G.R. No.

L-20583

January 23, 1967

REPUBLIC OF THE PHILIPPINES, petitioner, vs. SECURITY CREDIT AND ACCEPTANCE CORPORATION, ROSENDO T. RESUELLO, PABLO TANJUTCO, ARTURO SORIANO, RUBEN BELTRAN, BIENVENIDO V. ZAPA, PILAR G. RESUELLO, RICARDO D. BALATBAT, JOSE SEBASTIAN and VITO TANJUTCO JR., respondents. Office of the Solicitor General Arturo A. Alafriz and Solicitor E. M. Salva for petitioner. Sycip, Salazar, Luna, Manalo & Feliciano for respondents. Natalio M. Balboa and F. E. Evangelista for the receiver.

CONCEPCION, C.J.: This is an original quo warranto proceeding, initiated by the Solicitor General, to dissolve the Security and Acceptance Corporation for allegedly engaging in banking operations without the authority required therefor by the General Banking Act (Republic Act No. 337). Named as respondents in the petition are, in addition to said corporation, the following, as alleged members of its Board of Directors and/or Executive Officers, namely: NAME Pablo Tanjutco Arturo Soriano Ruben Beltran Bienvenido V. Zapa Pilar G. Resuello Ricardo D. Balatbat Jose R. Sebastian Vito Tanjutco Jr. Director Director Director Director & Vice-President Director & Secretary-Treasurer Director & Auditor Director & Legal Counsel Director & Personnel Manager POSITION

Rosendo T. Resuello President & Chairman of the Board

The record shows that the Articles of Incorporation of defendant corporation 1 were registered with the Securities and Exchange Commission on March 27, 1961; that the next day, the Board of Directors of the corporation adopted a set of by-laws, 2 which were filed with said Commission on April 5, 1961; that on September 19, 1961, the Superintendent of Banks of the Central Bank of the Philippines asked its legal counsel an opinion on whether or not said corporation is a banking institution, within the purview of Republic Act No. 337; that, acting upon this request, on October 11, 1961, said legal counsel rendered an opinion resolving the query in the affirmative; that in a letter, dated January 15, 1962, addressed to said Superintendent of Banks, the corporation through its president, Rosendo T. Resuello, one of defendants herein, sought a reconsideration of the aforementioned opinion, which reconsideration was denied on March 16, 1962; that, prior thereto, or on March 9, 1961, the corporation had applied with the Securities and Exchange Commission for the registration and licensing of its securities under the Securities Act; that, before acting on this application, the

Commission referred it to the Central Bank, which, in turn, gave the former a copy of the abovementioned opinion, in line with which, the Commission advised the corporation on December 5, 1961, to comply with the requirements of the General Banking Act; that, upon application of members of the Manila Police Department and an agent of the Central Bank, on May 18, 1962, the Municipal Court of Manila issued Search Warrant No. A-1019; that, pursuant thereto, members of the intelligence division of the Central Bank and of the Manila Police Department searched the premises of the corporation and seized documents and records thereof relative to its business operations; that, upon the return of said warrant, the seized documents and records were, with the authority of the court, placed under the custody of the Central Bank of the Philippines; that, upon examination and evaluation of said documents and records, the intelligence division of the Central Bank submitted, to the Acting Deputy Governor thereof, a memorandum dated September 10, 1962, finding that the corporation is: 1. Performing banking functions, without requisite certificate of authority from the Monetary Board of the Central Bank, in violation of Secs. 2 and 6 of Republic Act 337, in that it is soliciting and accepting deposit from the public and lending out the funds so received ; 2. Soliciting and accepting savings deposits from the general public when the company's articles of incorporation authorize it only to engage primarily in financing agricultural, commercial and industrial projects, and secondarily, in buying and selling stocks and bonds of any corporation, thereby exceeding the scope of its powers and authority as granted under its charter; consequently such acts are ultra-vires: 3. Soliciting subscriptions to the corporate shares of stock and accepting deposits on account thereof, without prior registration and/or licensing of such shares or securing exemption therefor, in violation of the Securities Act; and 4. That being a private credit and financial institution, it should come under the supervision of the Monetary Board of the Central Bank, by virtue of the transfer of the authority, power, duties and functions of the Secretary of Finance, Bank Commissioner and the defunct Bureau of Banking, to the said Board, pursuant to Secs. 139 and 140 of Republic Act 265 and Secs. 88 and 89 of Republic Act 337." (Emphasis Supplied.) that upon examination and evaluation of the same records of the corporation, as well as of other documents and pertinent pipers obtained elsewhere, the Superintendent of Banks, submitted to the Monetary Board of the Central Bank a memorandum dated August 28, 1962, stating inter alia. 11. Pursuant to the request for assistance by the Chief, Intelligence Division, contained in his Memorandum to the Governor dated May 23, 1962 and in accordance with the written instructions of Governor Castillo dated May 31, 1962, an examination of the books and records of the Security Credit and Loans Organizations, Inc. seized by the combined MPD-CB team was conducted by this Department. The examination disclosed the following findings: a. Considering the extent of its operations, the Security Credit and Acceptance Corporation, Inc., receives deposits from the public regularly. Such deposits are treated in the Corporation's financial statements as conditional subscription to capital stock . Accumulated deposits of P5,000 of an individual depositor may be converted into stock subscription to the capital stock of the Security Credit and Acceptance Corporation at the option of the depositor. Sale of its shares of stock or subscriptions to its capital stock are offered to the public as part of its regular operations .

b. That out of the funds obtained from the public through the receipt of deposits and/or the sale of securities, loans are made regularly to any person by the Security Credit and Acceptance Corporation. A copy of the Memorandum Report dated July 30, 1962 of the examination made by Examiners of this Department of the seized books and records of the Corporation is attached hereto. 12. Section 2 of Republic Act No. 337, otherwise known as the General Banking Act, defines the term, "banking institution" as follows: Sec. 2. Only duly authorized persons and entities may engage in the lending of funds obtained from the public through the receipts of deposits or the sale of bonds, securities, or obligations of any kind and all entities regularly conducting 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. ... 13. Premises considered, the examination disclosed that the Security Credit and Acceptance Corporation is regularly lending funds obtained from the receipt of deposits and/or the sale of securities. The Corporation therefore is performing 'banking functions' as contemplated in Republic Act No. 337, without having first complied with the provisions of said Act . Recommendations: In view of all the foregoing, it is recommended that the Monetary Board decide and declare: 1. That the Security Credit and Acceptance Corporation is performing banking functions without having first complied with the provisions of Republic Act No. 337, otherwise known as the General Banking Act, in violation of Sections 2 and 6 thereof; and 2. That this case be referred to the Special Assistant to the Governor (Legal Counsel) for whatever legal actions are warranted, including, if warranted criminal action against the Persons criminally liable and/or quo warranto proceedings with preliminary injunction against the Corporation for its dissolution. (Emphasis supplied.) that, acting upon said memorandum of the Superintendent of Banks, on September 14, 1962, the Monetary Board promulgated its Resolution No. 1095, declaring that the corporation is performing banking operations, without having first complied with the provisions of Sections 2 and 6 of Republic Act No. 337;3 that on September 25, 1962, the corporation was advised of the aforementioned resolution, but, this notwithstanding, the corporation, as well as the members of its Board of Directors and the officers of the corporation, have been and still are performing the functions and activities which had been declared to constitute illegal banking operations; that during the period from March 27, 1961 to May 18, 1962, the corporation had established 74 branches in principal cities and towns throughout the Philippines; that through a systematic and vigorous campaign undertaken by the corporation, the same had managed to induce the public to open 59,463 savings deposit accounts with an aggregate deposit of P1,689,136.74; that, in consequence of the foregoing deposits with the corporation, its original capital stock of P500,000, divided into 20,000 founders' shares of stock and 80,000 preferred shares of stock, both of which had a par value of P5.00 each, was increased, in less than one (1) year, to P3,000,000 divided into 130,000 founders' shares and 470,000 preferred shares, both with a par value of P5.00 each; and that, according to its statement of assets and liabilities, as of December 31, 1961, the corporation had a capital stock aggregating

P1,273,265.98 and suffered, during the year 1961, a loss of P96,685.29. Accordingly, on December 6, 1962, the Solicitor General commenced this quo warranto proceedings for the dissolution of the corporation, with a prayer that, meanwhile, a writ of preliminary injunction be issued ex parte, enjoining the corporation and its branches, as well as its officers and agents, from performing the banking operations complained of, and that a receiver be appointed pendente lite. Upon joint motion of both parties, on August 20, 1963, the Superintendent of Banks of the Central Bank of the Philippines was appointed by this Court receiver pendente lite of defendant corporation, and upon the filing of the requisite bond, said officer assumed his functions as such receiver on September 16, 1963. In their answer, defendants admitted practically all of the allegations of fact made in the petition. They, however, denied that defendants Tanjutco (Pablo and Vito, Jr.), Soriano, Beltran, Zapa, Balatbat and Sebastian, are directors of the corporation, as well as the validity of the opinion, ruling, evaluation and conclusions, rendered, made and/or reached by the legal counsel and the intelligence division of the Central Bank, the Securities and Exchange Commission, and the Superintendent of Banks of the Philippines, or in Resolution No. 1095 of the Monetary Board, or of Search Warrant No. A-1019 of the Municipal Court of Manila, and of the search and seizure made thereunder. By way of affirmative allegations, defendants averred that, as of July 7, 1961, the Board of Directors of the corporation was composed of defendants Rosendo T. Resuello, Aquilino L. Illera and Pilar G. Resuello; that on July 11, 1962, the corporation had filed with the Superintendent of Banks an application for conversion into a Security Savings and Mortgage Bank, with defendants Zapa, Balatbat, Tanjutco (Pablo and Vito, Jr.), Soriano, Beltran and Sebastian as proposed directors, in addition to the defendants first named above, with defendants Rosendo T. Resullo, Zapa, Pilar G. Resuello, Balatbat and Sebastian as proposed president, vice-president, secretary-treasurer, auditor and legal counsel, respectively; that said additional officers had never assumed their respective offices because of the pendency of the approval of said application for conversion; that defendants Soriano, Beltran, Sebastian, Vito Tanjutco Jr. and Pablo Tanjutco had subsequently withdrawn from the proposed mortgage and savings bank; that on November 29, 1962 or before the commencement of the present proceedings the corporation and defendants Rosendo T. Resuello and Pilar G. Resuello had instituted Civil Case No. 52342 of the Court of First Instance of Manila against Purificacion Santos and other members of the savings plan of the corporation and the City Fiscal for a declaratory relief and an injunction; that on December 3, 1962, Judge Gaudencio Cloribel of said court issued a writ directing the defendants in said case No. 52342 and their representatives or agents to refrain from prosecuting the plaintiff spouses and other officers of the corporation by reason of or in connection with the acceptance by the same of deposits under its savings plan; that acting upon a petition filed by plaintiffs in said case No. 52342, on December 6, 1962, the Court of First Instance of Manila had appointed Jose Ma. Ramirez as receiver of the corporation; that, on December 12, 1962, said Ramirez qualified as such receiver, after filing the requisite bond; that, except as to one of the defendants in said case No. 52342, the issues therein have already been joined; that the failure of the corporation to honor the demands for withdrawal of its depositors or members of its savings plan and its former employees was due, not to mismanagement or misappropriation of corporate funds, but to an abnormal situation created by the mass demand for withdrawal of deposits, by the attachment of property of the corporation by its creditors, by the suspension by debtors of the corporation of the payment of their debts thereto and by an order of the Securities and Exchange Commission dated September 26, 1962, to the corporation to stop soliciting and receiving deposits; and that the withdrawal of deposits of members of the savings plan of the corporation was understood to be subject, as to time and amounts, to the financial condition of the corporation as an investment firm.

In its reply, plaintiff alleged that a photostat copy, attached to said pleading, of the anniversary publication of defendant corporation showed that defendants Pablo Tanjutco, Arturo Soriano, Ruben Beltran, Bienvenido V. Zapa, Ricardo D. Balatbat, Jose R. Sebastian and Vito Tanjutco Jr. are officers and/or directors thereof; that this is confirmed by the minutes of a meeting of stockholders of the corporation, held on September 27, 1962, showing that said defendants had been elected officers thereof; that the views of the legal counsel of the Central Bank, of the Securities and Exchange Commission, the Intelligence Division, the Superintendent of Banks and the Monetary Board above referred to have been expressed in the lawful performance of their respective duties and have not been assailed or impugned in accordance with law; that neither has the validity of Search Warrant No. A-1019 been contested as provided by law; that the only assets of the corporation now consist of accounts receivable amounting approximately to P500,000, and its office equipment and appliances, despite its increased capitalization of P3,000,000 and its deposits amounting to not less than P1,689,136.74; and that the aforementioned petition of the corporation, in Civil Case No. 52342 of the Court of First Instance of Manila, for a declaratory relief is now highly improper, the defendants having already committed infractions and violations of the law justifying the dissolution of the corporation. Although, admittedly, defendant corporation has not secured the requisite authority to engage in banking, defendants deny that its transactions partake of the nature of banking operations. It is conceded, however, that, in consequence of a propaganda campaign therefor, a total of 59,463 savings account deposits have been made by the public with the corporation and its 74 branches, with an aggregate deposit of P1,689,136.74, which has been lent out to such persons as the corporation deemed suitable therefor. It is clear that these transactions partake of the nature of banking, as the term is used in Section 2 of the General Banking Act. Indeed, a bank has been defined as: ... a moneyed institute [Talmage vs. Pell 7 N.Y. (3 Seld. ) 328, 347, 348] founded to facilitate the borrowing, lending and safe-keeping of money (Smith vs. Kansas City Title & Trust Co., 41 S. Ct. 243, 255 U.S. 180, 210, 65 L. Ed. 577) and to deal, in notes, bills of exchange, and credits (State vs. Cornings Sav. Bank, 115 N.W. 937, 139 Iowa 338). (Banks & Banking, by Zellmann Vol. 1, p. 46). Moreover, it has been held that: An investment company which loans out the money of its customers, collects the interest and charges a commission to both lender and borrower, is a bank. (Western Investment Banking Co. vs. Murray, 56 P. 728, 730, 731; 6 Ariz 215.) ... any person engaged in the business carried on by banks of deposit, of discount, or of circulation is doing a banking business, although but one of these functions is exercised. (MacLaren vs. State, 124 N.W. 667, 141 Wis. 577, 135 Am. S.R. 55, 18 Ann. Cas. 826; 9 C.J.S. 30.) Accordingly, defendant corporation has violated the law by engaging in banking without securing the administrative authority required in Republic Act No. 337. That the illegal transactions thus undertaken by defendant corporation warrant its dissolution is apparent from the fact that the foregoing misuser of the corporate funds and franchise affects the essence of its business, that it is willful and has been repeated 59,463 times, and that its continuance inflicts injury upon the public, owing to the number of persons affected thereby.

It is urged, however, that this case should be remanded to the Court of First Instance of Manila upon the authority of Veraguth vs. Isabela Sugar Co. (57 Phil. 266). In this connection, it should be noted that this Court is vested with original jurisdiction, concurrently with courts of first instance, to hear and decide quo warranto cases and, that, consequently, it is discretionary for us to entertain the present case or to require that the issues therein be taken up in said Civil Case No. 52342. The Veraguth case cited by herein defendants, in support of the second alternative, is not in point, because in said case there were issues of fact which required the presentation of evidence, and courts of first instance are, in general, better equipped than appellate courts for the taking of testimony and the determination of questions of fact. In the case at bar, there is, however, no dispute as to the principal facts or acts performed by the corporation in the conduct of its business. The main issue here is one of law, namely, the legal nature of said facts or of the aforementioned acts of the corporation. For this reason, and because public interest demands an early disposition of the case, we have deemed it best to determine the merits thereof. Wherefore, the writ prayed for should be, as it is hereby granted and defendant corporation is, accordingly, ordered dissolved. The appointment of receiver herein issued pendente lite is hereby made permanent, and the receiver is, accordingly, directed to administer the properties, deposits, and other assets of defendant corporation and wind up the affairs thereof conformably to Rules 59 and 66 of the Rules of Court. It is so ordered. Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur.

G.R. No. 88013 March 19, 1990 SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner, vs. THE HONORABLE COURT OF APPEALS and TRADERS ROYAL BANK, respondents. Don P. Porcuincula for petitioner. San Juan, Gonzalez, San Agustin & Sinense for private respondent.

CRUZ, J.: We are concerned in this case with the question of damages, specifically moral and exemplary damages. The negligence of the private respondent has already been established. All we have to ascertain is whether the petitioner is entitled to the said damages and, if so, in what amounts. The parties agree on the basic facts. The petitioner is a private corporation engaged in the exportation of food products. It buys these products from various local suppliers and then sells them abroad, particularly in the United States, Canada and the Middle East. Most of its exports are purchased by the petitioner on credit. The petitioner was a depositor of the respondent bank and maintained a checking account in its branch at Romulo Avenue, Cubao, Quezon City. On May 25, 1981, the petitioner deposited to its account in the said bank the amount of P100,000.00, thus increasing its balance as of that date to P190,380.74. 1 Subsequently, the petitioner issued several checks against its deposit but was suprised to learn later that they had been dishonored for insufficient funds. The dishonored checks are the following:
1. Check No. 215391 dated May 29, 1981, in favor of California Manufacturing Company, Inc. for P16,480.00: 2. Check No. 215426 dated May 28, 1981, in favor of the Bureau of Internal Revenue in the amount of P3,386.73: 3. Check No. 215451 dated June 4, 1981, in favor of Mr. Greg Pedreo in the amount of P7,080.00; 4. Check No. 215441 dated June 5, 1981, in favor of Malabon Longlife Trading Corporation in the amount of P42,906.00: 5. Check No. 215474 dated June 10, 1981, in favor of Malabon Longlife Trading Corporation in the amount of P12,953.00: 6. Check No. 215477 dated June 9, 1981, in favor of Sea-Land Services, Inc. in the amount of P27,024.45: 7. Check No. 215412 dated June 10, 1981, in favor of Baguio Country Club Corporation in the amount of P4,385.02: and 8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta Bayla in the amount of P6,275.00.
2

As a consequence, the California Manufacturing Corporation sent on June 9, 1981, a letter of demand to the petitioner, threatening prosecution if the dishonored check issued to it was not made good. It also withheld delivery of the order made by the petitioner. Similar letters were sent to the petitioner by the Malabon Long Life Trading, on June 15, 1981, and by the G. and U. Enterprises, on June 10, 1981. Malabon also canceled the petitioner's credit line and demanded that future payments be made by it in cash or certified check. Meantime, action on the pending orders of the petitioner with the other suppliers whose checks were dishonored was also deferred. The petitioner complained to the respondent bank on June 10, 1981. 3 Investigation disclosed that the sum of P100,000.00 deposited by the petitioner on May 25, 1981, had not been credited to it. The error was rectified on June 17, 1981, and the dishonored checks were paid after they were redeposited. 4 In its letter dated June 20, 1981, the petitioner demanded reparation from the respondent bank for its "gross and wanton negligence." This demand was not met. The petitioner then filed a complaint in the then Court of First Instance of Rizal claiming from the private respondent moral damages in the sum of P1,000,000.00 and exemplary damages in the sum of P500,000.00, plus 25% attorney's fees, and costs. After trial, Judge Johnico G. Serquinia rendered judgment holding that moral and exemplary damages were not called for under the circumstances. However, observing that the plaintiff's right had been violated, he ordered the defendant to pay nominal damages in the amount of P20,000.00 plus P5,000.00 attorney's fees and costs. 5 This decision was affirmed in toto by the respondent court. 6 The respondent court found with the trial court that the private respondent was guilty of negligence but agreed that the petitioner was nevertheless not entitled to moral damages. It said:
The essential ingredient of moral damages is proof of bad faith (De Aparicio vs. Parogurga, 150 SCRA 280). Indeed, there was the omission by the defendant-appellee bank to credit appellant's deposit of P100,000.00 on May 25, 1981. But the bank rectified its records. It credited the said amount in favor of plaintiff-appellant in less than a month. The dishonored checks were eventually paid. These circumstances negate any imputation or insinuation of malicious, fraudulent, wanton and gross bad faith and negligence on the part of the defendant-appellant.

It is this ruling that is faulted in the petition now before us. This Court has carefully examined the facts of this case and finds that it cannot share some of the conclusions of the lower courts. It seems to us that the negligence of the private respondent had been brushed off rather lightly as if it were a minor infraction requiring no more than a slap on the wrist. We feel it is not enough to say that the private respondent rectified its records and credited the deposit in less than a month as if this were sufficient repentance. The error should not have been committed in the first place. The respondent bank has not even explained why it was committed at all. It is true that the dishonored checks were, as the Court of Appeals put it, "eventually" paid. However, this took almost a month when, properly, the checks should have been paid immediately upon presentment. As the Court sees it, the initial carelessness of the respondent bank, aggravated by the lack of promptitude in repairing its error, justifies the grant of moral damages. This rather lackadaisical attitude toward the complaining depositor constituted the gross negligence, if not wanton bad faith, that the respondent court said had not been established by the petitioner. We also note that while stressing the rectification made by the respondent bank, the decision practically ignored the prejudice suffered by the petitioner. This was simply glossed over if not, indeed, disbelieved. The fact is that the petitioner's credit line was canceled and its orders were not

acted upon pending receipt of actual payment by the suppliers. Its business declined. Its reputation was tarnished. Its standing was reduced in the business community. All this was due to the fault of the respondent bank which was undeniably remiss in its duty to the petitioner. Article 2205 of the Civil Code provides that actual or compensatory damages may be received "(2) for injury to the plaintiff s business standing or commercial credit." There is no question that the petitioner did sustain actual injury as a result of the dishonored checks and that the existence of the loss having been established "absolute certainty as to its amount is not required." 7 Such injury should bolster all the more the demand of the petitioner for moral damages and justifies the examination by this Court of the validity and reasonableness of the said claim. We agree that moral damages are not awarded to penalize the defendant but to compensate the plaintiff for the injuries he may have suffered. 8 In the case at bar, the petitioner is seeking such damages for the prejudice sustained by it as a result of the private respondent's fault. The respondent court said that the claimed losses are purely speculative and are not supported by substantial evidence, but if failed to consider that the amount of such losses need not be established with exactitude precisely because of their nature. Moral damages are not susceptible of pecuniary estimation. Article 2216 of the Civil Code specifically provides that "no proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or exemplary damages may be adjudicated." That is why the determination of the amount to be awarded (except liquidated damages) is left to the sound discretion of the court, according to "the circumstances of each case." From every viewpoint except that of the petitioner's, its claim of moral damages in the amount of P1,000,000.00 is nothing short of preposterous. Its business certainly is not that big, or its name that prestigious, to sustain such an extravagant pretense. Moreover, a corporation is not as a rule entitled to moral damages because, not being a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish and moral shock. The only exception to this rule is where the corporation has a good reputation that is debased, resulting in its social humiliation. 9 We shall recognize that the petitioner did suffer injury because of the private respondent's negligence that caused the dishonor of the checks issued by it. The immediate consequence was that its prestige was impaired because of the bouncing checks and confidence in it as a reliable debtor was diminished. The private respondent makes much of the one instance when the petitioner was sued in a collection case, but that did not prove that it did not have a good reputation that could not be marred, more so since that case was ultimately settled. 10 It does not appear that, as the private respondent would portray it, the petitioner is an unsavory and disreputable entity that has no good name to protect. Considering all this, we feel that the award of nominal damages in the sum of P20,000.00 was not the proper relief to which the petitioner was entitled. Under Article 2221 of the Civil Code, "nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him." As we have found that the petitioner has indeed incurred loss through the fault of the private respondent, the proper remedy is the award to it of moral damages, which we impose, in our discretion, in the same amount of P20,000.00. Now for the exemplary damages. The pertinent provisions of the Civil Code are the following:

Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages. Art. 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.

The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of every civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce, banks have become an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and, most of all, confidence. Thus, even the humble wage-earner has not hesitated to entrust his life's savings to the bank of his choice, knowing that they will be safe in its custody and will even earn some interest for him. The ordinary person, with equal faith, usually maintains a modest checking account for security and convenience in the settling of his monthly bills and the payment of ordinary expenses. As for business entities like the petitioner, the bank is a trusted and active associate that can help in the running of their affairs, not only in the form of loans when needed but more often in the conduct of their day-to-day transactions like the issuance or encashment of checks. In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs. A blunder on the part of the bank, such as the dishonor of a check without good reason, can cause the depositor not a little embarrassment if not also financial loss and perhaps even civil and criminal litigation. The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. In the case at bar, it is obvious that the respondent bank was remiss in that duty and violated that relationship. What is especially deplorable is that, having been informed of its error in not crediting the deposit in question to the petitioner, the respondent bank did not immediately correct it but did so only one week later or twenty-three days after the deposit was made. It bears repeating that the record does not contain any satisfactory explanation of why the error was made in the first place and why it was not corrected immediately after its discovery. Such ineptness comes under the concept of the wanton manner contemplated in the Civil Code that calls for the imposition of exemplary damages. After deliberating on this particular matter, the Court, in the exercise of its discretion, hereby imposes upon the respondent bank exemplary damages in the amount of P50,000.00, "by way of example or correction for the public good," in the words of the law. It is expected that this ruling will serve as a warning and deterrent against the repetition of the ineptness and indefference that has been displayed here, lest the confidence of the public in the banking system be further impaired. ACCORDINGLY, the appealed judgment is hereby MODIFIED and the private respondent is ordered to pay the petitioner, in lieu of nominal damages, moral damages in the amount of P20,000.00, and exemplary damages in the amount of P50,000.00 plus the original award of attorney's fees in the amount of P5,000.00, and costs. SO ORDERED. Narvasa, Gancayco, Grino-Aquino and Medialdea, JJ., concur.

G.R. No. 118492

August 15, 2001

GREGORIO H. REYES and CONSUELO PUYAT-REYES, petitioners, vs. THE HON. COURT OF APPEALS and FAR EAST BANK AND TRUST COMPANY, respondents. DE LEON, JR., J.: Before us is a petition for review of the Decision1 dated July 22, 1994 and Resolution2 dated December 29, 1994 of the Court of Appeals3 affirming with modification the Decision4 dated November 12, 1992 of the Regional Trial Court of Makati, Metro Manila, Branch 64, which dismissed the complaint for damages of petitioners spouses Gregorio H. Reyes and Consuelo Puyat-Reyes against respondent Far East Bank and Trust Company. The undisputed facts of the case are as follows: In view of the 20th Asian Racing Conference then scheduled to be held in September, 1988 in Sydney, Australia, the Philippine Racing Club, Inc. (PRCI, for brevity) sent four (4) delegates to the said conference. Petitioner Gregorio H. Reyes, as vice-president for finance, racing manager, treasurer, and director of PRCI, sent Godofredo Reyes, the club's chief cashier, to the respondent bank to apply for a foreign exchange demand draft in Australian dollars. Godofredo went to respondent bank's Buendia Branch in Makati City to apply for a demand draft in the amount One Thousand Six Hundred Ten Australian Dollars (AU$1,610.00) payable to the order of the 20th Asian Racing Conference Secretariat of Sydney, Australia. He was attended to by respondent bank's assistant cashier, Mr. Yasis, who at first denied the application for the reason that respondent bank did not have an Australian dollar account in any bank in Sydney. Godofredo asked if there could be a way for respondent bank to accommodate PRCI's urgent need to remit Australian dollars to Sydney. Yasis of respondent bank then informed Godofredo of a roundabout way of effecting the requested remittance to Sydney thus: the respondent bank would draw a demand draft against Westpac Bank in Sydney, Australia (Westpac-Sydney for brevity) and have the latter reimburse itself from the U.S. dollar account of the respondent in Westpac Bank in New York, U.S.A. (Westpac-New York for brevity). This arrangement has been customarily resorted to since the 1960's and the procedure has proven to be problem-free. PRCI and the petitioner Gregorio H. Reyes, acting through Godofredo, agreed to this arrangement or approach in order to effect the urgent transfer of Australian dollars payable to the Secretariat of the 20th Asian Racing Conference. On July 28, 1988, the respondent bank approved the said application of PRCI and issued Foreign Exchange Demand Draft (FXDD) No. 209968 in the sum applied for, that is, One Thousand Six Hundred Ten Australian Dollars (AU$ 1,610.00), payable to the order of the 20th Asian Racing Conference Secretariat of Sydney, Australia, and addressed to Westpac-Sydney as the drawee bank.1wphi1.nt On August 10, 1988, upon due presentment of the foreign exchange demand draft, denominated as FXDD No. 209968, the same was dishonored, with the notice of dishonor stating the following: "xxx No account held with Westpac." Meanwhile, on August 16, 1988, Wespac-New York sent a cable to respondent bank informing the latter that its dollar account in the sum of One Thousand Six Hundred Ten Australian Dollars (AU$ 1,610.00) was debited. On August 19, 1988, in response to PRCI's complaint about the dishonor of the said foreign exchange demand draft, respondent bank informed Westpac-Sydney of the issuance of the said demand draft FXDD No. 209968, drawn against the Wespac-Sydney and informing the latter to be reimbursed from the respondent bank's dollar account in Westpac-New York. The respondent bank on the same day likewise informed Wespac-New York requesting the latter to honor the reimbursement claim of Wespac-Sydney. On September 14, 1988, upon its second presentment for payment, FXDD No. 209968 was again dishonored by Westpac-Sydney for the same reason, that is, that the respondent bank has no deposit dollar account with the drawee Wespac-Sydney.

On September 17, 1988 and September 18, 1988, respectively, petitioners spouses Gregorio H. Reyes and Consuelo Puyat-Reyes left for Australia to attend the said racing conference. When petitioner Gregorio H. Reyes arrived in Sydney in the morning of September 18, 1988, he went directly to the lobby of Hotel Regent Sydney to register as a conference delegate. At the registration desk, in the presence of other delegates from various member of the conference secretariat that he could not register because the foreign exchange demand draft for his registration fee had been dishonored for the second time. A discussion ensued in the presence and within the hearing of many delegates who were also registering. Feeling terribly embarrassed and humiliated, petitioner Gregorio H. Reyes asked the lady member of the conference secretariat that he be shown the subject foreign exchange demand draft that had been dishonored as well as the covering letter after which he promised that he would pay the registration fees in cash. In the meantime he demanded that he be given his name plate and conference kit. The lady member of the conference secretariat relented and gave him his name plate and conference kit. It was only two (2) days later, or on September 20, 1988, that he was given the dishonored demand draft and a covering letter. It was then that he actually paid in cash the registration fees as he had earlier promised. Meanwhile, on September 19, 1988, petitioner Consuelo Puyat-Reyes arrived in Sydney. She too was embarassed and humiliated at the registration desk of the conference secretariat when she was told in the presence and within the hearing of other delegates that she could not be registered due to the dishonor of the subject foreign exchange demand draft. She felt herself trembling and unable to look at the people around her. Fortunately, she saw her husband, coming toward her. He saved the situation for her by telling the secretariat member that he had already arranged for the payment of the registration fee in cash once he was shown the dishonored demand draft. Only then was petitioner Puyat-Reyes given her name plate and conference kit. At the time the incident took place, petitioner Consuelo Puyat-Reyes was a member of the House of Representatives representing the lone Congressional District of Makati, Metro Manila. She has been an officer of the Manila Banking Corporation and was cited by Archbishop Jaime Cardinal Sin as the top lady banker of the year in connection with her conferment of the Pro-Ecclesia et Pontifice Award. She has also been awarded a plaque of appreciation from the Philippine Tuberculosis Society for her extraordinary service as the Society's campaign chairman for the ninth (9th) consecutive year. On November 23, 1988, the petitioners filed in the Regional Trial Court of Makati, Metro Manila, a complaint for damages, docketed as Civil Case No. 88-2468, against the respondent bank due to the dishonor of the said foreign exchange demand draft issued by the respondent bank. The petitioners claim that as a result of the dishonor of the said demand draft, they were exposed to unnecessary shock, social humiliation, and deep mental anguish in a foreign country, and in the presence of an international audience. On November 12, 1992, the trial court rendered judgment in favor of the defendant (respondent bank) and against the plaintiffs (herein petitioners), the dispositive portion of which states: WHEREFORE, judgment is hereby rendered in favor of the defendant, dismissing plaintiff's complaint, and ordering plaintiffs to pay to defendant, on its counterclaim, the amount of P50,000.00, as reasonable attorney's fees. Costs against the plaintiff. SO ORDERED.5 The petitioners appealed the decision of the trial court to the Court of Appeals. On July 22, 1994, the appellate court affirmed the decision of the trial court but in effect deleted the award of attorney's fees to the defendant (herein respondent bank) and the pronouncement as to the costs. The decretal portion of the decision of the appellate court states:

WHEREFORE, the judgment appealed from, insofar as it dismissed plaintiff's complaint, is hereby AFFIRMED, but is hereby REVERSED and SET ASIDE in all other respect. No special pronouncement as to costs. SO ORDERED.6 According to the appellate court, there is no basis to hold the respondent bank liable for damages for the reason that it exerted every effort for the subject foreign exchange demand draft to be honored. The appellate court found and declared that: xxx xxx xxx

Thus, the Bank had every reason to believe that the transaction finally went through smoothly, considering that its New York account had been debited and that there was no miscommunication between it and Westpac-New York. SWIFT is a world wide association used by almost all banks and is known to be the most reliable mode of communication in the international banking business. Besides, the above procedure, with the Bank as drawer and Westpac-Sydney as drawee, and with Westpac-New York as the reimbursement Bank had been in place since 1960s and there was no reason for the Bank to suspect that this particular demand draft would not be honored by Westpac-Sydney. From the evidence, it appears that the root cause of the miscommunications of the Bank's SWIFT message is the erroneous decoding on the part of Westpac-Sydney of the Bank's SWIFT message as an MT799 format. However, a closer look at the Bank's Exhs. "6" and "7" would show that despite what appears to be an asterick written over the figure before "99", the figure can still be distinctly seen as a number "1" and not number "7", to the effect that Westpac-Sydney was responsible for the dishonor and not the Bank. Moreover, it is not said asterisk that caused the misleading on the part of the Westpac-Sydney of the numbers "1" to "7", since Exhs. "6" and "7" are just documentary copies of the cable message sent to Wespac-Sydney. Hence, if there was mistake committed by Westpac-Sydney in decoding the cable message which caused the Bank's message to be sent to the wrong department, the mistake was Westpac's, not the Bank's. The Bank had done what an ordinary prudent person is required to do in the particular situation, although appellants expect the Bank to have done more. The Bank having done everything necessary or usual in the ordinary course of banking transaction, it cannot be held liable for any embarrassment and corresponding damage that appellants may have incurred.7 xxx xxx xxx

Hence, this petition, anchored on the following assignment of errors: I THE HONORABLE COURT OF APPEALS ERRED IN FINDING PRIVATE RESPONDENT NOT NEGLIGENT BY ERRONEOUSLY APPLYING THE STANDARD OF DILIGENCE OF AN "ORDINARY PRUDENT PERSON" WHEN IN TRUTH A HIGHER DEGREE OF DILIGENCE IS IMPOSED BY LAW UPON THE BANKS. II THE HONORABLE COURT OF APPEALS ERRED IN ABSOLVING PRIVATE RESPONDENT FROM LIABILITY BY OVERLOOKING THE FACT THAT THE DISHONOR OF THE DEMAND

DRAFT WAS A BREACH OF PRIVATE RESPONDENT'S WARRANTY AS THE DRAWER THEREOF. III THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT AS SHOWN OVERWHELMINGLY BY THE EVIDENCE, THE DISHONOR OF THE DEMAND DRAFT AS DUE TO PRIVATE RESPONDENT'S NEGLIGENCE AND NOT THE DRAWEE BANK. 8 The petitioners contend that due to the fiduciary nature of the relationship between the respondent bank and its clients, the respondent should have exercised a higher degree of diligence than that expected of an ordinary prudent person in the handling of its affairs as in the case at bar. The appellate court, according to petitioners, erred in applying the standard of diligence of an ordinary prudent person only. Petitioners also claim that the respondent bank violate Section 61 of the Negotiable Instruments Law9 which provides the warranty of a drawer that "xxx on due presentment, the instrument will be accepted or paid, or both, according to its tenor xxx." Thus, the petitioners argue that respondent bank should be held liable for damages for violation of this warranty. The petitioners pray this Court to re-examine the facts to cite certain instances of negligence. It is our view and we hold that there is no reversible error in the decision of the appellate court. Section 1 of Rule 45 of the Revised Rules of Court provides that "(T)he petition (for review) shall raise only questions of law which must be distinctly set forth." Thus, we have ruled that factual findings of the Court of Appeals are conclusive on the parties and not reviewable by this Court and they carry even more weight when the Court of Appeals affirms the factual findings of the trial court.10 The courts a quo found that respondent bank did not misrepresent that it was maintaining a deposit account with Westpac-Sydney. Respondent bank's assistant cashier explained to Godofredo Reyes, representing PRCI and petitioner Gregorio H. Reyes, how the transfer of Australian dollars would be effected through Westpac-New York where the respondent bank has a dollar account to Westpac-Sydney where the subject foreign exchange demand draft (FXDD No. 209968) could be encashed by the payee, the 20th Asian Racing Conference Secretariat. PRCI and its Vice-President for finance, petitioner Gregorio H. Reyes, through their said representative, agreed to that arrangement or procedure. In other words, the petitioners are estopped from denying the said arrangement or procedure. Similar arrangements have been a long standing practice in banking to facilitate international commercial transactions. In fact, the SWIFT cable message sent by respondent bank to the drawee bank, Westpac-Sydney, stated that it may claim reimbursement from its New York branch, WestpacNew York, where respondent bank has a deposit dollar account. The facts as found by the courts a quo show that respondent bank did not cause an erroneous transmittal of its SWIFT cable message to Westpac-Sydney. It was the erroneous decoding of the cable message on the part of Westpac-Sydney that caused the dishonor of the subject foreign exchange demand draft. An employee of Westpac-Sydney in Sydney, Australia mistakenly read the printed figures in the SWIFT cable message of respondent bank as "MT799" instead of as "MT199". As a result, Westpac-Sydney construed the said cable message as a format for a letter of credit, and not for a demand draft. The appellate court correct found that "the figure before '99' can still be distinctly seen as a number '1' and not number '7'." Indeed, the line of a "7" is in a slanting position while the line of a "1" is in a horizontal position. Thus, the number "1" in "MT199" cannot be construed as "7".11 The evidence also shows that the respondent bank exercised that degree of diligence expected of an ordinary prudent person under the circumstances obtaining. Prior to the first dishonor of the subject foreign exchange demand draft, the respondent bank advised Westpac-New York to honor the reimbursement claim of WestpacSydney and to debit the dollar account12 of respondent bank with the former. As soon as the demand draft was dishonored, the respondent bank, thinking that the problem was with the reimbursement and without any idea that it was due to miscommunication, re-confirmed the authority of Westpac-New York to debit its dollar

account for the purpose of reimbursing Westpac-Sydney.13 Respondent bank also sent two (2) more cable messages to Westpac-New York inquiring why the demand draft was not honored.14 With these established facts, we now determine the degree of diligence that banks are required to exert in their commercial dealings. In Philippine Bank of Commerce v. Court of Appeals15 upholding a long standing doctrine, we ruled that the degree of diligence required of banks, is more than that of a good father of a family where the fiduciary nature of their relationship with their depositors is concerned. In other words banks are duty bound to treat the deposit accounts of their depositors with the highest degree of care. But the said ruling applies only to cases where banks act under their fiduciary capacity, that is, as depositary of the deposits of their depositors. But the same higher degree of diligence is not expected to be exerted by banks in commercial transactions that do not involve their fiduciary relationship with their depositors. Considering the foregoing, the respondent bank was not required to exert more than the diligence of a good father of a family in regard to the sale and issuance of the subject foreign exchange demand draft. The case at bar does not involve the handling of petitioners' deposit, if any, with the respondent bank. Instead, the relationship involved was that of a buyer and seller, that is, between the respondent bank as the seller of the subject foreign exchange demand draft, and PRCI as the buyer of the same, with the 20th Asian Racing conference Secretariat in Sydney, Australia as the payee thereof. As earlier mentioned, the said foreign exchange demand draft was intended for the payment of the registration fees of the petitioners as delegates of the PRCI to the 20th Asian Racing Conference in Sydney. The evidence shows that the respondent bank did everything within its power to prevent the dishonor of the subject foreign exchange demand draft. The erroneous reading of its cable message to Westpac-Sydney by an employee of the latter could not have been foreseen by the respondent bank. Being unaware that its employee erroneously read the said cable message, Westpac-Sydney merely stated that the respondent bank has no deposit account with it to cover for the amount of One Thousand Six Hundred Ten Australian Dollar (AU $1610.00) indicated in the foreign exchange demand draft. Thus, the respondent bank had the impression that WestpacNew York had not yet made available the amount for reimbursement to Westpac-Sydney despite the fact that respondent bank has a sufficient deposit dollar account with Westpac-New York. That was the reason why the respondent bank had to re-confirm and repeatedly notify Westpac-New York to debit its (respondent bank's) deposit dollar account with it and to transfer or credit the corresponding amount to Westpac-Sydney to cover the amount of the said demand draft. In view of all the foregoing, and considering that the dishonor of the subject foreign exchange demand draft is not attributable to any fault of the respondent bank, whereas the petitioners appeared to be under estoppel as earlier mentioned, it is no longer necessary to discuss the alleged application of Section 61 of the Negotiable Instruments Law to the case at bar. In any event, it was established that the respondent bank acted in good faith and that it did not cause the embarrassment of the petitioners in Sydney, Australia. Hence, the Court of Appeals did not commit any reversable error in its challenged decision. WHEREFORE, the petition is hereby DENIED, and the assailed decision of the Court of Appeals is AFFIRMED. Costs against the petitioners. SO ORDERED.1wphi1.nt Bellosillo, Mendoza, Quisumbing, and Buena, JJ., concur.

[G.R. No. 129471. April 28, 2000] DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS and CARLOS CAJES, respondents. DECISION MENDOZA, J.: Misact This is a petition for certiorari seeking to reverse the decision1[1] and resolution2[2] of the Court of Appeals dated August 30, 1996 and April 23, 1997, respectively, declaring private respondent Carlos Cajes the owner of 19.4 hectares of land embraced in TCT No. 10101 and ordering the segregation and reconveyance of said portion to him. The antecedent facts are as follows: The land in dispute, consisting of 19.4 hectares located in San Miguel, Province of Bohol, was originally owned by Ulpiano Mumar, whose ownership since 1917 was evidenced by Tax Declaration No. 3840.3[3] In 1950,4[4] Mumar sold the land to private respondent who was issued Tax Declaration No. R-1475 that same year. 5[5] The tax declaration was later superseded by Tax Declaration Nos. R-799 issued in 1961 6[6] and D-2247 issued in 1974.7[7] Private respondent occupied and cultivated the said land,8[8] planting cassava and camote in certain portions of the land.9[9] In 1969, unknown to private respondent, Jose Alvarez succeeded in obtaining the registration of a parcel of land with an area of 1,512,468.00 square meters,10[10] in his name for which he was issued OCT No. 546 on
1 2 3 4 5 6 7 8 9 10

June 16, 1969.11[11] The parcel of land included the 19.4 hectares occupied by private respondent. Alvarez never occupied nor introduced improvements on said land.12[12] In 1972, Alvarez sold the land to the spouses Gaudencio and Rosario Beduya to whom TCT No. 10101 was issued.13[13] That same year, the spouses Beduya obtained a loan from petitioner Development Bank of the Philippines for P526,000.00 and, as security, mortgaged the land covered by TCT No. 10101 to the bank.14[14] In 1978, the SAAD Investment Corp., and the SAAD Agro-Industries, Inc., represented by Gaudencio Beduya, and the spouses Beduya personally executed another mortgage over the land in favor of petitioner to secure a loan of P1,430,000.00.15[15] Sdjad The spouses Beduya later failed to pay their loans, as a result of which, the mortgage on the property was foreclosed.16[16] In the resulting foreclosure sale held on January 31, 1985, petitioner was the highest bidder.17[17] As the spouses Beduya failed to redeem the property, petitioner consolidated its ownership.18[18] It appears that private respondent had also applied for a loan from petitioner in 1978, offering his 19.4 hectare property under Tax Declaration No. D-2247 as security for the loan. As part of the processing of the application, a representative of petitioner, Patton R. Olano, inspected the land and appraised its value. Private respondents loan application was later approved by petitioner. 19[19] However after releasing the amount of the loan to private respondent, petitioner found that the land mortgaged by private respondent was included in the land covered by TCT No. 10101 in the name of the spouses Beduya. Petitioner, therefore, cancelled the loan and demanded immediate
11 12 13 14 15 16 17 18 19

payment of the amount.20[20] Private respondent paid the loan to petitioner for which the former was issued a Cancellation of Mortgage, dated March 18, 1981, releasing the property in question from encumbrance. 21[21] Sometime in April of 1986, more than a year after the foreclosure sale, a reappraisal of the property covered by TCT No. 10101 was conducted by petitioners representatives. It was then discovered that private respondent was occupying a portion of said land. Private respondent was informed that petitioner had become the owner of the land he was occupying, and he was asked to vacate the property. As private respondent refused to do so, 22[22] petitioner filed a complaint for recovery of possession with damages against him. The case was assigned to Branch 1 of the Regional Trial Court, Tagbilaran City,23[23] which after trial, rendered a decision, dated August 22, 1989, declaring petitioner the lawful owner of the entire land covered by TCT No. 10101 on the ground that the decree of registration was binding upon the land.24[24] The dispositive portion of the decision reads: WHEREFORE, foregoing considered, the court renders judgment: 1.......Declaring plaintiff bank Development Bank of the Philippines the true and legal owner of the land in question covered by TCT No. 10101 farm of Gaudencio Beduya; 2.......Dismissing defendants counterclaim; Sppedsc 3.......Ordering defendant to vacate from the land in question; the portion of which he claims to belong to him for without basis in fact and law; 4.......Ordering defendant, his agents or any person representing him or those who may claim substantial rights on the land to vacate therefrom, cease and desist from disturbing, molesting and interfering plaintiffs possession of the land in question, and from committing any such act as would tend to mitigate, deny or deprive plaintiff of its ownership and possession over said land. SO ORDERED.
20 21 22 23 24

On appeal, the Court of Appeals reversed and gave judgment for private respondent, declaring him the owner of the 19.4 hectares of land erroneously included in TCT No. 10101. The dispositive portion of the appellate courts decision reads: WHEREFORE, the appealed decision is hereby REVERSED AND SET ASIDE. A new decision is hereby rendered: 1. Dismissing the complaint. 2. Declaring the disputed 19.4000 hectares of land embraced in TCT 10101 as exclusively belonging to defendant-appellant, ordering its segregation from plaintiff-appellees title and its reconveyance to appellant. No pronouncement as to costs. SO ORDERED.25[25] Petitioner moved for a reconsideration but its motion was denied in a resolution dated April 23, 1997.26[26] Hence this petition. Petitioner contends that: I.......THE DECISION OF THE RESPONDENT COURT IS NOT IN ACCORD WITH THE APPLICABLE PROVISIONS OF LAW (Sections 38 and 46 of ACT 496) AND THE APPLICABLE DECISIONS OF THE SUPREME COURT, PARTICULARLY IN THE CASE OF BENIN VS. TUASON, 57 SCRA 531. II.......THE RESPONDENT COURT OVERLOOKED THE ISSUES ABOUT THE DBP BEING AN INNOCENT MORTGAGEE FOR VALUE OF THE LAND IN QUESTION AND OF HAVING PURCHASED LATER THE SAME DURING A PUBLIC AUCTION SALE. Calrsc III.THE RESPONDENT COURTS RULING DECLARING DBP IN ESTOPPEL IS ILLOGICAL.27[27] First. Petitioner invokes the ruling of this Court in Benin v. Tuason28[28] in support of its claim that its predecessor-in-interest, Jose Alvarez, became
25 26 27 28

the owner of the land by virtue of the decree of registration issued in his name. In Benin, three sets of plaintiffs filed separate complaints against Mariano Severo Tuason and J.M. Tuason & Co., Inc., praying for the cancellation of OCT No. 735 covering two parcels of land called the Sta. Mesa Estate, or Parcel 1, with an area of 8,798,617.00 square meters, and the Diliman Estate, or Parcel 2, with an area of 15,961,246.00 square meters. They asked that they be declared the owners and lawful possessors of said lands. Benin is distinguished from this case. In the first place, Benin involved vast tracts of lands which had already been subdivided and bought by innocent purchasers for value and in good faith at the time the claimants obtained registration. Secondly, when the claimants ancestors occupied the lands in question and declared them for tax purposes in 1944, the lands were already covered by the tax declarations in the name of J. M. Tuason & Co., Inc. In 1914, OCT No. 735 was issued in the name of Tuason so that, from that time on, no possession could defeat the title of the registered owners of the land. Thirdly, the validity of OCT No. 735 had already been recognized by this Court in several cases 29[29] and, as a result thereof, the transfer certificates of title acquired by the innocent purchasers for value were also declared valid. It was held that neither could the claimants file an action to annul these titles for not only had these actions prescribed, but the fact was that the claimants were also barred from doing so by laches, having filed the complaint only in 1955, or 41 years after the issuance of OCT No. 735 to J.M. Tuason & Co., Inc. Thus, it was not solely the decree of registration which was considered in resolving the Benin case. What was considered decisive was the valid title or right of ownership of J. M. Tuason & Co., Inc. and that of the other innocent purchasers for value and in good faith compared to the failure of the claimants to show their right to own or possess the questioned properties. Sccalr Petitioner maintains that the possession by private respondent and his predecessor-in-interest of the 19.4 hectares of land for more than 30 years cannot overcome the decree of registration issued in favor of its predecessor-in-interest Jose Alvarez. Petitioner quotes the following statement in the Benin case: It follows also that the allegation of prescriptive title in favor of plaintiffs does not suffice to establish a cause of action. If such prescription was completed before the registration of the land in favor of the Tuasons, the resulting prescriptive title was cut off and extinguished by the decree of registration. If, on the contrary, the prescription was either begun or completed after the decree
29

of registration, it conferred no title because, by express provision of law, prescription can not operate against the registered owner (Act 496).30[30] Petitioner would thus insist that, by virtue of the decree of registration, Jose Alvarez and those claiming title from him (i.e., the spouses Beduya) acquired ownership of the 19.4 hectares of land, despite the fact that they neither possessed nor occupied these lands. This view is mistaken. A consideration of the cases shows that a decree of registration cut off or extinguished a right acquired by a person when such right refers to a lien or encumbrance on the land not to the right of ownership thereof which was not annotated on the certificate of title issued thereon. Thus, Act No. 496 provides: Sec. 39. Every person receiving a certificate of title in pursuance of a decree of registration, and every subsequent purchaser of registered land who takes a certificate of title for value in good faith shall hold the same free of all encumbrances except those noted on said certificate, and any of the following encumbrances which may be subsisting, namely: Calrspped First. Liens, claims, or rights arising or existing under the laws of Constitution of the United States or of the Philippine Islands which the statutes of the Philippine Islands cannot require to appear of record in the Registry. Second. Taxes within two years after the same became due and payable. Third. Any public highway, way, private way established by law, or any Government irrigation canal or lateral thereof, where the certificate of title does not state that the boundaries of such highway, way, or irrigation canal or lateral thereof, have been determined. But if there are easements or other rights appurtenant to a parcel of registered land which for any reason have failed to be registered, such easements or rights shall remain so appurtenant notwithstanding such failure, and shall be held to pass with the land until cut off or extinguished by the registration of the servient estate, or in any other manner.

30

Hence, in Cid v. Javier,31[31] it was helds: . . . Consequently, even conceding arguendo that such an easement has been acquired, it had been cut off and extinguished by the registration of the servient estate under the Torrens system without the easement being annotated on the corresponding certificate of title, pursuant to Section 39 of the Land Registration Act. This principle was reiterated in Purugganan v. Paredes32[32] which also involved an easement of light and view that was not annotated on the certificate of title of the servient estate. Scedp But to make this principle applicable to a situation wherein title acquired by a person through acquisitive prescription would be considered cut off and extinguished by a decree of registration would run counter to established jurisprudence before and after the ruling in Benin. Indeed, registration has never been a mode of acquiring ownership over immovable property. As early as 1911, in the case of City of Manila v. Lack,33[33] the Court already ruled on the purpose of registration of lands, viz.: The Court of Land Registration was created for a single purpose. The Act is entitled "An Act to provide for the adjudication and registration of titles to lands in the Philippine Islands." The sole purpose of the Legislature in its creation was to bring the land titles of the Philippine Islands under one comprehensive and harmonious system, the cardinal features of which are indefeasibility of title and the intervention of the State as a prerequisite to the creation and transfer of titles and interest, with the resultant increase in the use of land as a business asset by reason of the greater certainty and security of title. It does not create a title nor vest one. It simply confirms a title already created and already vested, rendering it forever indefeasible. . . Again, in the case of Angeles v. Samia34[34] where land was erroneously registered in favor of persons who neither possessed nor occupied the same, to the prejudice of the actual occupant, the Court held:

31 32 33 34

. . . The purpose of the Land Registration Act, as this court has had occasion to so state more than once, is not to create or vest title, but to confirm and register title already created and already vested, and of course, said original certificate of title No. 8995 could not have vested in the defendant more title than what was rightfully due her and her coowners. It appearing that said certificate granted her much more than she expected, naturally to the prejudice of another, it is but just that the error, which gave rise to said anomaly, be corrected (City of Manila vs. Lack, 19 Phil., 324). The defendant and her coowners knew or, at least, came to know that it was through error that the original certificate of title in question was issued by the court which heard cadastral case No. 11 of Bacolor, not only in or prior to March, 1933, but from the time said certificate was issued in their favor, that is, from December 15, 1921. This is evidenced by the fact that, ever since, they remained passive without even attempting to make the least showing of ownership over the land in question until after the lapse of more than eleven years. The Land Registration Act as well as the Cadastral Act protects only the holders of a title in good faith and does not permit its provisions to be used as a shield for the commission of fraud, or that one should enrich himself at the expense of another (Gustilo vs. Maravilla, 48 Phil., 442; Angelo vs. Director of Lands, 49 Phil., 838). The above-stated Acts do not give anybody, who resorts to the provisions thereof, a better title than he really and lawfully has. If he happened to obtain it by mistake or to secure, to the prejudice of his neighbor, more land than he really owns, with or without bad faith on his part, the certificate of title, which may have been issued to him under the circumstances, may and should be cancelled or corrected (Legarda and Prieto vs. Saleeby, 31 Phil., 590). This is permitted by section 112 of Act No. 496, which is applicable to the Cadastral Act because it is so provided expressly by the provisions of section 11 of the latter Act. It cannot be otherwise because, as stated in the case of Domingo vs. Santos, Ongsiako, Lim y Cia. (55 Phil., 361), errors in the plans of lands sought to be registered in the registry and reproduced in the certificate of title issued later, do not annul the decree of registration on the ground that it is not the plan but the land itself which is registered in the registry. In other words, if the plan of an applicant for registration or claimant in a cadastral case alleges that the land referred to in said plan is 100 or 1,000 hectares, and the land which he really owns and desires to register in the registry is only 80 ares, he cannot claim to be the owner of the existing difference if

afterwards he is issued a certificate of title granting him said area of 100 or 1,000 hectares.35[35] Edpsc The principle laid down in this 1938 case remains the prevailing doctrine, its latest application being in the case of Reyes v. Court of Appeals 36[36] wherein we ruled that the fact that a party was able to secure a title in his favor did not operate to vest ownership upon her of the property. In the present case, private respondent has been in actual, open, peaceful and continuous possession of the property since 1950. This fact was corroborated by the testimony of Eleuterio Cambangay who personally knew that Ulpiano Mumar transferred the land covered by Tax Declaration No. 384037[37] in favor of private respondent in 1950.38[38] Private respondents claim based on actual occupation of the land is bolstered by Tax Declaration Nos. R-1475, R-799 and D-224739[39] which were issued in his name in 1950, 1961 and 1974, respectively. Together with his actual possession of the land, these tax declarations constitute strong evidence of ownership of the land occupied by him. As we said in the case of Republic vs. Court of Appeals:40[40] Although tax declarations or realty tax payments of property are not conclusive evidence of ownership, nevertheless, they are good indicia of possession in the concept of owner for no one in his right mind would be paying taxes for a property that is not in his actual or at least constructive possession. They constitute at least proof that the holder has a claim of title over the property. The voluntary declaration of a piece of property for taxation purposes manifests not only ones sincere and honest desire to obtain title to the property and announces his adverse claim against the State and all other interested parties, but also the intention to contribute needed revenues to the Government. Such an act strengthens ones bona fide claim of acquisition of ownership.

35 36 37 38 39 40

More importantly, it was established that private respondent, having been in possession of the land since 1950, was the owner of the property when it was registered by Jose Alvarez in 1969, his possession tacked to that of his predecessor-in-interest, Ulpiano Mumar, which dates back to 1917. 41[41] Clearly, more than 30 years had elapsed before a decree of registration was issued in favor of Jose Alvarez. This uninterrupted adverse possession of the land for more than 30 years could only ripen into ownership of the land through acquisitive prescription which is a mode of acquiring ownership and other real rights over immovable property. Prescription requires public, peaceful, uninterrupted and adverse possession of the property in the concept of an owner for ten (10) years, in case the possession is in good faith and with a just title. Such prescription is called ordinary prescription, as distinguished from extraordinary prescription which requires possession for 30 years in case possession is without just title or is not in good faith. 42 [42] Edp In contrast to private respondent, it has been shown that neither Jose Alvarez nor the spouses Beduya were at any time in possession of the property in question. In fact, despite knowledge by Gaudencio Beduya that private respondent occupied this 19.4 hectares included in the area covered by TCT No. 10101,43[43] he never instituted any action to eject or recover possession from the latter. Hence, it can be concluded that neither Jose Alvarez nor the spouses Beduya ever exercised any right of ownership over the land. The fact of registration in their favor never vested in them the ownership of the land in dispute. "If a person obtains a title under the Torrens system, which includes by mistake or oversight land which can no longer be registered under the system, he does not, by virtue of the said certificate alone, become the owner of the lands illegally included." 44[44] Considering the circumstances pertaining in this case, therefore, we hold that ownership of the 19.4 hectares of land presently occupied by private respondent was already vested in him and that its inclusion in OCT No. 546 and, subsequently, in TCT No. 10101, was erroneous. Accordingly, the land in question must be reconveyed in favor of private respondent, the true and actual owner thereof, reconveyance being clearly the proper remedy in this case.

41 42 43 44

"The true owner may bring an action to have the ownership or title to the land judicially settled and the Court in the exercise of its equity jurisdiction, without ordering the cancellation of the Torrens title issued upon the patent, may direct the defendants, the registered owner to reconvey the parcel of land to the plaintiff who has been found to be the true owner thereof." (Vital vs. Amore, 90 Phil. 955) "The reconveyance is just and proper in order to terminate the intolerable anomaly that the patentees should have a torrens title for the land which they and their predecessors never possessed which has been possessed by Novo in the concept of owner." (Bustarga v. Novo, 129 SCRA 125)45[45] Second. Generally, an action for reconveyance based on an implied or constructive trust, such as the instant case, prescribes in 10 years from the date of issuance of decree of registration. 46[46] However, this rule does not apply when the plaintiff is in actual possession of the land. Thus, it has been held: Misedp . . . [A]n action for reconveyance of a parcel of land based on implied or constructive trust prescribes in ten years, the point of reference being the date of registration of the deed or the date of the issuance of the certificate of title over the property, but this rule applies only when the plaintiff or the person enforcing the trust is not in possession of the property, since if a person claiming to be the owner thereof is in actual possession of the property, as the defendants are in the instant case, the right to seek reconveyance, which in effect seeks to quiet title to the property, does not prescribe. The reason for this is that one who is in actual possession of a piece of land claiming to be the owner thereof may wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right, the reason for the rule being, that his undisturbed possession gives him a continuing right to seek the aid of a court of equity to ascertain and determine the nature of the adverse claim of a third party and its effect on his own title, which right can be claimed only by one who is in possession.47[47]

45 46 47

Having been the sole occupant of the land in question, private respondent may seek reconveyance of his property despite the lapse of more than 10 years. Nor is there any obstacle to the determination of the validity of TCT No. 10101. It is true that the indefeasibility of torrens titles cannot be collaterally attacked. In the instant case, the original complaint is for recovery of possession filed by petitioner against private respondent, not an original action filed by the latter to question the validity of TCT No. 10101 on which petitioner bases its right. To rule on the issue of validity in a case for recovery of possession is tantamount to a collateral attack. However, it should not be overlooked that private respondent filed a counterclaim against petitioner, claiming ownership over the land and seeking damages. Hence, we could rule on the question of the validity of TCT No. 10101 for the counterclaim can be considered a direct attack on the same. "A counterclaim is considered a complaint, only this time, it is the original defendant who becomes the plaintiff. . . . It stands on the same footing and is to be tested by the same rules as if it were an independent action." 48[48] In an analogous case,49[49] we ruled on the validity of a certificate of title despite the fact that the original action instituted before the lower court was a case for recovery of possession. The Court reasoned that since all the facts of the case are before it, to direct the party to institute cancellation proceedings would be needlessly circuitous and would unnecessarily delay the termination of the controversy which has already dragged on for 20 years. Third. Petitioner nonetheless contends that an action for reconveyance does not lie against it, because it is an innocent purchaser for value in the foreclosure sale held in 1985. This contention has no merit. Sec. 38 of Act No. 496, the Land Registration Act, provides: Misoedp If the court after hearing finds that the applicant or adverse claimant has title as stated in his application or adverse claim and proper for registration, a decree of confirmation and registration shall be entered. Every decree of registration shall bind the land, and quiet title thereto, subject only to the exceptions stated in the following section. It shall be conclusive upon and against all persons, including the Insular Government and all the branches thereof, whether mentioned by name in the application, notice, or citation, or included in the general description "To all whom it
48 49

may concern." Such decree shall not be opened by reason of the absence, infancy, or other disability of any person affected thereby, nor by any proceeding in any court for reversing judgments or decrees; subject, however, to the right of any person deprived of land or of any estate or interest therein by decree of registration obtained by fraud to file in the competent Court of First Instance a petition for review within one year after entry of the decree, provided no innocent purchaser for value has acquired an interest. Upon the expiration of said term of one year, every decree or certificate of title issued in accordance with this section shall be incontrovertible. If there is any such purchaser, the decree of registration shall not be opened, but shall remain in full force and effect forever, subject only to the right of appeal hereinbefore provided: Provided, however, That no decree or certificate of title issued to persons not parties to the appeal shall be cancelled or annulled. But any person aggrieved by such decree in any case may pursue his remedy by action for damages against the applicant or any other person for fraud in procuring the decree. Whenever the phrase "innocent purchaser for value" or an equivalent phrase occurs in this Act, it shall be deemed to include an innocent lessee, mortgagee, or other encumbrancer for value. (As amended by Sec. 3, Act 3621; and Sec. 1, Act No. 3630.) Edpmis Succinctly put, 38 provides that a certificate of title is conclusive and binding upon the whole world. Consequently, a buyer need not look behind the certificate of title in order to determine who is the actual owner of the land. However, this is subject to the right of a person deprived of land through fraud to bring an action for reconveyance, provided that it does not prejudice the rights of an innocent purchaser for value and in good faith. "It is a condition sine qua non for an action for reconveyance to prosper that the property should not have passed to the hands of an innocent purchaser for value."50[50] The same rule applies to mortgagees, like petitioner. Thus, we held: Where the certificate of title is in the name of the mortgagor when the land is mortgaged, the innocent mortgagee for value has the right to rely on what appears on the certificate of title. In the absence of anything to excite suspicion, said mortgagee is under no obligation to look beyond the certificate and investigate the title of the mortgagor appearing on the face of said certificate. Although Article 2085 of the Civil Code provides that absolute ownership of the mortgaged property by the mortgagor
50

is essential, the subsequent declaration of a title as null and void is not a ground for nullifying the mortgage right of a mortgagee in good faith.51[51] The evidence before us, however, indicates that petitioner is not a mortgagee in good faith. To be sure, an innocent mortgagee is not expected to conduct an exhaustive investigation on the history of the mortgagors title. Nonetheless, especially in the case of a banking institution, a mortgagee must exercise due diligence before entering into said contract. Judicial notice is taken of the standard practice for banks, before approving a loan, to send representatives to the premises of the land offered as collateral and to investigate who are the real owners thereof. Banks, their business being impressed with public interest, are expected to exercise more care and prudence than private individuals in their dealings, even those involving registered lands.52[52] Jjsc In this case, petitioners representative, Patton R. Olano, admitted that he came to know of the property for the first time in 1979 when he inspected it to determine whether the portion occupied by private respondent and mortgaged by the latter to petitioner was included in TCT No. 10101. This means that when the land was mortgaged by the spouses Beduya in 1972, no investigation had been made by petitioner. It is clear, therefore, that petitioner failed to exercise due care and diligence in establishing the condition of the land as regards its actual owners and possessors before it entered into the mortgage contract in 1972 with the Beduyas. Had it done so, it would not have failed to discover that private respondent was occupying the disputed portion of 19.4 hectares. For this reason, petitioner cannot be considered an innocent purchaser for value when it bought the land covered by TCT No. 10101 in 1985 at the foreclosure sale. Indeed, two circumstances negate petitioners claim that it was an innocent purchaser for value when it bought the land in question, including the portion occupied by private respondent: (1) petitioner was already informed by Gaudencio Beduya that private respondent occupied a portion of the property covered by TCT No. 10101; and (2) petitioners representative conducted an investigation of the property in 1979 to ascertain whether the land mortgaged by private respondent was included in TCT No. 10101. In other words, petitioner was already aware that a person other than the registered owner was in actual possession of the land when it bought the same at the foreclosure sale. A person who deliberately ignores a significant fact which would create suspicion in an otherwise reasonable man is not an
51 52

innocent purchaser for value. "It is a well-settled rule that a purchaser cannot close his eyes to facts which should put a reasonable man upon his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor."53[53] Petitioner deliberately disregarded both the fact that private respondent already occupied the property and that he was claiming ownership over the same. It cannot feign ignorance of private respondents claim to the land since the latter mortgaged the same land to petitioner as security for the loan he contracted in 1978 on the strength of the tax declarations issued under his name. Instead of inquiring into private respondents occupation over the land, petitioner simply proceeded with the foreclosure sale, pretending that no doubts surround the ownership of the land covered by TCT No. 10101. Considering these circumstances, petitioner cannot be deemed an innocent mortgagee/purchaser for value. As we ruled: Scjj "The failure of appellees to take the ordinary precautions which a prudent man would have taken under the circumstances, specially in buying a piece of land in the actual, visible and public possession of another person, other than the vendor, constitutes gross negligence amounting to bad faith. In this connection, it has been held that where, as in this case, the land sold is in the possession of a person other than the vendor, the purchaser is required to go beyond the certificates of title and ma[k]e inquiries concerning the rights of the actual possessor. (Citations omitted.) .... One who purchases real property which is in the actual possession of another should, at least, make some inquiry concerning the right of those in possession. The actual possession by other than the vendor should, at least put the purchaser upon inquiry. He can scarcely, in the absence of such inquiry, be regarded as a bona fide purchaser as against such possessors."54[54] Fourth. From the foregoing, we find that the resolution of the issue of estoppel will not affect the outcome of this case. Petitioner claims that the fact that it approved a loan in favor of private respondent and executed a mortgage contract covering the 19.4 hectares covered by tax declarations
53 54

issued under private respondents name does not mean that it is estopped from questioning the latters title. Petitioner accuses private respondent of having made misrepresentations which led it to believe in his valid title and ownership. The claim has no basis. Private respondent made no misrepresentation with regard to the land occupied by him as he is actually the real owner thereof. Moreover, when private respondent entered into a mortgage contract with petitioner, his claim of ownership was supported not only by the tax declarations but also by a certification of the Clerk of Court of the Court of First Instance of Bohol that no civil, land registration or cadastral case has been filed or instituted before the court affecting the validity of Tax Declaration No. D-2247 covering the land located in Bugang, San Miguel, Bohol and declared in the name of Carlos Cajes. 55[55] These documents were relied upon by private respondent in support of his claim of ownership. We cannot consider the submission of these documents as misrepresentations by private respondent as to the actual ownership of the land. Rather, private respondent believed in good faith and with good reason that he was the owner of the 19.4 hectares occupied by him. Sjcj As to the question of estoppel, we do not find petitioner to be estopped from questioning private respondents title. "Estoppel in pais arises when one, by his acts, representations or admission, or by his own silence when he ought to speak out, intentionally or through culpable negligence, induces another to believe certain facts to exist and such other rightfully relies and acts on such belief, so that he will be prejudiced if the former is permitted to deny the existence of such facts."56[56] In the case at bar, upon learning that the land occupied by private respondent was also covered by TCT No. 10101, petitioner immediately demanded full payment of the loan and thereafter cancelled the mortgage contract, a fact that is admitted by private respondent himself.57[57] Indeed, nothing in record indicates that petitioner impliedly acquiesced to the validity of private respondents title when it found out that the latter was occupying a portion of the land covered by TCT No. 10101. However, for reasons aforestated, we uphold private respondents ownership of 19.4 hectares occupied by him. As a necessary consequence thereof, such portion of land included in TCT No. 10101 must be segregated and reconveyed in his favor.
55 56 57

WHEREFORE, the decision of the Court of Appeals is AFFIRMED in toto. SO ORDERED. Supreme Bellosillo, (Chairman), Quisumbing, Buena, and De Leon, Jr., JJ., concur.

[G.R. No. 147800. November 11, 2003] UNITED COCONUT PLANTERS BANK, petitioner, vs. TEOFILO C. RAMOS, respondent. DECISION CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the March 30, 2001 Decision [1] of the Court of Appeals in CA-G.R. CV No. 56737 which affirmed the Decision [2] of the Regional Trial Court (RTC) of Makati City, Branch 148, in Civil Case No. 94-1822.
58 59

The Antecedents On December 22, 1983, the petitioner United Coconut Planters Bank (UCPB) granted a loan of P2,800,000 to Zamboanga Development Corporation (ZDC) with Venicio Ramos and the Spouses Teofilo Ramos, Sr. and Amelita Ramos as sureties. Teofilo Ramos, Sr. was the Executive Officer of the Iglesia ni Cristo. In March 1984, the petitioner granted an additional loan to ZDC, again with Venicio Ramos and the Spouses Teofilo Ramos and Amelita Ramos as sureties. [3] However, the ZDC failed to pay its account to the petitioner despite demands. The latter filed a complaint with the RTC of Makati against the ZDC, Venicio Ramos and the Spouses Teofilo Ramos, Sr. for the collection of the corporations account. The case was docketed as Civil Case No. 16453. On February 15, 1989, the RTC of Makati, Branch 134, rendered judgment in favor of the petitioner and against the defendants. The decretal portion of the decision reads:
60

1. 2. 3.

To pay plaintiff the sum of THREE MILLION ONE HUNDRED FIFTY THOUSAND PESOS (P3,150,000.00) plus interest, penalties and other charges; To pay plaintiff the sum of P20,000.00 for attorneys fees; and To pay the cost of suit. [4]
61

The decision became final and executory. On motion of the petitioner, the court issued on December 18, 1990 a writ of execution for the enforcement of its decision ordering Deputy Sheriff Pioquinto P. Villapaa to levy and attach all the real and personal properties belonging to the aforesaid defendants to satisfy the judgment. [5] In the writ of execution, the name of one of the defendants was correctly stated as Teofilo Ramos, Sr.
62

To help the Sheriff implement the writ, Atty. Cesar Bordalba, the head of the Litigation and Enforcement Division (LED) of the petitioner, requested Eduardo C. Reniva, an appraiser of the petitioners Credit and Appraisal Investigation Department (CAID) on July 17, 1992 to ascertain if the defendants had any leviable real and personal property. The lawyer furnished Reniva with a copy of Tax Declaration B-023-07600-R covering a property in Quezon City. [6] In the course of his investigation, Reniva found that the property was a residential lot, identified as Lot 12, Block 5, Ocampo Avenue, Don Jose Subdivision, Quezon City, with an area of 400 square meters, covered by TCT No. 275167 (PR-13108) under the name of Teofilo C. Ramos, President and Chairman of the Board of Directors of the Ramdustrial Corporation, married to Rebecca F. Ramos. [7] The property was covered by Tax Declaration No. B-023-07600-R under the names of the said spouses. Reniva went to the property to inspect it and to verify the identity of the owner thereof. He saw workers on the property constructing a bungalow. [8] However, he failed to talk to the owner of the property. Per information
63 64 65

58 59 60 61 62 63 64 65

gathered from the neighborhood, Reniva confirmed that the Spouses Teofilo C. Ramos and Rebecca Ramos owned the property. On July 22, 1992, Reniva submitted a report on his appraisal of the property. He stated therein that the fair market value of the property as of August 1, 1992 was P900,000 and that the owner thereof was Teofilo C. Ramos, married to Rebecca Ramos. When appraised by the petitioner of the said report, the Sheriff prepared a notice of levy in Civil Case No. 16453 stating, inter alia, that the defendants were Teofilo Ramos, Sr. and his wife Amelita Ramos and caused the annotation thereof by the Register of Deeds on the said title. [9]
66

Meanwhile, in August of 1993, Ramdustrial Corporation applied for a loan with the UCPB, a sister company of the petitioner, using the property covered by TCT No. 275167 (PR-13108) as collateral therefor. The Ramdustrial Corporation intended to use the proceeds of the loan as additional capital as it needed to participate in a bidding project of San Miguel Corporation. [10] In a meeting called for by the UCPB, the respondent was informed that upon verification, a notice of levy was annotated in TCT No. 275167 in favor of the petitioner as plaintiff in Civil Case No. 16453, entitled United Coconut Planters Bank v. Zamboanga Realty Development Corporation, Venicio A. Ramos and Teofilo Ramos, Sr., because of which the bank had to hold in abeyance any action on its loan application.
67

The respondent was shocked by the information. He was not a party in the said case; neither was he aware that his property had been levied by the sheriff in the said case. His blood temperature rose so much that immediately after the meeting, he proceeded to his doctor, Dr. Gatchalian, at the St. Lukes Medical Center, who gave the respondent the usual treatment and medication for cardio-vascular and hypertension problems. [11]
68

Upon advise from his lawyer, Atty. Carmelito Montano, the respondent executed an affidavit of denial [12] declaring that he and Teofilo Ramos, Sr., one of the judgment debtors in Civil Case No. 16453, were not one and the same person. On September 30, 1993, the respondent, through counsel, Atty. Carmelito A. Montano, wrote Sheriff Villapaa, informing him that a notice of levy was annotated on the title of the residential lot of the respondent, covered by TCT No. 275167 (PR-13108); and that such annotation was irregular and unlawful considering that the respondent was not Teofilo Ramos, Sr. of Iglesia ni Cristo, the defendant in Civil Case No. 16453. He demanded that Sheriff Villapaa cause the cancellation of the said annotation within five days from notice thereof, otherwise the respondent would take the appropriate civil, criminal or administrative action against him. Appended thereto was the respondents affidavit of denial. For his part, Sheriff Villapaa furnished the petitioner with a copy of the said letter.
69

In a conversation over the phone with Atty. Carmelito Montano, Atty. Cesar Bordalba, the head of the petitioners LED, suggested that the respondent file the appropriate pleading in Civil Case No. 16453 to prove his claim that Atty. Montanos client, Teofilo C. Ramos, was not defendant Teofilo Ramos, Sr., the defendant in Civil Case No. 16453. On October 21, 1993, the respondent was informed by the UCPB that Ramdustrial Corporations credit line application for P2,000,000 had been approved. [13] Subsequently, on October 22, 1993, the respondent, in his capacity as President and Chairman of the Board of Directors of Ramdustrial Corporation, and Rebecca F. Ramos executed a promissory note for the said amount payable to the UCPB in installments for a period of 180
70

66 67 68 69 70

days. [14] Simultaneously, the respondent and his wife Rebecca F. Ramos acted as sureties to the loan of Ramdustrial Corporation. [15] However, the respondent was concerned because when the proceeds of the loan were released, the bidding period for the San Miguel Corporation project had already elapsed. [16] As business did not go well, Ramdustrial Corporation found it difficult to pay the loan. It thus applied for an additional loan with the UCPB which was, however, denied. The corporation then applied for a loan with the Planters Development Bank (PDB), the proceeds of which would be used to pay its account to the UCPB. The respondent offered to use his property covered by TCT No. 275167 as collateral for its loan. PDB agreed to pay off the outstanding loan obligation of Ramdustrial Corporation with UCPB, on the condition that the mortgage with the latter would be released. UCPB agreed. Pending negotiations with UCPB, the respondent discovered that the notice of levy annotated on TCT No. 275167 (PR-13108) at the instance of the petitioner had not yet been cancelled. [17] When apprised thereof, PDB withheld the release of the loan pending the cancellation of the notice of levy. The account of Ramdustrial Corporation with UCPB thus remained outstanding. The monthly amortization on its loan from UCPB became due and remained unpaid. When the respondent went to the petitioner for the cancellation of the notice of levy annotated on his title, the petitioners counsel suggested to the respondent that he file a motion to cancel the levy on execution to enable the court to resolve the issue. The petitioner assured the respondent that the motion would not be opposed. Rather than wait for the petitioner to act, the respondent, through counsel, filed the said motion on April 8, 1994. As promised, the petitioner did not oppose the motion. The court granted the motion and issued an order on April 12, 1994 ordering the Register of Deeds to cancel the levy. The Register of Deeds of Quezon City complied and cancelled the notice of levy. [18]
71 72 73 74 75

Despite the cancellation of the notice of levy, the respondent filed, on May 26, 1994, a complaint for damages against the petitioner and Sheriff Villapaa before the RTC of Makati City, raffled to Branch 148 and docketed as Civil Case No. 94-1822. Therein, the respondent (as plaintiff) alleged that he was the owner of a parcel of land covered by TCT No. 275167; that Teofilo Ramos, Sr., one of the judgment debtors of UCPB in Civil Case No. 16453, was only his namesake; that without any legal basis, the petitioner and Sheriff Villapaa caused the annotation of a notice to levy on the TCT of his aforesaid property which caused the disapproval of his loan from UCPB and, thus made him lose an opportunity to participate in the bidding of a considerable project; that by reason of such wrongful annotation of notice of levy, he suffered sleepless nights, moral shock, mental anguish and almost a heart attack due to high blood pressure. He thus prayed: WHEREFORE, premises considered, it is most respectfully prayed of the Honorable Regional Trial Court that after due hearing, judgment be rendered in his favor by ordering defendants jointly and severally, to pay as follows: 1. 2. 3. 4. P3,000,000.00 as moral damages; 300,000.00 as exemplary damages; 200,000.00 as actual damages; 200,000.00 as attorneys fees;

71 72 73 74 75

5.

Cost of suit.

76

[19]

In its answer, the petitioner, while admitting that it made a mistake in causing the annotation of notice of levy on the TCT of the respondent, denied that it was motivated by malice and bad faith. The petitioner alleged that after ascertaining that it indeed made a mistake, it proposed that the respondent file a motion to cancel levy with a promise that it would not oppose the said motion. However, the respondent dilly-dallied and failed to file the said motion; forthwith, if any damages were sustained by the respondent, it was because it took him quite a long time to file the motion. The petitioner should not thus be made to suffer for the consequences of the respondents delay. The petitioner further asserted that it had no knowledge that there were two persons bearing the same name Teofilo Ramos; it was only when Sheriff Villapaa notified the petitioner that a certain Teofilo C. Ramos who appeared to be the registered owner of TCT No. 275167 that it learned for the first time the notice of levy on the respondents property; forthwith, the petitioner held in abeyance the sale of the levied property at public auction; barred by the failure of the respondent to file a third-party claim in Civil Case No. 16453, the petitioner could not cause the removal of the levy; in lieu thereof, it suggested to the respondent the filing of a motion to cancel levy and that the petitioner will not oppose such motion; surprisingly, it was only on April 12, 1994 that the respondent filed such motion; the petitioner was thus surprised that the respondent filed an action for damages against it for his failure to secure a timely loan from the UCPB and PDB. The petitioner thus prayed: WHEREFORE, in view of the foregoing premises, it is respectfully prayed of this Honorable Court that judgment be rendered in favor of defendant UCPB, dismissing the complaint in toto and ordering the plaintiff to: 1. 2. pay moral damages in the amount of PESOS: THREE MILLION P3,000,000.00 and exemplary damages in the amount of PESOS: FIVE HUNDRED THOUSAND P500,000.00; pay attorneys fees and litigation expenses in an amount of not less than PESOS: TWO HUNDRED THOUSAND P200,000.00;
77

Other reliefs and remedies deemed just and equitable under the premises are also prayed for.

[20]

In the meantime, in 1995, PDB released the proceeds of the loan of Ramdustrial Corporation which the latter remitted to UCPB. On March 4, 1997, the RTC rendered a decision in favor of the respondent. The complaint against Sheriff Villapaa was dismissed on the ground that he was merely performing his duties. The decretal part of the decision is herein quoted: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendant UCPB, and the latter is hereby ordered to pay the following: (1) P800,000.00 as moral damages; (2)P100,000.00 as exemplary damages; (3)P100,000.00 as attorneys fees; (4) Cost of suit. [21]
78

76 77 78

The trial court found that contrary to the contention of the petitioner, it acted with caution in looking for leviable properties of the judgment debtors/defendants in Civil Case No. 16453, it proceeded with haste as it did not take into consideration that the defendant Teofilo Ramos was married to Amelita Ramos and had a Sr. in his name, while the respondent was married to Rebecca Ramos and had C for his middle initial. The investigation conducted by CAID appraiser Eduardo C. Reniva did not conclusively ascertain if the respondent and Teofilo Ramos, Sr. were one and the same person. The trial court further stated that while it was Ramdustrial Corporation which applied for a loan with UCPB and PDB, the respondent, as Chairman of Ramdustrial Corporation, with his wife Rebecca Ramos, signed in the promissory note and acted as sureties on the said obligations. Moreover, the property which was levied was the respondents only property where he and his family resided. Thus, the thought of losing it for reasons not of his own doing gave rise to his entitlement to moral damages. The trial court further ruled that the mere fact that the petitioner did not file an opposition to the respondents motion to cancel levy did not negate its negligence and bad faith. However, the court considered the cancellation of annotation of levy as a mitigating factor on the damages caused to the respondent. For failure to show that he suffered actual damages, the court a quo dismissed the respondents claim therefor. Dissatisfied, the petitioner interposed an appeal to the Court of Appeals (CA). On March 30, 2001, the CA rendered a decision affirming, in toto, the decision of the trial court, the decretal portion of which is herein quoted: WHEREFORE, based on the foregoing premises, the assailed decision is hereby AFFIRMED.
79

[22]

The CA ruled that the petitioner was negligent in causing the annotation of notice of levy on the title of the petitioner for its failure to determine with certainty whether the defendant Teofilo Ramos, Sr. in Civil Case No. 16453 was the registered owner of the property covered by TCT No. 275167, and to inform the sheriff that the registered owners of the property were the respondent and his wife Rebecca Ramos, and thereafter request for the cancellation of the motion of levy on the property. Disappointed, the petitioner filed this instant petition assigning the following errors: I IN AFFIRMING THE TRIAL COURTS ORDER, THE COURT OF APPEALS COMMITTED MANIFESTLY MISTAKEN INFERENCES AND EGREGIOUS MISAPPREHENSION OF FACTS AND GRAVE ERRORS OF LAW, CONSIDERING THAT: A. ON THE EVIDENCE, THE BORROWER OF THE LOAN, WHICH RESPONDENT RAMOS CLAIMED HE TRIED TO OBTAIN, WAS RAMDUSTRIAL CORPORATION. HENCE, ANY DAMAGE RESULTING FROM THE ANNOTATION WAS SUFFERED BY THE CORPORATION AND NOT BY RESPONDENT RAMOS. B. C. THE DELAY IN THE CANCELLATION OF THE ANNOTATION WAS OF RESPONDENT RAMOSS (SIC) OWN DOING. THE LOAN APPLICATIONS WITH UNITED COCONUT SAVINGS BANK AND PLANTERS DEVELOPMENT BANK WERE GRANTED PRIOR TO THE CANCELLATION OF THE ANNOTATION ON THE TITLE OF THE SUBJECT PROPERTY.

79

II THE COURT OF APPEALS DECISION AFFIRMING THE TRIAL COURTS AWARD OF MORAL DAMAGES TO RESPONDENT RAMOS IN THE AMOUNT OF P800,000 ON A FINDING OF NEGLIGENCE IS CONTRARY TO LAW AND EVIDENCE. A. UCPB WAS NOT NEGLIGENT WHEN IT CAUSED THE LEVY ON THE SUBJECT PROPERTY. B. C. III THE AWARD OF EXEMPLARY DAMAGES AND ATTORNEYS FEES IS CONTRARY TO LAW SINCE THE AWARD OF MORAL DAMAGES WAS IMPROPER IN THE FIRST PLACE. [23]
80

AS A MATTER OF LAW, MORAL DAMAGES CANNOT BE AWARDED ON A FINDING OF MERE NEGLIGENCE. IN ANY EVENT, THE AWARD OF MORAL DAMAGES TO RESPONDENT RAMOS WAS UNREASONABLE AND OPPRESSIVE.

UCPB prayed that: WHEREFORE, petitioner UNITED COCONUT PLANTERS BANK respectfully prays that this Honorable Court render judgment reversing and setting aside the Court of Appeals Decision dated 30 March 2001, and ordering the dismissal of respondent Ramos Complaint dated 05 May 1994. [24]
81

In his comment, the respondent alleged that the CA did not err in affirming, in toto, the decision of the trial court. He prayed that the petition be denied due course. The issues posed for our resolution are the following: (a) whether or not the petitioner acted negligently in causing the annotation of levy on the title of the respondent; (b) if so, whether or not the respondent was the real party-in-interest as plaintiff to file an action for damages against the petitioner considering that the loan applicant with UCPB and PDB was RAMDUSTRIAL CORPORATION; (c) if so, whether or not the respondent is entitled to moral damages, exemplary damages and attorneys fees. On the first issue, we rule that the petitioner acted negligently when it caused the annotation of the notice of levy in TCT No. 275167. It bears stressing that the petitioner is a banking corporation, a financial institution with power to issue its promissory notes intended to circulate as money (known as bank notes); or to receive the money of others on general deposit, to form a joint fund that shall be used by the institution for its own benefit, for one or more of the purposes of making temporary loans and discounts, of dealing in notes, foreign and domestic bills of exchange, coin bullion, credits, and the remission of money; or with both these powers, and with the privileges, in addition to these basic powers, of receiving special deposits, and making collection for the holders of negotiable paper, if the institution sees fit to engage in such business. [25] In funding these businesses, the bank invests the money that it holds in trust of its depositors. For this reason, we have held that the business of a bank is one affected with public interest, for which reason the bank should guard against loss due to negligence
82

80 81 82

or bad faith. [26] In approving the loan of an applicant, the bank concerns itself with proper informations regarding its debtors. The petitioner, as a bank and a financial institution engaged in the grant of loans, is expected to ascertain and verify the identities of the persons it transacts business with. [27] In this case, the petitioner knew that the sureties to the loan granted to ZDC and the defendants in Civil Case No. 94-1822 were the Spouses Teofilo Ramos, Sr. and Amelita Ramos. The names of the Spouses Teofilo Ramos, Sr. and Amelita Ramos were specified in the writ of execution issued by the trial court.
83 84

The petitioner, with Atty. Bordalba as the Chief of LED and handling lawyer of Civil Case No. 16453, in coordination with the sheriff, caused the annotation of notice of levy in the respondents title despite its knowledge that the property was owned by the respondent and his wife Rebecca Ramos, who were not privies to the loan availment of ZDC nor parties-defendants in Civil Case No. 16453. Even when the respondent informed the petitioner, through counsel, that the property levied by the sheriff was owned by the respondent, the petitioner failed to have the annotation cancelled by the Register of Deeds. In determining whether or not the petitioner acted negligently, the constant test is: Did the defendant in doing the negligent act use that reasonable care and caution which an ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence. [28] Considering the testimonial and documentary evidence on record, we are convinced that the petitioner failed to act with the reasonable care and caution which an ordinarily prudent person would have used in the same situation.
85

The petitioner has access to more facilities in confirming the identity of their judgment debtors. It should have acted more cautiously, especially since some uncertainty had been reported by the appraiser whom the petitioner had tasked to make verifications. It appears that the petitioner treated the uncertainty raised by appraiser Eduardo C. Reniva as a flimsy matter. It placed more importance on the information regarding the marketability and market value of the property, utterly disregarding the identity of the registered owner thereof. It should not be amiss to note that the judgment debtors name was Teofilo Ramos, Sr. We note, as the Supreme Court of Washington in 1909 had, that a legal name consists of one given name and one surname or family name, and a mistake in a middle name is not regarded as of consequence. However, since the use of initials, instead of a given name, before a surname, has become a practice, the necessity that these initials be all given and correctly given in court proceedings has become of importance in every case, and in many, absolutely essential to a correct designation of the person intended. [29] A middle name is very important or even decisive in a case in which the issue is as between two persons who have the same first name and surname, did the act complained of, or is injured or sued or the like. [30]
86 87

In this case, the name of the judgment debtor in Civil Case No. 16453 was Teofilo Ramos, Sr., as appearing in the judgment of the court and in the writ of execution issued by the trial court. The name of the owner of the property covered by TCT No. 275167 was Teofilo C. Ramos. It behooved the petitioner to ascertain whether the defendant Teofilo Ramos, Sr. in Civil Case No. 16453 was the same person who appeared as the owner of the property covered by the said title. If the petitioner had done so, it would have surely discovered that the respondent was not the surety and the judgment debtor in Civil Case No. 16453. The petitioner failed to do so, and merely assumed that the respondent and the judgment debtor Teofilo Ramos, Sr. were one and the same person.
83 84 85 86 87

In sum, we find that the petitioner acted negligently in causing the annotation of notice of levy in the title of the herein respondent, and that its negligence was the proximate cause of the damages sustained by the respondent. On the second issue, the petitioner insists that the respondent is not the real party-in-interest to file the action for damages, as he was not the one who applied for a loan from UCPB and PDB but Ramdustrial Corporation, of which he was merely the President and Chairman of the Board of Directors. We do not agree. The respondent very clearly stated in his complaint that as a result of the unlawful levy by the petitioner of his property, he suffered sleepless nights, moral shock, and almost a heart attack due to high blood pressure. [31]
88

It must be underscored that the registered owner of the property which was unlawfully levied by the petitioner is the respondent. As owner of the property, the respondent has the right to enjoy, encumber and dispose of his property without other limitations than those established by law. The owner also has a right of action against the holder and possessor of the thing in order to recover it. [32] Necessarily, upon the annotation of the notice of levy on the TCT, his right to use, encumber and dispose of his property was diminished, if not negated. He could no longer mortgage the same or use it as collateral for a loan.
89

Arising from his right of ownership over the said property is a cause of action against persons or parties who have disturbed his rights as an owner. [33] As an owner, he is one who would be benefited or injured by the judgment, or who is entitled to the avails of the suit [34] for an action for damages against one who disturbed his right of ownership.
90 91

Hence, regardless of the fact that the respondent was not the loan applicant with the UCPB and PDB, as the registered owner of the property whose ownership had been unlawfully disturbed and limited by the unlawful annotation of notice of levy on his TCT, the respondent had the legal standing to file the said action for damages. In both instances, the respondents property was used as collateral of the loans applied for by Ramdustrial Corporation. Moreover, the respondent, together with his wife, was a surety of the aforesaid loans. While it is true that the loss of business opportunities cannot be used as a reason for an action for damages arising from loss of business opportunities caused by the negligent act of the petitioner, the respondent, as a registered owner whose right of ownership had been disturbed and limited, clearly has the legal personality and cause of action to file an action for damages. Not even the respondents failure to have the annotation cancelled immediately after he came to know of the said wrongful levy negates his cause of action. On the third issue, for the award of moral damages to be granted, the following must exist: (1) there must be an injury clearly sustained by the claimant, whether physical, mental or psychological; (2) there must be a culpable act or omission factually established; (3) the wrongful act or omission of the defendant is the proximate cause of the injury sustained by the claimant; and (4) the award for damages is predicated on any of the cases stated in Article 2219 of the Civil Code. [35]
92

In the case at bar, although the respondent was not the loan applicant and the business opportunities lost were those of Ramdustrial Corporation, all four requisites were established. First, the respondent sustained injuries in
88 89 90 91 92

that his physical health and cardio-vascular ailment were aggravated; his fear that his one and only property would be foreclosed, hounded him endlessly; and his reputation as mortgagor had been tarnished. Second, the annotation of notice of levy on the TCT of the private respondent was wrongful, arising as it did from the petitioners negligent act of allowing the levy without verifying the identity of its judgment debtor. Third, such wrongful levy was the proximate cause of the respondents misery. Fourth, the award for damages is predicated on Article 2219 of the Civil Code, particularly, number 10 thereof. [36]
93

Although the respondent was able to establish the petitioners negligence, we cannot, however, allow the award for exemplary damages, absent the private respondents failure to show that the petitioner acted with malice and bad faith. It is a requisite in the grant of exemplary damages that the act of the offender must be accompanied by bad faith or done in a wanton, fraudulent or malevolent manner. [37]
94

Attorneys fees may be awarded when a party is compelled to litigate or to incur expenses to protect his interest by reason of an unjustified act of the other party. In this case, the respondent was compelled to engage the services of counsel and to incur expenses of litigation in order to protect his interest to the subject property against the petitioners unlawful levy. The award is reasonable in view of the time it has taken this case to be resolved. [38]
95

In sum, we rule that the petitioner acted negligently in levying the property of the respondent despite doubts as to the identity of the respondent vis--vis its judgment debtor. By reason of such negligent act, a wrongful levy was made, causing physical, mental and psychological injuries on the person of the respondent. Such injuries entitle the respondent to an award of moral damages in the amount of P800,000. No exemplary damages can be awarded because the petitioners negligent act was not tainted with malice and bad faith. By reason of such wrongful levy, the respondent had to hire the services of counsel to cause the cancellation of the annotation; hence, the award of attorneys fees. WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 56737 is AFFIRMED WITH MODIFICATION. The award for exemplary damages is deleted. No costs. SO ORDERED. Bellosillo, (Chairman), Quisumbing, Austria-Martinez, and Tinga, JJ., concur.

93 94 95

G.R. No. 155206

October 28, 2003

GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner, vs. EDUARDO M. SANTIAGO, substituted by his widow ROSARIO ENRIQUEZ VDA. DE SANTIAGO, respondent. DECISION CALLEJO, SR., J.: Before the Court is the petition for review on certiorari filed by the Government Service Insurance System (GSIS), seeking to reverse and set aside the Decision1 dated February 22, 2002 of the Court of Appeals (CA) in CA-G.R. CV No. 62309 and its Resolution dated September 5, 2002 denying its motion for reconsideration. The antecedent facts of the case, as culled from the assailed CA decision and that of the trial court, are as follows: Deceased spouses Jose C. Zulueta and Soledad Ramos obtained various loans from defendant GSIS for (the) period September, 1956 to October, 1957 in the total amount of P3,117,000.00 secured by real estate mortgages over parcels of land covered by TCT Nos. 26105, 37177 and 50365. The Zuluetas failed to pay their loans to defendant GSIS and the latter foreclosed the real estate mortgages dated September 25, 1956, March 6, 1957, April 4, 1957 and October 15, 1957. On August 14, 1974, the mortgaged properties were sold at public auction by defendant GSIS submitting a bid price of P5,229,927.84. Not all lots covered by the mortgaged titles, however, were sold. Ninety-one (91) lots were expressly excluded from the auction since the lots were sufficient to pay for all the mortgage debts. A Certificate of Sale (Annex "F," Records, Vol. I, pp. 23-28) was issued by then Provincial Sheriff Nicanor D. Salaysay.

The Certificate of Sale dated August 14, 1974 had been annotated and inscribed in TCT Nos. 26105, 37177 and 50356, with the following notations: "(T)he following lots which form part of this title (TCT No. 26105) are not covered by the mortgage contract due to sale to third parties and donation to the government: 50-H-5-C-9-J-65H-8, 50-H-5-C-9J-M-7; 50-H-5-C-9-J-65-H-5; 1 lots Nos. 1 to 13, Block No. 1 -6,138 sq.m. 2. Lots Nos. 1 to 11, Block No. 2 4,660 sq.m. 3. Lot No. 15, Block No. 3 487 sq.m. 4. Lot No. 17, Block No. 4 263 sq.m. 5. Lot No. 1, Block No. 7 402 sq.m. 6. Road Lots Nos. 1, 2, 3, & 4 2,747 sq.m." In another "NOTE: The following lots in the Antonio Subdivision were already released by the GSIS and therefore are not included in this sale, namely: LOT NO. 1, 6, 7, 8, 9, 10, and 13 (Old Plan) Block I; 1, 3, 4, 5, 7, 8 and 10 (Old Plan) Block II; 3, 10, 12 and 13 (New Plan) Block I (Old Plan) Block III; 7, 14 and 20 (New Plan) Block III (Old Plan) Block V; 13 and 20 (New Plan) Block IV (Old Plan) Block VI; 1, 2, 3 and 10 (New Plan) Block V (Old Plan) Block VII; 1, 5, 8, 15, 26 and 27 (New Plan) Block VI (Old Plan) Block VIII; 7, 12 and 20 (New Plan) Block VII (Old Plan) Block II; 1, 4 and 6 (New Plan) Block VIII (Old Plan) Block X; 5 (New Plan) Block X (Old Plan) Block ZXII; 6 (New Plan) Block XI (Old Plan) Block XII; 1, Block 9; 12 Block 1; 11 Block 2; 19 Block 1; 10 Block 6; 23 Block 3." And the lots on "ADDITIONAL EXCLUSION FROM PUBLIC SALE" are "LOTS NO. 6 Block 4; 2 Block 2; 5 Block 5; 1, 2 and 3 Block 11, 1, 2, 3 and 4 Block 10; 5 Block 11 (New); 1 Block 3; 5 Block 1; 15 Block 7; 11 Block 9; 13 Block 5; 12 Block 5; 3 Block 10; 6." On November 25, 1975, an Affidavit of Consolidation of Ownership (Annex "G," Records, Vol. I, pp. 29-31) was executed by defendant GSIS over Zuluetas lots, including the lots, which as earlier stated, were already excluded from the foreclosure. On March 6, 1980, defendant GSIS sold the foreclosed properties to Yorkstown Development Corporation which sale was disapproved by the Office of the President of the Philippines. The sold properties were returned to defendant GSIS. The Register of Deeds of Rizal cancelled the land titles issued to Yorkstown Development Corporation. On July 2, 1980, TCT No. 23552 was issued cancelling TCT No. 21926; TCT No. 23553 cancelled TCT No. 21925; and TCT No. 23554 cancelling TCT No. 21924, all in the name of defendant GSIS.1awphi1.nt After defendant GSIS had re-acquired the properties sold to Yorkstown Development Corporation, it began disposing the foreclosed lots including the excluded ones. On April 7, 1990, representative Eduardo Santiago and then plaintiff Antonio Vic Zulueta executed an agreement whereby Zulueta transferred all his rights and interests over the excluded lots. Plaintiff Eduardo Santiagos lawyer, Atty. Wenceslao B. Trinidad, wrote a demand letter dated May 11, 1989 (Annex "H," Records, Vol. I, pp. 32-33) to defendant GSIS asking for the return of the eighty-one (81) excluded lots.2 On May 7, 1990, Antonio Vic Zulueta, represented by Eduardo M. Santiago, filed with the Regional Trial Court (RTC) of Pasig City, Branch 71, a complaint for reconveyance of real estate against the GSIS. Spouses Alfeo and Nenita Escasa, Manuel III and Sylvia G. Urbano, and Marciana P. Gonzales and the heirs of Mamerto Gonzales moved to be included as intervenors and filed their respective answers in intervention. Subsequently, the petitioner, as defendant therein, filed its answer alleging inter alia that the action was barred by the statute of limitations and/or laches and that the complaint stated no cause of action. Subsequently, Zulueta was substituted by Santiago as the plaintiff in the complaint a quo. Upon the death of Santiago on March 6, 1996, he was substituted by his widow, Rosario Enriquez Vda. de Santiago, as the plaintiff. After due trial, the RTC rendered judgment against the petitioner ordering it to reconvey to the respondent, Rosario Enriquez Vda. de Santiago, in substitution of her deceased husband Eduardo, the seventy-eight lots excluded from the foreclosure sale.1awphi1.nt The dispositive portion of the RTC decision reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendant: 1. Ordering defendant to reconvey to plaintiff the seventy-eight (78) lots released and excluded from the foreclosure sale including the additional exclusion from the public sale, namely: a. Lot Nos. 1, 6, 7, 8, 0, 10, 13, Block I (Old Plan). b. Lot Nos. 1, 3, 4, 5, 7, 8 and 10, Block II (Old Plan). c. Lot Nos. 3, 10, 12, and 13, Block I (New Plan), Block III (Old Plan), d. Lot Nos. 7, 14 and 20, Block III (New Plan), Block V (Old Plan). e. Lot Nos. 13 and 20, Block IV (New Plan), Block VI (Old Plan). f. Lot Nos. 1, 2, 3 and 10, Block V (New Plan), Block VII (Old Plan). g. Lot Nos. 1, 5, 8, 15, 26 and 27, Block VI (New Plan), Block VIII (Old Plan). h. Lot Nos. 7 and 12, Block VII (New Plan), Block II (Old Plan). i. Lot Nos. 1, 4 and 6, Block VIII (New Plan), Block X (Old Plan). j. Lot 5, Block X (New Plan), Block XII (Old Plan). k. Lot 6, Block XI (New Plan), Block XII (Old Plan). l. Lots 2, 5, 12 and 15, Block I. m. Lots 6, 9 and 11, Block 2. n. Lots 1, 5, 6, 7, 16 and 23, Block 3. o. Lot 6, Block 4. p. Lots 5, 12, 13 and 24, Block 5. q. Lots 10 and 16, Block 6. r. Lots 6 and 15, Block 7. s. Lots 13, 24, 28 and 29, Block 8. t. Lots 1, 11, 17 and 22, Block 9. u. Lots 1, 2, 3 and 4, Block 10. v. Lots 1, 2, 3 and 5 (New), Block 11. 2. Ordering defendant to pay plaintiff, if the seventy-eight (78) excluded lots could not be reconveyed, the fair market value of each of said lots.

3. Ordering the Registry of Deeds of Pasig City to cancel the land titles covering the excluded lots in the name of defendant or any of its successors-in-interest including all derivative titles therefrom and to issue new land titles in plaintiffs name. 4. Ordering the Registry of Deeds of Pasig City to cancel the Notices of Lis Pendens inscribed in TCT No. PT-80342 under Entry No. PT-12267/T-23554; TCT No. 81812 under Entry No. PT-12267/T23554; and TCT No. PT-84913 under Entry No. PT-12267/T-23554. 5. Costs of suit.3 The petitioner elevated the case to the CA which rendered the assailed decision affirming that of the RTC. The dispositive portion of the assailed decision reads: WHEREFORE, premises considered, the herein appeal is DISMISSED for lack of merit. The Decision of December 17, 1997 of Branch 71 of the Regional Trial Court of Pasig City is hereby AFFIRMED.4 The petitioner moved for a reconsideration of the aforesaid decision but the same was denied in the assailed CA Resolution of September 5, 2002. The petitioner now comes to this Court alleging that: THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT A) PETITIONER WAS GUILTY OF BAD FAITH WHEN IN TRUTH AND IN FACT, THERE WAS NO SUFFICIENT GROUND TO SUPPORT SUCH CONCLUSION; AND B) THERE WAS NO PRESCRIPTION IN THIS CASE.5 In its petition, the petitioner maintains that it did not act in bad faith when it erroneously included in its certificate of sale, and subsequently consolidated the titles in its name over the seventy-eight lots ("subject lots") that were excluded from the foreclosure sale. There was no proof of bad faith nor could fraud or malice be attributed to the petitioner when it erroneously caused the issuance of certificates of title over the subject lots despite the fact that these were expressly excluded from the foreclosure sale. The petitioner asserts that the action for reconveyance instituted by the respondent had already prescribed after the lapse of ten years from November 25, 1975 when the petitioner consolidated its ownership over the subject lots. According to the petitioner, an action for reconveyance based on implied or constructive trust prescribes in ten years from the time of its creation or upon the alleged fraudulent registration of the property. In this case, when the action was instituted on May 7, 1990, more than fourteen years had already lapsed. Thus, the petitioner contends that the same was already barred by prescription as well as laches. The petitioner likewise takes exception to the holding of the trial court and the CA that it (the petitioner) failed to apprise or return to the Zuluetas, the respondents predecessors-in-interest, the seventy-eight lots excluded from the foreclosure sale because the petitioner had no such obligation under the pertinent loan and mortgage agreement. The petitioners arguments fail to persuade.1awphi1.nt At the outset, it bears emphasis that the jurisdiction of this Court in a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, is limited to reviewing only errors of law. This Court is not a trier of facts. Case law has it that the findings of the trial court especially when affirmed by the CA are binding and conclusive upon this Court. Although there are exceptions to the said rule, we find no reason to deviate therefrom.6 By assailing the findings of facts of the trial court as affirmed by the CA, that it acted in bad faith, the petitioner thereby raised questions of facts in its petition.

Nonetheless, even if we indulged the petition and delved into the factual issues, we find the petition barren of merit. That the petitioner acted in bad faith in consolidating ownership and causing the issuance of titles in its name over the subject lots, notwithstanding that these were expressly excluded from the foreclosure sale was the uniform ruling of the trial court and appellate court. As declared by the CA: The acts of defendant-appellant GSIS in concealing from the Zuluetas [the respondents predecessors-ininterest] the existence of these lots, in failing to notify or apprise the spouses Zulueta about the excluded lots from the time it consolidated its titles on their foreclosed properties in 1975, in failing to inform them when it entered into a contract of sale of the foreclosed properties to Yorkstown Development Corporation in 1980 as well as when the said sale was revoked by then President Ferdinand E. Marcos during the same year demonstrated a clear effort on its part to defraud the spouses Zulueta and appropriate for itself the subject properties. Even if titles over the lots had been issued in the name of the defendant-appellant, still it could not legally claim ownership and absolute dominion over them because indefeasibility of title under the Torrens system does not attach to titles secured by fraud or misrepresentation. The fraud committed by defendantappellant in the form of concealment of the existence of said lots and failure to return the same to the real owners after their exclusion from the foreclosure sale made defendant-appellant holders in bad faith. It is wellsettled that a holder in bad faith of a certificate of title is not entitled to the protection of the law for the law cannot be used as a shield for fraud.7 The Court agrees with the findings and conclusion of the trial court and the CA. The petitioner is not an ordinary mortgagee. It is a government financial institution and, like banks, is expected to exercise greater care and prudence in its dealings, including those involving registered lands.8 The Courts ruling in Rural Bank of Compostela v. CA9 is apropos: Banks, indeed, should exercise more care and prudence in dealing even with registered lands, than private individuals, for their business is one affected with public interest, keeping in trust money belonging to their depositors, which they should guard against loss by not committing any act of negligence which amounts to lack of good faith by which they would be denied the protective mantle of land registration statute, Act [No.] 496, extended only to purchasers for value and in good faith, as well as to mortgagees of the same character and description.10 Due diligence required of banks extend even to persons, or institutions like the petitioner, regularly engaged in the business of lending money secured by real estate mortgages.11 In this case, the petitioner executed an affidavit in consolidating its ownership and causing the issuance of titles in its name over the subject lots despite the fact that these were expressly excluded from the foreclosure sale. By so doing, the petitioner acted in gross and evident bad faith. It cannot feign ignorance of the fact that the subject lots were excluded from the sale at public auction. At the least, its act constituted gross negligence amounting to bad faith. Further, as found by the CA, the petitioners acts of concealing the existence of these lots, its failure to return them to the Zuluetas and even its attempt to sell them to a third party is proof of the petitioners intent to defraud the Zuluetas and appropriate for itself the subject lots. On the issue of prescription, generally, an action for reconveyance of real property based on fraud prescribes in four years from the discovery of fraud; such discovery is deemed to have taken place upon the issuance of the certificate of title over the property. Registration of real property is a constructive notice to all persons and, thus, the four-year period shall be counted therefrom.12 On the other hand, Article 1456 of the Civil Code provides: Art. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes.

An action for reconveyance based on implied or constructive trust prescribes in ten years from the alleged fraudulent registration or date of issuance of the certificate of title over the property.13 The petitioners defense of prescription is untenable. As held by the CA, the general rule that the discovery of fraud is deemed to have taken place upon the registration of real property because it is "considered a constructive notice to all persons" does not apply in this case. The CA correctly cited the cases of Adille v. Court of Appeals14 and Samonte v. Court of Appeals,15 where this Court reckoned the prescriptive period for the filing of the action for reconveyance based on implied trust from the actual discovery of fraud. In ruling that the action had not yet prescribed despite the fact that more than ten years had lapsed between the date of registration and the institution of the action for reconveyance, the Court in Adille ratiocinated: It is true that registration under the Torrens system is constructive notice of title, but it has likewise been our holding that the Torrens title does not furnish a shield for fraud. It is therefore no argument to say that the act of registration is equivalent to notice of repudiation, assuming there was one, notwithstanding the long-standing rule that registration operates as a universal notice of title. For the same reason, we cannot dismiss private respondents claims commenced in 1974 over the estate registered in 1955. While actions to enforce a constructive trust prescribes in ten years, reckoned from the date of the registration of the property, we, as we said, are not prepared to count the period from such a date in this case. We note the petitioners sub rosa efforts to get hold of the property exclusively for himself beginning with his fraudulent misrepresentation in his unilateral affidavit of extrajudicial settlement that he is "the only heir and child of his mother Feliza with the consequence that he was able to secure title in his name [alone]." Accordingly, we hold that the right of the private respondents commenced from the time they actually discovered the petitioners act of defraudation. According to the respondent Court of Appeals, they "came to know [of it] apparently only during the progress of the litigation." Hence, prescription is not a bar.16 The above ruling was reiterated in the more recent case of Samonte. In this case, as established by the CA, the respondent actually discovered the fraudulent act of the petitioner only in 1989: ... [T]he prescriptive period of the action is to be reckoned from the time plaintiff-appellee (then Eduardo M. Santiago) had actually discovered the fraudulent act of defendant-appellant which was, as borne out by the records, only in 1989. Plaintiff-appellee Eduardo M. Santiago categorically testified (TSN of July 11, 1995, pp. 14-15) that he came to know that there were 91 excluded lots in Antonio Village which were foreclosed by the GSIS and included in its consolidation of ownership in 1975 when, in 1989, he and Antonio Vic Zulueta discussed it and he was given by Zulueta a special power of attorney to represent him to recover the subject properties from GSIS. The complaint for reconveyance was filed barely a year from the discovery of the fraud.17 Following the Courts pronouncements in Adille and Samonte, the institution of the action for reconveyance in the court a quo in 1990 was thus well within the prescriptive period. Having acted in bad faith in securing titles over the subject lots, the petitioner is a holder in bad faith of certificates of title over the subject lots. The petitioner is not entitled to the protection of the law for the law cannot be used as a shield for frauds.18 Contrary to its claim, the petitioner unarguably had the legal duty to return the subject lots to the Zuluetas. The petitioners attempts to justify its omission by insisting that it had no such duty under the mortgage contract is obviously clutching at straw. Article 22 of the Civil Code explicitly provides that "every person who, through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him." WHEREFORE, the petition is DENIED for lack of merit.1a\^/phi1.net The assailed Decision dated February 22, 2002 and Resolution dated September 5, 2002 of the Court of Appeals in CA-G.R. CV No. 62309 are AFFIRMED IN TOTO. Costs against the petitioner.

SO ORDERED. Bellosillo, (Chairman), Quisumbing, Austria-Martinez, and Tinga, JJ., concur.

G.R. No. 88353 May 8, 1992 CENTRAL BANK OF THE PHILIPPINES and HON. JOSE B. FERNANDEZ, petitioners, vs. HON. COURT OF APPEALS, RTC JUDGE TEOFILO GUADIZ, JR., PRODUCERS BANK OF THE PHILIPPINES and PRODUCERS PROPERTIES, INC., respondents. G.R. No. 92943 May 8, 1992 ATTY. LEONIDA G. TANSINSIN-ENCARNACION, as the Acting Conservator of Producers Bank of the Philippines, and PRODUCERS BANK OF THE PHILIPPINES, petitioners, vs. PRODUCERS BANK OF THE PHILIPPINES, allegedly represented by HENRY L. CO, HON. COURT OF APPEALS, HON. TEOFILO GUADIZ, JR., and the "LAW FIRM OF QUISUMBING, TORRES AND EVANGELISTA" (RAMON J. QUISUMBING, VICENTE TORRES,RAFAEL E. EVANGELISTA, JR. and CHRISTOFER L. LIM), respondents. Agapito S. Fajardo, Jerry P. Rebutoc & Antonio M. Tan for petitioners in G.R. No. 88353. Leonida G.T. Encarnacion for petitioners in G.R. No. 92943. Quiason, Makalintal, Barot, Torres, Ibarra Law Office for the respondents in G.R. Nos. 88353 & 92943.

DAVIDE, JR., J.: The common origin of these cases is Civil Case No. 17692 filed before Branch 147 (Makati) of the Regional trail Court, National Capital Judicial Region and entitled Producers Bank of the Philippines and Producers Properties, Inc. versus Central Bank of the Philippines, Jose B. Fernandez. Jr. and the Monetary Board. On 21 January 1991, this Court ordered the consolidation of G.R. No. 92943 with G.R. No. 88353. 1 The first case, G.R. No. 88353, is a petition for review on certiorari of the decision of 6 October 1988 2 and the resolution of 17 May 1989 3 of the respondent Court of Appeals in C.A.-G.R. No. SP-13624.

The impugned decision upheld the 21 September 1987 Order of respondent Judge Teofilo Guadiz, Jr. in Civil Case No. 17692 granting the motion for issuance of a writ of preliminary injunction enjoining petitioners Central Bank of the Philippines (CB), Mr. Jose B. Fernandez, Jr. and the Monetary Board, or any of their agencies from implementing Monetary Board (MB) Resolutions No. 649 and No. 751, or from taking the threatened appropriate alternative action and the 27 October 1987 Order in the same case denying petitioners' motion to dismiss and vacate said injunction. The challenged resolution, on the other hand, denied petitioners' motion for reconsideration of the 6 October 1988 decision. The second case, G.R. No. 92943, is a petition for review directed principally against the 17 January 1990 decision of the respondent Court of Appeals in C.A.-G.R. SP No. 16972. The said decision dismissed the petition therein filed and sustained the various Orders of the respondent Judge in Civil Case No. 17692, but directed the plaintiffs therein to amend the amended complaint by stating in its prayer the specific amount of damages which Producers Bank of the Philippines (PBP) claims to have sustained as a result of losses of operation and the conservator's bank frauds and abuses; the Clerk of Court was also ordered to determine the amount of filing fees which should be paid by the plaintiffs within the applicable prescriptive or reglementary period. 4 The records of both cases reveal the following factual and procedural antecedents: Petitioners claim that on 29 April 1983, during the regular examination of the PBP, CB examiners stumbled upon some highly questionable loans which had been extended by the PBP management to several entities. Upon further examination, it was discovered that these loans, totalling approximately P300 million, were "fictitious" as they were extended, without collateral, to certain interests related to PBP owners themselves. Said loans were deemed to be anomalous particularly because the total paid-in capital of PBP at that time was only P 140.544 million. This means that the entire paid-in capital of the bank, together with some P160 million of depositors' money, was utilized by PBP management to fund these unsecured loans. Sometime in August of the same year, at the height of the controversy surrounding the discovery of the anomalous loans, several blind items about a family-owned bank in Binondo which granted fictitious loans to its stockholders appeared in major newspapers. These news items triggered a bank-run in PBP which resulted in continuous over-drawings on the bank's demand deposit account with the Central Bank; the over-drawings reached P74.109 million by 29 August 1983. By 17 January 1984, PBP's overdraft with the CB increased to P143.955 million, an indication of PBP's continuing inability to maintain that condition of solvency and liquidity necessary to protect the interests of its depositors and creditors. Hence, on 20 January 1984, on the basis of the report submitted by the Supervision and Examination Sector, Department I of the CB, the Monetary Board (MB), pursuant to its authority under Section 28-A of R.A. No. 265 and by virtue of MB Board Resolution No. 164, placed PBP under conservatorship. 5 While PBP admits that it had no choice but to submit to the conservatorship, 6 it nonetheless requested that the same be lifted by the CB. Consequently, the MB issued on 3 February 1984 Resolution No. 169 directing the principal stockholders of PBP to increase its capital accounts by such an amount that would be necessary for the elimination of PBP's negative net worth of P424 million. On 10 April 1984, CB senior deputy Governor Gabriel Singson informed PBP that pursuant to MB Resolution No. 490 of 30 March 1984, the CB would be willing to lift the conservatorship under the following conditions:
(a) PBP's unsecured overdraft with the Central Bank will be converted into an emergency loan, to be secured by sufficient collateral, including but not limited to the Following properties offered by PBP's principal stockholders:

i. 6 floors and other areas of the Producers Bank Bldg., at Paseo de Roxas, owned by PBP; ii. 15 floors of the Producers Bank Bldg., at Paseo de Roxas, Makati, owned by the Producers Properties, Inc.; iii. Manhattan Bldg. on Nueva Street, Binondo, Manila; and iv. Producers Bank, Makati Branch Bldg. at Buendia Avenue, Makati; (b) A comptroller for PBP and any number of bank examiners deemed necessary to oversee PBP's operations shall be designated by the Central Bank, under terms of reference to be determined by the Governor; (c) A letter from the Management of PBP authorizing the Central Bank to automatically return clearing items that would result in an overdraft in its Central Bank account shall be submitted to the Central Bank.

On 27 April 1984, the MB adopted Resolution No. 584 approving the consolidation of PBP's other unsecured obligations to the CB with its overdraft and authorizing the conversion thereof into an emergency loan. The same resolution authorized the CB Governor to lift the conservatorship and return PBP's management to its principal stockholders upon completion of the documentation and full collateralization of the emergency loan, but directed PBP to pay the emergency loan in five (5) equal annual installments, with interest and penalty rates at MRR 180 days plus 48% per annum, and liquidated damages of 5% for delayed payments. On 4 June 1984, PBP submitted a rehabilitation plan to the CB which proposed the transfer to PBP of three (3) buildings owned by Producers Properties, Inc. (PPI), its principal stockholder and the subsequent mortgage of said properties to the CB as collateral for the bank's overdraft obligation. 7 Although said proposal was explored and discussed, no program acceptable to both the CB and PPI was arrived at because of disagreements on certain matters such as interest rates, penalties and liquidated damages. No other rehabilitation program was submitted by PBP for almost three (3) years; as a result thereof, its overdrafts with the CB continued to accumulate. By the end of June 1987, the figure swelled to a staggering P1.023 billion. Consequently, per Resolution No. 649 dated 3 July 1987, the CB Monetary Board decided to approve in principle what it considered a viable rehabilitation program for PBP. The program had these principal features:
Al. The Central Bank will assign in favor of the Philippine Deposit Insurance Corporation (PDIC) its claim over the overdraft of PBP net of net peso differential arising from swap transactions and interest thereon, up to the amount of the par value of the Producers Properties, Inc. (PPI) shares of stock in PBP presently pledged to the Central Bank, and PDIC will enter into a contract of dacion en pago with PBP and PPI whereby PDIC will acquire 4,116,100 preferred shares of stock of PBP with a par value of P100 per share in consideration for which PDIC will convey its rights over the overdraft assigned to it by the Central Bank, in favor of PPI; 2. The balance of the overdraft of PBP, after the assignment to PDIC of a portion of such overdraft referred to in Item I above, will also be assigned to PDIC and converted into preferred shares of stock of PBP; 3. The interest on the overdraft of PBP will be reduced to 11.75% p.a. retroactively to the date when the overdraft of PBP was incurred; 4. The accrued interest on the overdraft of PBP, at the reduced rate approved in Item 3 above, as well as the unbooked penalties on legal reserve deficiencies of PBP will be assigned in favor of PDIC and such amounts will be allowed to be converted into preferred shares of stock of PBP; and

5. The booking of valuation reserves will be allowed as follows: 3rd year P31 million 4th year 48 million 5th year 67 million 6th year 85 million 7th year 105 million 8th year 124.61 million subject to the following conditions: a. Fresh capital of P200.0 million shall be put up, provided that a new group of stockholders shall hold at least 40% of the total outstanding voting shares of stock of PBP; b. PBP shall submit additional collaterals to fully collateralize its overdraft with the Central Bank; c. PPI shall convey to PBP the remaining floors of the Producers Bank Centre for a value of P143.54 million partly in payment of DOSRI loans of P27.6 million, principal plus interest, and the balance of P115.94 million for shares of stock of PBP, P15.12 million common and P100.89 million preferred, with features as presently provided under PBP's Articles of Incorporation and By-Laws; d. PBP's Articles of Incorporation and By-Laws shall be amended so as to create a special class of preferred, non-voting, cumulative, non-participating shares of stock with a dividend rate of 12% which shall be issued (i) in exchange for the PPI shares that will be conveyed to PDIC under the dacion en pago mentioned in Item 1 above, (ii) in consideration of the balance of PBP's overdraft assigned to PDIC under Item 2 above, (iii) in consideration of the accrued interest on PBP's overdraft assigned to PDIC and the unbooked penalties on legal reserve deficiencies of PBP also assigned to PDIC . The said preferred shares of stock shall be convertible into common voting shares of stock upon the sale of such preferred shares to private parties at the option of such parties . Proceeds from the sale of these shares of stock shall be used to liquidate the advances made by the Central Bank to PDIC by virtue of the various assignments under Items 1, 2, and 4 above. The said shares of stock shall not share in losses and other capital adjustments representing reduction of capital accounts as recommended by SES Department I incurred up to the date of the issuance of such shares of stock; e. PBP shall execute in favor of a trustee to be approved by the Central Bank of mortgage trust indenture covering the assets presently mortgaged/pledged to Central Bank as collateral for the overdraft of PBP as well as additional collaterals to be submitted to fully collateralize the overdraft of PBP, under which indenture PDIC as holder of preferred shares of stocks, shall have the first lien and preference over the assets subject of the indenture in case of insolvency, to the extent of the overdraft converted into preferred shares of stock, provided that PBP shall submit an opinion from the Securities and Exchange Commission that such indenture is legal and valid; and f. The principal stockholders of both PBP and PPI shall submit in writing their conformity to the above conditions, with the effect that any previous agreements to the contrary shall be set aside; and B. To require PBP to submit to the Monetary Board for approval the identities of the new stockholders and the new management which shall not be changed without the prior approval of the Central Bank, it being understood that final approval of the above rehabilitation plan shall depend entirely upon the acceptance by the Board of the new stockholders and the new management; and to give PBP a period of two weeks after such final approval within which to implement the above rehabilitation plan 8 (Emphasis supplied).

There being no response from both PBP and PPI on the proposed rehabilitation plan, the MB issued Resolution No. 751 on 7 August 1987 instructing Central Bank management to advise the bank, through Mr. Henry Co, as follows:
a. The Central Bank conservatorship over PBP may be lifted only after PBP shall have identified the new group of stockholders who will put in new capital in PBP and after the Monetary Board shall have considered such new stockholders as acceptable; and b. The stockholders of PBP have to decide whether or not to accept the terms of the rehabilitation plan as provided under Resolution No. 649 dated July 3, 1987 within one week from receipt of notice hereof and if such terms are not acceptable to them, the Central Bank will take appropriate alternative action on the matter; . . . 9

Additionally, in a letter dated 14 August 1987, the CB called the attention of the PBP directors and officers to Section 107 of R.A. No. 265, as amended by Executive Order No. 289 dated 23 July 1987, which provides, inter alia, that:
. . . any bank which incurs an overdrawing in its deposit account with the Central Bank shall fully cover said overdraft not later than the next clearing day: Provided, further, That settlement of clearing balances shall not be effected for any account which continue (sic) to be overdrawn for five consecutive banking days until such time as the overdrawing is fully covered or otherwise converted into an emergency loan or advance pursuant to the provisions of Sec. 90 of this Act. Provided, Finally, That the appropriate clearing office shall be officially notified of banks with overdrawn balances. Banks with existing overdrafts with the Central Bank as of the effectivity of this amended section shall within such period as may be prescribed by the Monetary Board, either convert the overdraft into an emergency loan or advance with a plan of payment, or settle such overdrafts, and that upon failure to so comply herewith, the Central Bank shall take such action against the bank as may be warranted under this Act . (Emphasis provided).

A. few days later, or on 27 August 1987, the PBP, without responding to the communications of the CB, filed a complaint verified by its former board chairman, Henry Co, with the Regional Trial Court of Makati against the CB, the MB and CB Governor Jose B. Fernandez, Jr. The complaint, docketed as Civil Case No. 17692, 10 devoted several pages to specific allegations in support of PBP's assertions that the conservatorship was unwarranted, ill-motivated, illegal, utterly unnecessary and unjustified; that the appointment of the conservator was arbitrary; that herein petitioners acted in bad faith; that the CB-designated conservators committed bank frauds and abuses; that the CB is guilty of promissory estoppel; and that by reason of the conservatorship, it suffered losses enumerated in paragraph 27 thereof, the total quantifiable extent of which is P108,479,771.00, exclusive of loss of profits and loss of goodwill. 11 It concluded with a prayer for:
. . . judicial review of Monetary Board Resolutions No. 649 dated July 3, 1987 and No. 751 dated 14 August, 1987 and that judgment be rendered nullifying the same and ordering defendant Central Bank's conservator to restore the viability of PBP as mandated by section 28-A of R.A. 265 and to fully repair the damages inflicted on PBP consisting of losses of operation and the conservators' bank frauds and abuses, with costs against defendants. (emphasis supplied).

and for:
. . . the issue of a temporary restraining order/preliminary injunction enjoining defendants' coercion on PBP to accept the rehabilitation plan within one week or their taking "appropriate alternative action" including exclusion of PBP from settlement of clearing balances at the Central Bank clearing house, pending judicial review of Monetary Board Resolutions No. 649 dated July 3, 1987 and No. 751 dated August 14, 1987 defendants not being above the law. 12

Only P102.00 was paid as docket fee.

The case was raffled to Branch 147 of said court which was then presided over by respondent Judge. On 31 August 1987, respondent Judge issued a temporary restraining order and set the hearing of the application for preliminary injunction on 9 September 1987. 13 On 11 September 1987, petitioner filed an Opposition to the application for preliminary injunction. 14 Subsequently, on 21 September 1987, respondent Judge issued an Order granting the writ enjoining defendant-petitioners or any of their agents from:
15

and

. . . implementing Monetary Board Resolutions Nos. 649 and 751 or from taking the threatened "appropriate alternative action" including exclusion of plaintiff bank from settlement of clearing balances at the Central Bank clearing house or any other action that will disturb the status quo or the viability of plaintiff bank during the pendency of this case conditioned upon the posting of a bond in the amount of P2,000,000.00.

On 25 October 1987, PBP filed the Amended Complaint 16 impleading PPI as an additional plaintiff. No new allegations or causes of action for said plaintiff were made. On 5 November 1987, petitioners filed a Motion to Dismiss the Amended Complaint. The motion contained a prayer to vacate the injunction and raised the following grounds:
1) the amended complaint states no cause of action; MB Resolution Nos. 649 and 751 are merely advisory, thus, neither effect impairment of plaintiffs' rights nor cause it prejudice, loss or damage; furthermore, there is no basis for the averments on the legality or illegality of the conservatorship since the amended complaint does not seek its annulment; 2) the amended complaint is not authorized by the management of PBP; and 3) the lower court did not acquire jurisdiction over the case except to order the amended complaint expunged from the records because the proper filing fee was not paid. 17

On 27 November 1987, the trial court, through the respondent Judge, handed down an Order denying the motion to dismiss on the following grounds: (a) the amended complaint alleges ultimate facts showing that plaintiff has a right and that such a right has been violated by defendant; the questioned MB Resolutions were issued arbitrarily and with bad faith, "being a part of a scheme to divest plaintiff's present stockholders of their control of PBP and to award the same to the PDIC or its unknown transferees"; and the averments of legality or illegality of the conservatorship are relevant to the cause of action since the complaint seeks the lifting of the conservatorship; (b) While it is true that under Section 28-A of the Central Bank Act the conservator takes over the management of a bank, the Board of Directors of such bank is not prohibited from filing a suit to lift the conservatorship and from questioning the validity of both the conservator's fraudulent acts and abuses and its principal's (MB) arbitrary action; besides, PPI is now a party-plaintiff in the action; and (c) plaintiffs have paid the correct filing fees since "the value of the case cannot be estimated." 18 G.R. No. 88353 Unable to accept the above Order, herein petitioners CB and Jose B. Fernandez, Jr. filed with respondent Court of Appeals on 11 January 1988 a petition for certiorari with preliminary injunction to annul the 21 September and 27 November 1987 Orders of the respondent Judge, restrain the implementation of the same and nullify the writ of preliminary injunction. They contend therein that:
19

1. The trial court's injunctive order and writ are anomalous and illegal because they are directed against CB acts and measures which constitute no invasion of plaintiff's rights; and

2. The complaint filed was, on its face, dismissible: (a) for failure to state a cause of action, (b) for being unauthorized by the party in whose name it purports to have been filed, and (c) for failure of the purported plaintiff to pay the required filing fees.

Confronted with the "threshold and decisive issue of whether the respondent Judge gravely abused his discretion when he issued the Writ of Preliminary Injunction to enjoin petitioner from implementing Monetary Board Resolutions Nos. 649 and 751 for having been issued arbitrarily and with bad faith," the respondent Court promulgated the challenged decision dismissing the petition for lack of merit. 20 Respondent Court ruled that the CB's sudden and untimely announcement of the conservatorship over PBP eroded the confidence which the banking public had hitherto reposed on the bank and resulted in the bank-run; it then concluded that when the CB "peremptorily and illtimely ( sic) announced" the conservatorship, PBP was not given an opportunity to be heard since the CB arbitrarily brushed aside administrative due process notwithstanding PBP's having sufficiently established its inherent corporate right to autonomously perform its banking activities without undue governmental interference that would in effect divest its stockholders of their control over the operations of the bank." It further held that the challenged resolutions of the MB are not just advisory in character "because the same sought to impose upon the respondent bank petitioners' governmental acts that were specifically designed and executed to devise a scheme that would irreparably divest from the stockholders of the respondent bank control of the same." The motion filed by petitioners for the reconsideration of the above decision was denied by the respondent Court in its Resolution of 17 May 1989. 21 On the issue of the non-payment of the correct docket fees, the said court, in ruling that the correct amount was paid, said that "the instant case is incapable of pecuniary estimation because the value of the losses incurred by the respondent bank cannot be calibrated nor pinned down to a specific amount in view of the damage that may be caused by the appointment of a conservator to its goodwill and standing in the community." Undaunted by the adverse decision of the Court of Appeals, petitioners filed with this Court on 30 July 1989 the instant petition for review under Rule 45 of the Rules of Court. 22 It is alleged therein that the respondent Court committed grave abuse of discretion in:
(1) Ignoring petitioners' contention that since PBP did not pay the correct filing fees, the trial court did not acquire jurisdiction over the case; hence, pursuant to Manchester Development Corp., et al. vs. Court of Appeals, et al., G.R. No. 75919, 7 May 1987, 23 the complaint should have been dismissed for lack of jurisdiction on the part of the court; (2) . . . ruling on the propriety or impropriety of the conservatorship as a basis for determining the existence of a cause of action since the amended complaint does not seek the annulment or lifting of the conservatorship; (3) . . . not holding that the amended complaint should have been dismissed because it was filed in the name of PBP without the authority of its conservator; and (4) . . . not setting aside the Order of the trial court granting the issuance of a writ of preliminary injunction which unlawfully restrained the CB from exercising its mandated responsibilities and effectively compelled it to allow the PBP to continue incurring overdrafts with it.

This petition was docketed as G.R. No. 88353. On 19 July 1989, this Court required the respondents to comment on the petition.
24

In the Comment 25 filed on 9 October 1989, private respondents maintain that: (a) the issue of whether or not they paid the correct filing fees involves a question of correctness of judgment, not grave abuse

of discretion; errors of judgment cannot be the subject of the present petition for certiorari; (b) the complaint and the amended complaint state sufficient causes of action because they both contain specific allegations of an illegal, unnecessary, disastrous and repressive conservatorship conducted contrary to its mandated purpose, and breach of promissory estoppel; furthermore, the trial court committed no grave abuse of discretion when it found that the questioned MB Resolutions were arbitrarily issued in contravention of the due process clause of the Constitution; (c) the "Filing of the complaint without authority from the conservator is an issue involving an error of judgment; besides, it would be ridiculous and absurd to require such prior authorization from the conservator for no one expects him to sanction the filing of a suit against his principal the CB; moreover, Rule 3 of the Rules of Court requires that every action must be prosecuted and defended in the name of the real party in interest; besides, no administrative authority, even the CB, can nullify judicial review of administrative action by requiring that only said administrative authority or its designated conservator can file suit for judicial review of its actuation; and (d) the writ of preliminary injunction was properly issued. Petitioners filed a Reply 26 to the Comment on 3 November 1989. In their Supplemental Comment, private respondents argue that the Manchester rule is not applicable in the case at bar because what is primarily sought for herein is a writ of injunction and not an award for damages; it is further alleged that an order denying a motion to dismiss is neither appealable nor be made the proper subject of a petition for certiorari absent a clear showing of lack of jurisdiction or grave abuse of discretion. On 15 February 1990, this Court resolved to give due course to the instant petition and require the parties to simultaneously file their respective Memoranda, 27 which they complied with. On 1 March 1990, petitioners filed an Urgent Motion 28 informing this Court of the fact that on 6 June 1989, PBP, through Henry Co, proposed another rehabilitation plan which involved the infusion of fresh capital into PBP by Banque Indosuez (Bangue) and the AFP-Retirement and Separation Benefits Systems (ARSBS). Under said proposal, all existing law suits of PBP against the Central Bank and the PBP Conservator, and vice-versa, shall be withdrawn upon approval and implementation of the plan. The plan was approved by the Monetary Board in its Resolution No. 497 dated 23 June 1989. However, before the mechanics of the rehabilitation plan could be threshed out among the parties, a "quarrel" developed between Henry and Luis Co, who both have controlling interests in PBP. Luis accused Henry of "serious manipulations" in PBP and both steadfastly refused to settle their differences notwithstanding efforts of mediators, including prospective investors. Eventually, the prospective investors, in a letter dated 20 November 1989, advised the Central Bank that they are withdrawing their offer to infuse capital in PBP and that they have terminated all discussions with the Co family. Petitioner further allege that with the withdrawal of Banque Indosuez and RSBS, the rehabilitation plan for PBP is no longer feasible. Meanwhile, the bank's overdraft with the Central Bank continues to rise. As of 13 February 1990, PBP's overdraft with the CB increased to P1.233 billion. If the injunction is not lifted, PBP will continually bleed the CB because of the former's liability to discharge its responsibilities under the law. G.R. No. 92943 Pursuant to the powers and authority conferred upon her by the Central Bank, Atty. Leonida Tansinsin-Encarnacion, in her capacity as conservator, instituted reforms aimed at making PBP more viable. With this purpose in mind, she started reorganizing the bank's personnel and committees.

In order to prevent her from continuing with the reorganization, PBP filed on 24 October 1987, or after it obtained a writ of preliminary injunction in Civil Case No. 17692, an Omnibus Motion asking the trial court for an order: (a) reinstating PBP officers to their original positions and restoring the bank's standing committees to their respective compositions prior to said reorganization; (b) enjoining the lease of any portion of the bank's space in Producers Bank Centre building to third parties and the relocation of departments/offices of PBP as was contemplated; and (c) to hold, after an opportunity to be heard is given her, said conservator in contempt of court for disobedience of and resistance to the writ of injunction. An opposition to the contempt charge was later filed by said petitioner. Subsequently, upon its inclusion as party-plaintiff via the amended complaint, PPI filed on 4 November 1987 a motion asking the lower court to order the Central Bank and its agents to restore to PPI the administration of the three (3) buildings earlier assigned to PBP pending the lifting of the conservatorship. PPI claimed that such transfer was necessary to prevent the rental income of said buildings being dissipated by the conservator. On 17 November 1987, both PBP and PPI filed a motion praying:
(1) that the CB Conservator be ordered to publish PBP's financial statement for the last quarter of 1987 and every quarterly statement thereafter during the pendency of this case, with the following claims of plaintiff PBP against the Central Bank, to wit: (a) Interest in unconscionable rates of CB overdrawing illegally paid by the CB conservators to CB now totaling P56,002,000.00, (b) Penalties on reserve deficiencies illegally paid by the CB conservators to CB now totaling P20,657,000.00, (c) Penalties on reserve deficiencies not yet paid but which the conservator has booked as liabilities now totaling P31,717,000.00, (d) Losses of operation by the CB conservators from January 31, 1984 to October 31, 1987 now totaling P461,092,000.00 as "suspense" accounts; and (2) that the CB conservator be ordered to carry those "suspense" accounts in the books of PBP.

The following day, respondent Judge issued an Order (a) requiring conservator TansinsinEncarnacion to reinstate PBP officers to their original positions prior to the reorganization of the bank's personnel and restore PBP's standing committees to their original compositions, and (b) restraining her from leasing out to third parties any portion of PBP's space in the Producers Bank Centre building. However, respondent Judge held in abeyance the contempt proceedings against the conservator pending her immediate compliance with the Order. On 22 December 1987, respondent Judge granted PPI's motion for an order transferring to it the administration of the three (3) buildings assigned to PBP. A motion for reconsideration of this order was filed by petitioners but was subsequently denied by respondent Judge in the Order of 4 October 1988. A second Order, issued by respondent Judge on the same day, 22 December 1987, directed conservator Tansinsin-Encarnacion to publish the financial statement of PBP in the manner prayed for in the aforesaid 17 November 1987 motion. The motion to reconsider this Order was denied by respondent Judge on 3 October 1988.

On several occasions thereafter, conservator Tansinsin-Encarnacion caused the publication of PBP's financial statement as required by regulations, without, however, carrying the items enumerated by the trial court as "suspense accounts." Consequently, two (2) contempt charges were filed against her, one for the 3 February 1988 publication in the Manila Standard of PBP's statement of condition as of 29 December 1987 and the other for the 29 July 1988 publication in the Daily Globe of the bank's statement as of 30 June 1988. Oppositions to both charges of contempt were filed. On 9 November 1988, respondent Judge declared said conservator guilty of contempt of court on three (3) counts and imposed upon her a fine of P1,000.00 for each count of contempt. The latter asked for reconsideration of the order but the respondent Judge denied the same. Another contempt charge against her was filed for publishing the statement of condition of PBP (as of 13 September 1988) in the 9 November 1988 issue of the Daily Globe without carrying the alleged "suspense accounts." She was again found guilty as charged and her motion for reconsideration was denied. Finding no other adequate relief, Tansinsin-Encarnacion filed with this Court on 11 January 1989 a petition for certiorari against respondent Judge, Henry L. Co and the law firm of Quisumbing, Torres and Evangelista. This case was docketed as G.R. No. 86526. She prays therein for judgment declaring respondent judge to be without jurisdiction to entertain both the complaint and amended complaint in Civil Case No. 17692; declaring null and void all his orders, specially the contempt orders; and finding respondent Judge and respondent lawyers guilty of violating their respective oaths of office. 29 On 8 February 1989, this Court resolved to refer said petition to the Court of Appeals which docketed it as C.A.-G.R.-SP No. 16972. In her Memorandum submitted to the Court of Appeals, Tansinsin-Encarnacion alleged that: (1) respondent Judge has no jurisdiction over Civil Case No. 17692 because its filing was not authorized by the petitioner or the conservator in violation of Section 28-A of R.A. No. 265, as amended, it was filed after the ten (10) day period prescribed by Section 29 of R .A. No. 265, as amended, and the correct docket fees were not paid; (2) respondent Judge illegally ordered her to return to PPI the administration of the bank's three (3) properties, contrary to his own writ of preliminary injunction and earlier order to make the bank viable, and to publish the alleged "suspense accounts" contrary to Section 28-A of R.A. No. 265, as amended, the writ of preliminary injunction and her constitutional right to silence; (3) respondent Judge erred in declaring her in contempt of court notwithstanding his lack of jurisdiction over the case and failure to set any date for the hearing and reception of evidence, in violation of her right to due process of law; and (4) respondents Judge and lawyers are administratively liable for their grossly illegal actuations and for depriving the Government of at least P13.2 million in filing fees. 30 In its decision dated 17 January 1990, the Court of Appeals (Twelfth Division) 31 dismissed the petition; while finding the claim of lack of jurisdiction to be without merit, the said court nonetheless gave the following exception:
. . . except that plaintiffs in Civil Case No. 17692, within 15 days from receipt of a copy of this Decision, shall file the corresponding amendment to their amended complaint in said case, stating a specific amount "to fully repair the damages inflicted on PBP consisting of losses of operation and the conservator's bank frauds and abuses", in the prayer of their amended complaint. Thereafter, the Clerk of Court of the lower court and/or his duly authorized Docket Clerk of Court in charge, should determine the amount found due, which should be paid by complainants within the applicable prescriptive or reglementary period, failure of which said claims for damages shall be dismissed.

In disposing of the issues raised, respondent Court merely adopted with approval the ruling of the respondent Judge on the question of jurisdiction and cited the decision of the Court of Appeals in

C.A.-G.R. SP No. 13624 (subject of G.R. No. 88353), sustaining the respondent Judge's ruling. As to the filing of the complaint after the lapse of the 10-day period provided for in Section 29 of R.A. No. 265, it ruled that the Section does not apply because the complaint essentially seeks to compel the conservator to perform his duties and refers to circumstances and incidents which transpired after said 10-day period. On the issue of lack of jurisdiction for non-payment of correct filing fees, to which an exception was made in the dispositive portion, the respondent Court found the same to be "partly" meritorious. It agreed with petitioner that while the other losses and damages sought to be recovered are incapable of pecuniary estimation, the damages inflicted on PBP due to losses of operation and the conservator's bank frauds and abuses were in fact pegged at P108,479,771.00 in paragraph 26 of the amended complaint. This specific amount, however, should have been stated in the prayer of the complaint. It also held that the Manchester case "has been legally construed in the subsequent case of Sun Insurance Office Ltd. 32 and the case of Filipinas Shell Petroleum Corp. 33 to the effect that applying the doctrine initiated in the case of Manchester, together with said subsequent thereto (sic), plaintiffs in Civil Case No. 17692 should be given a reasonable time to amend their complaint, more particularly, to state in their prayer in the amended complaint the specific amount of damages . . ." On the orders of contempt and the reasons therefor, respondent Court merely stated:
. . . Generally, when the court has jurisdiction over the subject matter and of the person, decisions upon or questions pertinent to the cause are decisions within its jurisdiction, and however, irregular or erroneous they may be, they cannot be corrected by certiorari Whether the court's conclusions was based merely on speculations and conjecture, or on a misapprehension of facts contrary to the documents and exhibits of the case, is not for us to determine in a petition for certiorari wherein only issues of jurisdiction may be raised. . . . Thus, the instant petition cannot prosper.

and opined that under the Rules of Court, a judgment of contempt may be questioned on appeal and not on certiorari. Finally, on the administrative liability of the respondent Judge and the lawyers, the respondent Court declared the claim to be without merit. Petitioner's motion to reconsider the decision having been denied in the 2 April 1990 Resolution of the respondent Court, 34 she filed with this Court a petition under Rule 45 of the Rules of Court, which was docketed as G.R. No. 92943. Petitioner Claims that respondent Court grossly erred in confirming/affirming the allegedly void Orders of respondent Judge which denied the motion to dismiss the complaint and granted the writ of preliminary injunction, restating in this regard the issues raised by the CB in G.R. No. 88353, and in holding her in contempt of court on four occasions. As to the last ground, she asserts that the Orders were issued in violation of the Rules of Court and infringed her right to due process since there was no hearing on the motions for contempt, except for the third motion wherein respondent Judge immediately ordered the movant to present evidence. In their Comment, 35 filed in compliance with Our Resolution 21 May 1990, private respondents practically reiterated the arguments in their Comment to the petition in G.R. No. 88353; in addition, more specifically on the issue of contempt, they assert that while the motions for contempt were set for hearing, there is no showing that the scheduled hearings actually took place. Besides, the remedy to question a contempt order is an appeal; 36 since petitioner did not appeal the questioned orders, the same became final and executory. 37

After petitioner filed a Reply and private respondents submitted their Rejoinder thereto, this Court gave due course to the petition. THE ISSUES The basic issue in these cases is whether or not the respondent Court committed reversible error in affirming the challenged Orders of the respondent Judge. This necessarily calls for a determination of whether or not the respondent Judge committed grave abuse of discretion amounting to lack of jurisdiction:
(1) In not dismissing Civil Case No. 17692 on the following grounds: (a) lack of legal. personality to bring the action as the same was filed in the name of the PBP without the authority of the conservator; (b) failure of the complaint and amended complaint to state a cause of action; and (c) non-payment of the correct amount of docket fee in violation of the rule enunciated in Manchester Development Corp. vs. Court of Appeals, et al.; (2) In granting the writ of preliminary injunction; and (3) In issuing the assailed Orders in G.R. No. 92943.

DISCUSSION We shall take up the issues sequentially. 1. PBP has been under conservatorship since 20 January 1984. Pursuant to Section 28-A of the Central Bank Act, 38 a conservator, once appointed, takes over the management of the bank and assumes exclusive powers to oversee every aspect of the bank's operations and affairs. Petitioners now maintain that this power includes the authority to determine "whether or not to maintain suit in the bank's name." 39 The trial court overruled this contention stating that the section alluded to "does not prohibit the Board of Directors of a bank to file suit to lift the conservatorship over it, to question the validity of the conservator's fraudulent acts and abuses and the arbitrary action of the conservator's principal the Monetary Board of the Central Bank. The conservator cannot be expected to question his own continued existence and acts. He cannot be expected to file suit to annul the action of his principal . . . or a suit that would point out the ill-motivation, the disastrous effects of the conservatorship and the conservator's bank frauds and abuses as alleged in the complaint." 40 Obviously, the trial court was of the impression that what was sought for in Civil Case No. 17692 is the lifting of the conservatorship because it was arbitrarily and illegally imposed. While it may be true that the PBP devoted the first 38 pages of its 47-page complaint and amended complaint to what it considers an unwarranted, ill-motivated, illegal, unnecessary, and unjustified conservatorship, it, nevertheless, submitted to the same. There is nothing in the amended complaint to reflect an unequivocal intention to ask for its lifting. Of course, as subsequent maneuvers would show, PBP sought to accomplish the lifting thereof through surreptitious means. That such action was not, on its face, filed to have the conservatorship lifted, is best evidenced by PBP's prayer for a judgment "ordering defendant Central Bank's conservator to restore the viability of PBP as mandated by Section 28-A of R.A. No. 265 . . ." 41 Unfortunately too, respondent Court was easily misled into believing that the amended complaint sought the lifting of the conservatorship. Thus, although the matter was not specifically raised in issue and clearly unnecessary for the determination of the issues squarely raised, the respondent Court opined:
It is Our sober assessment that the respondent bank was not given an opportunity to be heard when the Central Bank peremptorily and illtimely (sic) announced the appointment of a conservatorship over the

latter (bank) for which reason We believe that administrative due process was arbitrarily brushed aside to the prejudice of the said bank. . . .

If it were to lift the conservatorship because it was arbitrarily imposed, then the case should have been dismissed on the grounds of prescription and lack of personality to bring the action. Per the fifth paragraph of Section 29 of the Central Bank Act, as amended by Executive Order No. 289, the actions of the MB may be assailed in an appropriate pleading filed by the stockholders of record representing the majority of the capital stock within ten (10) days from receipt of notice by the said majority stockholders of the order placing the bank under conservatorship. The pertinent portion of said paragraph reads as follows:
The provisions of any law to the contrary notwithstanding, the actions of the Monetary Board under this Section, Section 28-A, and the second paragraph of section 34 of this Act shall be final and executory, and can be set aside by a court only if there is convincing proof, after hearing, that the action is plainly arbitrary and made in bad faith: Provided, That the same is raised in an appropriate pleading filed by the stockholders of record representing the majority of the capital stock within ten (10) days from the date the receiver takes charge of the assets and liabilities of the bank or non-bank financial intermediary performing quasi-banking functions or, in case of conservatorship or liquidation, within ten (10) days from receipt of notice by the said majority stockholders of said bank or non-bank financial intermediary of the order of its placement under conservatorship or liquidation. . . .

The following requisites, therefore, must be present before the order of conservatorship may be set aside by a court:
1. The appropriate pleading must be filed by the stockholders of record representing the majority of the capital stock of the bank in the proper court; 2. Said pleading must be filed within ten (10) days from receipt of notice by said majority stockholders of the order placing the bank under conservatorship; and 3. There must be convincing proof, after hearing, that the action is plainly arbitrary and made in bad faith.
42

In the instant case, PBP was placed under conservatorship on 20 January 1984. The original complaint in Civil Case No. 17692 was filed only on 27 August 1987, or three (3) years, seven (7) months and seven (7) days later, long after the expiration of the 10-day period deferred to above. It is also beyond question that the complaint and the amended complaint were not initiated by the stockholders of record representing the majority of the capital stock. Accordingly, the order placing PBP under conservatorship had long become final and its validity could no longer be litigated upon before the trial court. Applying the original provision of the aforesaid Section 29 of the Central Bank Act, this Court, in Rural Bank of Lucena, Inc. vs. Arca, et al., 43 ruled that:
Nor can the proceedings before Judge Arca be deemed a judicial review of the 1962 resolution No. 122 of the Monetary Board, if only because by law (Section 29, R.A. 265) such review must be asked within 10 days from notice of the resolution of the Board. Between the adoption of Resolution No. 122 and the challenged order of Judge Arca, more than one year had elapsed. Hence, the validity of the Monetary Board's resolution can no longer be litigated before Judge Arca, whose role under the fourth paragraph of section 29 is confined to assisting and supervising the liquidation of the Lucena bank.

This rule is still good law notwithstanding the amendment to Section 29 which expands its scope by including the action of the MB under Section 28-A of the Act on the appointment of a conservator. It was precisely an awareness of the futility of any action to set aside the conservatorship which prompted PBP to limit its action to a claim for damages and a prayer for an injunction against the implementation of MB Resolution Nos. 649 and 751. However, to make it appear that it had a

meritorious case and a valid grievance against the Central Bank, it wandered long into the past and narrated a sad story of persecution, oppression and injustice since the inception of the conservatorship obviously to gain the sympathy of the court, which it eventually obtained. The next crucial question that suggests itself for resolution is whether an action for damages arising from the MB's act of placing the PBP under conservatorship and the acts of the conservator, and to enjoin the MB from implementing resolutions related or incident to, or in connection with the conservatorship, may be brought only for and in behalf of the PBP by the stockholders on record representing the majority of the capital stock thereof or simply upon authority of its Board of Directors, or by its Chairman. We hereby rule that as to the first kind of damages, the same may be claimed only if the MB's action is plainly arbitrary and made in bad faith, and that the action therefor is inseparable from an action to set aside the conservatorship. In other words, the same must be filed within ten (10) days from receipt of notice of the order placing the bank under conservatorship. Otherwise, the provision of the fifth paragraph of Section 29 of the Central. Bank Act could be rendered meaningless and illusory by the bank's filing, beyond the prescribed ten-day period, of an action ostensibly claiming damages but in reality questioning the conservatorship. As to actions for the second kind of damages and for injunction to restrain the enforcement of the CB's implementing resolutions, said fifth paragraph of Section 29 of the Central Bank Act, as amended, equally applies because the questioned acts are but incidental to the conservatorship. 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. The original complaint in Civil Case No. 17692 was not initiated by the majority of the stockholders, hence it should have been dismissed. However, confronted with this fatal flaw, counsel for PBP, through shrewd maneuvering, attempted to save the day by impleading as co-plaintiff a corporation, the PPI, which was not under conservatorship. Unfortunately, the maneuver was crudely and imperfectly executed. Except for the inclusion of its name, nothing new was actually added to the original complaint in terms of causes of action and reliefs for PPI. The amendment then was an exercise in futility. We cannot, however, subscribe to the petitioner's view that: (a) once a bank is placed under conservatorship, no action may be filed on behalf of the bank without prior approval of the conservator, and (b) since in this case such approval was not secured prior to the filing of Civil Case No. 17692, the latter must also be dismissed on that ground. No such approval is necessary where the action was instituted by the majority of the bank's stockholders. To contend otherwise would be to defeat the rights of such stockholders under the fifth paragraph of Section 29 of the Central Bank Act. It must be stressed here that a bank retains its juridical personality even if placed under conservatorship; 44 it is neither replaced nor substituted by the conservator who, per Section 28A of the Central Bank Act, as amended by P.D. No. 1932, shall only:
. . . take charge of the assets, liabilities, and the management of that institution, collect all monies and debts due said institution and exercise all powers necessary to preserve the assets of the institution, reorganize the management thereof, and restore its viability. He shall have the power to overrule, or revoke the actions of the previous management and board of directors . . ., any provision of law to the contrary notwithstanding, and such other powers as the Monetary Board shall deem necessary.

Even assuming for the sake of argument that the action was properly brought by an authorized party, the same must nevertheless be dismissed for failure of the plaintiffs therein to pay the correct docket fees, pursuant to Manchester Development Corp. vs. Court of Appeals, et al.; 45 the said case was decided by this Court on 7 May 1987, exactly three (3) months and twenty (20) days before the filing of the original complaint and five (5) months and eighteen (18) days before the filing of the Amended Complaint in Civil Case No. 17692. We ruled therein that:
The Court acquires jurisdiction over any case only upon the payment of the prescribed docket fee. An amendment of the complaint or similar pleading will not thereby vest jurisdiction in the Court, much less the payment of the docket fee based on the amounts sought in the amended pleading. The ruling in the Magaspi case [115 SCRA 193], in so far as it is inconsistent with this pronouncement is overturned and reversed.

The respondent Judge, in ruling that PBP and PPI had paid the correct docket fee of P102.00, said that "the value of the case cannot be estimated" since what is sought is an injunction against the enforcement of the challenged resolutions of the MB; in short, the claim for damages is merely incidental. Upon the other hand, respondent Court, in its Resolution of 17 May 1989 in C.A.-G.R. SP No. 13624, ruled that the case is "incapable of pecuniary estimation" because the value of the losses incurred by the PBP "cannot be calibrated nor pinned down to a specific amount in view of the damage that may be caused by the appointment of a conservator to its goodwill and standing in the community." 46 Both conclusions are unfounded and are the result of a misapprehension of the allegations and causes of action in both the complaint and amended complaint. While PBP cleverly worded its complaint in Civil Case No. 17692 to make it appear as one principally for injunction, deliberately omitting the claim for damages as a specific cause of action, a careful examination thereof bears that the same is in reality an action for damages arising out of the alleged "unwarranted, ill-motivated and illegal conservatorship," or a conservatorship which "was utterly unnecessary and unjustified," and the "arbitrary" appointment of a conservator. 47 Thus, as stated earlier, it devoted the bulk of its petition to detailed events, occurrences and transactions in support thereof and patiently enumerated the losses it sustained and suffered. The pertinent portions of paragraph 27 of both the original and amended complaints read as follows:
27. The record of the Central Bank conservatorship of PBP clearly shows that it was responsible for the losses. xxx xxx xxx [Then follows an enumeration, from (a) to (u), of particular acts causing or resulting in losses, most of which are specifically stated] xxx xxx xxx (v) Total of only the foregoing mentioned and only of those that can be quantified is P108,479,771 .00. And that excludes loss of profits that PBP could have realized if that disastrous conservatorship had not been imposed on it and loss of goodwill. The causes for these abuses of the conservators are course graft and corruption of the conservators aside from fault in the system which denies private enterprise. (emphasis supplied) xxx xxx xxx

These are the very damages referred to in the prayer:

. . . to fully repair the damages inflicted on PBP consisting of losses of operation and the conservators' bank frauds and abuses, . . .

but not specified therein. To this Court's mind, this was done to evade the payment of the corresponding filing fees which, as computed by petitioner on the basis alone of the specified losses of P108,479,771.00, would amount to about P 437,000.00. 48 The PBP then clearly acted with manifest bad faith in resorting to the foregoing clever strategy to avoid paying the correct filing fees. We are thus constrained to reiterate Our pronouncements in the Manchester case:
The Court cannot close this case without making the observation that it frowns at the practice of counsel who filed the original complaint in this case of omitting any specification of the amount of damages in the prayer although the amount of over P78 million is alleged in the body of the complaint. This is clearly intended for no other purpose than to evade the payment of the correct filing fees if not to mislead the docket clerk in the assessment of the filing fee. . . .

The respondent Court itself, in its decision of 17 January 1990 in C.A-G.R. SP No. 16972, 49 confronted by the same issue, but perhaps unaware of its Resolution of 17 May 1989 in C.A.-G.R. SP No. 13624 aforementioned, ruled that PBP and PPI are liable for the filing fees on the claim for damages. It even directed PBP and PPI to file "the corresponding amendment to their amended complaint in said case stating a specific amount 'to fully repair the damages inflicted on PBP consisting of losses of operation and the conservator's bank frauds and abuses' . . .," after which the Clerk of Court of the lower court or his duly authorized docket clerk should determine the amount found due, which said plaintiffs shall pay "within the applicable prescriptive or reglementary period, . . ." 50 The 17 January 1990 ruling, clearly reversing the earlier one, is of doubtful propriety in view of the petition for review of the decision in C.A.-G.R. SP No. 13624 filed by the petitioner. In granting PBP and PPI an opportunity to amend their amended complaint to reflect the specific amount of damages in the prayer of their Amended Complaint, respondent Court took refuge under the rule laid down in Sun Insurance Office, Ltd., et al. vs. Asuncion, et al. 51 and Filipinas Shell Petroleum Corp. vs. Court of Appeals, et al. 52 Of course, it was erroneous for respondent Court to apply these last two (2) cases which were decided by this Court three (3) months short of two (2) years after the promulgation of the Manchester decision on 7 May 1987. Accordingly, since the original complaint in Civil Case No. 17692 was filed on 27 August 1987, the Manchester doctrine was the controlling and applicable law. The lower court had no choice but to apply it when its attention was called by the petitioner. Moreover, even granting for the sake of argument that Sun Insurance and Pilipinas Shell 53 may apply in this case, We should not lose sight of the fact that in the former, this Court categorically stated:
1. It is not simply the filing of the complaint or appropriate initiatory pleading, but the payment of the prescribed docket fee, that vests a trial court with jurisdiction over the subject-matter or nature of the action. Where the filling of the initiatory pleading is not accompanied by payment of the docket fee, the court may allow the payment of the fee within a reasonable time but in no case beyond the applicable prescriptive or reglementary period.

The prescriptive period therein mentioned refers to the period within which a specific action must be filed. It means that in every case, the docket fee must be paid before the lapse of the prescriptive period. Chapter 3, Title V, Book III of the Civil Code is the principal law governing prescription of actions.

There can be no question that in the instant case, PBP's claims for damages arise out of an injury to its rights. Pursuant to Article 1146 of the Civil Code, the action therefor must be initiated within four (4) years from the time the cause of action accrued. Since the damages arose out of the alleged unwarranted, ill-motivated, illegal, unnecessary and unjustified conservatorship, the cause of action, if any, first accrued in 1984 and continued until 27 August 1987, when the original complaint was filed. Even if We are to assume that the four-year period should start running on 27 August 1987, that period lapsed on 27 August 1991. There is no showing that PBP paid the correct filing fee for the claim within the prescribed period. Hence, nothing can save Civil Case No. 17692 from being dismissed. 2. And now on the issue of the writ of preliminary injunction. The challenged Orders of the trial court granting the application for a writ of preliminary injunction and the assailed decision of the respondent Court in C.A. G.R. No. 13624 clearly betray a prejudgment of the case. In both instances, not only did said courts declare MB Resolutions Nos. 649 and 751 to be arbitrary, both also declared the conservatorship to have been issued in violation of PBP's right to administrative due process, which the CB "arbitrarily brushed aside to the prejudice" of the latter. The said courts further concluded that "the sudden and untimely announcement by the Central Bank that respondent Producers Bank will be under a conservatorship that will oversee its operations worked havoc over the confidence that the public had hitherto reposed on respondent bank so that the majority of its depositors over-reacted and rashly withdrew their accounts from said bank, thus it incurred a loss of P593.707 million or 59.5% of its deposits." Thus, save only for the determination of the full extent of PBP's claim for damages, said courts have, at the most, decided or, at the very least, prejudged the case. Courts, notwithstanding the discretion given to them, should avoid issuing writs of preliminary injunction which in effect dispose of the main case without a trial. 54 We do not then hesitate to rule that there was grave abuse of discretion in the issuance of the writ of preliminary injunction. Besides, there was neither arbitrariness nor bad faith in the issuance of MB Resolutions Nos. 649 and 751. It must be stressed in this connection 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. 55 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. 56 It is then Government's responsibility to see to it that the financial interests of those who deal with 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, 57 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. 58 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 vs . Philippine Veterans Bank, 59 this Court held that:
. . . 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. 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.

One important measure adopted by the government to protect the public against unscrupulous practices of some bankers is to require banking institutions to set up reserves against their deposit liabilities. These reserves, pegged at a certain percentage of the volume of deposit liability, is that portion of the deposit received by a banking institution which it cannot use for loans and investments. The reserve requirement, which ordinarily takes the form of a deposit with the Central Bank, is one means by which the government ensures the liquidity of banking institutions. 60 These reserve accounts maintained by banking institutions with the Central Bank also serve as a basis for the clearing of checks and the settlement of interbank balances. 61 The need to maintain these required reserves cannot be over-emphasized. Thus, where overdrawings on deposit accounts (regardless of amount) are incurred, R.A. No. 265 requires the delinquent bank to:
. . . fully cover said overdraft not later than the next clearing day: Provided, Further, That settlement of clearing balances shall not be effected for any account which continue to, be overdrawn for five consecutive banking days until such time as the overdrawing is fully covered or otherwise converted into an emergency loan or advance pursuant to the provisions of Sec. 90 of this Act. Provided, Finally, That the appropriate clearing office shall be officially notified of banks with overdrawn balances. Banks with existing overdrafts with the Central Bank as of the effectivity of this amended section shall, within such period as may be prescribed by the Monetary Board, either convert the overdraft into an emergency loan or advance with a plan of payment, or settle such overdrafts, and that, upon failure to comply herewith, the Central Bank shall take such action against the bank as may be warranted under this Act . 62 [Emphasis supplied.]

The fact that PBP is grossly overdrawn on its reserve account with the CB (up to P1.233 billion as of 13 February 1990) is not disputed by PBP. This enormous overdraft evidences the patent inability of the bank's management to keep PBP liquid. This fact alone sufficiently justifies the remedial measures taken by the Monetary Board. MB Resolutions Nos. 649 and 751 were not promulgated to arbitrarily divest the present stockholders of control over PBP, as is claimed by the latter. The same contemplates an effective and viable plan to revive and restore PBP. It is to be noted that before issuing these resolutions, the MB gave the management of PBP ample opportunity (from 30 March 1984 to June of 1987) to submit a viable rehabilitation plan for the bank. MB Resolution Nos. 751 merely reiterated the requirement set forth in Resolution No. 649 for PBP to identify and submit the list of new stockholders who will infuse new capital into the bank for CB approval. In this Resolution, the MB gave PBP's stockholders one (1) week from notice within which to signify their acceptance or rejection of the proposed rehabilitation plan. The foregoing resolutions refer to a recommended rehabilitation plan. What was conveyed to PBP was a mere proposal. There was nothing in the resolutions to indicate that the plan was mandatory. On the contrary, PBP was given a specific period within which to accept or reject the plan. And, as petitioners correctly pointed out, the plan was not self-implementing. The warning given by the MB that should said proposal be rejected, the CB "will take appropriate alternative actions on the matter," does not make the proposed rehabilitation plan compulsory. Whether or not there is a rehabilitation plan agreed upon between PBP and the MB, the CB is authorized under R.A. No. 265 to take appropriate measures to protect the interest of the bank's depositors as well as of the general public.

Furthermore, the assignment of claims to PDIC and the subsequent dacion en pago (payment of credit through shares) do not divest the present stockholders of control over PBP. As may be readily observed from the terms of Resolution No. 645, the shares which shall be issued to PDIC under the dacion are preferred, non-voting and non-participating shares. Hence, except for the instances enumerated in the Corporation Code where holders of non-voting shares are given the right to vote, PDIC shall have no hand in the bank's operation or business. In any event, these preferred shares will eventually be sold to private parties or new stockholders as soon as they are identified by PBP and approved by the CB. Prior approval by the CB of the stockholders is necessary screening purposes. There is nothing objectionable to the actions of the MB. We, therefore, find to be completely without legal or evidentiary basis the contention that the impugned resolutions are arbitrary, illegal and made in bad faith. Moreover, respondent Judge acted in complete disregard of Section 107 of R.A. No. 265 when he enjoined the CB from taking appropriate actions against the bank, "including exclusion of (PBP) from settlement of clearing balances at the Central Bank clearing house" as warranted by law. By using his own standards, and without scrutinizing the law, respondent Judge arbitrarily determined when CB may or may not initiate measures against a bank that cannot maintain its liquidity. He also arbitrarily and capriciously decided who can continually overdraw from the deposit account with the CB, to the prejudice of other banking institutions, the banking public and the government. 3. As could be gleamed from the pleadings in G.R. No. 92943, the respondent Judge, per his order of 18 November 1987, (a) directed the conservator to restore both the PBP officers to their original positions prior to the reorganization of the bank's personnel, and the PBP's standing committees to their original compositions, and (b) restrained her from leasing out to a third party any portion of PBP's space in the Producers Bank Centre; per his Order of 22 December 1987, respondent Judge granted PPI's motion for an order transferring to the latter the administration of the three (3) buildings; and per the Order of 22 December 1987, he granted the motion directing the conservator to publish the financial statement of the PBP in the manner prayed for by the latter. The foregoing Orders were issued without due hearing. Moreover, these reliefs were not prayed for in the Amended Complaint. They were not even covered by any specific allegations therein. Except for the prohibition to lease, the rest partook of the nature of a preliminary mandatory injunction which deprived the conservator of her rights and powers under Section 28-A of R.A. No. 265 and, in effect, set aside the conservatorship with PBP itself had earlier accepted. It must be remembered that PBP did not ask, in its Amended Complaint, for the setting aside of the conservatorship. On the contrary, it even prayed that the conservator be ordered to restore the viability of PBP as mandated by said Section 28-A. The respondent Judge should not have forgotten the settled doctrine that it is improper to issue a writ of preliminary mandatory injunction prior to the final hearing, except in cases of extreme urgency, where the right is very clear, where considerations of relative inconvenience bear strongly in complainant's favor, where there is a willful and unlawful invasion of plaintiff's right against his protest and remonstrance, the injury being a continuing one, and where the effect of the mandatory injunction is rather to re-establish and maintain a pre-existing continuing relation between the parties, recently and arbitrarily interrupted by the defendant, than to establish a new relation. 63 It is plain to this Court that respondent Judge ceased to be an impartial arbitrator; he became the godfather of PBP and PPI, granting to them practically all that they had asked for in the motions they filed. Upon the issuance of these Orders, nothing appeared clearer in the judicial horizon than this

PBP and PPI had everything in the bag, so to speak, including the reliefs not even contemplated in their Amended Complaint. The challenged Orders then were whimsically and arbitrarily issued. Compounding such detestable conduct is the respondent Judge's issuance, with undue haste and unusual speed, of the orders of contempt without the proper hearing. If the conservator could, at all, be liable for contempt, it would be for indirect contempt punished under Section 3, Rule 71 of the Rules of Court, more specifically item (b) of the first paragraph which reads:
Sec. 3 Indirect contempts to be punished after charge and hearing . After charge in writing has been filed, and an opportunity given to the accused to be heard by himself or counsel, a person guilty of any of the following acts may be punished for contempt: xxx xxx xxx (b) Disobedience of or resistance to a lawful writ, process, order, judgment, or command of a court, or injunction granted by a court or judge, . . .;

It is clear from the said section that it is necessary that there be a charge and that the party cited for contempt be given an opportunity to be heard. The reason for this is that contempt partakes of the nature of a criminal offense. In the instant case, each motion for contempt served as the charge. It is settled that a charge may be filed by a fiscal, a judge, or even a private person. 64 Petitioner Tansinsin-Encarnacion filed oppositions thereto. Thereafter, it was the duty of the respondent Judge to hold a hearing on the motions. Respondent Judge deliberately did away with the hearing and this Court finds no justifiable reason therefor. There is, moreover, another reason why the contempt orders must be struck down. The orders which were supposedly disobeyed and from which the motions for contempt arose were, as earlier indicated, null and void for having been issued with grave abuse of discretion amounting to lack of jurisdiction. Such Orders, therefore, cannot then be characterized as lawful. Consequently, resistance thereto cannot be punished as contempt 65 PREMISES CONSIDERED, the petitions in G.R. Nos. 88353 and 92943 are GRANTED. The 6 October 1988 decision and 17 May 1989 resolution of the Court of Appeals in C.A.-G.R. SP No. 13624 are REVERSED and SET ASIDE. Respondent Judge is ordered to dismiss Civil Case No. 17692. All proceedings undertaken and all orders issued by respondent Judge are hereby SET ASIDE for being null and void. The writ of preliminary injunction issued by the trial court in its Order dated 21 September 1987 is hereby LIFTED. IT IS SO ORDERED. Narvasa, C.J., Melencio-Herrera, Cruz, Paras, Feliciano, Bidin, Grio-Aquino, Regalado, Romero and Nocon, JJ., concur. Padilla and Bellosillo, JJ., took no part.

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.1wphi1.nt

G.R. Nos. 121413 and 121479 are twin petitions for review of the March 27, 1995 Decision1 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. SN04867. In G.R. No. 128604, petitioner Ford Philippines assails the October 15, 1996 Decision3 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 defendant 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 reassessed 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. SN048867 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. SN04867 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 SN10597 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 6232 of the Negotiable Instruments Law, Ford argues that by accepting the instrument, the acceptro which is Citibank engages that it will pay according to the tenor of its acceptance, and that it will pay only to the payee, (the CIR), considering the fact that here the check was crossed with annotation "Payees Account Only." As ruled by the Court of Appeals, Citibank must likewise answer for the damages incurred by Ford on Citibank Checks Numbers SN 10597 and 16508, because of the contractual relationship existing between the two. Citibank, as the drawee bank breached its contractual obligation with Ford and such degree of culpability contributed to the damage caused to the latter. On this score, we agree with the respondent court's ruling. Citibank should have scrutinized Citibank Check Numbers SN 10597 and 16508 before paying the amount of the proceeds thereof to the collecting bank of the BIR. One thing is clear from the record: the clearing stamps at the back of Citibank Check Nos. SN 10597 and 16508 do not bear any initials. Citibank failed to notice and verify the absence of the clearing stamps. Had this been duly examined, the switching of the worthless checks to Citibank Check Nos. 10597 and 16508 would have been discovered in time. For this reason, Citibank had indeed failed to perform what was incumbent upon it, which is to ensure that the amount of the checks should be paid only to its designated payee. The fact that the drawee bank did not discover the irregularity seasonably, in our view, consitutes negligence in carrying out the bank's duty to its depositors. The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship.33 Thus, invoking the doctrine of comparative negligence, we are of the view that both PCIBank and Citibank failed in their respective obligations and both were negligent in the selection and supervision of their employees resulting in the encashment of Citibank Check Nos. SN 10597 AND 16508. Thus, we are constrained to hold them equally liable for the loss of the proceeds of said checks issued by Ford in favor of the CIR. Time and again, we have stressed that banking business is so impressed with public interest where the trust and confidence of the public in general is of paramount umportance such that the appropriate standard of diligence 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.1wphi1.nt Costs against Philippine Commercial International Bank and Citibank N.A. SO ORDERED. Bellosillo, Mendoza, Buena, De Leon, Jr., JJ, concur.

G.R. No. L-23307

June 30, 1967

DAMASO P. PEREZ and REPUBLIC BANK, ETC., ET AL., petitioners-appellants, vs. MONETARY BOARD, THE SUPERINTENDENT OF BANKS, CENTRAL BANK OF THE PHILIPPINES and SECRETARY OF JUSTICE, respondents-appellees. AURORA R. RECTO, MIGUEL CANIZARES, LEON ANCHETA, PABLO ROMAN, VICTORIA B. ROMAN and NORBERTO J. QUISUMBING, intervenors-appellees. C. D. Baizas and Associates and Halili, Bolinao and Associates for petitioners-appellants. Natalio M. Balboa, F. E. Evangelista and Severo Malvar for respondent-appellee Central Bank. Office of the Solicitor General Arturo A. Alafriz and Solicitor C. S. Gaddi for respondent-appellee Secretary of Justice. N. J. Quisumbing and E. Quisumbing-Fernando for intervenors-appellees. BENGZON, J.P., J.: Petitioner-appellant Damaso P. Perez, for himself and in a derivative capacity on behalf of the Republic Bank, instituted mandamus proceedings in the Court of First Instance of Manila on June 23, 1962, against the Monetary Board, the Superintendent of Banks, the Central Bank and the Secretary of Justice. His object was to compel these respondents to prosecute, among others, Pablo Roman and several other Republic Bank officials for violations of the General Banking Act (specifically secs. 76-78 and 83 thereof) and the Central Bank Act, and for falsification of public or commercial documents in connection with certain alleged anomalous loans amounting to P1,303,400.00 authorized by Roman and the other bank officials. Respondents assailed, in their respective answers, the propriety of mandamus. The Secretary of Justice claimed that it was not their specific duty to prosecute the persons denounced by Perez. The Central Bank and its respondent officials, on the other hand, averred that they had already done their duty under the law by referring to the special prosecutors of the Department of Justice for criminal investigation and prosecution those cases involving the alleged anomalous loans.1 On July 10, 1962, respondents moved for the dismissal of the petition for lack of cause of action. Petitioners opposed. The lower court denied the motion. Subsequently, herein intervenors-appellees, as the incumbent directors of the Board of the Republic Bank, filed motion to intervene in the proceedings. Petitioners opposed the motion but the lower court approved the same.

On January 20, 1964, the Monetary Board of the Central Bank passed Resolution No. 81 granting the request of Republic Bank for credit accommodations to cover the unusual withdrawal of deposits by its depositors in view of the fact that said Bank was under investigation then by the authorities. The grant, however, was conditioned upon the execution by the management and controlling stockholders of the Republic Bank of a voting trust agreement in favor of a Board of Trustees to be chosen by the latter with the approval of the Central Bank. Pursuant to this resolution, Pablo Roman and his family, is the controlling stockholders of Republic Bank, executed a voting trust agreement in favor of a board of trustees composed of former Chief Justice Ricardo Paras, Hon. Miguel Cuaderno and Mr. Felix de la Costa. Subsequently, or on March 13, 1964, this agreement was superseded by another one with the Philippine National Bank as the trustee.2 In view of these developments, the intervenors-appellees filed a motion to dismiss before the lower court claiming that the ouster of Pablo Roman and his family from the management of the Republic Bank effected by the voting trust agreement rendered the mandamus case moot and academic. Respondents-appellees also filed motion to dismiss in which they again raised the impropriety of mandamus. Acting upon the two motions and the oppositions thereto filed by petitioners, the lower court granted the motions and dismissed the case. Hence, this appeal. Appellants, contending that the ouster of Pablo Roman from Republic Bank's management and control has not altered or rendered moot the issues in the case, argue that the remedy of mandamus lies3 to compel respondents to prosecute the aforementioned Pablo Roman and company. Addressing Ourselves directly to this issue raised on the propriety of the petition for mandamus, We rule that petitioners cannot seek by mandamus to compel respondents to prosecute criminally those alleged violators of the banking laws. Although the Central Bank and its respondent officials may have the duty under the Central Bank Act and the General Banking Act to cause the prosecution of those alleged violators, yet We find nothing in said laws that imposes a clear, specific duty on the former to do the actual prosecution of the latter. The Central Bank is a government corporation created principally to administer the monetary and banking system of the Republic,4 not a prosecution agency5 like the fiscal's office. Being an artificial person, The Central Bank is limited to its statutory powers and the nearest power to which prosecution of violators of banking laws may be attributed is its power to sue and be sued.6 But this corporate power of litigation evidently refers to civil cases only.1wph1.t The Central Bank and its respondent officials have already done all they could, within the confines of their powers, to cause the prosecution of those persons denounced by Perez. Annexes 5 to 7-C CBP of respondents' answer and even petitioners' opposition to the first motion to dismiss7 show that the cases of the alleged anomalous loans had already been referred by the Central Bank to the special prosecutors of the Department of Justice for criminal investigation and prosecution. For respondents to do the actual prosecuting themselves, as petitioners would have it, would be tantamount to an ultra vires act already. As for the Secretary of Justice, while he may have the power to prosecute through the office of the Solicitor General criminal cases, yet it is settled rule that mandamus will not lie to compel a prosecuting officer to prosecute a criminal case in court.8 Moreover, it does not appear from the law that only the Central Bank or its respondent officials can cause the prosecution of alleged violations of banking laws. Said violations constitute a public offense, the prosecution of which is a matter of public interest and hence, anyone even private individuals can denounce such violations before the prosecuting authorities. Since Perez himself could cause the filing of criminal complaints against those allegedly involved in the anomalous loans, if any, then he has a plain, adequate and speedy remedy in the ordinary course of law, which makes mandamus against respondents improper. But petitioners-appellants would insist that the impropriety of mandamus could no longer be raised before the lower court for the second time since it had already been invoked in previous motion to dismiss which was denied. This is untenable. The lower court was not estopped from changing its opinion while it was under its

jurisdiction to do so and on the same ground of lack of cause of action raised before, because the former order was purely interlocutory and thus remained constantly subject to alteration, modification or reversal by it before the rendition of final judgment on its merits.9 Wherefore, the order of dismissal appealed from is, as it is hereby, affirmed. Costs against petitioner-appellant Perez. So ordered.1wph1.t Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez and Castro JJ., concur.

G.R. No. L-38427 March 12, 1975 CENTRAL BANK OF THE PHILIPPINES as Liquidator of the FIDELITY SAVINGS BANK, petitioner, vs. HONORABLE JUDGE JESUS P. MORFE, as Presiding Judge of Branch XIII, Court of First Instance of Manila, Spouses AUGUSTO and ADELAIDA PADILLA and Spouses MARCELA and JOB ELIZES, respondents. F.E. Evangelista and Agapito S. Fajardo for petitioner. Juan C. Nabong, Jr. for respondent Spouses Augusto and Adelaida Padilla. Albert R. Palacio for respondent spouses Marcela and Job Elizes.

AQUINO, J.:+.wph!1 This case involves the question of whether a final judgment for the payment of a time deposit in a savings bank which judgment was obtained after the bank was declared insolvent, is a preferred claim against the bank. The question arises under the following facts: On February 18,1969 the Monetary Board found the Fidelity Savings Bank to be insolvent. The Board directed the Superintendent of Banks to take charge of its assets, forbade it to do business and instructed the Central Bank Legal Counsel to take legal actions (Resolution No. 350). On December 9, 1969 the Board involved to seek the court's assistant and supervision in the liquidation of the ban The resolution implemented only on January 25, 1972, when his Central Bank of the Philippines filed the corresponding petition for assistance and supervision in the Court of First Instance of Manila (Civil Case No. 86005 assigned to Branch XIII). Prior to the institution of the liquidation proceeding but after the declaration of insolvency, or, specifically, sometime in March, 1971, the spouses Job Elizes and Marcela P. Elizes filed a complaint in the Court of First Instance of Manila against the Fidelity Savings Bank for the recovery of the sum of P50, 584 as the balance of their time deposits (Civil Case No. 82520 assigned to Branch I).

In the judgment rendered in that case on December 13, 1972 the Fidelity Savings Bank was ordered to pay the Elizes spouses the sum of P50,584 plus accumulated interest. In another case, assigned to Branch XXX of the Court of First Instance of Manila, the spouses Augusta A. Padilla and Adelaida Padilla secured on April 14, 1972 a judgment against the Fidelity Savings Bank for the sums of P80,000 as the balance of their time deposits, plus interests, P70,000 as moral and exemplary damages and P9,600 as attorney's fees (Civil Case No. 84200 where the action was filed on September 6, 1971). In its orders of August 20, 1973 and February 25, 1974, the lower court (Branch XIII having cognizance of the liquidation proceeding), upon motions of the Elizes and Padilla spouses and over the opposition of the Central Bank, directed the latter as liquidator, to pay their time deposits as preferred judgments, evidenced by final judgments, within the meaning of article 2244(14)(b) of the Civil Code, if there are enough funds in the liquidator's custody in excess of the credits more preferred under section 30 of the Central Bank Law in relation to articles 2244 and 2251 of the Civil Code. From the said order, the Central Bank appealed to this Court by certiorari. It contends that the final judgments secured by the Elizes and Padilla spouses do not enjoy any preference because (a) they were rendered after the Fidelity Savings Bank was declared insolvent and (b) under the charter of the Central Bank and the General Banking Law, no final judgment can be validly obtained against an insolvent bank. Republic Act No. 265 provides:t.hqw
SEC. 29. Proceeding upon insolvency.Whenever upon examination by the Superintendent or his examiners or agents into the condition of any banking institution, 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 Superintendent forthwith, in writing to inform the Monetary Board of the facts, and the Board, upon finding the statements of the Superintendent to be true, shall forthwith forbid the institution to do business in the Philippines and shall take charge of its assets and proceeds according to law. The Monetary Board shall thereupon determine within thirty days whether the institution may be reorganized or otherwise placed in such a condition so that it may be permitted to resume business with safety to its creditors and shall prescribe the conditions under which such resumption of business shall take place. In such case the expenses and fees in the administration of the institution shall be determined by the Board and shall be paid to the Central Bank out of the assets of such banking institution. At any time within ten days after the Monetary Board has taken charge of the assets of any banking institution, such institution may apply to the Court of First Instance for an order requiring the Monetary Board to show cause why it should not be enjoined from continuing such charge of its assets, and the court may direct the Board to refrain from further proceedings and to surrender charge of its assets. If the Monetary Board shall determine that the banking institution cannot resume business with safety to its creditors, it shall, by the Office of the Solicitor General, file a petition in the Court of First Instance reciting the proceedings which have been taken and praying the assistance and supervision of the court in the liquidation of the affairs of the same. The Superintendent shall thereafter, upon order of the Monetary Board and under the supervision of the court and with all convenient speed, convert the assets of the banking institution to money. SEC. 30. Distribution of assets.In case of liquidation of a banking institution, after payment of the costs of the proceedings, including reasonable expenses and fees of the Central Bank to be allowed by the court, the Central Bank shall pay the debts of such institution, under the order of the court, in accordance with their legal priority.

The General Banking Act, Republic Act No. 337, provides: t.hqw
SEC. 85. Any director or officer of any banking institution who receives or permits or causes to be received in said bank any deposit, or who pays out or permits or causes to be paid out any funds of said bank, or who transfers or permits or causes to be transferred any securities or property of said bank, after said bank becomes insolvent, shall be punished by fine of not less than one thousand nor more than ten thousand pesos and by imprisonment for not less than two nor more than ten years.

The Civil Code provides:t.hqw

ART. 2237. Insolvency shall be governed by special laws insofar as they are not inconsistent with this Code. (n) ART. 2244. With reference to other property, real and personal, of the debtor, the following claims or credits shall be preferred in the order named: xxx xxx xxx (14) Credits which, without special privilege, appear in (a) a public instrument; or (b) in a final judgment, if they have been the subject of litigation. These credits shall have preference among themselves in the order of priority of the dates of the instruments and of the judgments, respectively. (1924a) ART. 2251. Those credits which do not enjoy any preference with respect to specific property, and those which enjoy preference, as to the amount not paid, shall be satisfied according to the following rules: (1) In the order established in article 2244; (2) Common credits referred to in article 2245 shall be paid pro rata regardless of dates. (1929a)

The trial court or, to be exact, the liquidation court noted that there is no provision in the charter of the Central Bank in the General Banking Law (Republic Acts Nos. 265 and 337, respectively) which suspends or abates civil actions against an insolvent bank pending in courts other than the liquidation court. It reasoned out that, because such actions are not suspended, judgments against insolvent banks could be considered as preferred credits under article 2244(14)(b) of the Civil Code. It further noted that, in contrast with the Central Act, section 18 of the Insolvency Law provides that upon the issuance by the court of an order declaring a person insolvent "all civil proceedings against the said insolvent shall be stayed." The liquidation court directed the Central Bank to honor the writs of execution issued by Branches I and XXX for the enforcement of the judgments obtained by the Elizes and Padilla spouses. It suggested that, after satisfaction of the judgment the Central Bank, as liquidator, should include said judgments in the list of preferred credits contained in the "Project of Distribution" "with the notation "already paid" " On the other hand, the Central Bank argues that after the Monetary Board has declared that a bank is insolvent and has ordered it to cease operations, the Board becomes the trustee of its assets "for the equal benefit of all the creditors, including the depositors". The Central Bank cites the ruling that "the assets of an insolvent banking institution are held in trust for the equal benefit of all creditors, and after its insolvency, one cannot obtain an advantage or a preference over another by an attachment, execution or otherwise" (Rohr vs. Stanton Trust & Savings Bank, 76 Mont. 248, 245 Pac. 947). The stand of the Central Bank is that all depositors and creditors of the insolvent bank should file their actions with the liquidation court. In support of that view it cites the provision that the Insolvency Law does not apply to banks (last sentence, sec. 52 of Act No. 1956).

It also invokes the provision penalizing a director officer of a bank who disburses, or allows disbursement, of the funds of the bank after it becomes insolvent (Sec. 85, General Banking Act, Republic Act No. 337). It cites the ruling that "a creditor of an insolvent state bank in the hands of a liquidator who recovered a judgment against it is not entitled to a preference for (by) the mere fact that he is a judgment creditor" (Thomas H. Briggs & Sons, Inc. vs. Allen, 207 N. Carolina 10, 175 S. E. 838, Braver Liquidation of Financial Institutions, p. 922). It should be noted that fixed, savings, and current deposits of money in banks and similar institutions are not true deposits. They are considered simple loans and, as such, are not preferred credits (Art. 1980, Civil Code; In re Liquidation of Mercantile Bank of China: Tan Tiong Tick vs. American Apothecaries Co., 65 Phil. 414; Pacific Coast Biscuit Co. vs. Chinese Grocers Association, 65 Phil. 375; Fletcher American National Bank vs. Ang Cheng Lian, 65 Phil. 385; Pacific Commercial Co. vs. American Apothecaries Co., 65 Phil. 429; Gopoco Grocery vs. Pacific Coast Biscuit Co., 65 Phil. 443). The aforequoted section 29 of the Central Bank's charter explicitly provides that when a bank is found to be insolvent, the Monetary Board shall forbid it to do business and shall take charge of its assets. The Board in its Resolution No. 350 dated February 18,1969 banned the Fidelity Savings Bank from doing business. It took charge of the bank's assets. Evidently, one purpose in prohibiting the insolvent bank from doing business is to prevent some depositors from having an undue or fraudulent preference over other creditors and depositors. That purpose would be nullified if, as in this case, after the bank is declared insolvent, suits by some depositors could be maintained and judgments would be rendered for the payment of their deposits and then such judgments would be considered preferred credits under article 2244 (14) (b) of the Civil Code. We are of the opinion that such judgments cannot be considered preferred and that article 2244(14) (b) does not apply to judgments for the payment of the deposits in an insolvent savings bank which were obtained after the declaration of insolvency. A contrary rule or practice would be productive of injustice, mischief and confusion. To recognize such judgments as entitled to priority would mean that depositors in insolvent banks, after learning that the bank is insolvent as shown by the fact that it can no longer pay withdrawals or that it has closed its doors or has been enjoined by the Monetary Board from doing business, would rush to the courts to secure judgments for the payment of their deposits. In such an eventuality, the courts would be swamped with suits of that character. Some of the judgments would be default judgments. Depositors armed with such judgments would pester the liquidation court with claims for preference on the basis of article 2244(14)(b). Less alert depositors would be prejudiced. That inequitable situation could not have been contemplated by the framers of section 29. The Rohr case (supra) supplies some illumination on the disposition of the instant case. It appears in that case that the Stanton Trust & Savings Bank of Great Falls closed its doors to business on July 9, 1923. On November 7,1924 the bank (then already under liquidation) issued to William Rohr a certificate stating that he was entitled to claim from the bank $1,191.72 and that he was entitled to dividends thereon. Later, Rohr sued the bank for the payment of his claim. The bank demurred to the complaint. The trial court sustained the demurrer. Rohr appealed. In affirming the order sustaining the demurrer, the Supreme Court of Montana said: t.hqw

The general principle of equity that the assets of an insolvent are to he distributed ratably among general creditors applies with full force to the distribution of the assets of a bank. A general depositor of a bank is merely a general creditor, and, as such, is not entitled to any preference or priority over other general creditors. The assets of a bank in process of liquidation are held in trust for the equal benefit of all creditors, and one cannot be permitted to obtain an advantage or preference over another by an attachment, execution or otherwise. A disputed claim of a creditor may be adjudicated, but those whose claims are recognized and admitted may not successfully maintain action thereon. So to permit would defeat the very purpose of the liquidation of a bank whether being voluntarily accomplished or through the intervention of a receiver. xxx xxx xxx The available assets of such a bank are held in trust, and so conserved that each depositor or other creditor shall receive payment or dividend according to the amount of his debt, and that none of equal class shall receive any advantage or preference over another.

And with respect to a national bank under voluntary liquidation, the court noted in the Rohr case that the assets of such a bank "become a trust fund, to be administered for the benefit of all creditors pro rata and, while the bank retains its corporate existence, and may be sued, the effect of a judgment obtained against it by a creditor is only to fix the amount of debt. He can acquire no lien which will give him any preference or advantage over other general creditors . (245 Pac. 249). * Considering that the deposits in question, in their inception, were not preferred credits, it does not seem logical and just that they should be raised to the category of preferred credits simply because the depositors, taking advantage of the long interval between the declaration of insolvency and the filing of the petition for judicial assistance and supervision, were able to secure judgments for the payment of their time deposits. The judicial declaration that the said deposits were payable to the depositors, as indisputably they were due, could not have given the Elizes and Padilla spouses a priority over the other depositors whose deposits were likewise indisputably due and owing from the insolvent bank but who did not want to incur litigation expenses in securing a judgment for the payment of the deposits. The circumstance that the Fidelity Savings Bank, having stopped operations since February 19, 1969, was forbidden to do business (and that ban would include the payment of time deposits) implies that suits for the payment of such deposits were prohibited. What was directly prohibited should not be encompassed indirectly. (See Maurello vs. Broadway Bank & Trust Co. of Paterson 176 Atl. 391, 114 N.J.L. 167). It is noteworthy that in the trial court's order of October 3, 1972, which contains the Bank Liquidation Rules and Regulations, it indicated in step III the procedure for processing the claims against the insolvent bank. In Step IV, the court directed the Central Bank, as liquidator, to submit a Project of Distribution which should include "a list of the preferred credits to be paid in full in the order of priorities established in Articles 2241, 2242, 2243, 2246 and 2247" of the Civil Code (note that article 2244 was not mentioned). There is no cogent reason why the Elizes and Padilla spouses should not adhere to the procedure outlined in the said rules and regulations. WHEREFORE, the lower court's orders of August 20, 1973 and February 25, 1974 are reversed and set aside. No costs. SO ORDERED. Makalintal, C.J., Fernando, Barredo, and Fernandez, JJ., concur.1wph1.t

Antonio, J., took no part.

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-% 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. Antonio, Abad Santos, JJ., concur. Barredo (Chairman) J., concur in the judgment on the of the concurring opinion of Justice Aquino.

G.R. No. 82027 March 29, 1990 ROMARICO G. VITUG, petitioner, vs. THE HONORABLE COURT OF APPEALS and ROWENA FAUSTINO-CORONA, respondents. Rufino B. Javier Law Office for petitioner. Quisumbing, Torres & Evangelista for private respondent.

SARMIENTO, J.: This case is a chapter in an earlier suit decided by this Court 1 involving the probate of the two wills of the late Dolores Luchangco Vitug, who died in New York, U. S.A., on November 10, 1980, naming private respondent Rowena Faustino-Corona executrix. In our said decision, we upheld the appointment of Nenita Alonte as co-special administrator of Mrs. Vitug's estate with her (Mrs. Vitug's) widower, petitioner Romarico G. Vitug, pending probate. On January 13, 1985, Romarico G. Vitug filed a motion asking for authority from the probate court to sell certain shares of stock and real properties belonging to the estate to cover allegedly his advances to the estate in the sum of P667,731.66, plus interests, which he claimed were personal funds. As found by the Court of Appeals, 2 the alleged advances consisted of P58,147.40 spent for the payment of estate tax, P518,834.27 as deficiency estate tax, and P90,749.99 as "increment thereto." 3 According to Mr. Vitug, he withdrew the sums of P518,834.27 and P90,749.99 from savings account No. 35342-038 of the Bank of America, Makati, Metro Manila. On April 12, 1985, Rowena Corona opposed the motion to sell on the ground that the same funds withdrawn from savings account No. 35342-038 were conjugal partnership properties and part of the estate, and hence, there was allegedly no ground for reimbursement. She also sought his ouster for failure to include the sums in question for inventory and for "concealment of funds belonging to the estate." 4

Vitug insists that the said funds are his exclusive property having acquired the same through a survivorship agreement executed with his late wife and the bank on June 19, 1970. The agreement provides:
We hereby agree with each other and with the BANK OF AMERICAN NATIONAL TRUST AND SAVINGS ASSOCIATION (hereinafter referred to as the BANK), that all money now or hereafter deposited by us or any or either of us with the BANK in our joint savings current account shall be the property of all or both of us and shall be payable to and collectible or withdrawable by either or any of us during our lifetime, and after the death of either or any of us shall belong to and be the sole property of the survivor or survivors, and shall be payable to and collectible or withdrawable by such survivor or survivors. We further agree with each other and the BANK that the receipt or check of either, any or all of us during our lifetime, or the receipt or check of the survivor or survivors, for any payment or withdrawal made for our above-mentioned account shall be valid and sufficient release and discharge of the BANK for such payment or withdrawal. 5

The trial courts 6 upheld the validity of this agreement and granted "the motion to sell some of the estate of Dolores L. Vitug, the proceeds of which shall be used to pay the personal funds of Romarico Vitug in the total sum of P667,731.66 ... ." 7 On the other hand, the Court of Appeals, in the petition for certiorari filed by the herein private respondent, held that the above-quoted survivorship agreement constitutes a conveyance mortis causa which "did not comply with the formalities of a valid will as prescribed by Article 805 of the Civil Code," 8 and secondly, assuming that it is a mere donation inter vivos, it is a prohibited donation under the provisions of Article 133 of the Civil Code. 9 The dispositive portion of the decision of the Court of Appeals states:
WHEREFORE, the order of respondent Judge dated November 26, 1985 (Annex II, petition) is hereby set aside insofar as it granted private respondent's motion to sell certain properties of the estate of Dolores L. Vitug for reimbursement of his alleged advances to the estate, but the same order is sustained in all other respects. In addition, respondent Judge is directed to include provisionally the deposits in Savings Account No. 35342-038 with the Bank of America, Makati, in the inventory of actual properties possessed by the spouses at the time of the decedent's death. With costs against private respondent. 10

In his petition, Vitug, the surviving spouse, assails the appellate court's ruling on the strength of our decisions in Rivera v. People's Bank and Trust Co. 11 and Macam v. Gatmaitan 12 in which we sustained the validity of "survivorship agreements" and considering them as aleatory contracts. 13 The petition is meritorious. The conveyance in question is not, first of all, one of mortis causa, which should be embodied in a will. A will has been defined as "a personal, solemn, revocable and free act by which a capacitated person disposes of his property and rights and declares or complies with duties to take effect after his death." 14 In other words, the bequest or device must pertain to the testator. 15 In this case, the monies subject of savings account No. 35342-038 were in the nature of conjugal funds In the case relied on, Rivera v. People's Bank and Trust Co., 16 we rejected claims that a survivorship agreement purports to deliver one party's separate properties in favor of the other, but simply, their joint holdings:
xxx xxx xxx ... Such conclusion is evidently predicated on the assumption that Stephenson was the exclusive owner of the funds-deposited in the bank, which assumption was in turn based on the facts (1) that the account was originally opened in the name of Stephenson alone and (2) that Ana Rivera "served only as housemaid of the deceased." But it not infrequently happens that a person deposits money in the bank in

the name of another; and in the instant case it also appears that Ana Rivera served her master for about nineteen years without actually receiving her salary from him. The fact that subsequently Stephenson transferred the account to the name of himself and/or Ana Rivera and executed with the latter the survivorship agreement in question although there was no relation of kinship between them but only that of master and servant, nullifies the assumption that Stephenson was the exclusive owner of the bank account. In the absence, then, of clear proof to the contrary, we must give full faith and credit to the certificate of deposit which recites in effect that the funds in question belonged to Edgar Stephenson and Ana Rivera; that they were joint (and several) owners thereof; and that either of them could withdraw any part or the whole of said account during the lifetime of both, and the balance, if any, upon the death of either, belonged to the survivor. 17 xxx xxx xxx

In Macam v. Gatmaitan, 18 it was held:

xxx xxx xxx This Court is of the opinion that Exhibit C is an aleatory contract whereby, according to article 1790 of the Civil Code, one of the parties or both reciprocally bind themselves to give or do something as an equivalent for that which the other party is to give or do in case of the occurrence of an event which is uncertain or will happen at an indeterminate time. As already stated, Leonarda was the owner of the house and Juana of the Buick automobile and most of the furniture. By virtue of Exhibit C, Juana would become the owner of the house in case Leonarda died first, and Leonarda would become the owner of the automobile and the furniture if Juana were to die first. In this manner Leonarda and Juana reciprocally assigned their respective property to one another conditioned upon who might die first, the time of death determining the event upon which the acquisition of such right by the one or the other depended. This contract, as any other contract, is binding upon the parties thereto. Inasmuch as Leonarda had died before Juana, the latter thereupon acquired the ownership of the house, in the same manner as Leonarda would have acquired the ownership of the automobile and of the furniture if Juana had died first. 19 xxx xxx xxx

There is no showing that the funds exclusively belonged to one party, and hence it must be presumed to be conjugal, having been acquired during the existence of the marita. relations. 20 Neither is the survivorship agreement a donation inter vivos, for obvious reasons, because it was to take effect after the death of one party. Secondly, it is not a donation between the spouses because it involved no conveyance of a spouse's own properties to the other. It is also our opinion that the agreement involves no modification petition of the conjugal partnership, as held by the Court of Appeals, 21 by "mere stipulation" 22 and that it is no "cloak" 23 to circumvent the law on conjugal property relations. Certainly, the spouses are not prohibited by law to invest conjugal property, say, by way of a joint and several bank account, more commonly denominated in banking parlance as an "and/or" account. In the case at bar, when the spouses Vitug opened savings account No. 35342-038, they merely put what rightfully belonged to them in a money-making venture. They did not dispose of it in favor of the other, which would have arguably been sanctionable as a prohibited donation. And since the funds were conjugal, it can not be said that one spouse could have pressured the other in placing his or her deposits in the money pool. The validity of the contract seems debatable by reason of its "survivor-take-all" feature, but in reality, that contract imposed a mere obligation with a term, the term being death. Such agreements are permitted by the Civil Code. 24 Under Article 2010 of the Code:

ART. 2010. By an aleatory contract, one of the parties or both reciprocally bind themselves to give or to do something in consideration of what the other shall give or do upon the happening of an event which is uncertain, or which is to occur at an indeterminate time.

Under the aforequoted provision, the fulfillment of an aleatory contract depends on either the happening of an event which is (1) "uncertain," (2) "which is to occur at an indeterminate time." A survivorship agreement, the sale of a sweepstake ticket, a transaction stipulating on the value of currency, and insurance have been held to fall under the first category, while a contract for life annuity or pension under Article 2021, et sequentia, has been categorized under the second. 25 In either case, the element of risk is present. In the case at bar, the risk was the death of one party and survivorship of the other. However, as we have warned:
xxx xxx xxx But although the survivorship agreement is per se not contrary to law its operation or effect may be violative of the law. For instance, if it be shown in a given case that such agreement is a mere cloak to hide an inofficious donation, to transfer property in fraud of creditors, or to defeat the legitime of a forced heir, it may be assailed and annulled upon such grounds. No such vice has been imputed and established against the agreement involved in this case. 26 xxx xxx xxx

There is no demonstration here that the survivorship agreement had been executed for such unlawful purposes, or, as held by the respondent court, in order to frustrate our laws on wills, donations, and conjugal partnership. The conclusion is accordingly unavoidable that Mrs. Vitug having predeceased her husband, the latter has acquired upon her death a vested right over the amounts under savings account No. 35342-038 of the Bank of America. Insofar as the respondent court ordered their inclusion in the inventory of assets left by Mrs. Vitug, we hold that the court was in error. Being the separate property of petitioner, it forms no more part of the estate of the deceased. WHEREFORE, the decision of the respondent appellate court, dated June 29, 1987, and its resolution, dated February 9, 1988, are SET ASIDE. No costs. SO ORDERED. Melencio-Herrera (Chairperson), Paras, Padilla and Regalado JJ., concur.