deposit slip and check.
The teller stamped the words DUPLICATE and SAVING TELLER 6 SOLIDBANK
[G.R. No. 138569. September 11, 2003]
THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner, vs. COURT OF APPEALS and L.C.
DIAZ and COMPANY, CPAs, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review of the Decision [1] of the Court of Appeals dated 27 October
1998 and its Resolution dated 11 May 1999. The assailed decision reversed the Decision[2]of the
Regional Trial Court of Manila, Branch 8, absolving petitioner Consolidated Bank and Trust
Corporation, now known as Solidbank Corporation (Solidbank), of any liability. The questioned
resolution of the appellate court denied the motion for reconsideration of Solidbank but modified the
decision by deleting the award of exemplary damages, attorneys fees, expenses of litigation and cost
of suit.
The Facts
Solidbank is a domestic banking corporation organized and existing under Philippine
laws. Private respondent L.C. Diaz and Company, CPAs (L.C. Diaz), is a professional partnership
engaged in the practice of accounting.
Sometime in March 1976, L.C. Diaz opened a savings account with Solidbank, designated as
Savings Account No. S/A 200-16872-6.
On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya (Macaraya), filled up a
savings (cash) deposit slip for P990 and a savings (checks) deposit slip for P50.Macaraya instructed
the messenger of L.C. Diaz, Ismael Calapre (Calapre), to deposit the money with Solidbank. Macaraya
also gave Calapre the Solidbank passbook.
Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the
passbook. The teller acknowledged receipt of the deposit by returning to Calapre the duplicate copies
of the two deposit slips. Teller No. 6 stamped the deposit slips with the words DUPLICATE and
SAVING TELLER 6 SOLIDBANK HEAD OFFICE. Since the transaction took time and Calapre had to make
another deposit for L.C. Diaz with Allied Bank, he left the passbook with Solidbank. Calapre then went
to Allied Bank. When Calapre returned to Solidbank to retrieve the passbook, Teller No. 6 informed
him that somebody got the passbook.[3] Calapre went back to L.C. Diaz and reported the incident to
Macaraya.
Macaraya immediately prepared a deposit slip in duplicate copies with a check
of P200,000. Macaraya, together with Calapre, went to Solidbank and presented to Teller No. 6 the
HEAD OFFICE on the duplicate copy of the deposit slip. When Macaraya asked for the passbook,
Teller No. 6 told Macaraya that someone got the passbook but she could not remember to whom she
gave the passbook. When Macaraya asked Teller No. 6 if Calapre got the passbook, Teller No. 6
answered that someone shorter than Calapre got the passbook. Calapre was then standing beside
Macaraya.
Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the deposit of a check
for P90,000 drawn on Philippine Banking Corporation (PBC). This PBC check of L.C. Diaz was a check
that it had long closed.[4] PBC subsequently dishonored the check because of insufficient funds and
because the signature in the check differed from PBCs specimen signature. Failing to get back the
passbook, Macaraya went back to her office and reported the matter to the Personnel Manager of
L.C. Diaz, Emmanuel Alvarez.
The following day, 15 August 1991, L.C. Diaz through its Chief Executive Officer, Luis C. Diaz
(Diaz), called up Solidbank to stop any transaction using the same passbook until L.C. Diaz could open
a new account.[5] On the same day, Diaz formally wrote Solidbank to make the same request. It was
also on the same day that L.C. Diaz learned of the unauthorized withdrawal the day before, 14 August
1991, of P300,000 from its savings account. The withdrawal slip for the P300,000 bore the signatures
of the authorized signatories of L.C. Diaz, namely Diaz and Rustico L. Murillo. The signatories,
however, denied signing the withdrawal slip. A certain Noel Tamayo received the P300,000.
In an Information[6] dated 5 September 1991, L.C. Diaz charged its messenger, Emerano Ilagan
(Ilagan) and one Roscon Verdazola with Estafa through Falsification of Commercial Document. The
Regional Trial Court of Manila dismissed the criminal case after the City Prosecutor filed a Motion to
Dismiss on 4 August 1992.
On 24 August 1992, L.C. Diaz through its counsel demanded from Solidbank the return of its
money. Solidbank refused.
On 25 August 1992, L.C. Diaz filed a Complaint[7] for Recovery of a Sum of Money against
Solidbank with the Regional Trial Court of Manila, Branch 8. After trial, the trial court rendered on 28
December 1994 a decision absolving Solidbank and dismissing the complaint.
L.C. Diaz then appealed[8] to the Court of Appeals. On 27 October 1998, the Court of Appeals
issued its Decision reversing the decision of the trial court.
On 11 May 1999, the Court of Appeals issued its Resolution denying the motion for
reconsideration of Solidbank. The appellate court, however, modified its decision by deleting the
award of exemplary damages and attorneys fees.
The Ruling of the Trial Court
In absolving Solidbank, the trial court applied the rules on savings account written on the
passbook. The rules state that possession of this book shall raise the presumption of ownership and
any payment or payments made by the bank upon the production of the said book and entry therein
of the withdrawal shall have the same effect as if made to the depositor personally.[9]
 At the time of the withdrawal, a certain Noel Tamayo was not only in possession of the
passbook, he also presented a withdrawal slip with the signatures of the authorized signatories of L.C.
Diaz. The specimen signatures of these persons were in the signature cards. The teller stamped the
withdrawal slip with the words Saving Teller No. 5. The teller then passed on the withdrawal slip to
Genere Manuel (Manuel) for authentication. Manuel verified the signatures on the withdrawal slip.
The withdrawal slip was then given to another officer who compared the signatures on the
withdrawal slip with the specimen on the signature cards. The trial court concluded that Solidbank
acted with care and observed the rules on savings account when it allowed the withdrawal
of P300,000 from the savings account of L.C. Diaz.
The trial court pointed out that the burden of proof now shifted to L.C. Diaz to prove that the
signatures on the withdrawal slip were forged. The trial court admonished L.C. Diaz for not offering in
evidence the National Bureau of Investigation (NBI) report on the authenticity of the signatures on
the withdrawal slip for P300,000. The trial court believed that L.C. Diaz did not offer this evidence
because it is derogatory to its action.
Another provision of the rules on savings account states that the depositor must keep the
passbook under lock and key.[10] When another person presents the passbook for withdrawal prior to
Solidbanks receipt of the notice of loss of the passbook, that person is considered as the owner of the
passbook. The trial court ruled that the passbook presented during the questioned transaction was
now out of the lock and key and presumptively ready for a business transaction. [11]
Solidbank did not have any participation in the custody and care of the passbook. The trial court
believed that Solidbanks act of allowing the withdrawal of P300,000 was not the direct and proximate
cause of the loss. The trial court held that L.C. Diazs negligence caused the unauthorized
withdrawal. Three facts establish L.C. Diazs negligence: (1) the possession of the passbook by a
person other than the depositor L.C. Diaz; (2) the presentation of a signed withdrawal receipt by an
unauthorized person; and (3) the possession by an unauthorized person of a PBC check long closed by
L.C. Diaz, which check was deposited on the day of the fraudulent withdrawal.
The trial court debunked L.C. Diazs contention that Solidbank did not follow the precautionary
procedures observed by the two parties whenever L.C. Diaz withdrew significant amounts from its
account. L.C. Diaz claimed that a letter must accompany withdrawals of more than P20,000. The
letter must request Solidbank to allow the withdrawal and convert the amount to a managers
check. The bearer must also have a letter authorizing him to withdraw the same amount. Another
person driving a car must accompany the bearer so that he would not walk from Solidbank to the
office in making the withdrawal. The trial court pointed out that L.C. Diaz disregarded these
precautions in its past withdrawal. On 16 July 1991, L.C. Diaz withdrew P82,554 without any separate
letter of authorization or any communication with Solidbank that the money be converted into a
managers check.
The trial court further justified the dismissal of the complaint by holding that the case was a last
ditch effort of L.C. Diaz to recover P300,000 after the dismissal of the criminal case against Ilagan.
The dispositive portion of the decision of the trial court reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING the complaint.
The Court further renders judgment in favor of defendant bank pursuant to its counterclaim the
amount of Thirty Thousand Pesos (P30,000.00) as attorneys fees.
With costs against plaintiff.
SO ORDERED.[12]
The Ruling of the Court of Appeals
The Court of Appeals ruled that Solidbanks negligence was the proximate cause of the
unauthorized withdrawal of P300,000 from the savings account of L.C. Diaz. The appellate court
reached this conclusion after applying the provision of the Civil Code on quasi-delict, to wit:
Article 2176. Whoever by act or omission causes damage to another, there being fault or negligence,
is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual
relation between the parties, is called a quasi-delict and is governed by the provisions of this chapter.
The appellate court held that the three elements of a quasi-delict are present in this case, namely: (a)
damages suffered by the plaintiff; (b) fault or negligence of the defendant, or some other person for
whose acts he must respond; and (c) the connection of cause and effect between the fault or
negligence of the defendant and the damage incurred by the plaintiff.
The Court of Appeals pointed out that the teller of Solidbank who received the withdrawal slip
for P300,000 allowed the withdrawal without making the necessary inquiry. The appellate court
stated that the teller, who was not presented by Solidbank during trial, should have called up the
depositor because the money to be withdrawn was a significant amount. Had the teller called up L.C.
Diaz, Solidbank would have known that the withdrawal was unauthorized. The teller did not even
verify the identity of the impostor who made the withdrawal. Thus, the appellate court found
Solidbank liable for its negligence in the selection and supervision of its employees.
The appellate court ruled that while L.C. Diaz was also negligent in entrusting its deposits to its
messenger and its messenger in leaving the passbook with the teller, Solidbank could not escape
liability because of the doctrine of last clear chance. Solidbank could have averted the injury suffered
by L.C. Diaz had it called up L.C. Diaz to verify the withdrawal.
The appellate court ruled that the degree of diligence required from Solidbank is more than that
of a good father of a family. The business and functions of banks are affected with public interest.
Banks are obligated to treat the accounts of their depositors with meticulous care, always having in
mind the fiduciary nature of their relationship with their clients. The Court of Appeals found
Solidbank remiss in its duty, violating its fiduciary relationship with L.C. Diaz.
The dispositive portion of the decision of the Court of Appeals reads:
WHEREFORE, premises considered, the decision appealed from is hereby REVERSED and a new one
entered.
1. Ordering defendant-appellee Consolidated Bank and Trust Corporation to pay plaintiff-
appellant the sum of Three Hundred Thousand Pesos (P300,000.00), with interest
thereon at the rate of 12% per annum from the date of filing of the complaint until
paid, the sum of P20,000.00 as exemplary damages, and P20,000.00 as attorneys
fees and expenses of litigation as well as the cost of suit; and
2. Ordering the dismissal of defendant-appellees counterclaim in the amount
of P30,000.00 as attorneys fees.
SO ORDERED.[13]
Acting on the motion for reconsideration of Solidbank, the appellate court affirmed its decision but
modified the award of damages. The appellate court deleted the award of exemplary damages and
attorneys fees. Invoking Article 2231[14] of the Civil Code, the appellate court ruled that exemplary
damages could be granted if the defendant acted with gross negligence. Since Solidbank was guilty of
simple negligence only, the award of exemplary damages was not justified. Consequently, the award
of attorneys fees was also disallowed pursuant to Article 2208 of the Civil Code. The expenses of
litigation and cost of suit were also not imposed on Solidbank.
The dispositive portion of the Resolution reads as follows:
WHEREFORE, foregoing considered, our decision dated October 27, 1998 is affirmed with
modification by deleting the award of exemplary damages and attorneys fees, expenses of litigation
and cost of suit.
SO ORDERED.[15]
Hence, this petition.
The Issues
Solidbank seeks the review of the decision and resolution of the Court of Appeals on these
grounds:
I. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER BANK SHOULD SUFFER
THE LOSS BECAUSE ITS TELLER SHOULD HAVE FIRST CALLED PRIVATE RESPONDENT
BY TELEPHONE BEFORE IT ALLOWED THE WITHDRAWAL OF P300,000.00 TO
RESPONDENTS MESSENGER EMERANO ILAGAN, SINCE THERE IS NO AGREEMENT
BETWEEN THE PARTIES IN THE OPERATION OF THE SAVINGS ACCOUNT, NOR IS
THERE ANY BANKING LAW, WHICH MANDATES THAT A BANK TELLER SHOULD FIRST
CALL UP THE DEPOSITOR BEFORE ALLOWING A WITHDRAWAL OF A BIG AMOUNT IN
A SAVINGS ACCOUNT.
II. THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF LAST CLEAR CHANCE
AND IN HOLDING THAT PETITIONER BANKS TELLER HAD THE LAST OPPORTUNITY TO
WITHHOLD THE WITHDRAWAL WHEN IT IS UNDISPUTED THAT THE TWO
SIGNATURES OF RESPONDENT ON THE WITHDRAWAL SLIP ARE GENUINE AND
PRIVATE RESPONDENTS PASSBOOK WAS DULY PRESENTED, AND CONTRARIWISE
RESPONDENT WAS NEGLIGENT IN THE SELECTION AND SUPERVISION OF ITS
MESSENGER EMERANO ILAGAN, AND IN THE SAFEKEEPING OF ITS CHECKS AND
OTHER FINANCIAL DOCUMENTS.
III. THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE INSTANT CASE IS A LAST
DITCH EFFORT OF PRIVATE RESPONDENT TO RECOVER ITS P300,000.00 AFTER
FAILING IN ITS EFFORTS TO RECOVER THE SAME FROM ITS EMPLOYEE EMERANO
ILAGAN.
IV. THE COURT OF APPEALS ERRED IN NOT MITIGATING THE DAMAGES AWARDED
AGAINST PETITIONER UNDER ARTICLE 2197 OF THE CIVIL CODE,
NOTWITHSTANDING ITS FINDING THAT PETITIONER BANKS NEGLIGENCE WAS ONLY
CONTRIBUTORY.[16]
The Ruling of the Court
The petition is partly meritorious.
Solidbanks Fiduciary Duty under the Law
The rulings of the trial court and the Court of Appeals conflict on the application of the law. The
trial court pinned the liability on L.C. Diaz based on the provisions of the rules on savings account, a
recognition of the contractual relationship between Solidbank and L.C. Diaz, the latter being a
depositor of the former. On the other hand, the Court of Appeals applied the law on quasi-delict to
determine who between the two parties was ultimately negligent. The law on quasi-delict or culpa
aquiliana is generally applicable when there is no pre-existing contractual relationship between the
parties.
We hold that Solidbank is liable for breach of contract due to negligence, or culpa contractual.
The contract between the bank and its depositor is governed by the provisions of the Civil Code
on simple loan.[17] Article 1980 of the Civil Code expressly provides that x x x savings x x x deposits of
money in banks and similar institutions shall be governed by the provisions concerning simple
loan. There is a debtor-creditor relationship between the bank and its depositor.The bank is the
debtor and the depositor is the creditor. The depositor lends the bank money and the bank agrees to
pay the depositor on demand. The savings deposit agreement between the bank and the depositor is
the contract that determines the rights and obligations of the parties.
The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of
Republic Act No. 8791 (RA 8791),[18] which took effect on 13 June 2000, declares that the State
recognizes the fiduciary nature of banking that requires high standards of integrity and
performance.[19] This new provision in the general banking law, introduced in 2000, is a statutory
affirmation of Supreme Court decisions, starting with the 1990 case of Simex International v. Court
of Appeals,[20] holding that the bank is under obligation to treat the accounts of its depositors
with meticulous care, always having in mind the fiduciary nature of their relationship. [21]
This fiduciary relationship means that the banks obligation to observe high standards of integrity
and performance is deemed written into every deposit agreement between a bank and its depositor.
The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a
good father of a family. Article 1172 of the Civil Code states that the degree of diligence required of
an obligor is that prescribed by law or contract, and absent such stipulation then the diligence of a
good father of a family.[22] Section 2 of RA 8791 prescribes the statutory diligence required from
banks that banks must observe high standards of integrity and performance in servicing their
depositors. Although RA 8791 took effect almost nine years after the unauthorized withdrawal of
the P300,000 from L.C. Diazs savings account, jurisprudence[23] at the time of the withdrawal already
imposed on banks the same high standard of diligence required under RA No. 8791.
However, the fiduciary nature of a bank-depositor relationship does not convert the contract
between the bank and its depositors from a simple loan to a trust agreement, whether express or
implied. Failure by the bank to pay the depositor is failure to pay a simple loan, and not a breach of
trust.[24] The law simply imposes on the bank a higher standard of integrity and performance in
complying with its obligations under the contract of simple loan, beyond those required of non-bank
debtors under a similar contract of simple loan.
The fiduciary nature of banking does not convert a simple loan into a trust agreement because
banks do not accept deposits to enrich depositors but to earn money for themselves. The law allows
banks to offer the lowest possible interest rate to depositors while charging the highest possible
interest rate on their own borrowers. The interest spread or differential belongs to the bank and not
to the depositors who are not cestui que trust of banks. If depositors are cestui que trust of banks,
then the interest spread or income belongs to the depositors, a situation that Congress certainly did
not intend in enacting Section 2 of RA 8791.
Solidbanks Breach of its Contractual Obligation
Article 1172 of the Civil Code provides that responsibility arising from negligence in the
performance of every kind of obligation is demandable. For breach of the savings deposit agreement
due to negligence, or culpa contractual, the bank is liable to its depositor.
Calapre left the passbook with Solidbank because the transaction took time and he had to go to
Allied Bank for another transaction. The passbook was still in the hands of the employees of
Solidbank for the processing of the deposit when Calapre left Solidbank. Solidbanks rules on savings
account require that the deposit book should be carefully guarded by the depositor and kept under
lock and key, if possible. When the passbook is in the possession of Solidbanks tellers during
withdrawals, the law imposes on Solidbank and its tellers an even higher degree of diligence in
safeguarding the passbook.
Likewise, Solidbanks tellers must exercise a high degree of diligence in insuring that they return
the passbook only to the depositor or his authorized representative. The tellers know, or should
know, that the rules on savings account provide that any person in possession of the passbook is
presumptively its owner. If the tellers give the passbook to the wrong person, they would be clothing
that person presumptive ownership of the passbook, facilitating unauthorized withdrawals by that
person. For failing to return the passbook to Calapre, the authorized representative of L.C. Diaz,
Solidbank and Teller No. 6 presumptively failed to observe such high degree of diligence in
safeguarding the passbook, and in insuring its return to the party authorized to receive the same.
In culpa contractual, once the plaintiff proves a breach of contract, there is a presumption that
the defendant was at fault or negligent. The burden is on the defendant to prove that he was not at
fault or negligent. In contrast, in culpa aquiliana the plaintiff has the burden of proving that the
defendant was negligent. In the present case, L.C. Diaz has established that Solidbank breached its
contractual obligation to return the passbook only to the authorized representative of L.C.
Diaz. There is thus a presumption that Solidbank was at fault and its teller was negligent in not
returning the passbook to Calapre. The burden was on Solidbank to prove that there was no
negligence on its part or its employees.
Solidbank failed to discharge its burden. Solidbank did not present to the trial court Teller No. 6,
the teller with whom Calapre left the passbook and who was supposed to return the passbook to
him. The record does not indicate that Teller No. 6 verified the identity of the person who retrieved
the passbook. Solidbank also failed to adduce in evidence its standard procedure in verifying the
identity of the person retrieving the passbook, if there is such a procedure, and that Teller No. 6
implemented this procedure in the present case.
Solidbank is bound by the negligence of its employees under the principle of respondeat
superior or command responsibility. The defense of exercising the required diligence in the selection
and supervision of employees is not a complete defense in culpa contractual, unlike in culpa
aquiliana.[25]
The bank must not only exercise high standards of integrity and performance, it must also insure
that its employees do likewise because this is the only way to insure that the bank will comply with its
fiduciary duty. Solidbank failed to present the teller who had the duty to return to Calapre the
passbook, and thus failed to prove that this teller exercised the high standards of integrity and
performance required of Solidbanks employees.
Proximate Cause of the Unauthorized Withdrawal
Another point of disagreement between the trial and appellate courts is the proximate cause of
the unauthorized withdrawal. The trial court believed that L.C. Diazs negligence in not securing its
passbook under lock and key was the proximate cause that allowed the impostor to withdraw
the P300,000. For the appellate court, the proximate cause was the tellers negligence in processing
the withdrawal without first verifying with L.C. Diaz. We do not agree with either court.
Proximate cause is that cause which, in natural and continuous sequence, unbroken by any
efficient intervening cause, produces the injury and without which the result would not have
occurred.[26] Proximate cause is determined by the facts of each case upon mixed considerations of
logic, common sense, policy and precedent.[27]
L.C. Diaz was not at fault that the passbook landed in the hands of the impostor. Solidbank was
in possession of the passbook while it was processing the deposit. After completion of the
transaction, Solidbank had the contractual obligation to return the passbook only to Calapre, the
authorized representative of L.C. Diaz. Solidbank failed to fulfill its contractual obligation because it
gave the passbook to another person.
Solidbanks failure to return the passbook to Calapre made possible the withdrawal of
the P300,000 by the impostor who took possession of the passbook. Under Solidbanks rules on
savings account, mere possession of the passbook raises the presumption of ownership. It was the
negligent act of Solidbanks Teller No. 6 that gave the impostor presumptive ownership of the
passbook. Had the passbook not fallen into the hands of the impostor, the loss of P300,000 would not
have happened. Thus, the proximate cause of the unauthorized withdrawal was Solidbanks
negligence in not returning the passbook to Calapre.
We do not subscribe to the appellate courts theory that the proximate cause of the
unauthorized withdrawal was the tellers failure to call up L.C. Diaz to verify the withdrawal. Solidbank
did not have the duty to call up L.C. Diaz to confirm the withdrawal. There is no arrangement
between Solidbank and L.C. Diaz to this effect. Even the agreement between Solidbank and L.C. Diaz
pertaining to measures that the parties must observe whenever withdrawals of large amounts are
made does not direct Solidbank to call up L.C. Diaz.
There is no law mandating banks to call up their clients whenever their representatives
withdraw significant amounts from their accounts. L.C. Diaz therefore had the burden to prove that it
is the usual practice of Solidbank to call up its clients to verify a withdrawal of a large amount of
money. L.C. Diaz failed to do so.
Teller No. 5 who processed the withdrawal could not have been put on guard to verify the
withdrawal. Prior to the withdrawal of P300,000, the impostor deposited with Teller No. 6
theP90,000 PBC check, which later bounced. The impostor apparently deposited a large amount of
money to deflect suspicion from the withdrawal of a much bigger amount of money. The appellate
court thus erred when it imposed on Solidbank the duty to call up L.C. Diaz to confirm the withdrawal
when no law requires this from banks and when the teller had no reason to be suspicious of the
transaction.
Solidbank continues to foist the defense that Ilagan made the withdrawal. Solidbank claims that
since Ilagan was also a messenger of L.C. Diaz, he was familiar with its teller so that there was no
more need for the teller to verify the withdrawal. Solidbank relies on the following statements in the
Booking and Information Sheet of Emerano Ilagan:
xxx Ilagan also had with him (before the withdrawal) a forged check of PBC and indicated the amount
of P90,000 which he deposited in favor of L.C. Diaz and Company. After successfully withdrawing this
large sum of money, accused Ilagan gave alias Rey (Noel Tamayo) his share of the loot. Ilagan then
hired a taxicab in the amount of P1,000 to transport him (Ilagan) to his home province at Bauan,
Batangas.Ilagan extravagantly and lavishly spent his money but a big part of his loot was wasted in
cockfight and horse racing. Ilagan was apprehended and meekly admitted his guilt.[28] (Emphasis
supplied.)
L.C. Diaz refutes Solidbanks contention by pointing out that the person who withdrew
the P300,000 was a certain Noel Tamayo. Both the trial and appellate courts stated that this Noel
Tamayo presented the passbook with the withdrawal slip.
We uphold the finding of the trial and appellate courts that a certain Noel Tamayo withdrew
the P300,000. The Court is not a trier of facts. We find no justifiable reason to reverse the factual
finding of the trial court and the Court of Appeals. The tellers who processed the deposit of
the P90,000 check and the withdrawal of the P300,000 were not presented during trial to
substantiate Solidbanks claim that Ilagan deposited the check and made the questioned
withdrawal. Moreover, the entry quoted by Solidbank does not categorically state that Ilagan
presented the withdrawal slip and the passbook.
Doctrine of Last Clear Chance
The doctrine of last clear chance states that where both parties are negligent but the negligent
act of one is appreciably later than that of the other, or where it is impossible to determine whose
fault or negligence caused the loss, the one who had the last clear opportunity to avoid the loss but
failed to do so, is chargeable with the loss.[29] Stated differently, the antecedent negligence of the
plaintiff does not preclude him from recovering damages caused by the supervening negligence of
the defendant, who had the last fair chance to prevent the impending harm by the exercise of due
diligence.[30]
We do not apply the doctrine of last clear chance to the present case. Solidbank is liable for
breach of contract due to negligence in the performance of its contractual obligation to L.C. Diaz. This
is a case of culpa contractual, where neither the contributory negligence of the plaintiff nor his last
clear chance to avoid the loss, would exonerate the defendant from liability. [31]Such contributory
negligence or last clear chance by the plaintiff merely serves to reduce the recovery of damages by
the plaintiff but does not exculpate the defendant from his breach of contract. [32]

Mitigated Damages

Under Article 1172, liability (for culpa contractual) may be regulated by the courts, according to
the circumstances. This means that if the defendant exercised the proper diligence in the selection
and supervision of its employee, or if the plaintiff was guilty of contributory negligence, then the
courts may reduce the award of damages. In this case, L.C. Diaz was guilty of contributory negligence
in allowing a withdrawal slip signed by its authorized signatories to fall into the hands of an
impostor. Thus, the liability of Solidbank should be reduced.
In Philippine Bank of Commerce v. Court of Appeals,[33] where the Court held the depositor
guilty of contributory negligence, we allocated the damages between the depositor and the bank on a
40-60 ratio. Applying the same ruling to this case, we hold that L.C. Diaz must shoulder 40% of the
actual damages awarded by the appellate court. Solidbank must pay the other 60% of the actual
damages.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION. Petitioner
Solidbank Corporation shall pay private respondent L.C. Diaz and Company, CPAs only 60% of the
actual damages awarded by the Court of Appeals. The remaining 40% of the actual damages shall be
borne by private respondent L.C. Diaz and Company, CPAs.Proportionate costs.
SO ORDERED.
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.
CONCEPCION, JR., J.:
Petition for mandamus and prohibition, with preliminary injunction, that seeks the establishment of
joint and solidary liability to the amount of Three Hundred Fifty Thousand Pesos, with interest,
against respondent Central Bank of the Philippines and Overseas Bank of Manila and its stockholders,
on the alleged failure of the Overseas Bank of Manila to return the time deposits made by petitioner
and assigned to him, on the ground that respondent Central Bank failed in its duty to exercise strict
supervision over respondent Overseas Bank of Manila to protect depositors and the general
public.1 Petitioner also prays that both respondent banks be ordered to execute the proper and
necessary documents to constitute all properties fisted in Annex "7" of the Answer of respondent
Central Bank of the Philippines in G.R. No. L-29352, entitled "Emerita M. Ramos, et al vs. Central Bank
of the Philippines," into a trust fund in favor of petitioner and all other depositors of respondent
Overseas Bank of Manila. It is also prayed that the respondents be prohibited permanently from
honoring, implementing, or doing any act predicated upon the validity or efficacy of the deeds of
mortgage, assignment. and/or conveyance or transfer of whatever nature of the properties listed in
Annex "7" of the Answer of respondent Central Bank in G.R. No. 29352. 2
A sought for ex-parte preliminary injunction against both respondent banks was not given by this
Court.
Undisputed pertinent facts are:
On October 13, 1966 and December 12, 1966, petitioner made a time deposit, for one year with 6%
interest, of One Hundred Fifty Thousand Pesos (P150,000.00) with the respondent Overseas Bank of
Manila. 3 Concepcion Maneja also made a time deposit, for one year with 6-½% interest, on March 6,
1967, of Two Hundred Thousand Pesos (P200,000.00) with the same respondent Overseas Bank of
Manila.4
On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano, assigned and conveyed to
petitioner Manuel M. Serrano, her time deposit of P200,000.00 with respondent Overseas Bank of
Manila. 5
Notwithstanding series of demands for encashment of the aforementioned time deposits from the
respondent Overseas Bank of Manila, dating from December 6, 1967 up to March 4, 1968, not a
single one of the time deposit certificates was honored by respondent Overseas Bank of Manila. 6
Respondent Central Bank admits that it is charged with the duty of administering the banking system
of the Republic and it exercises supervision over all doing business in the Philippines, but denies the
petitioner's allegation that the Central Bank has the duty to exercise a most rigid and stringent
supervision of banks, implying that respondent Central Bank has to watch every move or activity of all
banks, including respondent Overseas Bank of Manila. Respondent Central Bank claims that as of
March 12, 1965, the Overseas Bank of Manila, while operating, was only on a limited degree of
banking operations since the Monetary Board decided in its Resolution No. 322, dated March 12,
1965, to prohibit the Overseas Bank of Manila from making new loans and investments in view of its
chronic reserve deficiencies against its deposit liabilities. This limited operation of respondent
Overseas Bank of Manila continued up to 1968.7
Respondent Central Bank also denied that it is guarantor of the permanent solvency of any banking
institution as claimed by petitioner. It claims that neither the law nor sound banking supervision
requires respondent Central Bank to advertise or represent to the public any remedial measures it
may impose upon chronic delinquent banks as such action may inevitably result to panic or bank
"runs". In the years 1966-1967, there were no findings to declare the respondent Overseas Bank of
Manila as insolvent. 8
Respondent Central Bank likewise denied that a constructive trust was created in favor of petitioner
and his predecessor in interest Concepcion Maneja when their time deposits were made in 1966 and
1967 with the respondent Overseas Bank of Manila as during that time the latter was not an insolvent
bank and its operation as a banking institution was being salvaged by the respondent Central Bank. 9
Respondent Central Bank avers no knowledge of petitioner's claim that the properties given by
respondent Overseas Bank of Manila as additional collaterals to respondent Central Bank of the
Philippines for the former's overdrafts and emergency loans were acquired through the use of
depositors' money, including that of the petitioner and Concepcion Maneja. 10
In G.R. No. L-29362, entitled "Emerita M. Ramos, et al. vs. Central Bank of the Philippines," a case was
filed by the petitioner Ramos, wherein respondent Overseas Bank of Manila sought to prevent
respondent Central Bank from closing, declaring the former insolvent, and liquidating its assets.
Petitioner Manuel Serrano in this case, filed on September 6, 1968, a motion to intervene in G.R. No.
L-29352, on the ground that Serrano had a real and legal interest as depositor of the Overseas Bank
of Manila in the matter in litigation in that case. Respondent Central Bank in G.R. No. L-29352
opposed petitioner Manuel Serrano's motion to intervene in that case, on the ground that his claim
as depositor of the Overseas Bank of Manila should properly be ventilated in the Court of First
Instance, and if this Court were to allow Serrano to intervene as depositor in G.R. No. L-29352,
thousands of other depositors would follow and thus cause an avalanche of cases in this Court. In the
resolution dated October 4, 1968, this Court denied Serrano's, motion to intervene. The contents of the former's overdrafts and emergency loans, since these collaterals were acquired by the use of
said motion to intervene are substantially the same as those of the present petition. 11 depositors' money.

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
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.

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
G.R. No. 88013 March 19, 1990
SIMEX INTERNATIONAL (MANILA), INCORPORATED, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and TRADERS ROYAL BANK, respondents.
CRUZ, J.:
We are concerned in this case with the question of damages, specifically moral and exemplary
damages. The negligence of the private respondent has already been established. All we have to
ascertain is whether the petitioner is entitled to the said damages and, if so, in what amounts.
The parties agree on the basic facts. The petitioner is a private corporation engaged in the
exportation of food products. It buys these products from various local suppliers and then sells them
abroad, particularly in the United States, Canada and the Middle East. Most of its exports are
purchased by the petitioner on credit.
The petitioner was a depositor of the respondent bank and maintained a checking account in its
branch at Romulo Avenue, Cubao, Quezon City. On May 25, 1981, the petitioner deposited to its
account in the said bank the amount of P100,000.00, thus increasing its balance as of that date to
P190,380.74. 1 Subsequently, the petitioner issued several checks against its deposit but was suprised
to learn later that they had been dishonored for insufficient funds.
The dishonored checks are the following:
1. Check No. 215391 dated May 29, 1981, in favor of California Manufacturing
Company, Inc. for P16,480.00:
2. Check No. 215426 dated May 28, 1981, in favor of the Bureau of Internal
Revenue in the amount of P3,386.73:
3. Check No. 215451 dated June 4, 1981, in favor of Mr. Greg Pedreño in the
amount of P7,080.00;
4. Check No. 215441 dated June 5, 1981, in favor of Malabon Longlife Trading
Corporation in the amount of P42,906.00:
5. Check No. 215474 dated June 10, 1981, in favor of Malabon Longlife Trading
Corporation in the amount of P12,953.00:
6. Check No. 215477 dated June 9, 1981, in favor of Sea-Land Services, Inc. in the
amount of P27,024.45:
7. Check No. 215412 dated June 10, 1981, in favor of Baguio Country Club
Corporation in the amount of P4,385.02: and
8. Check No. 215480 dated June 9, 1981, in favor of Enriqueta Bayla in the amount
of P6,275.00. 2
As a consequence, the California Manufacturing Corporation sent on June 9, 1981, a letter of demand
to the petitioner, threatening prosecution if the dishonored check issued to it was not made good. It
also withheld delivery of the order made by the petitioner. Similar letters were sent to the petitioner
by the Malabon Long Life Trading, on June 15, 1981, and by the G. and U. Enterprises, on June 10,
1981. Malabon also canceled the petitioner's credit line and demanded that future payments be
made by it in cash or certified check. Meantime, action on the pending orders of the petitioner with
the other suppliers whose checks were dishonored was also deferred.
The petitioner complained to the respondent bank on June 10, 1981. 3 Investigation disclosed that
the sum of P100,000.00 deposited by the petitioner on May 25, 1981, had not been credited to it.
The error was rectified on June 17, 1981, and the dishonored checks were paid after they were re-
deposited. 4
In its letter dated June 20, 1981, the petitioner demanded reparation from the respondent bank for
its "gross and wanton negligence." This demand was not met. The petitioner then filed a complaint in
the then Court of First Instance of Rizal claiming from the private respondent moral damages in the
sum of P1,000,000.00 and exemplary damages in the sum of P500,000.00, plus 25% attorney's fees,
and costs.
After trial, Judge Johnico G. Serquinia rendered judgment holding that moral and exemplary damages
were not called for under the circumstances. However, observing that the plaintiff's right had been
violated, he ordered the defendant to pay nominal damages in the amount of P20,000.00 plus
P5,000.00 attorney's fees and costs. 5 This decision was affirmed in toto by the respondent court. 6
The respondent court found with the trial court that the private respondent was guilty of negligence
but agreed that the petitioner was nevertheless not entitled to moral damages. It said:
The essential ingredient of moral damages is proof of bad faith (De Aparicio vs.
Parogurga, 150 SCRA 280). Indeed, there was the omission by the defendant-
appellee bank to credit appellant's deposit of P100,000.00 on May 25, 1981. But the
bank rectified its 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.
PHILIPPINE BANKING CORPORATION, petitioner, vs. COURT OF APPEALS and LEONILO
MARCOS, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review of the Decision [1] of the Court of Appeals in CA-G.R. CV No.
34382 dated 10 December 1996 modifying the Decision[2] of the Regional Trial Court, Fourth Judicial
Region, Assisting Court, Bian, Laguna in Civil Case No. B-3148 entitled Leonilo Marcos v. Philippine
Banking Corporation.
The Antecedent Facts
On 30 August 1989, Leonilo Marcos (Marcos) filed with the trial court a Complaint for Sum of
Money with Damages[3] against petitioner Philippine Banking Corporation (BANK).[4]
Marcos alleged that sometime in 1982, the BANK through Florencio B. Pagsaligan (Pagsaligan),
one of the officials of the BANK and a close friend of Marcos, persuaded him to deposit money with
the BANK. Marcos yielded to Pagsaligans persuasion and claimed he made a time deposit with the
BANK on two occasions. The first was on 11 March 1982 for P664,897.67. The BANK issued Receipt
No. 635734 for this time deposit. On 12 March 1982, Marcos claimed he again made a time deposit
with the BANK for P764,897.67. The BANK did not issue an official receipt for this time deposit but it
acknowledged a deposit of this amount through a letter-certification Pagsaligan issued. The time
deposits earned interest at 17% per annum and had a maturity period of 90 days.
Marcos alleged that Pagsaligan kept the various time deposit certificates on the assurance that
the BANK would take care of the certificates, interests and renewals. Marcos claimed that from the
time of the deposit, he had not received the principal amount or its interest.
Sometime in March 1983, Marcos wanted to withdraw from the BANK his time deposits and the
accumulated interests to buy materials for his construction business. However, the BANK through
Pagsaligan convinced Marcos to keep his time deposits intact and instead to open several domestic
letters of credit. The BANK required Marcos to give a marginal deposit of 30% of the total amount of
the letters of credit. The time deposits of Marcos would secure 70% of the letters of credit. Since
Marcos trusted the BANK and Pagsaligan, he signed blank printed forms of the application for the
domestic letters of credit, trust receipt agreements and promissory notes.
Marcos executed three Trust Receipt Agreements totalling P851,250, broken down as
follows: (1) Trust Receipt No. CD 83.7 dated 8 March 1983 for P300,000; (2) Trust Receipt No. CD 83.9
dated 15 March 1983 for P300,000; and (3) Trust Receipt No. CD 83.10 dated 15 March 1983
for P251,250. Marcos deposited the required 30% marginal deposit for the trust receipt agreements.
Marcos claimed that his obligation to the BANK was therefore only P595,875 representing 70% of the
letters of credit.
Marcos believed that he and the BANK became creditors and debtors of each other. Marcos
expected the BANK to offset automatically a portion of his time deposits and the accumulated
interest with the amount covered by the three trust receipts totalling P851,250 less the 30% marginal
deposit that he had paid. Marcos argued that if only the BANK applied his time deposits and the
accumulated interest to his remaining obligation, which is 70% of the total amount of the letters of
credit, he would have paid completely his debt. Marcos further pointed out that since he did not
apply for a renewal of the trust receipt agreements, the BANK had no right to renew the same.
Marcos accused the BANK of unjustly demanding payment for the total amount of the trust
receipt agreements without deducting the 30% marginal deposit that he had already made.He
decried the BANKs unlawful charging of accumulated interest because he claimed there was no
agreement as to the payment of interest. The interest arose from numerous alleged extensions and
penalties. Marcos reiterated that there was no agreement to this effect because his time deposits
served as the collateral for his remaining obligation.
Marcos also denied that he obtained another loan from the BANK for P500,000 with interest at
25% per annum supposedly covered by Promissory Note No. 20-979-83 dated 24 October
1983. Marcos bewailed the BANKs belated claim that his time deposits were applied to this void
promissory note on 12 March 1985.
In sum, Marcos claimed that:
(1) his time deposit with the BANK in the total sum of P1,428,795.34[5] has earned accumulated
interest since March 1982 up to the present in the total amount of P1,727,305.45 at the rate of
17% per annum so his total money with defendant (the BANK) is P3,156,100.79 less the amount
of P595,875 representing the 70% balance of the marginal deposit and/or balance of the trust
agreements; and
(2) his indebtedness was only P851,250 less the 30% paid as marginal deposit or a balance
of P595,875, which the BANK should have automatically deducted from his time deposits and
accumulated interest, leaving the BANKs indebtedness to him at P2,560,025.79.
Marcos prayed the trial court to declare Promissory Note No. 20-979-83 void and to order the
BANK to pay the amount of his time deposits with interest. He also sought the award of moral and
exemplary damages as well as attorneys fees for P200,000 plus 25% of the amount due.
On 18 September 1989, summons and a copy of the complaint were served on the BANK. [6]
On 9 October 1989, the BANK filed its Answer with Counterclaim. The BANK denied the
allegations in the complaint. The BANK believed that the suit was Marcos desperate attempt to avoid
liability under several trust receipt agreements that were the subject of a criminal complaint.
The BANK alleged that as of 12 March 1982, the total amount of the various time deposits of
Marcos was only P764,897.67 and not P1,428,795.35[7] as alleged in the complaint. The P764,897.67
included the P664,897.67 that Marcos deposited on 11 March 1982.
The BANK pointed out that Marcos delivered to the BANK the time deposit certificates by virtue
of the Deed of Assignment dated 2 June 1989. Marcos executed the Deed of Assignment to secure his
various loan obligations. The BANK claimed that these loans are covered by Promissory Note No. 20-
756-82 dated 2 June 1982 for P420,000 and Promissory Note No. 20-979-83 dated 24 October 1983
for P500,000. The BANK stressed that these obligations are separate and distinct from the trust
receipt agreements.
When Marcos defaulted in the payment of Promissory Note No. 20-979-83, the BANK debited
his time deposits and applied the same to the obligation that is now considered fully paid. [8] The
BANK insisted that the Deed of Assignment authorized it to apply the time deposits in payment of
Promissory Note No. 20-979-83.
In March 1982, the wife of Marcos, Consolacion Marcos, sought the advice of
Pagsaligan. Consolacion informed Pagsaligan that she and her husband needed to finance the
purchase of construction materials for their business, L.A. Marcos Construction Company. Pagsaligan
suggested the opening of the letters of credit and the execution of trust receipts, whereby the BANK
would agree to purchase the goods needed by the client through the letters of credit. The BANK
would then entrust the goods to the client, as entrustee, who would undertake to deliver the
proceeds of the sale or the goods themselves to the entrustor within a specified time.
The BANK claimed that Marcos freely entered into the trust receipt agreements. When Marcos
failed to account for the goods delivered or for the proceeds of the sale, the BANK filed a complaint
for violation of Presidential Decree No. 115 or the Trust Receipts Law. Instead of initiating
negotiations for the settlement of the account, Marcos filed this suit.
The BANK denied falsifying Promissory Note No. 20-979-83. The BANK claimed that the
promissory note is supported by documentary evidence such as Marcos application for this loan and
the microfilm of the cashiers check issued for the loan. The BANK insisted that Marcos could not deny
the agreement for the payment of interest and penalties under the trust receipt agreements. The
BANK prayed for the dismissal of the complaint, payment of damages, attorneys fees and cost of suit.
On 15 December 1989, the trial court on motion of Marcos counsel issued an order declaring
the BANK in default for filing its answer five days after the 15-day period to file the answer had
lapsed.[9] The trial court also held that the answer is a mere scrap of paper because a copy was not
furnished to Marcos. In the same order, the trial court allowed Marcos to present his evidence ex
parte on 18 December 1989. On that date, Marcos testified and presented documentary evidence.
The case was then submitted for decision.
On 19 December 1989, Marcos received a copy of the BANKs Answer with Compulsory
Counterclaim.
On 29 December 1989, the BANK filed an opposition to Marcos motion to declare the BANK in
default. On 9 January 1990, the BANK filed a motion to lift the order of default claiming that it had
only then learned of the order of default. The BANK explained that its delayed filing of the Answer
with Counterclaim and failure to serve a copy of the answer on Marcos was due to excusable
negligence. The BANK asked the trial court to set aside the order of default because it had a valid and
meritorious defense.
On 7 February 1990, the trial court issued an order setting aside the default order and admitting
the BANKs Answer with Compulsory Counterclaim. The trial court ordered the BANK to present its
evidence on 12 March 1990.
On 5 March 1990, the BANK filed a motion praying to cross-examine Marcos who had testified
during the ex-parte hearing of 18 December 1989. On 12 March 1990, the trial court denied the
BANKs motion and directed the BANK to present its evidence. Trial then ensued.
The BANK presented two witnesses, Rodolfo Sales, the Branch Manager of the BANKs Cubao
Branch since 1987, and Pagsaligan, the Branch Manager of the same branch from 1982 to 1986.
On 24 April 1990, the counsel of Marcos cross-examined Pagsaligan. Due to lack of material
time, the trial court reset the continuation of the cross-examination and presentation of other
evidence. The succeeding hearings were postponed, specifically on 24, 27 and 28 of August 1990,
because of the BANKs failure to produce its witness, Pagsaligan. The BANK on these scheduled
hearings also failed to present other evidence.
On 7 September 1990, the BANK moved to postpone the hearing on the ground that Pagsaligan
could not attend the hearing because of illness. The trial court denied the motion to postpone and on
motion of Marcos counsel ruled that the BANK had waived its right to present further evidence. The
trial court considered the case submitted for decision. The BANK moved for reconsideration, which
the trial court denied.
On 8 October 1990, the trial court rendered its decision in favor of Marcos. Aggrieved, the BANK
appealed to the Court of Appeals.
On 10 December 1996, the Court of Appeals modified the decision of the trial court by reducing
the amount of actual damages and deleting the attorneys fees awarded to Marcos.
The Ruling of the Trial Court
The trial court ruled that the total amount of time deposits of Marcos was P1,429,795.34 and
not only P764,897.67 as claimed by the BANK. The trial court found that Marcos made a time deposit
on two occasions. The first time deposit was made on 11 March 1982 for P664,897.67 as shown by
Receipt No. 635743. On 12 March 1982, Marcos again made a time deposit for P764,897.67 as
acknowledged by Pagsaligan in a letter of certification. The two time deposits thus amounted
to P1,429,795.34.
The trial court pointed out that no receipt was issued for the 12 March 1982 time deposit
because the letter of certification was sufficient. The trial court made a finding that the certification
letter did not include the time deposit made on 11 March 1982. The 12 March 1982 deposit was in
cash while the 11 March 1982 deposit was in checks which still had to clear.The checks were not
included in the certification letter since the BANK could not credit the amounts of the checks prior to
clearing. The trial court declared that even the Deed of Assignment acknowledged that Marcos made
several time deposits as the Deed stated that the assigment was charged against various time
deposits.
The trial court recognized the existence of the Deed of Assignment and the two loans that
Marcos supposedly obtained from the BANK on 28 May 1982 for P340,000 and on 2 June 1982
for P420,000. The two loans amounted to P760,000. On 2 June 1982, the same day that he secured
the second loan, Marcos executed a Deed of Assignment assigning to the BANK P760,000 of his time
deposits. The trial court concluded that obviously the two loans were immediately paid by virtue of
the Deed of Assignment.
The trial court found it strange that Marcos borrowed money from the BANK at a higher rate of
interest instead of just withdrawing his time deposits. The trial court saw no rhyme or reason why
Marcos had to secure the loans from the BANK. The trial court was convinced that Marcos did not
know that what he had signed were loan applications and a Deed of Assignment in payment for his
loans. Nonetheless, the trial court recognized the said loan of P760,000 and its corresponding
payment by virtue of the Deed of Assignment for the equal sum.[10]
If the BANKs claim is true that the time deposits of Marcos amounted only to P764,897.67 and
he had already assigned P760,000 of this amount, the trial court pointed out that what would be left
as of 3 June 1982 would only be P4,867.67.[11] Yet, after the time deposits had matured, the BANK
allowed Marcos to open letters of credit three times. The three letters of credit were all secured by
the time deposits of Marcos after he had paid the 30% marginal deposit. The trial court opined that if
Marcos time deposit was only P764,897.67, then the letters of credit totalling P595,875 (less 30%
marginal deposit) was guaranteed by only P4,867.67,[12] the remaining time deposits after Marcos
had executed the Deed of Assignment for P760,000.
According to the trial court, a security of only P4,867.67[13] for a loan worth P595,875 (less 30%
marginal deposit) is not only preposterous, it is also comical. Worse, aside from allowing Marcos to
have unsecured trust receipts, the BANK still claimed to have granted Marcos another loan
for P500,000 on 25 October 1983 covered by Promissory Note No. 20-979-83. The BANK is a
commercial bank engaged in the business of lending money. Allowing a loan of more than a million
pesos without collateral is in the words of the trial court, an impossibility and a gross violation of
Central Bank Rules and Regulations, which no Bank Manager has such authority to grant. [14] Thus, the
trial court held that the BANK could not have granted Marcos the loan covered by Promissory Note
No. 20-979-83 because it was unsecured by any collateral.
The trial court required the BANK to produce the original copies of the loan application and
Promissory Note No. 20-979-83 so that it could determine who applied for this loan. However, the
BANK presented to the trial court only the machine copies of the duplicate of these documents.
Based on the machine copies of the duplicate of the two documents, the trial court noticed the
following discrepancies: (1) Marcos signature on the two documents are merely initials unlike in the
other documents submitted by the BANK; (2) it is highly unnatural for the BANK to only have
duplicate copies of the two documents in its custody; (3) the address of Marcos in the documents is
different from the place of residence as stated by Marcos in the other documents annexed by the
BANK in its Answer; (4) Pagsaligan made it appear that a check for the loan proceeds of P470,588 less
bank charges was issued to Marcos but the checks payee was one ATTY. LEONILO MARCOS and, as
the trial court noted, Marcos is not a lawyer; and (5) Pagsaligan was not sure what branch of the
BANK issued the check for the loan proceeds. The trial court was convinced that Marcos did not
execute the questionable documents covering the P500,000 loan and Pagsaligan used these
documents as a means to justify his inability to explain and account for the time deposits of Marcos.
The trial court noted the BANKs defective documentation of its transaction with Marcos. First,
the BANK was not in possession of the original copies of the documents like the loan
applications. Second, the BANK did not have a ledger of the accounts of Marcos or of his various
transactions with the BANK. Last, the BANK did not issue a certificate of time deposit to
Marcos. Again, the trial court attributed the BANKs lapses to Pagsaligans scheme to defraud Marcos
of his time deposits.
The trial court also took note of Pagsaligans demeanor on the witness stand. Pagsaligan evaded
the questions by giving unresponsive or inconsistent answers compelling the trial court to admonish
him. When the trial court ordered Pagsaligan to produce the documents, he conveniently became
sick[15] and thus failed to attend the hearings without presenting proof of his physical condition.
The trial court disregarded the BANKs assertion that the time deposits were converted into a
savings account at 14% or 10% per annum upon maturity. The BANK never informed Marcos that his
time deposits had already matured and these were converted into a savings account. As to the
interest due on the trust receipts, the trial court ruled that there is no basis for such a charge because
the documents do not stipulate any interest.
In computing the amount due to Marcos, the trial court took into account the marginal deposit
that Marcos had already paid which is equivalent to 30% of the total amount of the three trust
receipts. The three trust receipts totalling P851,250 would then have a balance of P595,875. The
balance became due in March 1987 and on the same date, Marcos time deposits of P669,932.30 had
already earned interest from 1983 to 1987 totalling P569,323.21 at 17% per annum. Thus, the trial
court ruled that the time deposits in 1987 totalled P1,239,115. From this amount, the trial court
deducted P595,875, the amount of the trust receipts, leaving a balance on the time deposits
of P643,240 as of March 1987. However, since the BANK failed to return the time deposits of Marcos,
which again matured in March 1990, the time deposits with interest, less the amount of trust receipts
paid in 1987, amounted to P971,292.49 as of March 1990.
In the alternative, the trial court ruled that even if Marcos had only one time deposit
of P764,897.67 as claimed by the BANK, the time deposit would have still earned interest at the rate
of 17% per annum. The time deposit of P650,163 would have increased to P1,415,060 in 1987 after
earning interest. Deducting the amount of the three trust receipts, Marcos time deposits still
totalled P1,236,969.30 plus interest.
The dispositive portion of the decision of the trial court reads:
WHEREFORE, under the foregoing circumstances, judgment is hereby rendered in favor of Plaintiff,
directing Defendant Bank as follows:
 1) to return to Plaintiff his time deposit in the sum of P971,292.49 with interest covered by said receipt forms part of the total sum shown in the letter-certification which contained
thereon at the legal rate, until fully restituted; a maturity date. Moreover, it taxes ones credulity to believe that appellee would make a time deposit
2) to pay attorneys fees of P200,000.00; [and] on March 12, 1982 in the sum of P764,897.67 which except for the additional sum of P100,000.00 is
3) [to pay the] cost of these proceedings. practically identical (see underlined figures) to the sum of P664,897.67 deposited the day before
March 11, 1982.
IT IS SO ORDERED.[16]
Additionally, We agree with the contention of the appellant that the lower court wrongly appreciated
the testimony of Mr. Pagsaligan. Our finding is strengthened when we consider the alleged
The Ruling of the Court of Appeals application for loan by the appellee with the appellant in the sum of P500,000.00 dated October 24,
1983. (Exh. J, p. 40, Records), wherein it was stated that the loan is for additional working capital
versus the various time deposit amounting to P760,000.00.[17] (Emphasis supplied)
The Court of Appeals addressed the procedural and substantive issues that the BANK raised.
The Court of Appeals sustained the factual findings of the trial court in ruling that Promissory
The appellate court ruled that the trial court committed a reversible error when it denied the
Note No. 20-979-83 is void. There is no evidence of a bank ledger or computation of interest of the
BANKs motion to cross-examine Marcos. The appellate court ruled that the right to cross-examine is a
loan. The appellate court blamed the BANK for failing to comply with the orders of the trial court to
fundamental right that the BANK did not waive because the BANK vigorously asserted this right. The
produce the documents on the loan. The BANK also made inconsistent statements. In its Answer to
BANKs failure to serve a notice of the motion to Marcos is not a valid ground to deny the motion to
the Complaint, the BANK alleged that the loan was fully paid when it debited the time deposits of
cross-examine. The appellate court held that the motion to cross-examine is one of those non-
Marcos with the loan. However, in its discussion of the assigned errors, the BANK claimed that
litigated motions that do not require the movant to provide a notice of hearing to the other party.
Marcos had yet to pay the loan.
The Court of Appeals pointed out that when the trial court lifted the order of default, it had the
The appellate court deleted the award of attorneys fees. It noted that the trial court failed to
duty to afford the BANK its right to cross-examine Marcos. This duty assumed greater importance
justify the award of attorneys fees in the text of its decision. The dispositive portion of the decision of
because the only evidence supporting the complaint is Marcos ex-parte testimony. The trial court
the Court of Appeals reads:
should have tested the veracity of Marcos testimony through the distilling process of cross-
examination. The Court of Appeals, however, believed that the case should not be remanded to the
WHEREFORE, premises considered, the appealed decision is SET ASIDE. A new judgment is hereby
trial court because Marcos testimony on the time deposits is supported by evidence on record from
rendered ordering the appellant bank to return to the appellee his time deposit in the sum
which the appellate court could make an intelligent judgment.
of P764,897.67 with 17% interest within 90 days from March 11, 1982 in accordance with the letter-
On the second procedural issue, the Court of Appeals held that the trial court did not err when it certification and with legal interest thereafter until fully paid. Costs against the appellant.
declared that the BANK had waived its right to present its evidence and had submitted the case for
decision. The appellate court agreed with the grounds relied upon by the trial court in its Order dated SO ORDERED.[18] (Emphasis supplied)
7 September 1990.
The Court of Appeals, however, differed with the finding of the trial court as to the total amount The Issues
of the time deposits. The appellate court ruled that the total amount of the time deposits of Marcos
is only P764,897.67 and not P1,429,795.34 as found by the trial court. The certification letter issued The BANK anchors this petition on the following issues:
by Pagsaligan showed that Marcos made a time deposit on 12 March 1982 for P764,897.67. The
certification letter shows that the amount mentioned in the letter was the aggregate or total amount 1) WHETHER OR NOT THE PETITIONER [sic] ABLE TO PROVE THE PRIVATE RESPONDENTS
of the time deposits of Marcos as of that date. Therefore, the P764,897.67 already included OUTSTANDING OBLIGATIONS SECURED BY THE ASSIGNMENT OF TIME DEPOSITS?
the P664,897.67 time deposit made by Marcos on 11 March 1982.
1.1) COROLLARILY, WHETHER OR NOT THE PROVISIONS OF SECTION 8 RULE 10 OF [sic] THEN REVISED
The Court of Appeals further explained:
RULES OF COURT BE APPLIED [sic] SO AS TO CREATE A JUDICIAL ADMISSION ON THE GENUINENESS
AND DUE EXECUTION OF THE ACTIONABLE DOCUMENTS APPENDED TO THE PETITIONERS ANSWER?
Besides, the Official Receipt (Exh. B, p. 32, Records) dated March 11, 1982 covering the sum
of P664,987.67 time deposit did not provide for a maturity date implying clearly that the amount
2) WHETHER OR NOT PETITIONER [sic] DEPRIVED OF DUE PROCESS WHEN THE LOWER COURT HAS
[sic] DECLARED PETITIONER TO HAVE WAIVED PRESENTATION OF FURTHER EVIDENCE AND
CONSIDERED THE CASE SUBMITTED FOR RESOLUTION?[19]
The Ruling of the Court
The petition is without merit.
Procedural Issues
There was no violation of the BANKs right to procedural due process when the trial court denied
the BANKs motion to cross-examine Marcos. Prior to the denial of the motion, the trial court had
properly declared the BANK in default. Since the BANK was in default, Marcos was able to present his
evidence ex-parte including his own testimony. When the trial court lifted the order of default, the
BANK was restored to its standing and rights in the action. However, as a rule, the proceedings
already taken should not be disturbed.[20] Nevertheless, it is within the trial courts discretion to
reopen the evidence submitted by the plaintiff and allow the defendant to challenge the same, by
cross-examining the plaintiffs witnesses or introducing countervailing evidence. [21] The 1964 Rules of
Court, the rules then in effect at the time of the hearing of this case, recognized the trial courts
exercise of this discretion. The 1997 Rules of Court retained this discretion.[22] Section 3, Rule 18 of
the 1964 Rules of Court reads:
Sec. 3. Relief from order of default. A party declared in default may any time after discovery thereof
and before judgment file a motion under oath to set aside the order of default upon proper showing
that his failure to answer was due to fraud, accident, mistake or excusable neglect and that he has a
meritorious defense. In such case the order of default may be set aside on such terms and conditions
as the judge may impose in the interest of justice. (Emphasis supplied)
The records show that the BANK did not ask the trial court to restore its right to cross-examine
Marcos when it sought the lifting of the default order on 9 January 1990. Thus, the order dated 7
February 1990 setting aside the order of default did not confer on the BANK the right to cross-
examine Marcos. It was only on 2 March 1990 that the BANK filed the motion to cross-examine
Marcos. During the 12 March 1990 hearing, the trial court denied the BANKs oral manifestation to
grant its motion to cross-examine Marcos because there was no proof of service on Marcos. The
BANKs counsel pleaded for reconsideration but the trial court denied the plea and ordered the BANK
to present its evidence. Instead of presenting its evidence, the BANK moved for the resetting of the
hearing and when the trial court denied the same, the BANK informed the trial court that it was
elevating the denial to the upper court.[23]
To repeat, the trial court had previously declared the BANK in default. The trial court therefore
had the right to decide whether or not to disturb the testimony of Marcos that had already been
terminated even before the trial court lifted the order of default.
We do not agree with the appellate courts ruling that a motion to cross-examine is a non-
litigated motion and that the trial court gravely abused its discretion when it denied the motion to
cross-examine. A motion to cross-examine is adversarial. The adverse party in this case had the right
to resist the motion to cross-examine because the movant had previously forfeited its right to cross-
examine the witness. The purpose of a notice of a motion is to avoid surprises on the opposite party
and to give him time to study and meet the arguments. [24] In a motion to cross-examine, the adverse
party has the right not only to prepare a meaningful opposition to the motion but also to be informed
that his witness is being recalled for cross-examination. The proof of service was therefore
indispensable and the trial court was correct in denying the oral manifestation to grant the motion
for cross-examination.
We find no justifiable reason to relax the application of the rule on notice of motions [25] to this
case. The BANK could have easily re-filed the motion to cross-examine with the requisite notice to
Marcos. It did not do so. The BANK did not make good its threat to elevate the denial to a higher
court. The BANK waited until the trial court rendered a judgment on the merits before questioning
the interlocutory order of denial.
While the right to cross-examine is a vital element of procedural due process, the right does not
necessarily require an actual cross-examination, but merely an opportunity to exercise this right if
desired by the party entitled to it.[26] Clearly, the BANKs failure to cross-examine is imputable to the
BANK when it lost this right[27] as it was in default and failed thereafter to exhaust the remedies to
secure the exercise of this right at the earliest opportunity.
The two other procedural lapses that the BANK attributes to the appellate and trial courts
deserve scant consideration.
The BANK raises for the very first time the issue of judicial admission on the part of Marcos. The
BANK even has the audacity to fault the Court of Appeals for not ruling on this issue when it never
raised this matter before the appellate court or before the trial court. Obviously, this issue is only an
afterthought. An issue raised for the first time on appeal and not raised timely in the proceedings in
the lower court is barred by estoppel.[28]
The BANK cannot claim that Marcos had admitted the due execution of the documents attached
to its answer because the BANK filed its answer late and even failed to serve it on Marcos. The BANKs
answer, including the actionable documents it pleaded and attached to its answer, was a mere scrap
of paper. There was nothing that Marcos could specifically deny under oath. Marcos had already
completed the presentation of his evidence when the trial court lifted the order of default and
admitted the BANKs answer. The provision of the Rules of Court governing admission of actionable
documents was not enacted to reward a party in default. We will not allow a party to gain an
advantage from its disregard of the rules.
As to the issue of its right to present additional evidence, we agree with the Court of Appeals
that the trial court correctly ruled that the BANK had waived this right. The BANK cannot now claim
that it was deprived of its right to conduct a re-direct examination of Pagsaligan. The BANK
postponed the hearings three times[29] because of its inability to secure Pagsaligans presence during
the hearings. The BANK could have presented another witness or its other evidence but it obstinately the account is to reflect at any given time the amount of money the depositor can dispose of as he
insisted on the resetting of the hearing because of Pagsaligans absence allegedly due to illness. sees fit, confident that the bank will deliver it as and to whomever he directs.
The BANKs propensity for postponements had long delayed the case. Its motion for
As the BANKs depositor, Marcos had the right to expect that the BANK was accurately recording
postponement based on Pagsaligans illness was not even supported by documentary evidence such
his transactions with it. Upon the maturity of his time deposits, Marcos also had the right to withdraw
as a medical certificate. Documentary evidence of the illness is necessary before the trial court could
the amount due him after the BANK had correctly debited his outstanding obligations from his time
rule that there is a sufficient basis to grant the postponement.[30]
deposits.
The BANKs Fiduciary Duty to its Depositor
By the very nature of its business, the BANK should have had in its possession the original copies
The BANK is liable to Marcos for offsetting his time deposits with a fictitious promissory of the disputed promissory note and the records and ledgers evidencing the offsetting of the loan
note. The existence of Promissory Note No. 20-979-83 could have been easily proven had the BANK with the time deposits of Marcos. The BANK inexplicably failed to produce the original copies of these
presented the original copies of the promissory note and its supporting evidence. In lieu of the documents. Clearly, the BANK failed to treat the account of Marcos with meticulous care.
original copies, the BANK presented the machine copies of the duplicate of the documents. These
The BANK claims that it is a reputable banking institution and that it has no reason to forge
substitute documents have no evidentiary value. The BANKs failure to explain the absence of the
Promissory Note No. 20-979-83. The trial court and appellate court did not rule that it was the bank
original documents and to maintain a record of the offsetting of this loan with the time deposits bring
that forged the promissory note. It was Pagsaligan, the BANKs branch manager and a close friend of
to fore the BANKs dismal failure to fulfill its fiduciary duty to Marcos.
Marcos, whom the trial court categorically blamed for the fictitious loan agreements. The trial court
Section 2 of Republic Act No. 8791 (General Banking Law of 2000) expressly imposes this held that Pagsaligan made up the loan agreement to cover up his inability to account for the time
fiduciary duty on banks when it declares that the State recognizes the fiduciary nature of banking that deposits of Marcos.
requires high standards of integrity and performance. This statutory declaration merely echoes the
Whether it was the BANKs negligence and inefficiency or Pagsaligans misdeed that deprived
earlier pronouncement of the Supreme Court in Simex International (Manila) Inc. v. Court of
Marcos of the amount due him will not excuse the BANK from its obligation to return to Marcos the
Appeals[31] requiring banks to treat the accounts of its depositors with meticulous care, always having
correct amount of his time deposits with interest. The duty to observe high standards of integrity and
in mind the fiduciary nature of their relationship. [32] The Court reiterated this fiduciary duty of banks
performance imposes on the BANK that obligation. The BANK cannot also unjustly enrich itself by
in subsequent cases.[33]
keeping Marcos money.
Although RA No. 8791 took effect only in the year 2000, [34] at the time that the BANK transacted
Assuming Pagsaligan was behind the spurious promissory note, the BANK would still be
with Marcos, jurisprudence had already imposed on banks the same high standard of diligence
accountable to Marcos. We have held that a bank is liable for the wrongful acts of its officers done in
required under RA No. 8791.[35] This fiduciary relationship means that the banks obligation to observe
the interest of the bank or in their dealings as bank representatives but not for acts outside the scope
high standards of integrity and performance is deemed written into every deposit agreement
of their authority.[37] Thus, we held:
between a bank and its depositor.
The fiduciary nature of banking requires banks to assume a degree of diligence higher than that A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by
of a good father of a family. Thus, the BANKs fiduciary duty imposes upon it a higher level of the frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor
accountability than that expected of Marcos, a businessman, who negligently signed blank forms and will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to
entrusted his certificates of time deposits to Pagsaligan without retaining copies of the certificates. the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is liable to innocent
third persons where the representation is made in the course of its business by an agent acting within
The business of banking is imbued with public interest. The stability of banks largely depends on
the general scope of his authority even though, in the particular case, the agent is secretly abusing his
the confidence of the people in the honesty and efficiency of banks. In Simex International (Manila)
authority and attempting to perpetrate a fraud upon his principal or some other person, for his own
Inc. v. Court of Appeals[36] we pointed out the depositors reasonable expectations from a bank and
ultimate benefit.[38]
the banks corresponding duty to its depositor, as follows:

The Existence of Promissory Note No. 20-979-83 was not Proven

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 BANK failed to produce the best evidence the original copies of the loan application and
promissory note. The Best Evidence Rule provides that the court shall not receive any evidence that is
merely substitutionary in its nature, such as photocopies, as long as the original evidence can be
had.[39] Absent a clear showing that the original writing has been lost, destroyed or cannot be
produced in court, the photocopy must be disregarded, being unworthy of any probative value and
being an inadmissible piece of evidence.[40]
What the BANK presented were merely the machine copies of the duplicate of the loan
application and promissory note. No explanation was ever offered by the BANK for its inability to
produce the original copies of the documentary evidence. The BANK also did not comply with the
orders of the trial court to submit the originals.
The purpose of the rule requiring the production of the best evidence is the prevention of
fraud.[41] If a party is in possession of evidence and withholds it, and seeks to substitute inferior
evidence in its place, the presumption naturally arises that the better evidence is withheld for
fraudulent purposes, which its production would expose and defeat. [42]
The absence of the original of the documentary evidence casts suspicion on the existence of
Promissory Note No. 20-979-83 considering the BANKs fiduciary duty to keep efficiently a record of
its transactions with its depositors. Moreover, the circumstances enumerated by the trial court
bolster the conclusion that Promissory Note No. 20-979-83 is bogus. The BANK has only itself to
blame for the dearth of competent proof to establish the existence of Promissory Note No. 20-979-
83.
Total Amount Due to Marcos
The BANK and Marcos do not now dispute the ruling of the Court of Appeals that the total
amount of time deposits that Marcos placed with the BANK is only P764,897.67 and
not P1,429,795.34 as found by the trial court. The BANK has always argued that Marcos time deposits
only totalled P764,897.67.[43] What the BANK insists on in this petition is the trial courts violation of
its right to procedural due process and the absence of any obligation to pay or return anything to
Marcos. Marcos, on the other hand, merely prays for the affirmation of either the trial court or
appellate court decision.[44] We uphold the finding of the Court of Appeals as to the amount of the
time deposits as such finding is in accord with the evidence on record.
Marcos claimed that the certificates of time deposit were with Pagsaligan for
safekeeping. Marcos was only able to present the receipt dated 11 March 1982 and the letter-
certification dated 12 March 1982 to prove the total amount of his time deposits with the BANK. The
letter-certification issued by Pagsaligan reads:
March 12, 1982
Dear Mr. Marcos:
This is to certify that we are taking care in your behalf various Time Deposit Certificates with an
aggregate value of PESOS: SEVEN HUNDRED SIXTY FOUR THOUSAND EIGHT HUNDRED NINETY SEVEN
AND 67/100 (P764,897.67) ONLY, issued today for 90 days at 17% p.a. with the interest payable at
maturity on June 10, 1982.
Thank you.
Sgd. FLORENCIO B. PAGSALIGAN
Branch Manager[45]
The foregoing certification is clear. The total amount of time deposits of Marcos as of 12 March
1982 is P764,897.67, inclusive of the sum of P664,987.67 that Marcos placed on time deposit on 11
March 1982. This is plainly seen from the use of the word aggregate.
We are not swayed by Marcos testimony that the certification is actually for the first time
deposit that he placed on 11 March 1982. The letter-certification speaks of various Time Deposits
Certificates with an aggregate value of P764,897.67. If the amount stated in the letter-certification is
for a single time deposit only, and did not include the 11 March 1982 time deposit, then Marcos
should have demanded a new letter of certification from Pagsaligan. Marcos is a businessman. While
he already made an error in judgment in entrusting to Pagsaligan the certificates of time deposits,
Marcos should have known the importance of making the letter-certification reflect the true nature
of the transaction. Marcos is bound by the letter-certification since he was the one who prodded
Pagsaligan to issue it.
We modify the amount that the Court of Appeals ordered the BANK to return to Marcos. The
appellate court did not offset Marcos outstanding debt with the BANK covered by the three trust
receipt agreements even though Marcos admits his obligation under the three trust receipt
agreements. The total amount of the trust receipts is P851,250 less the 30% marginal deposit
of P255,375 that Marcos had already paid the BANK. This reduced Marcos total debt with the BANK
to P595,875 under the trust receipts.
The trial and appellate courts found that the parties did not agree on the imposition of interest
on the loan covered by the trust receipts and thus no interest is due on this loan. However, the
records show that the three trust receipt agreements contained stipulations for the payment of
interest but the parties failed to fill up the blank spaces on the rate of interest. Put differently, the
BANK and Marcos expressly agreed in writing on the payment of interest[46] without, however,
specifying the rate of interest. We, therefore, impose the legal interest of 12% per annum, the legal
interest for the forbearance of money,[47] on each of the three trust receipts.
Based on Marcos testimony[48] and the BANKs letter of demand,[49] the trust receipt agreements
became due in March 1987. The records do not show exactly when in March 1987 the obligation
became due. In accordance with Article 2212 of the Civil Code, in such a case the court shall fix the
period of the duration of the obligation.[50] The BANKs letter of demand is dated 6 March 1989. We
hold that the trust receipts became due on 6 March 1987.
Marcos payment of the marginal deposit of P255,375 for the trust receipts resulted in the
proportionate reduction of the three trust receipts. The reduced value of the trust receipts and their
respective interest as of 6 March 1987 are as follows:
 1. Trust Receipt No. CD 83.7 issued on 8 March 1983 originally for P300,000 was reduced
to P210,618.75 with interest of P101,027.76.[51]

2. Trust Receipt No. CD 83.9 issued on 15 March 1983 originally for P300,000 was reduced
to P210,618.75 with interest of P100,543.04.[52]

3. Trust Receipt No. CD 83.10 issued on 15 March 1983 originally for P251,250 was reduced
to P174,637.5 with interest of P83,366.68. [53]

When the trust receipts became due on 6 March 1987, Marcos owed the BANK P880,812.48. This
amount included P595,875, the principal value of the three trust receipts after payment of the
marginal deposit, and P284,937.48, the interest then due on the three trust receipts.
Upon maturity of the three trust receipts, the BANK should have automatically deducted, by
way of offsetting, Marcos outstanding debt to the BANK from his time deposits and its accumulated
interest. Marcos time deposits of P764,897.67 had already earned interest[54] of P616,318.92 as of 6
March 1987.[55] Thus, Marcos total funds with the BANK amounted to P1,381,216.59 as of the
maturity of the trust receipts. After deducting P880,812.48, the amount Marcos owed the BANK,
from Marcos funds with the BANK of P1,381,216.59, Marcos remaining time deposits as of 6 March
1987 is only P500,404.11. The accumulated interest on this P500,404.11 as of 30 August 1989, the
date of filing of Marcos complaint with the trial court, is P211,622.96.[56] From 30 August 1989, the
interest due on the accumulated interest of P211,622.96 should earn legal interest at 12% per
annum pursuant to Article 2212[57] of the Civil Code.
The BANKs dismal failure to account for Marcos money justifies the award of moral [58] and
exemplary damages.[59] Certainly, the BANK, as employer, is liable for the negligence or the misdeed
of its branch manager which caused Marcos mental anguish and serious anxiety. [60] Moral damages
of P100,000 is reasonable and is in accord with our rulings in similar cases involving banks negligence
with regard to the accounts of their depositors.[61]
We also award P20,000 to Marcos as exemplary damages. The law allows the grant of
exemplary damages by way of example for the public good.[62] The public relies on the banks fiduciary
duty to observe the highest degree of diligence. The banking sector is expected to maintain at all
times this high level of meticulousness.[63]
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION. Petitioner
Philippine Banking Corporation is ordered to return to private respondent Leonilo
Marcos P500,404.11, the remaining principal amount of his time deposits, with interest at 17% per
annum from 30 August 1989 until full payment. Petitioner Philippine Banking Corporation is also
ordered to pay to private respondent Leonilo Marcos P211,622.96, the accumulated interest as of 30
August 1989, plus 12% legal interest per annum from 30 August 1989 until full payment. Petitioner
Philippine Banking Corporation is further ordered to pay P100,000 by way of moral damages
and P20,000 as exemplary damages to private respondent Leonilo Marcos.
Costs against petitioner.
[G.R. No. 132560. January 30, 2002] checks. Thus, he had no legal personality to sue as he is not a real party in interest. The bank then
filed a demurrer to evidence which was denied.
On February 8, 1989, after trial on the merits, the Regional Trial Court of Manila, Branch 38,
WESTMONT BANK (formerly ASSOCIATED BANKING CORP.), petitioner, vs. EUGENE rendered a decision, thus:
ONG, respondent.
IN VIEW OF THE FOREGOING, the court hereby renders judgment for the plaintiff and against the
defendant, and orders the defendant to pay the plaintiff:

DECISION 1. The sum of P1,754,787.50 representing the total face value of the two checks in
question, exhibits A and B, respectively, with interest thereon at the legal rate of
twelve percent (12%) per annum computed from October 7, 1977 (the date of the first
extrajudicial demand) up to and until the same shall have been paid in full;
QUISUMBING, J.:
2. Moral damages in the amount of P250,000.00;
This is a petition for review of the decision[1] dated January 13, 1998, of the Court of Appeals in 3. Exemplary or corrective damages in the sum of P100,000.00 by way of example or
CA-G.R. CV No. 28304 ordering the petitioner to pay respondent P1,754,787.50 plus twelve percent correction for the public good;
(12%) interest per annum computed from October 7, 1977, the date of the first extrajudicial demand,
plus damages. 4. Attorneys fees of P50,000.00 and costs of suit.

The facts of this case are undisputed. Defendants counterclaims are dismissed for lack of merit.
Respondent Eugene Ong maintained a current account with petitioner, formerly the Associated
Banking Corporation, but now known as Westmont Bank. Sometime in May 1976, he sold certain SO ORDERED.[4]
shares of stocks through Island Securities Corporation. To pay Ong, Island Securities purchased two
(2) Pacific Banking Corporation managers checks,[2] both dated May 4, 1976, issued in the name of Petitioner elevated the case to the Court of Appeals without success. In its decision, the
Eugene Ong as payee. Before Ong could get hold of the checks, his friend Paciano Tanlimco got hold appellate court held:
of them, forged Ongs signature and deposited these with petitioner, where Tanlimco was also a
depositor. Even though Ongs specimen signature was on file, petitioner accepted and credited both WHEREFORE, in view of the foregoing, the appealed decision is AFFIRMED in toto.[5]
checks to the account of Tanlimco, without verifying the signature indorsements appearing at the
back thereof. Tanlimco then immediately withdrew the money and absconded. Petitioner now comes before this Court on a petition for review, alleging that the Court of
Appeals erred:
Instead of going straight to the bank to stop or question the payment, Ong first sought the help
of Tanlimcos family to recover the amount. Later, he reported the incident to the Central Bank, which I
like the first effort, unfortunately proved futile.
It was only on October 7, 1977, about five (5) months from discovery of the fraud, did Ong cry ... IN AFFIRMING THE TRIAL COURTS CONCLUSION THAT RESPONDENT HAS A CAUSE OF ACTION
foul and demanded in his complaint that petitioner pay the value of the two checks from the bank on AGAINST THE PETITIONER.
whose gross negligence he imputed his loss. In his suit, he insisted that he did not deliver, negotiate,
endorse or transfer to any person or entity the subject checks issued to him and asserted that the II
signatures on the back were spurious.[3]
... IN AFFIRMING THE TRIAL COURTS DECISION FINDING PETITIONER LIABLE TO RESPONDENT AND
The bank did not present evidence to the contrary, but simply contended that since plaintiff Ong
DECLARING THAT THE LATTER MAY RECOVER DIRECTLY FROM THE FORMER; AND
claimed to have never received the originals of the two (2) checks in question from Island Securities,
much less to have authorized Tanlimco to receive the same, he never acquired ownership of these
III
... IN NOT ADJUDGING RESPONDENT GUILTY OF LACHES AND IN NOT ABSOLVING PETITIONER FROM
LIABILITY.
Essentially the issues in this case are: (1) whether or not respondent Ong has a cause of action
against petitioner Westmont Bank; and (2) whether or not Ong is barred to recover the money from
Westmont Bank due to laches.
Respondent admitted that he was never in actual or physical possession of the two (2) checks of
the Island Securities nor did he authorize Tanlimco or any of the latters representative to demand,
accept and receive the same. For this reason, petitioner argues, respondent cannot sue petitioner
because under Section 51 of the Negotiable Instruments Law [6] it is only when a person becomes a
holder of a negotiable instrument can he sue in his own name. Conversely, prior to his becoming a
holder, he had no right or cause of action under such negotiable instrument. Petitioner further argues
that since Section 191[7] of the Negotiable Instruments Law defines a holder as the payee or indorsee
of a bill or note, who is in possession of it, or the bearer thereof, in order to be a holder, it is a
requirement that he be in possession of the instrument or the bearer thereof. Simply stated, since
Ong never had possession of the checks nor did he authorize anybody, he did not become a holder
thereof hence he cannot sue in his own name.[8]
Petitioner also cites Article 1249[9] of the Civil Code explaining that a check, even if it is a
managers check, is not legal tender. Hence, the creditor cannot be compelled to accept payment thru
this means.[10] It is petitioners position that for all intents and purposes, Island Securities has not yet
tendered payment to respondent Ong, thus, any action by Ong should be directed towards collecting
the amount from Island Securities. Petitioner claims that Ongs cause of action against it has not
ripened as of yet. It may be that petitioner would be liable to the drawee bank - - but that is a matter
between petitioner and drawee-bank, Pacific Banking Corporation.[11]
For its part, respondent Ong leans on the ruling of the trial court and the Court of Appeals which
held that the suit of Ong against the petitioner bank is a desirable shortcut to reach the party who
ought in any event to be ultimately liable.[12] It likewise cites the ruling of the courts a quo which held
that according to the general rule, a bank who has obtained possession of a check upon an
unauthorized or forged indorsement of the payees signature and who collects the amount of the
check from the drawee is liable for the proceeds thereof to the payee. The theory of said rule is that
the collecting banks possession of such check is wrongful.[13]
Respondent also cites Associated Bank vs. Court of Appeals[14] which held that the collecting
bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness
of all prior endorsements. The collecting bank is also made liable because it is privy to the depositor
who negotiated the check. The bank knows him, his address and history because he is a client. Hence,
it is in a better position to detect forgery, fraud or irregularity in the indorsement. [15]
Anent Article 1249 of the Civil Code, Ong points out that bank checks are specifically governed
by the Negotiable Instruments Law which is a special law and only in the absence of specific
provisions or deficiency in the special law may the Civil Code be invoked.[16]
Considering the contentions of the parties and the evidence on record, we find no reversible
error in the assailed decisions of the appellate and trial courts, hence there is no justifiable reason to
grant the petition.
Petitioners claim that respondent has no cause of action against the bank is clearly
misplaced. As defined, a cause of action is the act or omission by which a party violates a right of
another.[17] The essential elements of a cause of action are: (a) a legal right or rights of the plaintiff,
(b) a correlative obligation of the defendant, and (c) an act or omission of the defendant in violation
of said legal right.[18]
The complaint filed before the trial court expressly alleged respondents right as payee of the
managers checks to receive the amount involved, petitioners correlative duty as collecting bank to
ensure that the amount gets to the rightful payee or his order, and a breach of that duty because of a
blatant act of negligence on the part of petitioner which violated respondents rights. [19]
Under Section 23 of the Negotiable Instruments Law:
When a signature is forged or made without the authority of the person whose signature it purports
to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or
to enforce payment thereof against any party thereto, can be acquired through or under such
signature, unless the party against whom it is sought to enforce such right is precluded from setting
up the forgery or want of authority.
Since the signature of the payee, in the case at bar, was forged to make it appear that he had
made an indorsement in favor of the forger, such signature should be deemed as inoperative and
ineffectual. Petitioner, as the collecting bank, grossly erred in making payment by virtue of said
forged signature. The payee, herein respondent, should therefore be allowed to recover from the
collecting bank.
The collecting bank is liable to the payee and must bear the loss because it is its legal duty to
ascertain that the payees endorsement was genuine before cashing the check. [20] As a general rule, a
bank or corporation who has obtained possession of a check upon an unauthorized or forged
indorsement of the payees signature and who collects the amount of the check from the drawee, is
liable for the proceeds thereof to the payee or other owner, notwithstanding that the amount has
been paid to the person from whom the check was obtained.[21]
The theory of the rule is that the possession of the check on the forged or unauthorized
indorsement is wrongful, and when the money had been collected on the check, the bank or other
person or corporation can be held as for moneys had and received, and the proceeds are held for the
rightful owners who may recover them. The position of the bank taking the check on the forged or
unauthorized indorsement is the same as if it had taken the check and collected the money without
indorsement at all and the act of the bank amounts to conversion of the check.[22]
Petitioners claim that since there was no delivery yet and respondent has never acquired
possession of the checks, respondents remedy is with the drawer and not with petitioner
bank.Petitioner relies on the view to the effect that where there is no delivery to the payee and no
title vests in him, he ought not to be allowed to recover on the ground that he lost nothing because
he never became the owner of the check and still retained his claim of debt against the
drawer.[23] However, another view in certain cases holds that even if the absence of delivery is
considered, such consideration is not material. The rationale for this view is that in said cases the
plaintiff uses one action to reach, by a desirable short cut, the person who ought in any event to be
ultimately liable as among the innocent persons involved in the transaction. In other words, the
payee ought to be allowed to recover directly from the collecting bank, regardless of whether the
check was delivered to the payee or not.[24]
Considering the circumstances in this case, in our view, petitioner could not escape liability for
its negligent acts. Admittedly, respondent Eugene Ong at the time the fraudulent transaction took
place was a depositor of petitioner bank. Banks are engaged in a business impressed with public
interest, and it is their duty to protect in return their many clients and depositors who transact
business with them.[25] They have the obligation to treat their clients account meticulously and with
the highest degree of care, considering the fiduciary nature of their relationship. The diligence
required of banks, therefore, is more than that of a good father of a family. [26] In the present case,
petitioner was held to be grossly negligent in performing its duties. As found by the trial court:
xxx (A)t the time the questioned checks were accepted for deposit to Paciano Tanlimcos account by
defendant bank, defendant bank, admittedly had in its files specimen signatures of plaintiff who
maintained a current account with them (Exhibits L-1 and M-1; testimony of Emmanuel Torio). Given
the substantial face value of the two checks, totalling P1,754,787.50, and the fact that they were
being deposited by a person not the payee, the very least defendant bank should have done, as any
reasonable prudent man would have done, was to verify the genuineness of the indorsements
thereon. The Court cannot help but note that had defendant conducted even the most cursory
comparison with plaintiffs specimen signatures in its files (Exhibit L-1 and M-1) it would have at once
seen that the alleged indorsements were falsified and were not those of the plaintiff-
payee. However, defendant apparently failed to make such a verification or, what is worse did so but,
chose to disregard the obvious dissimilarity of the signatures.The first omission makes it guilty of
gross negligence; the second of bad faith. In either case, defendant is liable to plaintiff for the
proceeds of the checks in question.[27]
credited to the account of Paciano Tanlimco and presented for payment to Pacific Banking
Corporation. So even if the theft of the checks were discovered and reported earlier, respondent
argues, it would not have altered the situation as the encashment of the checks was consummated
within twenty four hours and facilitated by the gross negligence of the petitioner bank.[28]
Laches may be defined as the failure or neglect for an unreasonable and unexplained length of
time, to do that which, by exercising due diligence, could or should have been done earlier. It is
negligence or omission to assert a right within a reasonable time, warranting a presumption that the
party entitled thereto has either abandoned or declined to assert it. [29] It concerns itself with whether
or not by reason of long inaction or inexcusable neglect, a person claiming a right should be barred
from asserting the same, because to allow him to do so would be unjust to the person against whom
such right is sought to be enforced.[30]
In the case at bar, it cannot be said that respondent sat on his rights. He immediately acted after
knowing of the forgery by proceeding to seek help from the Tanlimco family and later the Central
Bank, to remedy the situation and recover his money from the forger, Paciano Tanlimco. Only after
he had exhausted possibilities of settling the matter amicably with the family of Tanlimco and
through the CB, about five months after the unlawful transaction took place, did he resort to making
the demand upon the petitioner and eventually before the court for recovery of the money value of
the two checks. These acts cannot be construed as undue delay in or abandonment of the assertion
of his rights.
Moreover, the claim of petitioner that respondent should be barred by laches is clearly a vain
attempt to deflect responsibility for its negligent act. As explained by the appellate court, it is
petitioner which had the last clear chance to stop the fraudulent encashment of the subject checks
had it exercised due diligence and followed the proper and regular banking procedures in clearing
checks.[31] As we had earlier ruled, the one who had the last clear opportunity to avoid the impending
harm but failed to do so is chargeable with the consequences thereof.[32]
WHEREFORE, the instant petition is DENIED for lack of merit. The assailed decision of the Court
of Appeals, sustaining the judgment of the Regional Trial Court of Manila, is AFFIRMED.
Costs against petitioner.

These findings are binding and conclusive on the appellate and the reviewing courts. SO ORDERED.

On the second issue, petitioner avers that respondent Ong is barred by laches for failing to
assert his right for recovery from the bank as soon as he discovered the scam. The lapse of five
months before he went to seek relief from the bank, according to petitioner, constitutes laches.
In turn, respondent contends that petitioner presented no evidence to support its claim of
laches. On the contrary, the established facts of the case as found by the trial court and affirmed by
the Court of Appeals are that respondent left no stone unturned to obtain relief from his
predicament.
On the matter of delay in reporting the loss, respondent calls attention to the fact that the
checks were issued on May 4, 1976, and on the very next day, May 5, 1976, these were already
[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 Decision[1] 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-65-H-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.
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. 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/T-23554;
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.
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-
in-interest] 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 defendant-appellant 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 well-settled
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. CA[9] 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 Appeals[14] 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. 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.