not give rise to insurable deposit liabilities under Sections 3 and 4 of R.A. No. 3591 (the
PDIC Charter) and, as a consequence, the deficiency assessments made by PDIC were improper and erroneous. 10 The cases were
then consolidated.11
On June 29, 1998, the Regional Trial Court, Branch 163, Pasig City (RTC) promulgated its Decision12 in favor of Citibank and BA, ruling
that the subject money placements were not deposits and did not give rise to insurable deposit liabilities, and that the deficiency
assessments issued by PDIC were improper and erroneous. Therefore, Citibank and BA were not liable to pay the same. The RTC
reasoned out that the money placements subject of the petitions were not assessable for insurance purposes under the PDIC Charter
because said placements were deposits made outside of the Philippines and, under Section 3.05(b) of the PDIC Rules and
Regulations,13 such deposits are excluded from the computation of deposit liabilities. Section 3(f) of the PDIC Charter likewise excludes
from the definition of the term "deposit" any obligation of a bank payable at the office of the bank located outside the Philippines. The
RTC further stated that there was no depositor-depository relationship between the respondents and their head office or other
branches. As a result, such deposits were not included as third-party deposits that must be insured. Rather, they were considered inter-
branch deposits which were excluded from the assessment base, in accordance with the practice of the United States Federal Deposit
Insurance Corporation (FDIC) after which PDIC was patterned.
Aggrieved, PDIC appealed to the CA which affirmed the ruling of the RTC in its October 27, 2005 Decision. In so ruling, the CA found
that the money placements were received as part of the bank’s internal dealings by Citibank and BA as agents of their respective head
offices. This showed that the head office and the Philippine branch were considered as the same entity. Thus, no bank deposit could
have arisen from the transactions between the Philippine branch and the head office because there did not exist two separate
contracting parties to act as depositor and depositary.14 Secondly, the CA called attention to the purpose for the creation of PDIC which
was to protect the deposits of depositors in the Philippines and not the deposits of the same bank through its head office or foreign
branches.15 Thirdly, because there was no law or jurisprudence on the treatment of inter-branch deposits between the Philippine branch
of a foreign bank and its head office and other branches for purposes of insurance, the CA was guided by the procedure observed by
the FDIC which considered inter-branch deposits as non-assessable.16 Finally, the CA cited Section 3(f) of R.A. No. 3591, which
specifically excludes obligations payable at the office of the bank located outside the Philippines from the definition of a deposit or an
insured deposit. Since the subject money placements were made in the respective head offices of Citibank and BA located outside the
Philippines, then such placements could not be subject to assessment under the PDIC Charter.17
Hence, this petition.
The Issues
PDIC raises the issue of whether or not the subject dollar deposits are assessable for insurance purposes under the PDIC Charter with
the following assigned errors:
A.
The appellate court erred in ruling that the subject dollar deposits are money placements, thus, they are not subject to the
provisions of Republic Act No. 6426 otherwise known as the "Foreign Currency Deposit Act of the Philippines."
B.
The appellate court erred in ruling that the subject dollar deposits are not covered by the PDIC insurance. 18
Respondents similarly identify only one issue in this case:
Whether or not the money placements subject matter of these petitions are assessable for insurance purposes under the
PDIC Act.19
The sole question to be resolved in this case is whether the funds placed in the Philippine branch by the head office and foreign
branches of Citibank and BA are insurable deposits under the PDIC Charter and, as such, are subject to assessment for insurance
premiums.
The Court’s Ruling
The Court rules in the negative.
A branch has no separate legal personality;

Purpose of the PDIC
PDIC argues that the head offices of Citibank and BA and their individual foreign branches are separate and independent entities. It
insists that under American jurisprudence, a bank’s head office and its branches have a principal-agent relationship only if they operate
in the same jurisdiction. In the case of foreign branches, however, no such relationship exists because the head office and said foreign
branches are deemed to be two distinct entities.20 Under Philippine law, specifically, Section 3(b) of R.A. No. 3591, which defines the
terms "bank" and "banking institutions," PDIC contends that the law treats a branch of a foreign bank as a separate and independent
banking unit.21
The respondents, on the other hand, initially point out that the factual findings of the RTC and the CA, with regard to the nature of the
money placements, the capacity in which the same were received by the respondents and the exclusion of inter-branch deposits from
assessment, can no longer be disturbed and should be accorded great weight by this Court. 22 They also argue that the money
placements are not deposits. They postulate that for a deposit to exist, there must be at least two parties – a depositor and a depository
– each with a legal personality distinct from the other. Because the respondents’ respective head offices and their branches form only a
single legal entity, there is no creditor-debtor relationship and the funds placed in the Philippine branch belong to one and the same
bank. A bank cannot have a deposit with itself.23
This Court is of the opinion that the key to the resolution of this controversy is the relationship of the Philippine branches of Citibank and
BA to their respective head offices and their other foreign branches.
The Court begins by examining the manner by which a foreign corporation can establish its presence in the Philippines. It may choose
to incorporate its own subsidiary as a domestic corporation, in which case such subsidiary would have its own separate and
independent legal personality to conduct business in the country. In the alternative, it may create a branch in the Philippines, which
would not be a legally independent unit, and simply obtain a license to do business in the Philippines.24
In the case of Citibank and BA, it is apparent that they both did not incorporate a separate domestic corporation to represent its
business interests in the Philippines. Their Philippine branches are, as the name implies, merely branches, without a separate legal
personality from their parent company, Citibank and BA. Thus, being one and the same entity, the funds placed by the respondents in
their respective branches in the Philippines should not be treated as deposits made by third parties subject to deposit insurance under
the PDIC Charter.
For lack of judicial precedents on this issue, the Court seeks guidance from American jurisprudence.1âwphi1 In the leading case
of Sokoloff v. The National City Bank of New York,25 where the Supreme Court of New York held:
Where a bank maintains branches, each branch becomes a separate business entity with separate books of account. A
depositor in one branch cannot issue checks or drafts upon another branch or demand payment from such other branch, and in many
other respects the branches are considered separate corporate entities and as distinct from one another as any other
bank. Nevertheless, when considered with relation to the parent bank they are not independent agencies; they are, what their
name imports, merely branches, and are subject to the supervision and control of the parent bank, and are instrumentalities
whereby the parent bank carries on its business, and are established for its own particular purposes, and their business conduct and
policies are controlled by the parent bank and their property and assets belong to the parent bank, although nominally held in the
names of the particular branches. Ultimate liability for a debt of a branch would rest upon the parent bank. [Emphases supplied]
This ruling was later reiterated in the more recent case of United States v. BCCI Holdings Luxembourg26 where the United States Court
of Appeals, District of Columbia Circuit, emphasized that "while individual bank branches may be treated as independent of one
another, each branch, unless separately incorporated, must be viewed as a part of the parent bank rather than as an independent
entity."
In addition, Philippine banking laws also support the conclusion that the head office of a foreign bank and its branches are considered
as one legal entity. Section 75 of R.A. No. 8791 (The General Banking Law of 2000) and Section 5 of R.A. No. 7221 (An Act
Liberalizing the Entry of Foreign Banks) both require the head office of a foreign bank to guarantee the prompt payment of all the
liabilities of its Philippine branch, to wit:
Republic Act No. 8791:
Sec. 75. Head Office Guarantee. – In order to provide effective protection of the interests of the depositors and other creditors of
Philippine branches of a foreign bank, the head office of such branches shall fully guarantee the prompt payment of all liabilities of its
Philippine branch.
Residents and citizens of the Philippines who are creditors of a branch in the Philippines of foreign bank shall have preferential rights to
the assets of such branch in accordance with the existing laws.
Republic Act No. 7721:
Sec. 5. Head Office Guarantee. – The head office of foreign bank branches shall guarantee prompt payment of all liabilities of its
Philippine branches.
Moreover, PDIC must be reminded of the purpose for its creation, as espoused in Section 1 of R.A. No. 3591 (The PDIC Charter) which
provides:
Section 1. There is hereby created a Philippine Deposit Insurance Corporation hereinafter referred to as the "Corporation" which shall
insure, as herein provided, the deposits of all banks which are entitled to the benefits of insurance under this Act, and which shall have
the powers hereinafter granted.
The Corporation shall, as a basic policy, promote and safeguard the interests of the depositing public by way of providing permanent
and continuing insurance coverage on all insured deposits.
R.A. No. 9576, which amended the PDIC Charter, reaffirmed the rationale for the establishment of the PDIC:
Section 1. Statement of State Policy and Objectives. - It is hereby declared to be the policy of the State to strengthen the mandatory
deposit insurance coverage system to generate, preserve, maintain faith and confidence in the country's banking system, and protect it
from illegal schemes and machinations.
Towards this end, the government must extend all means and mechanisms necessary for the Philippine Deposit Insurance Corporation
to effectively fulfill its vital task of promoting and safeguarding the interests of the depositing public by way of providing permanent and
continuing insurance coverage on all insured deposits, and in helping develop a sound and stable banking system at all times.
The purpose of the PDIC is to protect the depositing public in the event of a bank closure. It has already been sufficiently established by
US jurisprudence and Philippine statutes that the head office shall answer for the liabilities of its branch. Now, suppose the Philippine
branch of Citibank suddenly closes for some reason. Citibank N.A. would then be required to answer for the deposit liabilities of
Citibank Philippines. If the Court were to adopt the posture of PDIC that the head office and the branch are two separate entities and
that the funds placed by the head office and its foreign branches with the Philippine branch are considered deposits within the meaning
of the PDIC Charter, it would result to the incongruous situation where Citibank, as the head office, would be placed in the ridiculous
position of having to reimburse itself, as depositor, for the losses it may incur occasioned by the closure of Citibank Philippines. Surely
our law makers could not have envisioned such a preposterous circumstance when they created PDIC.
Finally, the Court agrees with the CA ruling that there is nothing in the definition of a "bank" and a "banking institution" in Section 3(b) of
the PDIC Charter27 which explicitly states that the head office of a foreign bank and its other branches are separate and distinct from
their Philippine branches.
There is no need to complicate the matter when it can be solved by simple logic bolstered by law and jurisprudence. Based on the
foregoing, it is clear that the head office of a bank and its branches are considered as one under the eyes of the law. While branches
are treated as separate business units for commercial and financial reporting purposes, in the end, the head office remains responsible
and answerable for the liabilities of its branches which are under its supervision and control. As such, it is unreasonable for PDIC to
require the respondents, Citibank and BA, to insure the money placements made by their home office and other branches. Deposit
insurance is superfluous and entirely unnecessary when, as in this case, the institution holding the funds and the one which made the
placements are one and the same legal entity.
Funds not a deposit under the definition

of the PDIC Charter;
Excluded from assessment
PDIC avers that the funds are dollar deposits and not money placements. Citing R.A. No. 6848, it defines money placement as a
deposit which is received with authority to invest. Because there is no evidence to indicate that the respondents were authorized to
invest the subject dollar deposits, it argues that the same cannot be considered money placements. 28 PDIC then goes on to assert that
the funds received by Citibank and BA are deposits, as contemplated by Section 3(f) of R.A. No. 3591, for the following reasons: (1) the
dollar deposits were received by Citibank and BA in the course of their banking operations from their respective head office and foreign
branches and were recorded in their books as "Account-Head Office/Branches-Time Deposits" pursuant to Central Bank Circular No.
343 which implements R.A. No. 6426; (2) the dollar deposits were credited as dollar time accounts and were covered by Certificates of
Dollar Time Deposit which were interest-bearing and payable upon maturity, and (3) the respondents maintain 100% foreign currency
cover for their deposit liability arising from the dollar time deposits as required by Section 4 of R.A. No. 6426.29
To refute PDIC’s allegations, the respondents explain the inter-branch transactions which necessitate the creation of the accounts or
placements subject of this case. When the Philippine branch needs to procure foreign currencies, it will coordinate with a branch in
another country which handles foreign currency purchases. Both branches have existing accounts with their head office and when a
money placement is made in relation to the acquisition of foreign currency from the international market, the amount is credited to the
account of the Philippine branch with its head office while the same is debited from the account of the branch which facilitated the
purchase. This is further documented by the issuance of a certificate of time deposit with a stated interest rate and maturity date. The
interest rate represents the cost of obtaining the funds while the maturity date represents the date on which the placement must be
returned. On the maturity date, the amount previously credited to the account of the Philippine branch is debited, together with the cost
for obtaining the funds, and credited to the account of the other branch. The respondents insist that the interest rate and maturity date
are simply the basis for the debit and credit entries made by the head office in the accounts of its branches to reflect the inter-branch
accommodation.30 As regards the maintenance of currency cover over the subject money placements, the respondents point out that
they maintain foreign currency cover in excess of what is required by law as a matter of prudent banking practice.31
PDIC attempts to define money placement in order to impugn the respondents’ claim that the funds received from their head office and
other branches are money placements and not deposits, as defined under the PDIC Charter. In the process, it loses sight of the
important issue in this case, which is the determination of whether the funds in question are subject to assessment for deposit
insurance as required by the PDIC Charter. In its struggle to find an adequate definition of "money placement," PDIC desperately cites
R.A. No. 6848, The Charter of the Al-Amanah Islamic Investment Bank of the Philippines. Reliance on the said law is unfounded
because nowhere in the law is the term "money placement" defined. Additionally, R.A. No. 6848 refers to the establishment of an
Islamic bank subject to the rulings of Islamic Shari’a to assist in the development of the Autonomous Region of Muslim Mindanao
(ARMM),32 making it utterly irrelevant to the case at bench. Since Citibank and BA are neither Islamic banks nor are they located
anywhere near the ARMM, then it should be painfully obvious that R.A. No. 6848 cannot aid us in deciding this case.
Furthermore, PDIC heavily relies on the fact that the respondents documented the money placements with certificates of time deposit to
simply conclude that the funds involved are deposits, as contemplated by the PDIC Charter, and are consequently subject to
assessment for deposit insurance. It is this kind of reasoning that creates non-existent obscurities in the law and obstructs the prompt
resolution of what is essentially a straightforward issue, thereby causing this case to drag on for more than three decades.1âwphi1
Noticeably, PDIC does not dispute the veracity of the internal transactions of the respondents which gave rise to the issuance of the
certificates of time deposit for the funds the subject of the present dispute. Neither does it question the findings of the RTC and the CA
that the money placements were made, and were payable, outside of the Philippines, thus, making them fall under the exclusions to
deposit liabilities. PDIC also fails to impugn the truth of the testimony of John David Shaffer, then a Fiscal Agent and Head of the
Assessment Section of the FDIC, that inter-branch deposits were excluded from the assessment base. Therefore, the determination of
facts of the lower courts shall be accepted at face value by this Court, following the well-established principle that factual findings of the
trial court, when adopted and confirmed by the CA, are binding and conclusive on this Court, and will generally not be reviewed on
appeal.33
As explained by the respondents, the transfer of funds, which resulted from the inter-branch transactions, took place in the books of
account of the respective branches in their head office located in the United States. Hence, because it is payable outside of the
Philippines, it is not considered a deposit pursuant to Section 3(f) of the PDIC Charter:
Sec. 3(f) The term "deposit" means the unpaid balance of money or its equivalent received by a bank in the usual course of business
and for which it has given or is obliged to give credit to a commercial, checking, savings, time or thrift account or which is evidenced by
its certificate of deposit, and trust funds held by such bank whether retained or deposited in any department of said bank or deposit in
another bank, together with such other obligations of a bank as the Board of Directors shall find and shall prescribe by regulations to be
deposit liabilities of the Bank; Provided, that any obligation of a bank which is payable at the office of the bank located outside
of the Philippines shall not be a deposit for any of the purposes of this Act or included as part of the total deposits or of the
insured deposits; Provided further, that any insured bank which is incorporated under the laws of the Philippines may elect to include
for insurance its deposit obligation payable only at such branch. [Emphasis supplied]
The testimony of Mr. Shaffer as to the treatment of such inter-branch deposits by the FDIC, after which PDIC was modelled, is also
persuasive. Inter-branch deposits refer to funds of one branch deposited in another branch and both branches are part of the same
parent company and it is the practice of the FDIC to exclude such inter-branch deposits from a bank’s total deposit liabilities subject to
assessment.34
All things considered, the Court finds that the funds in question are not deposits within the definition of the PDIC Charter and are, thus,
excluded from assessment.
WHEREFORE, the petition is DENIED. The October 27, 2005 Decision of the Court of Appeals in CA-G.R. CV No. 61316 is
AFFIRMED.
FIRST DIVISION
G.R. No. 230020, March 19, 2018
PETER L. SO, Petitioner, v. PHILIPPINE DEPOSIT INSURANCE CORPORATION, Respondent.
DECISION
TIJAM, J.:
This is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, assailing the Decision 2 dated November 7, 2016 and
Order3 dated February 17, 2017 of the Regional Trial Court (RTC) of Makati, Branch 138, in Special Civil Case No. 16-031, which
dismissed Peter L. So's (petitioner's) Petition for Certiorari4 on the ground of lack of jurisdiction.
Factual Antecedents
Petitioner opened an account with the Cooperative Rural Bank Bulacan (CRBB) on April 17, 2013, amounting to P300,000, for which he
was assigned the Special Incentive Savings Account (SISA) No. 05-15712-1.5
On the same year, however, petitioner learned that CRBB closed its operations and was placed under Philippine Deposit Insurance
Corporation's (PDIC's) receivership. This prompted petitioner, together with other depositors, to file an insurance claim with the PDIC
on November 8, 2013.6
Acting upon such claim, PDIC sent a letter/notice dated November 22, 2013, requiring petitioner to submit additional documents, which
petitioner averred of having complied with.7
Upon investigation, the PDIC found that petitioner's account originated from and was funded by the proceeds of a terminated SISA
(mother account), jointly owned by a certain Reyes family. 8 Thus, based on the determination that petitioner's account was among the
product of the splitting of the said mother account which is prohibited by law, PDIC denied petitioner's claim for payment of deposit
insurance.9 Petitioner filed a Request for Reconsideration, which was likewise denied by the PDIC on January 6, 2016.10
Aggrieved, petitioner filed a Petition for Certiorari11 under Rule 65 before the RTC.
RTC Ruling
In its November 7, 2016 assailed Decision, the RTC upheld the factual findings and conclusions of the PDIC. According to the RTC,
based on the records, the PDIC correctly denied petitioner's claim for insurance on the ground of splitting of deposits which is prohibited
by law.12
It also declared that, pursuant to its Charter (RA 3591), PDIC is empowered to determine and pass upon the validity of the insurance
deposits claims, it being the deposit insurer. As such, when it rules on such claims, it is exercising a quasi-judicial function. Thus, it was
held that petitioner's remedy to the dismissal of his claim is to file a petition for certiorari with the Court of Appeals under Section
4,13 Rule 65, stating that if the petition involves the acts or omissions of a quasi-judicial agency, unless otherwise provided by law or the
rules, it shall be filed in and cognizable only by the Court of Appeals (CA).14
In addition, the RTC also cited Section 22 15 of Republic Act (RA) No. 3591, as amended, which essentially states that only the CA shall
issue temporary restraining orders, preliminary injunctions or preliminary mandatory injunctions against the PDIC for any action under
the said Act.
The RTC disposed, thus:
WHEREFORE, in view of the foregoing, for lack of jurisdiction, the petition for certiorari filed by the petitioner is hereby DISMISSED.
SO ORDERED.16
In its February 17, 2017 Order, the RTC denied petitioner's motion for reconsideration.
Hence, this petition, filed directly to this Court on pure question of law.
Issue
Does the RTC have jurisdiction over a petition for certiorari filed under Rule 65, assailing the PDIC's denial of a deposit insurance
claim?
Our Ruling
The petition lacks merit.
There is no controversy as to the proper remedy to question the PDIC's denial of petitioner's deposit insurance claim. Section 4(f) of its
Charter, as amended, clearly provides that:
xxx
The actions of the Corporation taken under this section shall be final and executory, and may not be restrained or set aside
by the court, except on appropriate petition for certiorari on the ground that the action was taken in excess of jurisdiction or
with such grave abuse of discretion as to amount to a lack or excess of jurisdiction. The petition for certiorari may only be filed
within thirty (30) days from notice of denial of claim for deposit insurance. (emphasis supplied)
The issue, however, is which court has jurisdiction over such petition.
Petitioner's stance is that the petition for certiorari, questioning PDIC's action, denying a deposit insurance claim should be filed with the
RTC, arguing in this manner: PDIC is not a quasi-judicial agency and it does not possess any quasi-judicial power under its Charter; It
merely performs fact-finding functions based on its regulatory power. As such, applying Section 4, Rule 65 of the Rules of Court, as
amended by A.M. 07-7-12-SC, which in part states that if the petition relates to an act or omission of a corporation, such as the PDIC, it
shall be filed with the RTC exercising jurisdiction over the territorial area as defined by this Court; Also, Batas Pambansa Blg. 129 or the
Judiciary Reorganization Act provides that this Court, the CA, and the RTC have original concurrent jurisdiction over petitions
for certiorari, prohibition, and mandamus. Applying the principle of hierarchy of courts, the RTC indeed has jurisdiction over such
petition for certiorari.
We do not agree.
On June 22, 1963, PDIC was created under RA 3591 as an insurer of deposits in all banks entitled to the benefits of insurance under
the said Act to promote and safeguard the interests of the depositing public. 17 As such, PDIC has the duty and authority to determine
the validity of and grant or deny deposit insurance claims. Section 16(a) of its Charter, as amended, provides that PDIC shall
commence the determination of insured deposits due the depositors of a closed bank upon its actual take over of the closed bank. Also,
Section 1 of PDIC's Regulatory Issuance No. 2011-03, provides that as it is tasked to promote and safeguard the interests of the
depositing public by way of providing permanent and continuing insurance coverage on all insured deposits, and in helping develop a
sound and stable banking system at all times, PDIC shall pay all legitimate deposits held by bona fide depositors and provide a
mechanism by which depositors may seek reconsideration from its decision, denying a deposit insurance claim. Further, it bears
stressing that as stated in Section 4(f) of its Charter, as amended, PDIC's action, such as denying a deposit insurance claim, is
considered as final and executory and may be reviewed by the court only through a petition for certiorari on the ground of grave abuse
of discretion.
Considering the foregoing, the legislative intent in creating the PDIC as a quasi-judicial agency is clearly manifest.
In the case of Lintang Bedol v. Commission on Elections,18 cited in Carlito C. Encinas v. PO1 Alfredo P. Agustin, Jr. and PO1 Joel S.
Caubang,19 this Court explained the nature of a quasi-judicial agency, viz.:
Quasi-judicial or administrative adjudicatory power on the other hand is the power of the administrative agency to adjudicate the rights
of persons before it. It is the power to hear and determine questions of fact to which the legislative policy is to apply and to decide in
accordance with the standards laid down by the law itself in enforcing and administering the same law. The administrative body
exercises its quasi-judicial power when it performs in a judicial manner an act which is essentially of an executive or administrative
nature, where the power to act in such manner is incidental to or reasonably necessary for the performance of the executive or
administrative duty entrusted to it. In carrying out their quasi-judicial functions the administrative officers or bodies are required
to investigate facts or ascertain the existence of facts, hold hearings, weigh evidence, and draw conclusions from them as
basis for their official action and exercise of discretion in a judicial nature.
The Court has laid down the test for determining whether an administrative body is exercising judicial or merely investigatory
functions: adjudication signifies the exercise of the power and authority to adjudicate upon the rights and obligations of the
parties. Hence, if the only purpose of an investigation is to evaluate the evidence submitted to an agency based on the facts and
circumstances presented to it, and if the agency is not authorized to make a final pronouncement affecting the parties, then there is an
absence of judicial discretion and judgment. (emphasis supplied)
Thus, the legislative intent in creating PDIC as a quasi-judicial agency is clearly manifest. Indeed, PDIC exercises judicial discretion and
judgment in determining whether a claimant is entitled to a deposit insurance claim, which determination results from its investigation of
facts and weighing of evidence presented before it. Noteworthy also is the fact that the law considers PDIC's action as final and
executory and may be reviewed only on the ground of grave abuse of discretion.
That being established, We proceed to determine where such petition for certiorari should be filed. In this matter, We cite the very
provision invoked by the petitioner, i.e., Section 4, Rule 65 of the Rules, as amended by A.M. No. 07-7-12-SC:
Sec. 4. When and where to file the petition. - The petition shall be filed not later than sixty (60) days from notice of the judgment, order
or resolution. In case a motion for reconsideration or new trial is timely filed, whether such motion is required or not, the petition shall be
filed not later than sixty (60) days counted from the notice of the denial of the motion.
If the petition relates to an act or an omission of a municipal trial court or of a corporation, a board, an officer or a person, it shall be filed
with the Regional Trial Court exercising jurisdiction over the territorial area as defined by the Supreme Court. It may also be filed with
the Court of Appeals or with the Sandiganbayan, whether or not the same is in aid of the court's appellate jurisdiction. If the petition
involves an act or an omission of a quasi-judicial agency, unless otherwise provided by law or these rules, the petition shall
be filed with and be cognizable only by the Court of Appeals. (emphasis supplied)
Clearly, a petition for certiorari, questioning the PDIC's denial of a deposit insurance claim should be filed before the CA, not the RTC.
This further finds support in Section 22 of the PDIC's Charter, as amended, which states that:
Section 22. No court, except the Court of Appeals, shall issue any temporary restraining order, preliminary injunction or preliminary
mandatory injunction against the Corporation for any action under this Act. xxx.
This prohibition shall apply in all cases, disputes or controversies instituted by a private party, the insured bank, or any shareholder of
the insured bank. xxx.
xxxx
Finally, the new amendment in PDIC's Charter under RA 10846, specifically Section 5(g) thereof, confirms such conclusion, viz.:
The actions of the Corporation taken under Section 5(g) shall be final and executory, and may only be restrained or set aside by
the Court of Appeals, upon appropriate petition for certiorari on the ground that the action was taken in excess of jurisdiction or with
such grave abuse of discretion as to amount to a lack or excess of jurisdiction. The petition for certiorari may only be filed within thirty
(30) days from notice of denial of claim for deposit insurance. (Emphasis Ours)
As it stands, the controversy as to which court has jurisdiction over a petition for certiorari filed to question the PDIC's action is already
settled. Therefore, We find no reversible error from the findings and conclusion of the court a quo.
WHEREFORE, the instant petition is DENIED for lack of merit. SO ORDERED.

THIRD DIVISION
G.R. No. 200678, June 04, 2018
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, Petitioner, v. BANGKO SENTRAL NG PILIPINAS AND THE MONETARY
BOARD, Respondents.
DECISION
LEONEN, J.:
A bank which has been ordered closed by the Bangko Sentral ng Pilipinas (Bangko Sentral) is placed under the receivership of the
Philippine Deposit Insurance Corporation. As a consequence of the receivership, the closed bank may sue and be sued only through its
receiver, the Philippine Deposit Insurance Corporation. Any action filed by the closed bank without its receiver may be dismissed.
This is a Petition for Review on Certiorari1 assailing the Court of Appeals July 28, 2011 Decision2 and February 16, 2012 Resolution3 in
CA-G.R. SP No. 116905, which dismissed Civil Case No. 10-1042 and held that the trial court had no jurisdiction over Bangko Sentral
and the Monetary Board.
On December 11, 1991, this Court promulgated Banco Filipino Savings & Mortgage Bank v. Monetary Board and Central Bank of the
Philippines,4 which declared void the Monetary Board's order for closure and receivership of Banco Filipino Savings & Mortgage Bank
(Banco Filipino). This Court also directed the Central Bank of the Philippines and the Monetary Board to reorganize Banco Filipino and
to allow it to resume business under the comptrollership of both the Central Bank and the Monetary Board.5
Banco Filipino subsequently filed several Complaints before the Regional Trial Court, among them a claim for damages in the total
amount of P18,800,000,000.00.6
On June 14, 1993, Congress passed Republic Act No. 7653, 7 providing for the establishment and organization of Bangko Sentral as the
new monetary authority.
On November 6, 1993, pursuant to this Court's 1991 Banco Filipino Decision, the Monetary Board issued Resolution No. 427, which
allowed Banco Filipino to resume its business.8
In 2002, Banco Filipino suffered from heavy withdrawals, prompting it to seek the help of Bangko Sentral. In a letter dated October 9,
2003, Banco Filipino asked for financial assistance of more than P3,000,000,000.00 through emergency loans and credit easement
terms.9 In a letter10 dated November 21, 2003, Bangko Sentral informed Banco Filipino that it should first comply with certain conditions
imposed by Republic Act No. 7653 before financial assistance could be extended. Banco Filipino was also required to submit a
rehabilitation plan approved by Bangko Sentral before emergency loans could be granted.
In a letter11 dated April 14, 2004, Banco Filipino submitted its Long-Term Business Plan to Bangko Sentral. It also claimed that Bangko
Sentral already extended similar arrangements to other banks and that it was still awaiting the payment of P18,800,000,000.00 in
damage claims, "the entitlement to which the Supreme Court has already decided with finality."12
In response, Bangko Sentral informed Banco Filipino that its business plan could not be acted upon since it was neither "confirmed nor
approved by [Banco Filipino's Board of Directors]."13
On July 8, 2004, Banco Filipino filed a Petition for Revival of Judgment with the Regional Trial Court of Makati to compel Bangko
Sentral to approve its business plan. The case was docketed as Civil Case No. 04-823 and was raffled to Branch 62.14
During the pendency of its Petition, Banco Filipino entered into discussions and negotiations with Bangko Sentral, which resulted to
seven (7) revisions in the business plan. Thus, Banco Filipino filed a Proposal for Settlement dated September 21, 2007 before Branch
62, Regional Trial Court, Makati City to settle the issues between the parties.15
On April 8, 2009, Banco Filipino submitted its 8th Revised Business Plan to Bangko Sentral for evaluation.16 In this business plan, Banco
Filipino requested, among others, a P25,000,000,000.00 income enhancement loan. Unable to come to an agreement, the parties
constituted an Ad Hoc Committee composed of representatives from both parties to study and act on the proposals. The Ad Hoc
Committee produced an Alternative Business Plan, which was accepted by Banco Filipino, but was subject to the Monetary Board's
approval.17
In a letter18 dated December 4, 2009, Bangko Sentral informed Banco Filipino that the Monetary Board issued Resolution No. 1668
granting its request for the P25,000,000,000.00 Financial Assistance and Regulatory Reliefs to form part of its Revised Business Plan
and Alternative Business Plan. The approval was also subject to certain terms and conditions, among which was the withdrawal or
dismissal with prejudice to all pending cases filed by Banco Filipino against Bangko Sentral and its officials. 19 The terms also included
the execution of necessary quitclaims and commitments to be given by Banco Filipino's principal stockholders, Board of Directors, and
duly authorized officers "not to revive or refile such similar cases in the future."20
In a letter21 dated January 20, 2010, Banco Filipino requested reconsideration of the terms and conditions of the P25,000,000,000.00
Financial Assistance and Regulatory Reliefs package, noting that the salient features of the Alternative Business Plan were materially
modified.22 However, in a letter23 dated April 8, 2010, Banco Filipino informed Bangko Sentral that it was constrained to accept the
"unilaterally whittled down version of the [P25,000,000,000.00] Financial Assistance Package and Regulatory Reliefs." 24 It, however,
asserted that it did not agree with the condition to dismiss and withdraw its cases since this would require a separate discussion.25
In a letter26 dated April 19, 2010, Bangko Sentral informed Banco Filipino that it was surprised by the latter's hesitation in accepting the
terms and conditions, in particular, the withdrawal of the cases against it, since this condition had already been discussed from the start
of the negotiations between the parties.27
In a letter28 dated June 21, 2010, Banco Filipino informed Bangko Sentral that it never accepted the condition of the withdrawal of the
cases in prior negotiations but was willing to discuss this condition as a separate and distinct matter.
In a letter29 dated August 10, 2010, Bangko Sentral and the Monetary Board, through counsel CVC Law, informed Banco Filipino that its
rejection of certain portions of Resolution No. 1668, particularly its refusal to withdraw all cases filed against Bangko Sentral, was
deemed as a failure to reach a mutually acceptable settlement.
In a letter30 dated August 13, 2010, Banco Filipino questioned the legality of referring the matter to private counsel and stated that it had
not been notified of the action taken on the acceptance of its Business Plan.
In a letter31 dated September 13, 2010, CVC Law told Banco Filipino that the matter was referred to it as an incident of Civil Case No.
04-823, which it was handling on behalf of Bangko Sentral. It also informed Banco Filipino that the latter's rejection of the terms and
conditions of Resolution No. 1668 made this Resolution legally unenforceable.
Banco Filipino sent letters32 dated September 22, 2010 and September 28, 2010, questioning the legality of Bangko Sentral's referral to
private counsel and reiterating that the terms and conditions embodied in Resolution No. 1668 were not meant to be a settlement of its
P18,800,000,000.00 damage claim against Bangko Sentral.
In a letter33 dated October 4, 2010, Bangko Sentral reiterated that its referral of the matter to CVC Law was due to the matter being
incidental to the civil case pending before the Regional Trial Court.
On October 20, 2010, Banco Filipino filed a Petition For Certiorari and Mandamus with prayer for issuance of a temporary restraining
order and writ of preliminary injunction34 before Branch 66, Regional Trial Court, Makati City, docketed as Civil Case No. 10-1042. It
assailed the alleged "arbitrary, capricious and illegal acts"35 of Bangko Sentral and of the Monetary Board in coercing Banco Filipino to
withdraw all its present suits in exchange of the approval of its Business Plan. In particular, Banco Filipino alleged that Bangko Sentral
and the Monetary Board committed grave abuse of discretion in imposing an additional condition in Resolution No. 1668 requiring it to
withdraw its cases and waive all future cases since it was unconstitutional and contrary to public policy. It prayed that a writ of
mandamus be issued to compel Bangko Sentral and the Monetary Board to approve and implement its business plan and release its
Financial Assistance and Regulatory Reliefs package.36
The trial court issued a Notice of Hearing on the prayer for a temporary restraining order on the same day, setting the hearing on
October 27, 2010.37
On October 27, 2010, Bangko Sentral and the Monetary Board filed their Motion to Dismiss Ad Cautelam, 38 assailing the Regional Trial
Court's jurisdiction over the subject matter and over the persons of Bangko Sentral and the Monetary Board. Banco Filipino, on the
other hand, filed its Opposition39 to this Petition.
In its October 28, 2010 Order, 40 the Regional Trial Court granted the request for the issuance of a temporary restraining order against
Bangko Sentral and the Monetary Board. The dispositive portion of this Order read:
WHEREFORE, premises considered and pursuant to Rule 58 of the Revised Rules of Court, Petitioner's prayer for a Temporary
Restraining Order is hereby GRANTED. Respondent[s] Ban[gk]o Sentral ng Pilipinas and [t]he Monetary Board, as well as [their]
representatives, agents, assigns and/or third person or entity acting for and [their] behalf are hereby enjoined from (a) employing acts
inimical to the enforcement and implementation of the approv[ed] Business Plan, (b) continuing and committing acts prejudicial to
Petitioner's operations, (c) withdrawing or threatening to withdraw the approval of the Business Plan containing financial assistance,
and package of regulatory reliefs, and (d) otherwise enforcing other regulatory measures and abuses calculated to coerce Banco
Filipino Savings and Mortgage Bank into agreeing to drop and/or withdraw its suits and damage claims against BSP and MB, and to
waive future claims against Respondents or their official[s] and employees.
Further, the Court directs Sheriff Leodel N. Roxas to personally serve a copy of this Order to the herein Respondent Ban[gk]o Sentral
ng Pilipinas and [t]he Monetary Board. Finally, let this case be set on November 11, 2010 and November 12, 2010 both at 2:00 in the
afternoon for hearing on the prayer for issuance of a Writ of Preliminary Mandatory Injunction.
SO ORDERED.41
On the same day or on October 28, 2010, summons was served on Bangko Sentral through a staff member of the Office of the
Governor, as certified by the Process Server's Return dated November 4, 2010.42
On November 5, 2010, Bangko Sentral and the Monetary Board filed a Petition For Certiorari with prayer for temporary restraining order
and/or writ of preliminary injunction43 with the Court of Appeals, assailing the Regional Trial Court's October 28, 2010 Order for having
been issued without jurisdiction. The Petition was docketed as CA-G.R. SP No. 116627.44
On November 17, 2010, the trial court issued an Order 45 denying the Bangko Sentral and the Monetary Board's Motion to Dismiss Ad
Cautelam, stating that the acts complained of pertained to Bangko Sentral 's regulatory functions, not its adjudicatory functions. 46 It
likewise stated that as requested in the handwritten letter47 dated October 21, 2010 by Bangko Sentral's general counsel requesting for
an advanced copy of Banco Filipino's Petition, it furnished Bangko Sentral a copy of the Petition. It also held that Bangko Sentral's
subsequent participation in the preliminary hearing and its receipt of the summons on October 28, 2010 satisfied the requirements of
procedural due process.48
The trial court likewise found that litis pendencia and forum shopping were not present in the case, that Bangko Sentral's verification
and certification of non-forum shopping were validly signed by the Executive Committee, and that Banco Filipino's Petition did not fail to
state a cause of action.49
On November 25, 2010, Bangko Sentral and the Monetary Board filed another Petition for Certiorari 50 with prayer for temporary
restraining order and writ of preliminary injunction with the Court of Appeals, this time assailing the November 17, 2010 Order. The case
was docketed as CA-G.R. SP No. 116905. However, the trial court issued a writ of preliminary injunction on November 18, 2010 51 so
they filed their Urgent Motion to Admit Attached Amended Petition52 with the Court of Appeals to include the Issuance.
In the meantime, or on November 23, 2010, Bangko Sentral and the Monetary Board filed a Motion to Admit Attached Supplemental
Petition for Certiorari with Application for Interim Relief53 in CA-G.R. SP No. 116627 seeking to include the trial court's October 28, 2010
Order.
In its December 28, 2010 Resolution,54 the Court of Appeals granted55 Bangko Sentral and the Monetary Board's Urgent Motion to
Admit Attached Amended Petition in CA-G.R. SP No. 116905.
Meanwhile, Banco Filipino filed its Opposition dated January 18, 2011 in CA-G.R. SP No. 116905.56
After oral arguments were held on February 7, 2011, 57 the Court of Appeals issued its February 14, 2011 Resolution 58 in CA-G.R. SP
No. 116905. It granted the application for a writ of preliminary injunction and enjoined the trial court from conducting further proceedings
in Civil Case No. 10-1042 pending a decision on the merits.
On February 16, 2011, Banco Filipino filed an Urgent Motion for Consolidation 59 in CA-G.R. SP No. 116905, requesting for the
consolidation of the two (2) Petitions for Certiorari filed by Bangko Sentral and the Monetary Board before the Court of Appeals. On
March 1, 2011, it also filed a Motion for Reconsideration60 of the Court of Appeals February 14, 2011 Resolution.
In its June 2, 2011 Resolution,61 the Court of Appeals in CA-G.R. SP No. 116905 denied Banco Filipino's Motion for Reconsideration,
holding that special civil actions against quasi-judicial agencies should be filed before the Court of Appeals, not before a trial
court.62 The Court of Appeals also denied the Urgent Motion for Consolidation for the following reasons:
1) [I]t would cause not only further congestion of the already congested docket of the ponente of CA-G.R. SP No. 116627, but also in
the delay in the disposition of both cases; 2) the subject matters and issues raised in the instant petition are different from those set
forth in CA-G.R. SP No. 116627, hence, they can be the subject of separate: petitions; and 3) Since a writ of preliminary injunction was
earlier issued, Section 2 (d), Rule VI of the 2009 IRCA requires that the instant petition remain with the undersigned ponente for
decision on the merits with dispatch.63
On July 28, 2011, the Court of Appeals rendered its Decision 64 in CA-G.R. SP No. 116905 granting Bangko Sentral and the Monetary
Board's Amended Petition. According to the Court of Appeals, the trial court had no jurisdiction over the Petition for Certiorari and
Mandamus filed by Banco Filipino since special civil actions against quasi-judicial agencies are only cognizable by the Court of
Appeals.65 It also found that the trial court gravely abused its discretion in acquiring jurisdiction over Bangko Sentral and the Monetary
Board by reason of their voluntary appearance in the preliminary hearing since their counsel had made it clear that the appearance was
specifically to question the absence of a service of summons.66
The Court of Appeals likewise found that the delegation of authority from Banco Filipino's Board of Directors to the Executive
Committee to sign pleadings on its behalf validated the verification and certification of non-forum shopping signed only by the Executive
Vice Presidents.67 It also ruled that there was no litis pendencia or forum shopping in the case docketed as Civil Case No. 10-1042
despite the pendency of Civil Case No. 04-823 since the causes of action and the reliefs prayed for were not the same. 68 The
dispositive portion of the Court of Appeals July 28, 2011 Decision read:
WHEREFORE, the petition is GRANTED. The Order dated November 17, 2010 issued by respondent Judge Joselito C. Villarosa of the
Regional Trial Court (RTC), Branch 66, Makati City, in Civil Case No. 10-1042, is ANNULLED and SET ASIDE. In lieu thereof,
judgment is hereby rendered. DISMISSING Civil Case No. 10-1042 on the ground of the RTC's lack of jurisdiction over the same.
Accordingly, the writ of preliminary injunction issued by this Court on February 14, 2011, enjoining respondent Judge, private
respondent and their representatives from conducting further proceedings in Civil Case No. 10-1042, is hereby made PERMANENT.
SO ORDERED.69
Banco Filipino filed a Motion for Reconsideration, 70 which was denied by the Court of Appeals in its February 16, 2012
Resolution.71 Hence, it filed this Petition72 on April 10, 2012 against Bangko Sentral and the Monetary Board before this Court.
Petitioner claims that it had the authority to file this Petition since the Court of Appeals promulgated its January 27, 2012 Decision in
CA-G.R. SP No. 118599, finding petitioner's closure and receivership to have been illegal. 73 It argues that to dismiss its Petition now
pending before this Court for lack of authority from its receiver Philippine Deposit Insurance Corporation would be "an absurd and
unjust situation."74 Petitioner admits, however, that this decision was eventually overturned on reconsideration 75 in the Court of Appeals
November 21, 2012 Amended Decision.76
Petitioner points out that there was nothing in the Philippine Deposit Insurance Corporation Charter or in Republic Act No. 7653 that
precludes its Board of Directors from suing on its behalf. It adds that there was an obvious conflict of interest in requiring it to seek
Philippine Deposit Insurance Corporation's authority to file the case considering that Philippine Deposit Insurance Corporation was
under the control of herein respondent Monetary Board.77
Petitioner asserts that the trial court had jurisdiction over special civil actions against respondents, accordingly with Merchants Rural
Bank of Talavera v. Monetary Board, et al.,78 a decision promulgated by the Court of Appeals in 2006.79
Petitioner likewise argues that the trial court acquired jurisdiction over respondents considering that they were able to participate in the
summary hearing. It points out that respondents questioned before the trial court the service of the petition on October 21, 2010 but
never actually questioned the service of summons on October 28, 2010 until it filed its petition with the Court of Appeals. 80 It argues that
respondents' private counsel was present during the raffle of the case on October 21, 2010 and even assisted respondents' general
counsel in receiving copies of the petition that the latter requested, showing that respondents' due process was never violated. 81 It
asserts that the Court of Appeals should have dismissed outright respondents' Petition for Certiorari for "maliciously omitt[ing]" the
handwritten letter dated October 21, 2010 of their general counsel. 82 It likewise points out that respondents failed to file a motion for
reconsideration before the trial court before filing their petition for certiorari with the Court of Appeals.83
Respondents, on the other hand, counter that the Petition should be dismissed outright for being filed without Philippine Deposit
Insurance Corporation's authority. It asserts that petitioner was placed under receivership on March 17, 2011, and thus, petitioner's
Executive Committee would have had no authority to sign for or on behalf of petitioner absent the authority of its receiver, Philippine
Deposit Insurance Corporation.84 They also point out that both the Philippine Deposit Insurance Corporation Charter and Republic Act
No. 7653 categorically state that the authority to file suits or retain counsels for closed banks is vested in the receiver. 85 Thus, the
verification and certification of non-forum shopping signed by petitioner's Executive Committee has no legal effect.86
Respondents likewise claim that the Court of Appeals did not err in finding that the trial court had no jurisdiction over respondents. It
cited this Court's ruling in United Coconut Planters Bank v. E. Ganzon, Inc.87 and National Water Resources Board v. A. L. Ang
Network,88 where this Court categorically stated that special civil cases filed against quasi-judicial agencies must be filed before the
Court of Appeals.89 They argue that there was no showing that Merchants Rural Bank of Talavera was ever upheld by this Court.90 They
contend that petitioner should be estopped from raising the issue of jurisdiction considering that during the pendency of this case, or on
March 21, 2011 and November 20, 2011, it filed two (2) separate petitions for certiorari against respondent Monetary Board directly
before the Court of Appeals.91
Respondents maintain that the trial court did not acquire jurisdiction over them since there was no valid service of summons. They
argue that when they filed their Motion to Dismiss on October 27, 2010, they could not have validly argued the propriety of the
summons on them on October 28, 2010. 92 They likewise contend that their voluntary appearance in the summary hearing before the
trial court was not a submission to the trial court's jurisdiction since they consistently manifested that their appearance would be special
and limited to raise the issues of jurisdiction. 93 They also assert that the service of summons to a staff member of the Office of the
Governor General is not equivalent to the service of summons to the Governor General, making the service of summons ineffective.94
Respondents likewise claim that their filing of their Petition before the Court of Appeals without a prior motion for reconsideration was
justified by certain exceptional circumstances. They mention, among others, the trial court's lack of jurisdiction, the fact that the issues
have already been raised and passed upon by the trial court, the prejudice to government interest in delaying the case, and their denied
due process because of the improper service of summons.95 They further argue that the only significance of the October 21, 2010
handwritten letter was to show that respondents were informed that a Petition was filed, and not that the trial court had. already
acquired jurisdiction over their persons.96
From the arguments of the parties, this Court is asked to resolve the following issues:
First, whether or not trial courts have jurisdiction to take cognizance of a petition for certiorari against acts and omissions of the
Monetary Board;
Second, whether or not respondents Bangko Sentral ng Pilipinas and the Monetary Board should have filed a motion for
reconsideration of the trial court's denial of their motion to dismiss before filing their petition for certiorari before the Court of Appeals;
and
Finally, whether or not the trial court validly acquired jurisdiction over respondents Bangko Sentral ng Pilipinas and the Monetary Board.
However, before any of these issues can be addressed, this Court must first resolve the issue of whether or not petitioner Banco
Filipino, as a closed bank under receivership, could file this Petition for Review without joining its statutory receiver, the Philippine
Deposit Insurance Corporation, as a party to the case.
A closed bank under receivership can only sue or be sued through its receiver, the Philippine Deposit Insurance Corporation.
Under Republic Act No. 7653,97 when the Monetary Board finds a bank insolvent, it may "summarily and without need for prior hearing
forbid the institution from doing business in the Philippines and designate the Philippine Deposit Insurance Corporation as receiver of
the banking institution."98
Before the enactment of Republic Act No. 7653, an insolvent bank under liquidation could not sue or be sued except through its
liquidator. In Hernandez v. Rural Bank of Lucena:99
[A]n insolvent bank, which was under the control of the finance commissioner for liquidation, was without power or capacity to sue or be
sued, prosecute or defend, or otherwise function except through the finance commissioner or liquidator.100
This Court in Manalo v. Court of Appeals101 reiterated this principle:
A bank which had been ordered closed by the monetary board retains its juridical personality which can sue and be sued through its
liquidator. The only limitation being that the prosecution or defense of the action must be done through the liquidator. Otherwise, no suit
for or against an insolvent entity would prosper.102
Under the old Central Bank Act, or Republic Act No. 265,103 as amended,104 the same principle applies to the receiver appointed by the
Central Bank. The law explicitly stated that a receiver shall "represent the [insolvent] bank personally or through counsel as he [or she]
may retain in all actions or proceedings for or against the institution." Section 29 of the old law states:
Section 29. Proceedings upon insolvency. — Whenever, upon examination by the head of the appropriate supervising or examining
department or his examiners or agents into the condition of any bank or non-bank financial intermediary performing quasi-banking
functions, it shall be disclosed that the condition of the same is one of insolvency, or that its continuance in business would involve
probable loss to its depositors or creditors, it shall be the duty of the department head concerned forthwith, in writing, to inform the
Monetary Board of the facts. The Board may, upon finding the statements of the department head to be true, forbid the institution to do
business in the Philippines and designate an official of the Central Bank or a person of recognized competence in banking or finance,
as receiver to immediately take charge of its assets and liabilities, as expeditiously as possible collect and gather all the assets and
administer the same for the benefit of its creditors, and represent the bank personally or through counsel as he [or she] may retain in all
actions or proceedings for or against the institution, exercising all the powers necessary for these purposes including, but not limited to,
bringing and foreclosing mortgages in the name of the bank or non-bank financial intermediary performing quasi-banking functions.
In Republic Act No. 7653, this provision is substantially altered. Section 30 now states, in part:
The receiver shall immediately gather and take charge of all the assets and liabilities of the institution, administer the same for the
benefit of its creditors, and exercise the general powers of a receiver under the Revised Rules of Court but shall not, with the exception
of administrative expenditures, pay or commit any act that will involve the transfer or disposition of any asset of the institution: Provided,
That the receiver may deposit or place the funds of the institution in non-speculative investments. The receiver shall determine as soon
as possible, but not later than ninety (90) days from take-over, whether the institution may be rehabilitated or otherwise placed in such a
condition so that it may be permitted to resume business with safety to its depositors and creditors and the general public: Provided,
That any determination for the resumption of business of the institution shall be subject to prior approval of the Monetary Board.
If the receiver determines that the institution cannot be rehabilitated or permitted to resume business in accordance with the next
preceding paragraph, the Monetary Board shall notify in writing the board of directors of its findings and direct the receiver to proceed
with the liquidation of the institution. The receiver shall:
(1) file ex parte with the proper regional trial court, and without requirement of prior notice or any other action, a petition for assistance
in the liquidation of the institution pursuant to a liquidation plan adopted by the Philippine Deposit Insurance Corporation for general
application to all closed banks. In case of quasi-banks, the liquidation plan shall be adopted by the Monetary Board. Upon acquiring
jurisdiction, the court shall, upon motion by the receiver after due notice, adjudicate disputed claims against the institution, assist the
enforcement of individual liabilities of the stockholders, directors and officers, and decide, on other issues as may be material to
implement the liquidation plan adopted. The receiver shall pay the cost of the proceedings from the assets of the institution.
(2) convert the assets of the institution to money, dispose of the same to creditors and other parties, for the purpose of paying the debts
of such institution in accordance with the rules on concurrence and preference of credit under the Civil Code of the Philippines and he
may, in the name of the institution, and with the assistance of counsel as he may retain, institute such actions as may be necessary to
collect and recover accounts and assets of, or defend any action against, the institution. The assets of an institution under receivership
or liquidation shall be deemed in custodia legis in the hands of the receiver and shall, from the moment the institution was placed under
such receivership or liquidation, be exempt from any order of garnishment, levy, attachment, or execution. (Emphasis supplied)
The relationship between the Philippine Deposit Insurance Corporation and a closed bank is fiduciary in nature. Section 30 of Republic
Act No. 7653 directs the receiver of a closed bank to "immediately gather and take charge of all the assets and liabilities of the
institution" and "administer the same for the benefit of its creditors."105
The law likewise grants the receiver "the general powers of a receiver under the Revised Rules of Court." 106 Under Rule 59, Section 6
of the Rules of Court, "a receiver shall have the power to bring and defend, in such capacity, actions in his [or her] own name." 107 Thus,
Republic Act No. 7653 provides that the receiver shall also "in the name of the institution, and with the assistance of counsel as [it] may
retain, institute such actions as may be necessary to collect and recover accounts and assets of, or defend any action against, the
institution."108 Considering that the receiver has the power to take charge of all the assets of the closed bank and to institute for or
defend any action against it, only the receiver, in its fiduciary capacity, may sue and be sued on behalf of the closed bank.
In Balayan Bay Rural Bank v. National Livelihood Development Corporation,109 this Court explained that a receiver of a closed bank is
tasked with the duty to hold the assets and liabilities in trust for the benefit of the bank's creditors.
As fiduciary of the insolvent bank, Philippine Deposit Insurance Corporation conserves and manages the assets of the bank to prevent
the assets' dissipation. This includes the power to bring and defend any action that threatens to dissipate the closed bank's
assets. Balayan Bay Rural Bank explained that Philippine Deposit Insurance Corporation does so, not as the real party-in-interest, but
as a representative party, thus:
As the fiduciary of the properties of a closed bank, the PDIC may prosecute or defend the case by or against the said bank as a
representative party while the bank will remain as the real party in interest pursuant to Section 3, Rule 3 of the Revised Rules of Court
which provides:
SEC. 3. Representatives as parties. — Where the action is allowed to be prosecuted or defended by a representative or someone
acting in a fiduciary capacity, the beneficiary shall be included in the title of the case and shall be deemed to be the real party in
interest. A representative may be a trustee of an express trust, a guardian, an executor or administrator, or a party authorized by law or
these Rules. An agent acting in his own name and for the benefit of an undisclosed principal may sue or be sued without joining the
principal except when the contract involves things belonging to the principal.
The inclusion of the PDIC as a representative party in the case is therefore grounded on its statutory role as the fiduciary of the closed
bank which, under Section 30 of R.A. 7653 (New Central Bank Act), is authorized to conserve the latter's property for the benefit of its
creditors.110 (Citation omitted)
For this reason, Republic Act No. 3591,111 or the Philippine Deposit Insurance Corporation Charter, as amended, 112 grants Philippine
Deposit Insurance Corporation the following powers as a receiver:
(c) In addition to the powers of a receiver pursuant to existing laws, the Corporation is empowered to:
(1) bring suits to enforce liabilities to or recoveries of the closed bank;
....
(6) hire or retain private counsels as may be necessary;

....
(9) exercise such other powers as are inherent and necessary for the effective discharge of the duties of the Corporation as a
receiver.113
Balayan Bay Rural Bank summarized, thus:
[T]he legal personality of the petitioner bank is not ipso facto dissolved by insolvency; it is not divested of its capacity to sue and be
sued after it was ordered by the Monetary Board to cease operation. The law mandated, however, that the action should be brought
through its statutory liquidator/receiver which in this case is the PDIC. The authority of the PDIC to represent the insolvent bank in legal
actions emanates from the fiduciary relation created by statute which reposed upon the receiver the task of preserving and conserving
the properties of the insolvent for the benefit of its creditors.114
Petitioner contends that it was not a closed bank at the time of the filing of this Petition on April 10, 2012 since the Court of Appeals
January 27, 2012 Decision, docketed as CA-G.R. SP No. 118599, found the closure to have been illegal.115
This Court of Appeals Decision, however, was not yet final since the Monetary Board filed a timely motion for reconsideration. 116 There
is also nothing in its dispositive portion which states that it was immediately executory. 117 Through its November 21, 2012 Amended
Decision, the Court of Appeals reversed its January 27, 2012 Decision, 118 confirming petitioner's status as a closed bank under
receivership. It was, therefore, erroneous for petitioner to presume that it was not a closed bank on April 10, 2012 when it filed its
Petition with this Court considering that there was no final declaration yet on the matter.
Petitioner should have attempted to comply after the promulgation of the November 21, 2012 Amended Decision. Its substantial
compliance would have cured the initial defect of its Petition.
Petitioner likewise claims that there was "an obvious conflict of interest" 119 if it was required to sue respondents only through Philippine
Deposit Insurance Corporation, considering that respondent Monetary Board appointed Philippine Deposit Insurance Corporation as
petitioner's receiver. This is a fact, however, that petitioner failed to address when it filed its Petition, signifying that petitioner had no
intention of complying with the law when it filed its Petition or anytime after.
It was speculative on petitioner's part to presume that it could file this Petition without joining its receiver on the ground that Philippine
Deposit Insurance Corporation might not allow the suit. At the very least, petitioner should have shown that it attempted to seek
Philippine Deposit Insurance Corporation's authorization to file suit. It was possible that Philippine Deposit Insurance Corporation could
have granted its permission to be joined in the suit. If it had refused to allow petitioner to file its suit, petitioner still had a remedy
available to it. Under Rule 3, Section 10 of the Rules of Court, 120 petitioner could have made Philippine Deposit Insurance Corporation
an unwilling co-petitioner and be joined as a respondent to this case.
Petitioner's suit concerned its Business Plan, a matter that could have affected the status of its insolvency. Philippine Deposit Insurance
Corporation's participation would have been necessary, as it had the duty to conserve petitioner's assets and to examine any possible
liability that petitioner might undertake under the Business Plan.
Philippine Deposit Insurance Corporation also safeguards the interests of the depositors in all legal proceedings. Most bank depositors
are ordinary people who have entrusted their money to banks in the hopes of growing their savings. When banks become insolvent,
depositors are secure in the knowledge that they can still recoup some part of their savings through Philippine Deposit Insurance
Corporation.121 Thus, Philippine Deposit Insurance Corporation's participation in all suits involving the insolvent bank is necessary and
imbued with the public interest.
In any case, petitioner's verification and certification of non-forum shopping was signed by its Executive Vice Presidents Maxy S. Abad
and Atty. Francisco A. Rivera, as authorized by its Board of Directors. 122 Under Section 10(b) of the Philippine Deposit Insurance
Corporation Charter, as amended:
b. The Corporation as receiver shall control, manage and administer the affairs of the closed bank. Effective immediately upon takeover
as receiver of such bank, the powers, functions and duties, as well as all allowances, remunerations and prerequisites of the directors,
officers, and stockholders of such bank are suspended, and the relevant provisions of the Articles of Incorporation and By-laws of the
closed bank are likewise deemed suspended.123 (Emphasis supplied)
When petitioner was placed under receivership, the powers of its Board of Directors and its officers were suspended. Thus, its Board of
Directors could not have validly authorized its Executive Vice Presidents to file the suit on its behalf. The Petition, not having been
properly verified, is considered an unsigned pleading. 124 A defect in the certification of non-forum shopping is likewise fatal to
petitioner's cause.125
Considering that the Petition was filed by signatories who were not validly authorized to do so, the Petition does not produce any legal
effect.126 Being an unauthorized pleading, this Court never validly acquired jurisdiction over the case. The Petition, therefore, must be
dismissed.
II
Even assuming that the Petition did not suffer from procedural infirmities, it must still be denied for lack of merit.
Unless otherwise provided for by law and the Rules of Court, petitions for certiorari against a quasi-judicial agency are cognizable only
by the Court of Appeals. The Regional Trial Court had no jurisdiction over the Petition for Certiorari filed by petitioner against
respondents.
Pursuant to Article XII, Section 20 of the Constitution, 127 Congress constituted Bangko Sentral128 as an independent central monetary
authority. As an administrative agency, it is vested with quasi-judicial powers, which it exercises through the Monetary Board. In United
Coconut Planters Bank v. E. Ganzon, Inc.:129
A quasi-judicial agency or body is an organ of government other than a court and other than a legislature, which affects the rights of
private parties through either adjudication or rule-making. The very definition of an administrative agency includes its being vested with
quasi-judicial powers. The ever increasing variety of powers and functions given to administrative agencies recognizes the need for the
active intervention of administrative agencies in matters calling for technical knowledge and speed in countless controversies which
cannot possibly be handled by regular courts. A "quasi-judicial function" is a term which applies to the action, discretion, etc., of public
administrative officers or bodies, who are required to investigate facts, or ascertain the existence of facts, hold hearings, and draw
conclusions from them, as a basis for their official action and to exercise discretion of a judicial nature.
Undoubtedly, the BSP Monetary Board is a quasi-judicial agency exercising quasi-judicial powers or functions. As aptly observed by the
Court of Appeals, the BSP Monetary Board is an independent central monetary authority and a body corporate with fiscal and
administrative autonomy, mandated to provide policy directions in the areas of money, banking and credit. It has power to issue
subpoena, to sue for contempt those refusing to obey the subpoena without justifiable reason, to administer oaths and compel
presentation of books, records and others, needed in its examination, to impose fines and other sanctions and to issue cease and
desist order. Section 37 of Republic Act No. 7653, in particular, explicitly provides that the BSP Monetary Board shall exercise its
discretion in determining whether administrative sanctions should be imposed on banks and quasi-banks, which necessarily implies that
the BSP Monetary Board must conduct some form of investigation or hearing regarding the same. 130
Bangko Sentral's Monetary Board is a quasi-judicial agency. Its decisions, resolutions, and orders are the decisions, resolutions, and
orders of a quasi-judicial agency. Any action filed against the Monetary Board is an action against a quasi-judicial agency.
This does not mean, however, that Bangko Sentral only exercises quasi-judicial functions. As an administrative agency, it likewise
exercises "powers and/or functions which may be characterized as administrative, investigatory, regulatory, quasi-legislative, or quasi-
judicial, or a mix of these five, as may be conferred by the Constitution or by statute."131
In this case, the issue between the parties was whether the trial court had jurisdiction over petitions for certiorari against Bangko Sentral
and the Monetary Board. Rule 65, Section 4 of the Rules of Court provides:
Section 4. Where and when petition to be filed. — The petition shall be filed not later than sixty (60) days from notice of the judgment,
order or resolution. In case a motion for reconsideration or new trial is timely filed, whether such motion is required or not, the sixty (60)
day period shall be counted from notice of the denial of said motion.
The petition shall be filed in the Supreme Court or, if it relates to the acts or omissions of a lower court or of a corporation, board, officer
or person, in the Regional Trial Court exercising jurisdiction over the territorial area as defined by the Supreme Court. It may also be
filed in the Court of Appeals whether or not the same is in aid of its appellate jurisdiction, or in the Sandiganbayan if it is in aid of its
appellate jurisdiction. If it involves the acts or omissions of a quasi-judicial agency, unless otherwise provided by law or these Rules,
the petition shall be filed in and cognizable only by the Court of Appeals. (Emphasis supplied)
The Rules of Court categorically provide that petitions for certiorari involving acts or omissions of a quasi-judicial agency "shall be filed
in and cognizable only by the Court of Appeals."
As previously discussed, respondent Bangko Sentral exercises a myriad of functions, including those that may not be necessarily
exercised by a quasi-judicial agency. It is settled, however, that it exercises its quasi judicial functions through respondent Monetary
Board. Any petition for certiorari against an act or omission of Bangko Sentral, when it acts through the Monetary Board, must be filed
with the Court of Appeals. Thus, this Court in Vivas v. Monetary Board and Philippine Deposit Insurance Corporation132 held that the
proper remedy to question a resolution of the Monetary Board is through a petition for certiorari filed with the Court of Appeals.
The Court of Appeals, therefore, did not err in dismissing the case before the Regional Trial Court since the trial court did not have
jurisdiction over the Petition for Certiorari filed by petitioner against respondents.
This Court cannot subscribe to petitioner's contention that a Court of Appeals decision already provided for an exception to Rule 65. A
Court of Appeals decision, no matter how persuasive or well written, does not function as stare decisis.133 Neither can a Court of
Appeals decision amend the Rules of Court.134 As it stands, Rule 65 and jurisprudence hold that petitions for certiorari against the
Monetary Board must be filed with the Court of Appeals.
III
While this Petition is considered dismissed, this Court takes the opportunity to address other lingering procedural issues raised by the
parties in their pleadings.
Petitioner assails respondents' failure to file a motion for reconsideration of the trial court's denial of its motion to dismiss before filing a
petition for certiorari with the Court of Appeals.135
Rule 65, Section 1 of the Rules of Court requires that there be "no appeal, or any plain, speedy, and adequate remedy in the ordinary
course of law" available before a petition for certiorari can be filed. An order denying a motion to dismiss is merely an interlocutory order
of the court as it does not finally dispose of a case.136 In BA Finance Corporation v. Pineda,137 a case citing the 1964 Rules of Court:
It must be remembered that, normally, when an interlocutory order is sought to be reviewed or annulled by means of any of the extra
legal remedies of prohibition or certiorari, it is required that a motion for reconsideration of the question[ed] order must first be filed,
such being considered a speedy and adequate remedy at law which must first be resorted to as a condition precedent for filing of any of
such proceedings (Secs. 1 and 2, Rule 65, Rules of Court).138
In contrast, Rule 41, Section 1(c) of the Revised Rules of Court now provides:
Section 1. Subject of appeal. — An appeal may be taken from a judgment or final order that completely disposes of the case, or of a
particular matter therein when declared by these Rules to be appealable.
No appeal may be taken from:
....
(c) An interlocutory order;
....
In all the above instances where the judgment or final order is not appealable, the aggrieved party may file an appropriate special civil
action under Rule 65.
It would appear that the Revised Rules of Court allow a direct filing of a petition for certiorari of an interlocutory order without need of a
motion for reconsideration. However, in Estate of Salvador Serra Serra v. Primitivo Hernaez,139 a case decided after the Rules of Court
were revised in 1997:
The settled rule is that a motion for reconsideration is a sine qua non condition for the filing of a petition for certiorari. The purpose is to
grant an opportunity to public respondent to correct any actual or perceived error attributed to it by the re-examination of the legal and
factual circumstances of the case.140
This rule evolved from several labor cases of this Court. Estate of Salvador Serra Serra cited Interorient Maritime Enterprises v.
National Labor Relations Commission141 as basis for this rule, which in turn, cited Palomado v. National Labor Relations
Commission142 and Pure Foods Corporation v. National Labor Relations Commission.143 This Court, in formulating the rule in Palomado,
declared:
The unquestioned rule in this jurisdiction is that certiorari will lie only if there is no appeal or any other plain, speedy and adequate
remedy in the ordinary course of law against the acts of public respondent. In the instant case, the plain and adequate remedy
expressly provided by [Sec. 9, Rule X, New Rules of the National Labor Relations Commission] was a motion for reconsideration of the
assailed decision, based on palpable or patent errors, to be made under oath and filed within ten (10) calendar days from receipt of the
questioned decision.144
Pure Foods Corporation, on the other hand, stated:
In the present case, the plain and adequate remedy expressly provided by law was a motion for reconsideration of the assailed
decision and the resolution thereof, which was not only expected to be but would actually have provided adequate and more speedy
remedy than the present petition for certiorari. This remedy was actually sought to be availed of by petitioner when it filed a motion for
reconsideration albeit beyond the 10-day reglementary period. For all intents and purposes, petitioner cannot now be heard to say that
there was no plain, speedy and adequate remedy available to it and that it must, therefore, be allowed to seek relief by certiorari. This
contention is not only untenable but would even place a premium on a party's negligence or indifference in availing of procedural
remedies afforded by law.145
In labor cases, it was necessary to first file a motion for reconsideration before resorting to a petition for certiorari since the National
Labor Relations Commission's rules of procedure provided for this remedy. The same rule has since applied to civil cases
through Estate of Salvador Serra Serra, regardless of the absence of a provision in the Rules of Court requiring a motion for
reconsideration even for interlocutory orders.
Thus, the general rule, in all cases; "is that a motion for reconsideration is a sine qua non condition for the filing of a petition for
certiorari."146 There are, however, recognized exceptions to this rule, namely:
(a) where the order is a patent nullity, as where the Court a quo had no jurisdiction; (b) where the questions raised in the certiorari
proceeding have been duly raised and passed upon by the lower court, or are the same as those raised and passed upon in the lower
court; (c) where there is an urgent necessity for the resolution of the question and any further delay would prejudice the interests of the
Government or of the petitioner or the subject matter of the action is perishable; (d) where, under the circumstances, a motion for
reconsideration would be useless; (e) where petitioner was deprived of due process and there is extreme urgency for relief; (f) where, in
a criminal case, relief from an order of arrest is urgent and the granting of such relief by the trial court is improbable; (g) where the
proceedings in the lower court are a nullity for lack of due process; (h) where the proceedings [were] ex parte or in which the petitioner
had no opportunity to object; and (i) where the issue raised is one purely of law or where public interest is involved. 147 (Citations
omitted)
In this instance, the trial court had no jurisdiction over the petition filed by petitioner against respondents, an issue which respondents
properly asserted before the Court of Appeals when they filed their Petition for Certiorari.148 They were, thus, excused from filing the
requisite motion for reconsideration.
Considering that there is sufficient basis to dismiss this Petition outright, this Court finds it unnecessary to address the other issues
raised.
In sum, this Court holds that petitioner did not have the legal capacity to file this Petition absent any authorization from its statutory
receiver, Philippine Deposit Insurance Corporation. Even assuming that the Petition could be given due course, it would still be denied.
The Court of Appeals did not err in dismissing the action pending between the parties before the trial court since special civil actions
against quasi-judicial agencies must be filed with the Court of Appeals.
WHEREFORE, the Petition is DISMISSED on the ground of petitioner's lack of capacity to sue.
SO ORDERED.

Banking Cases ECQ Edition

Încărcat de

Informații document

Titlu original

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

Banking Cases ECQ Edition

Încărcat de

Drepturi de autor:

Formate disponibile

Republic of the Philippines

G.R. No. 76118 March 30, 1993

THE CENTRAL BANK OF THE PHILIPPINES and RAMON V. TIAOQUI, petitioners,

Sycip, Salazar, Hernandez & Gatmaitan for petitioners.

Quisumbing, Torres & Evangelista for Triumph Savings Bank.

xxx xxx xxx

In Rural Bank of Buhi, Inc. v. Court of Appeals,19 We stated that —

We stressed in Central Bank of the Philippines v. Court of Appeals20 that —

G.R. No. L-30511 February 14, 1980

Rene Diokno for petitioner.

Josefina G. Salonga for all other respondents.

Undisputed pertinent facts are:

G.R. No. 184778 October 2, 2009

BANGKO SENTRAL NG PILIPINAS MONETARY BOARD and CHUCHI FONACIER, Petitioners,

The Ruling of the RTC

The dispositive portion of the RTC’s order reads:

WHEREFORE, the Court rules as follows:

The Ruling of the CA

Now we resolve the main petition.

Grounds in Support of Petition

The petition is meritorious.

In Lim v. Court of Appeals it was stated:

These requirements are absent in the present case.

G.R. No. 128703 October 18, 2000

TEODORO BAÑAS,*C. G. DIZON CONSTRUCTION, INC., and CENEN DIZON, petitioners,

Makati, Metro Manila, August 25, 1980.

(Sgd) Teodoro Bañas

By: (Sgd.) Cenen Dizon (Sgd.) Juliette B. Dizon

Q: You mentioned a certain Atty. Carag, who is he?

G.R. No. 174134 July 30, 2008

FIRST PLANTERS PAWNSHOP, INC., Petitioner,

Non-bank financial intermediaries shall include the following:

Revenue Regulations No. 10-2004, in fact, recognized these bases, to wit:

Lastly, petitioner is liable for documentary stamp taxes.

Section 3 of the Pawnshop Regulation Act defines a pawn ticket as follows:

G.R. No. 156168 December 14, 2004

EQUITABLE BANKING CORPORATION, petitioner,

xxx xxx xxx

1. the sum of US$150.00 as actual damages;

2. the sum of P200,000.00 as and by way of moral damages;

3. the amount of P100,000.00 as exemplary damages;

The rest of the awards are deleted.

The petition is impressed with merit.

G.R. No. 102970 May 13, 1993

Asuncion Law Offices for petitioner.

Cauton, Banares, Carpio & Associates for private respondent.

a) Twenty Thousand Pesos (P20,000.00), Philippine Currency, as actual damages;

xxx xxx xxx

Condition of the above-stated Items —

"Both albums are wet, moldy and badly damaged.

xxx xxx xxx

xxx xxx xxx

xxx xxx xxx

"With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company,

Article 1174 of the Civil Code provides:

Costs against the private respondent.

G.R. No. 90027 March 3, 1993

CA AGRO-INDUSTRIAL DEVELOPMENT CORP., petitioner,

Dolorfino & Dominguez Law Offices for petitioner.

Danilo B. Banares for private respondent.

This is the crux of the present controversy.

WHEREFORE, premises considered, judgment is hereby rendered dismissing plaintiff's complaint.

With costs against plaintiff.6