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1. Philippine Airlines v.

CA Thus, payment must be made to the obligee himself or to an


agent having authority, express or implied, to receive the
particular payment. Payment made to one having apparent
Doctrine: authority to receive the money will, as a rule, be treated as
though actual authority had been given for its receipt. Likewise,
As a rule, a payment, in order to be effective to discharge an if payment is made to one who by law is authorized to act for the
obligation, must be made to the proper person. creditor, it will work a discharge. The receipt of money due on a
judgment by an officer authorized by law to accept it will,
therefore, satisfy the debt.
Moreover, in the absence of an agreement, either express or The theory is where payment is made to a person authorized
implied, payment means the discharge of a debt or obligation in and recognized by the creditor, the payment to such a person
money and unless the parties so agree, a debtor has no rights, so authorized is deemed payment to the creditor. Under ordinary
except at his own peril, to substitute something in lieu of cash as circumstances, payment by the judgment debtor in the case at
medium of payment of his debt bar, to the sheriff should be valid payment to extinguish the
judgment debt.

However, there are circumstances in this case, which compel a


Facts
different conclusion.
Here, Amelia Tan (respondent), under the name and style of The payment made by the petitioner to the absconding
Able Printing Press commenced a complaint for damages sheriff was not in cash or legal tender but in checks. The
against PAL.
checks were not payable to Amelia Tan or Able Printing
After trial, the Court of First Instance rendered judgment, in favor Press but to the absconding sheriff.
of Tan and against petitioner Philippine Airlines, Inc. (PAL)
Article 1249 of the Civil Code provides:
Such decision was affirmed by the CA. Subsequently, the
The payment of debts in money shall be made in the currency
judgment became final and executory and on May 31, 1977,
stipulated, and if it is not possible to deliver such currency, then
judgment was correspondingly entered in the case.
in the currency which is legal tender in the Philippines.
Now, Tan filed a motion praying for the issuance of a writ of
The delivery of promissory notes payable to order, or bills of
execution of the judgment rendered by the Court of Appeals. On
exchange or other mercantile documents shall produce the
October 11, 1977, the trial court, issued its order of execution
effect of payment only when they have been cashed, or when
with the corresponding writ in favor of Tan. The writ was duly
through the fault of the creditor they have been impaired.
referred to Deputy Sheriff Emilio Z. Reyes for enforcement.
In the meantime, the action derived from the original obligation
Four months later, on February 11, 1978, respondent Amelia
shall be held in abeyance.
Tan moved for the issuance of an alias writ of execution stating
that the judgment rendered by the lower court, and affirmed with Further, the Supreme court said, in the absence of an
modification by the Court of Appeals, remained unsatisfied. agreement, either express or implied, payment means the
discharge of a debt or obligation in money and unless the parties
Contention
so agree, a debtor has no rights, except at his own peril, to
PAL contended that it had already fully paid its obligation to substitute something in lieu of cash as medium of payment of
plaintiff through the deputy sheriff of the respondent court, Emilio his debt.
Z. Reyes, as evidenced by cash vouchers properly signed and
Consequently, unless authorized to do so by law or by consent
receipted by said Emilio Z. Reyes.
of the obligee a public officer has no authority to accept anything
Issue other than money in payment of an obligation under a judgment
being executed. Strictly speaking, the acceptance by the sheriff
Whether or not the payment made to the absconding sheriff by of the petitioner's checks, in the case at bar, does not, per se,
check in his name operate to satisfy the judgment debt. operate as a discharge of the judgment debt.

Held Since according to the Court that a negotiable instrument is only


a substitute for money and not money, the delivery of such an
No. The Supreme Court said, under the peculiar circumstances instrument does not, by itself, operate as payment. A check,
of this case, the payment to the absconding sheriff by check in whether a manager's check or ordinary cheek, is not legal
his name did not operate as a satisfaction of the judgment debt. tender, and an offer of a check in payment of a debt is not a valid
tender of payment and may be refused receipt by the obligee or
In general, a payment, in order to be effective to discharge an
creditor. Mere delivery of checks does not discharge the
obligation, must be made to the proper person. Article 1240 of
obligation under a judgment. The obligation is not extinguished
the Civil Code provides:
and remains suspended until the payment by commercial
Payment shall be made to the person in whose favor the document is actually realized (Art. 1249, Civil Code, par. 3).
obligation has been constituted, or his successor in interest, or
any person authorized to receive it.
The Court further said that, if bouncing checks had been issued Sheriff to personally encash said checks and misappropriate the
in the name of Amelia Tan and not the Sheriff's, there would proceeds thereof to his exclusive personal benefit. For the
have been no payment. After dishonor of the checks, Ms. Tan prejudice that resulted, the petitioner himself must bear the fault.
could have run after other properties of PAL. The theory is that
she has received no value for what had been awarded her. The judicial guideline which we take note of states as follows:
Because the checks were drawn in the name of Emilio Z. Reyes,
As between two innocent persons, one of whom must suffer the
neither has she received anything. The same rule should apply.
consequence of a breach of trust, the one who made it possible
It is argued that if PAL had paid in cash to Sheriff Reyes, there by his act of confidence must bear the loss.
would have been payment in full legal contemplation. The
Having failed to employ the proper safeguards to protect itself,
reasoning is logical but is it valid and proper? Logic has its limits
the judgment debtor (herein PAL) whose act made possible the
in decision making. We should not follow rulings to their logical
loss had but itself to blame.
extremes if in doing so we arrive at unjust or absurd results.

In the first place, PAL did not pay in cash. It paid in checks.

And second, payment in cash always carries with it certain


cautions. Nobody hands over big amounts of cash in a careless
and inane manner. Mature thought is given to the possibility of
the cash being lost, of the bearer being waylaid or running off
with what he is carrying for another. Payment in checks is
precisely intended to avoid the possibility of the money going to
the wrong party. The situation is entirely different where a Sheriff
seizes a car, a tractor, or a piece of land. Logic often has to give
way to experience and to reality. Having paid with checks, PAL
should have done so properly.

Payment in money or cash to the implementing officer may be


deemed absolute payment of the judgment debt but the Court
has never, in the least bit, suggested that judgment debtors
should settle their obligations by turning over huge amounts of
cash or legal tender to sheriffs and other executing officers.
Payment in cash would result in damage or interminable
litigations each time a sheriff with huge amounts of cash in his
hands decides to abscond.

As a protective measure, therefore, the courts encourage the


practice of payments by check provided adequate controls are
instituted to prevent wrongful payment and illegal withdrawal or
disbursement of funds. If particularly big amounts are involved,
escrow arrangements with a bank and carefully supervised by
the court would be the safer procedure. Actual transfer of funds
takes place within the safety of bank premises. These practices
are perfectly legal. The object is always the safe and incorrupt
execution of the judgment.

It is, indeed, out of the ordinary that checks intended for a


particular payee are made out in the name of another. Making
the checks payable to the judgment creditor would have
prevented the encashment or the taking of undue advantage by
the sheriff, or any person into whose hands the checks may have
fallen, whether wrongfully or in behalf of the creditor. The
issuance of the checks in the name of the sheriff clearly made
possible the misappropriation of the funds that were withdrawn.

As explained and held by the respondent court:

... [K]nowing as it does that the intended payment was for the
private party respondent Amelia Tan, the petitioner corporation,
utilizing the services of its personnel who are or should be
knowledgeable about the accepted procedures and resulting
consequences of the checks drawn, nevertheless, in this
instance, without prudence, departed from what is generally
observed and done, and placed as payee in the checks the
name of the errant Sheriff and not the name of the rightful payee.
Petitioner thereby created a situation which permitted the said
Far East Bank & Trust Company v. Diaz Petitioner argues that the CA erred in upholding the validity of
the tender of payment made by Diaz. According to the petitioner
what Diaz had tendered to settle its outstanding obligation, it
Doctrine points out, was a check which could not be considered legal
tender.

For a valid tender of payment, it is necessary that there be a


Issue
fusion of intent, ability and capability to make good such offer,
which must be absolute and must cover the amount due. Whether or not there was a valid tender of payment in this case.
Though a check is not legal tender, and a creditor may validly
refuse to accept it if tendered as payment, one who in fact Held
accepted a fully' funded check after the debtor's manifestation
that it had been given to settle an obligation is estopped from
later on denouncing the efficacy of such tender of payment.
Yes. The Supreme Court said, true, jurisprudence holds that, in
general, a check does not constitute legal tender, and that a
creditor may validly refuse it. It must be emphasized, however,
Facts that this dictum does not prevent a creditor from accepting a
check as payment. In other words, the creditor has
the option and the discretion of refusing or accepting it.
Here, petitioner Far East bank purchased respondent's (Diaz
Realty Inc.) account from Pacific Banking Corporation (PaBC) in
December 1986, and that the latter was notified of the "In the present case, petitioner bank did not refuse respondent's
transaction only on March 23, 1988. Thereafter, Antonio Diaz, check. On the contrary, it accepted the check which, it insisted,
president of respondent corporation, inquired from petitioner was a deposit. As earlier stated, the check proved to be fully
bank on the status and the amount of its obligation. He was funded and was in fact honored by the drawee bank. Moreover,
informed that the obligation summed up to P1,447,142.03. petitioner was in possession of the money for several months.

On November 14, 1988, petitioner, received from respondent In further contending that there was no valid tender of payment,
Interbank Check No. 81399841 dated November 13, 1988, petitioner emphasizes our pronouncement in Roman Catholic
bearing the amount of P1,450,000, with the notation "Re: Full Bishop of Malolos, Inc. v. Intermediate Appellate Court, as
Payment of Pacific Bank Account now turn[ed] over to Far East follows:
Bank." The check was subsequently cleared and honored by
Interbank, as shown by the Certification it issued on January 20,
1992.
"Tender of payment involves a positive and unconditional act by
the obligor of offering legal tender currency as payment to the
obligee for the former's obligation and demanding that the latter
Now, in the meantime, Diaz wrote the defendant, asking that the accept the same.
interest rate be reduced from 20% to 12% per annum, but no
reply was ever made; that subsequently, the defendant told him
to change the P1,450,000.00 deposit into a money market
xxx xxx xxx
placement, which he did; that the money market placement
expired on April 14, 1989; that when there was still no news from
the defendant whether or not it [would] accept his tender of
payment, he filed this case at the Regional Trial Court of Davao "Thus, tender of payment cannot be presumed by a mere
City. inference from surrounding circumstances. At most, sufficiency
of available funds is only affirmative of the capacity or ability of
Lower Courts the obligor to fulfill his part of the bargain. But whether or not the
obligor avails himself of such funds to settle his outstanding
The RTC ruled in favor of Diaz.
account remains to be proven by independent and credible
The CA sustained the trial court's finding that there was a valid evidence. Tender of payment presupposes not only that the
tender of payment in the sum of P1,450,000, made by Diaz obligor is able, ready, and willing, but more so, in the act of
Realty Inc. in favor of Far East Bank and Trust Company. The performing his obligation. Ab posse ad actu non vale illatio. 'A
appellate court reasoned that petitioner failed to effectively rebut proof that an act could have been done is no proof that it was
respondent's evidence that it so tendered the check to liquidate actually done."'
its indebtedness, and that petitioner had unilaterally treated the
same as a deposit instead.
In other words, tender of payment is the definitive act of offering
the creditor what is due him or her, together with the demand
Contention that the creditor accept the same. More important, there must be
a fusion of intent, ability and capability to make good such offer,
which must be absolute and must cover the amount due.

That respondent intended to settle its obligation with petitioner


is evident from the records of the case. After learning that its
loan balance was P1,447,142.03, it presented to petitioner a
check in the amount of P1,450,000, with the specific notation
that it was for full payment of its Pacific Bank account that had
been purchased by petitioner. The latter accepted the check,
even if it now insists that it considered the same as a mere
deposit. The check was sufficiently funded, as in fact it was
honored by the drawee bank. When petitioner refused to release
the mortgage, respondent instituted the present case to compel
the bank to acknowledge the tender of payment, accept
payment and cancel the mortgage. These acts demonstrate
respondent's intent, ability and capability to fully settle and
extinguish its obligation to petitioner.

That respondent subsequently withdrew the money from


petitioner-bank is of no moment, because such withdrawal
would not affect the efficacy or the legal ramifications of the
tender of payment made on November 14, 1988. As already
discussed, the tender of payment to settle respondent's
obligation as computed by petitioner was accepted, the check
given in payment thereof converted into money, and the money
kept in petitioner's possession for several months.

Finally, petitioner points out that, in any case, tender of


payment extinguishes the obligation only after proper
consignation, which respondent did not do.

The argument does not persuade. For a consignation to be


necessary, the creditor must have refused, without just cause,
to accept the debtor's payment. However, as pointed out earlier,
petitioner accepted respondent's check.

Furthermore, the Court said, to reiterate, the tender was made


by respondent for the purpose of settling its obligation. It was
incumbent upon petitioner to refuse or accept it as payment. The
latter did not have the right or the option to accept and treat it as
a deposit. Thus, by accepting the tendered
check and converting it into money, petitioner is presumed to
have accepted it as payment. To hold otherwise would be
inequitable and unfair to the obligor.
SOLIDBANK VS ARRIETA The fact that another check Carmen had issued was previously
dishonored does not necessarily imply that the dishonor of a
FACTS: succeeding check can no longer cause moral injury and
personal hurt for which the aggrieved party may claim damages.
Carmen Arrieta is a bank depositor of Solidbank Corporation
Such prior occurrence does not prove that respondent does not
under Checking Account No. 123-1996. On March 1990,
have a good reputation that can be besmirched.
Carmen issued SBC Check No. 0293984 in the amount of
P330.00 in the name of Lopues Department Store in payment of The circumstances surrounding the two checks are different.
her purchases from said store. When the check was deposited The first check was to accommodate a relative, and the
by the store to its account, the same was dishonored due to succeeding one to pay for goods purchased from the Lopues
Account Closed despite the fact that at the time the check was Department Store. That she might not have suffered damages
presented for payment, Carmens checking account was still as a result of the first dishonored check does not necessarily
active and backed up by a deposit of P1,275.20. hold true for the second.
As a consequence of the checks dishonor, Lopues Department The following are the conditions for the award of moral
Store sent a demand letter to Carmen threatening her with damages: (1) there is an injury -- whether physical, mental or
criminal prosecution unless she redeemed the check within five psychological -- clearly sustained by the claimant; (2) the
(5) days. To avoid criminal prosecution, Carmen paid P330.00 culpable act or omission is factually established; (3) the wrongful
in cash to the store, plus a surcharge of P33.00 for the bouncing act or omission of the defendant is the proximate cause of the
check, or a total of P363.00. injury sustained by the claimant; and (4) the award of damages
is predicated on any of the cases stated in Article 2219[11] of
Before these events though, a similar incident occurred days
the Civil Code.
before, where Arrieta issued a check which subsequently
bounced. In the instant case, all four requisites have been established.
First, these were the findings of the appellate court: Carmen
Thereupon, Carmen filed a complaint against Solidbank
Arrieta is a bank depositor of Solidbank Corporation of long
Corporation for damages alleging that the bank, by its
standing. She works with the Central Negros Electric
carelessness and recklessness in certifying that her account
Cooperative, Inc. (CENECO), as an executive secretary and
was closed despite the fact that it was still very much active and
later as department secretary. She is a deaconess of the
sufficiently funded, had destroyed her good name and reputation
Christian Alliance Church in Bacolod City. These are positions
and prejudiced not only herself but also her family in the form of
which no doubt elevate her social standing in the community.
mental anguish, sleepless nights, wounded feelings and social
Understandably -- and as sufficiently proven by her testimony --
humiliation. She prayed that she be awarded moral and
she suffered mental anguish, serious anxiety, besmirched
exemplary damages as well as attorneys fees.
reputation, wounded feelings and social humiliation; and she
In its answer, the bank claimed that Carmen, contrary to her suffered thus when the people she worked with -- her friends,
undertaking as a depositor, failed to maintain the required her family and even her daughters classmates -- learned and
balance of at least P1,000.00 on any day of the month. talked about her bounced check.
Moreover, she did not handle her account in a manner
Second, it is undisputed that the subject check was adequately
satisfactory to the bank. In view of her violations of the general
funded, but that petitioner wrongfully dishonored it.
terms and conditions governing the establishment and operation
of a current account, Carmen’s account was recommended for Third, Respondent Carmen was able to prove that petitioners
closure. In any event, the bank claimed good faith in wrongful dishonor of her check was the proximate cause of her
declaring her account closed since one of the clerks, who embarrassment and humiliation in her workplace, in her own
substituted for the regular clerk, committed an honest home, and in the church where she served as deaconess.
mistake when he thought that the subject account was
already closed when the ledger containing the said account Proximate cause has been defined as any cause which, in
could not be found. natural and continuous sequence, unbroken by any efficient
intervening cause, produces the result complained of and
After trial, the lower court rendered its decision holding that without which would not have occurred x x x.[12] It is determined
Solidbank Corporation was grossly negligent in failing to check from the facts of each case upon combined considerations of
whether or not Carmen’s account was still open and viable at logic, common sense, policy and precedent.[13] Clearly, had the
the time the transaction in question was made. Hence, the bank bank accepted and honored the check, Carmen would not have
was liable to Carmen for moral and exemplary damages, as well had to face the questions of -- and explain her predicament to -
as attorney’s fees. It held that the bank was remiss in its duty to - her office mates, her daughters, and the leaders and members
treat Carmen’s account with the highest degree of care, of her church.
considering the fiduciary nature of their relationship.
Furthermore, the CA was in agreement with the trial court in
Solidbank claimshat it was erroneous for Arrieta to attribute the ruling that her injury arose from the gross negligence of
humiliation to the second bouncing of the check, as she claimed petitioner in dishonoring her well-funded check.
none when the first check was issued.
Fourth, treating Carmens account as closed, merely because
ISSUE: WON Arrieta is entitled to moral damages? the ledger could not be found was a reckless act that could not
simply be brushed off as an honest mistake. We have repeatedly
RULING: YES, she is entitled to moral damages.
emphasized that the banking industry is impressed with public
interest. Consequently, the highest degree of diligence is
expected, and high standards of integrity and performance are
even required of it. By the nature of its functions, a bank is under
obligation to treat the accounts of its depositors with meticulous
care and always to have in mind the fiduciary nature of its
relationship with them.

Petitioners negligence here was so gross as to amount to a wilful


injury to Respondent Carmen. Article 21 of the Civil Code states
that any person who wilfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy
shall compensate the latter for the damage. Further, Article 2219
provides for the recovery of moral damages for acts referred to
in the aforementioned Article 21. Hence, the bank is liable for
moral damages to respondent.
TAN VS CA and RCBC 4) Fourth, that as an old client, with twelve (12) years of
good standing then, RCBC should have given him
DOCTRINE: Bank clients are supposed to rely on the services more consideration by exerting greater diligence in
extended by the bank, including the assurance that their clearing the check with PCIB, Puerto Princesa, to
deposits will be duly credited them as soon as they are made. protect its client's interest;
For, any delay in crediting their account can be embarrassing to
them as in the case of plaintiff. 5) Fifth, that RCBC failed to inform petitioner promptly that
the check had not been cleared, despite its debiting
The point is that as a business affected with public interest and without delay the amount covered by the check from
because of the nature of its functions, the bank is under the account of the petitioner and hastily charging the
obligation to treat the accounts of its depositors with meticulous latter service fees immediately after the return of the
care, always having in mind the fiduciary nature of their "missent checks";
relationship.
6) Finally, that the bounced checks resulting from RCBC's
"misclearing" had put in doubt his credibility among his
business peers and sullied his reputation as a
FACTS: Businessman Ramon Tan had maintained an account
community leader which he had painstakingly
with RCBC Binondo since 1976. To avoid carrying cash while
cultivated for years.
going to Manila, he secured a Cashier’s Check from PCIB in the
amount of P 30K, payable to his order. He deposited the check RCBC denied negligence and put the blame on Tan for the
to RCBC Binondo. "misrouting" on the petitioner for using the wrong check deposit
slip. It insisted that the misuse of a local check deposit slip,
On the same day, RCBC erroneously sent the same cashier's
instead of a regional check deposit slip, triggered the
check for clearing to the Central Bank which was returned for
"misrouting" by RCBC of the cashier's check to the Central
having been "missent" or "misrouted." The next day, March 16,
Bank and it was petitioner's negligent "misuse" of a local
RCBC debited the amount covered by the same cashier's check
deposit slip which was the proximate cause of the
from the account of the petitioner. Respondent bank at this time
"misrouting," thus he should bear the consequence.
had not informed the petitioner of its action which the latter
claims he learned of only 42 days after, specifically on March 16, RCBC alleged that it complied strictly with accepted banking
when he received the bank's debit memo. Relying on the practice when it debited the amount of P30,000.00 against
common knowledge that a cashier's check was as good as petitioner's account since under Resolution No. 2202 dated
cash, that the usual banking practice that local checks are December 21, 1979 of the Monetary Board, it is a matter of
cleared within three (3) working days and regional checks policy to prohibit the drawing against uncollected deposits
within seven (7) working days, and the fact that the (DAUDS) except when the drawings are made against
cashier's check was accepted, petitioner issued two (2) uncollected deposits representing bank
personal checks both dated March 18. Check No. 040719 in manager's/cashier's/treasurer's checks, treasury warrants,
the name of Go Lac for Five Thousand Five Hundred postal money orders and duly funded "on us" checks which may
(P5,5000.00) Pesos was presented on April 25,3 more than be permitted at the discretion of each bank.
30 days from petitioner's deposit date of the cashier's
check. CheckNo. 040718 in the name of MS Development RCBC further asseverated it was merely acting as petitioner's
Trading Corporation for Six Thousand Fifty-Three Pesos collecting agent and it assumed no responsibility beyond care in
and Seventy Centavos (P6,053.70) was returned twice on selecting correspondents under the theory that where a check is
March 24, nine (9) days from his deposit date and again on deposited with a collecting bank the relationship created is that
April 26, twenty-two days after the day the cashier's check of agency and not creditor-debtor, thus it cannot be liable.
was deposited for insufficiency of funds.
Finally, respondent claimed that serious attempts were made to
Tan now files a case, contending the following: contact petitioner through the telephone numbers in the
signature specimen card of petitioner but to no avail.17 The
1) That there was error on RCBC on not informing him Assistant Branch Accountant of RCBC Binondo Branch testified
that there was a mistake in depositing the slip; that the first telephone number in the card had been deleted from
the phone company's list and that when RCBC tried to contact
2) That RCBC had been remiss in the performance of its
petitioner's daughter Evelyn Tan-Banzon thru a certain
obligation to the petitioner when it "missent" the
telephone number and when they asked for Evelyn Tan, they
cashier's check to the Central Bank knowing, as it
were told there was no such person.
should, that the source of the check, PCIB, Puerto
Princesa Branch, is not included in the areas required
to be cleared by the Central Bank, a fact known to the
banking world and surely to the respondent bank; ISSUE: WON the bank was negligent?

3) Third, that RCBC upon knowing of its error in


"missending" the cashier's check to the Central Bank
did not attempt to rectify its "misclearing" error by RULING: YES, it was negligent.
clearing it seasonably with PCIB, Puerto Princesa, thru
The Court cited its earlier ruling in the case of City Trust
its own RCBC Puerto Princesa Branch with whom it
Corporation v. The Intermediate Appellate Court. In that case,
had direct radio contact;8
the depositor failed to put another zero in her account number,
thus the checks she issued were dishonored. The Court said
that even if there was a discrepancy in the number, still the name of the check as a currency substitute and create havoc in trade
of the depositor was correct. The name is controlling in circles and the banking community. 26
determining in whose account the deposit is made or should be
posted. This is so because it is not likely to commit an error in Now, what was presented for deposit in the instant cases was
one's name that merely relying on numbers which are difficult to not just an ordinary check but a cashier's check payable to the
remember, especially a number with eight (8) digits as the account of the depositor himself. A cashier's check is a primary
account numbers of defendant's depositors. obligation of the issuing bank and accepted in advance by its
mere issuance. 27 By its very nature, a cashier's check is the
In the first place, the teller should not have accepted plaintiff's bank's order to pay drawn upon itself, committing in effect its
deposit without correcting the account number on the deposit total resources, integrity and honor behind the check. A cashier's
slip which, obviously, was erroneous because, as pointed out by check by its peculiar character and general use in the
defendant, it contained only seven (7) digits instead of eight (8). commercial world is regarded substantially to be as good as the
Second, the complete name of plaintiff depositor appears in bold money which it represents.28 In this case, therefore, PCIB by
letters on the deposit slip. There could be no mistaking in her issuing the check created an unconditional credit in favor of any
name, and that the deposit was made in her name, Emma E. collecting bank.
Herrero. In fact, defendant's teller should not have fed her
deposit slip to the computer knowing that her account number
written thereon was wrong as it contained only seven (7) digits.
All these considered, petitioner's reliance on the layman's
As it happened, according to defendant, plaintiff's deposit had to
perception that a cashier's check is as good as cash is not
be consigned to the suspense accounts pending verification.
entirely misplaced, as it is rooted in practice, tradition, and
This, indeed, could have been avoided at the first instance had
principle. We see no reason thus why this so-called
the teller of defendant bank performed her duties efficiently and
discretion was not exercised in favor of petitioner, specially
well. For then she could have readily detected that the account
since PCIB and RCBC are members of the same clearing
number in the name of Emma E. Herrero was erroneous and
house group relying on each other's solvency. RCBC could
would be rejected by the computer. That is, or should be, part of
surely rely on the solvency of PCIB when the latter issued
the training and standard operating procedure of the bank's
its cashier's check.
employees. On the other hand, the depositors are not concerned
with banking procedure. That is the responsibility of the bank We hold that petitioner has the right to recover moral
and its employees. Depositors are only concerned with the damages even if the bank's negligence may not have been
facility of depositing their money, earning interest thereon, if any, attended with malice and bad faith. While bank was not in
and withdrawing therefrom, particularly businessmen, like bad faith, its negligence caused the Tan to suffer mental
plaintiff, who are supposed to be always on-the-go. Plaintiff's anguish, serious anxiety, embarrassment and humiliation,
account is a current account which should immediately be for which he is entitled to recover, reasonable moral
posted. After all, it does not earn interest. At least, the damages (Art. 2217, Civil Code).
forbearance should be commensurated with prompt, efficient
and satisfactory service.

The bank cannot therefore wash its hands. by claiming that its
depositor "impliedly instructed" the bank to clear his check with
the Central Bank by filling a local check deposit slip. Such
posture is disingenuous, to say the least. First, why would RCBC
follow a patently erroneous act born of ignorance or inattention
or both. Second, bank transactions pass through a succession
of bank personnel whose duty is to check and countercheck
transactions for possible errors. In the instant case, the teller
should not have accepted the local deposit slip with the cashier's
check that on its face was clearly a regional check without calling
the depositor's attention to the mistake at the very moment this
was presented to her. Neither should everyone else down the
line who processed the same check for clearing have allowed
the check to be sent to Central Bank. Depositors do not pretend
to be past master of banking technicalities, much more of
clearing procedures. As soon as their deposits are accepted
by the bank teller, they wholly repose trust in the bank
personnel's mastery of banking, their and the bank's sworn
profession of diligence and meticulousness in giving
irreproachable service.

An ordinary check is not a mere undertaking to pay an amount


of money. There is an element of certainty or assurance that it
will be paid upon presentation that is why it is perceived as a
convenient substitute for currency in commercial and financial
transactions. The basis of the perception being confidence. Any
practice that destroys that confidence will impair the usefulness
G.R. No. 112576 October 26, 1994 MBTC also issued 4 debit memos representing service and
penalty charges for the returned checks.
(CA-GR CV No. 26571)

RBPG and Isabel Katigbak filed an action for damages against


METROPOLITAN BANK AND TRUST COMPANY, petitioner, MBTC.
vs.
THE HON. COURT OF APPEALS, RURAL BANK OF PADRE
GARCIA, INC. and ISABEL R. KATIGBAK, respondents.
It was established later that the reason why the CM did not
reflect in RBPG’s account was due to the inadvertence and
mishandling of the messenger which resulted to the CM not
Katigbak is the president and director of RBPG, while MBTC is being delivered to the department in charge of processing the
the rural bank's depository bank, where Katigbak maintains same; consequently, when MBTC received from the clearing
current accounts. department the checks in question, the stated balance in
RBPG's account was only P5,498.58 which excluded the
unprocessed credit advice of P304,000.00 resulting in the
April 6, 1982, MBTC received from the CB a credit memo dated dishonor of the aforementioned checks.
April 5, 1982 that its demand deposit account was credited with
P304,000.00 for the account of RBPG, representing loans
granted by the Central Bank to RBPG. MBTC also contends that the bank and its officers acted with no
deliberate intent on their part to cause injury or damage to
plaintiffs, explaining the circumstances that gave rise to the
Katigbak issued several checks in the total amount of bouncing checks situation. Metrobank's negligence arising from
P300,000.00, payable to Dr. Felipe and Mrs. Eliza Roque for their messenger's misrouting of the credit advice resulting in the
P25,000.00 each. return of the checks in question, despite daily reporting of credit
memos and a corresponding daily radio message confirmation,
and Mr. Dungo's improper handling of clients led to the
messenger's dismissal from service and Mr. Dungo's transfer
Dr. and Mrs. Roque deposited the checks with PBC, but the
from Metro Manila to Mindoro.
checks were returned by MBTC with the annotations "DAIF —
TNC" (Drawn Against Insufficient Funds — Try Next Clearing)
so they were redeposited on April 14, 1982, which was again
dishonored for the following reason: "DAIF — TNC — NO RTC: in favour of plaintiff; defendant is ordered to pay
ADVICE FROM CB." temperate(50k), moral(500k), including attorney's fees, litigation
expenses and the costs of the suit(100k); did not award actual
The Roques went to Katigbak and the latter paid them in damages in the amount of P50,000.00 representing the amount
P50,000 cash. of the two (2) checks payable to Dr. Felipe C. Roque and Mrs.
Elisa Roque.

CA: delete temperate damages, reduce moral(50k-RBPC; 100k-


While Katigbak was on a business-vacation trip, she received
Katigbak); atty’s fees(50k)
overseas phone calls from Mrs. San Juan informing her that a
certain Mr. Dungo, Assistant Cashier of MBTC insisted on
talking to Mrs. San Juan (Dungo thought she is Isabel Katigbak),
berating her about the checks which bounced, saying "Nag- ISSUE: Whether RBPG and Rodriguez are legally entitled to
issue kayo ng tseke, wala namang pondo." moral damages and attorney's fees – YES

Mrs. Katigbak asked Mrs. San Juan to request MBTC to check HELD:
and verify the records regarding the CB credit memo for
There is no merit in petitioner's argument that it should not be
P304,000.00 but Mrs. San Juan received another insulting call
considered negligent, much less be held liable for damages on
from Mr. Dungo ("Bakit kayo nag-issue ng tseke na wala
account of the inadvertence of its bank employee as Article 1173
namang pondo, Three Hundred Thousand na.") When Mrs. San
of the Civil Code only requires it to exercise the diligence of a
Juan explained to him the need to verify the records regarding
good pater familias.
the Central Bank memo, he merely brushed it aside, telling her
sarcastically that he was very sure that no such credit memo
existed.
As borne out by the records, the dishonoring of the respondent's
checks committed through negligence by the petitioner bank on
April 6, 1982 was rectified only on April 15, 1992 or nine (9) days
Subsequent events led to hospitalization of Katigbak for 2 days.
after receipt of the credit memo. Clearly, petitioner bank was
remiss in its duty and obligation to treat private respondent's
account with the highest degree of care, considering the
fiduciary nature of their relationship. The bank is under
obligation to treat the accounts of its depositors with meticulous
care, whether such account consists only of a few hundred
pesos or of millions. It must bear the blame for failing to discover
the mistake of its employee despite the established procedure
requiring bank papers to pass through bank personnel whose
duty it is to check and countercheck them for possible
errors. Responsibility arising from negligence in the
performance of every kind of obligation is demandable. While
the bank's negligence may not have been attended with malice
and bad faith, nevertheless, it caused serious anxiety,
embarrassment and humiliation to private respondents for which
they are entitled to recover reasonable moral damages.

It was established that when Mrs. Katigbak learned that her


checks were not being honored and Mr. Dungo repeatedly made
the insulting phone calls, her wounded feelings and the mental
anguish suffered by her caused her blood pressure to rise
beyond normal limits, necessitating medical attendance for two
(2) days at a hospital.

The damage to private respondents' reputation and social


standing entitles them to moral damages. Moral damages
include physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock,
social humiliation and similar injury.

The CA justified its deletion of temperate damages when MBTC


reasoned out that the amount of P50,000.00 is not part of the
relief prayed for in the complaint, aside from the fact that the
amount allegedly suffered by Mrs. Katigbak is susceptible of
proof.

The carelessness of petitioner bank, aggravated by the lack of


promptness in repairing the error and the arrogant attitude of the
bank officer handling the matter, justifies the grant of moral
damages, which are clearly not excessive and unconscionable.

Moreover, considering the nature and extent of the services


rendered by private respondent's counsel, both in the trial and
appellate courts, the Court deems it just and equitable that
attorney's fees in the amount
G.R. No. 116181 April 17, 1996 established not only by documentary evidence, but also by parol
PHILIPPINE NATIONAL BANK, petitioner, evidence
vs.
COURT OF APPEALS and CARMELO H. Here, the evidence presented by PNB (application form) has no
FLORES, respondents. probative value because it did not show proof of payment. The
testimonies were also not given credence because they were
Flores, business man engaged in real estate, purchased from self-serving and were given by bank employees involved in the
PNB 2 manager's checks worth P500,000.00 each, paying a fiasco.
total of P1,000,040.00, including the service charge. A receipt
for said amount was issued by the petitioner. ISSUE:

On 12 July 1989, Flores presented these checks at the Baguio WHETHER THE AWARD FOR MORAL DAMAGES,
Hyatt Casino unit of PNB. However, PNB initially refused to EXEMPLARY DAMAGES, AND ATTORNEY'S FEES, AS
encash the checks but after a lengthy discussion, it agreed to COMPARED TO THE ACTUAL CLAIM OF P100,000 IS
encash one 1 of the checks, and deferred the payment of the DISPROPORTIONATE AND UNCONSCIONABLE. – YES
other check. Flores tried to encash the chck on several
occasions, to no avail. HELD:
Since there is no doubt as to the fact that the plaintiff purchased
Left with no other choice, Flores filed a case with the RTC. from the defendant bank 2 manager's check worth P500,000.00
each as this was evidenced by an official receipt, then the
In its Answer, PNB claimed that only P900,000.00 and P40.00 existence of the manager's check created a fiduciary
bank charges were actually paid by Flores when he purchased relationship between the defendant bank and the plaintiff and
the 2 manager's checks worth P1,000,000.00. It alleged that due therefore any breach thereof must be borne by the negligent
to Flores' "demanding attitude and temper," petitioner's money party. In this case, the money counter who, among her other
counter, Rowena Montes, who, at that time was still new at her duties, is in charge of counting the money received from a client
job, made an error in good faith in issuing the receipt for purchasing a manager's check did not perform her duty with
P1,000,040.00. diligence and due care. This may be gathered from her
testimony that she did not wait for the counting machine to finish
RTC ruled in favour of Flores: 100k-amount dishonoured; 1M- counting the money for the plaintiff is a VIP client and he was in
moral; 1M-exemplary; 50k-attorneys fee; cost of suit. a hurry as he was tapping the window. Equally negligent is
Reynaldo Castor for not doing anything when he noticed that
CA – affirmed RTC decision. their money counters who entertained the plaintiff were rattled.
From these unfolded facts, the so-called honest mistake
ISSUE: pleaded is therefore misplaced and perforced, defendant must
WHETHER THE CA ERRED IN HOLDING THAT, THE BEST suffer the consequences of its own negligent acts.
EVIDENCE TO SHOW WHETHER MR. FLORES PAID THE
PNB CASINO UNIT P900,040 OR P1,000,040 IN However, we give consideration to petitioner's allegation that the
PURCHASING THE TWO MANAGER'S CHECKS EACH award of P1,000,000.00 moral damages and P1,000,000.00
WORTH P500,000 IS THE RECEIPT FOR P1,000,040. – NO exemplary damages in addition to Flores' actual claim of
P100,000.00 is "inordinately disproportionate and
HELD: unconscionable."

A "receipt" is defined as a written and signed acknowledgment Under the circumstances obtaining in the case at bench, we rule
that money has been paid or goods have been delivered. A that the award of moral and exemplary damages is patently
receipt is merely presumptive evidence and is not conclusive. A excessive and should be reduced to a reasonable amount. We
written acknowledgment that money or a thing of value has been take into consideration the following factors:
received. Since a receipt is a mere acknowledgment of
payment, it may be subject to explanation or contradiction. A First, Flores' contention that he lost the opportunity to purchase
receipt may be used as evidence against one just as any other a house and lot in Baguio City due to petitioner's gross
declaration or admission. A simple receipt not under seal is negligence is based solely on his own testimony and a mere
presumptive evidence only and may be rebutted or explained by general statement at that. The broker he named during his
other evidence of mistake in giving it, or of non-payment or of cross-examination on 10 July 1990, a Mr. Nick Buendia was not
the circumstances under which it was given. even presented to confirm the allegation

Although a receipt is not conclusive evidence, in the case at Second, the award of moral damages in the amount of
bench, an exhaustive review of the records fails to disclose any P1,000,000.00 is obviously not proportionate to the actual
other evidence sufficient and strong enough to overturn the losses of P100,000.00 sustained by Flores. In RCPI
acknowledgment embodied in petitioner's own receipt (as to the v. Rodriguez, we ruled that … where the awards of moral and
amount of money it actually received). exemplary damages are far too excessive compared to the
actual losses sustained by the aggrieved party, this Court ruled
In Monfort v. Aguinaldo, the receipts of payment, although not that they should be reduced to more reasonable amounts.
exclusive, were deemed to be the best evidence. The best
evidence for proving payment is by the evidence of receipts In other words, the moral damages awarded must be
showing the same is also admitted. What respondents claim is commensurate with the loss or injury suffered.
that there is no rule which provides that payment can only be
proved by receipts. While receipts are deemed to be the best Moral damages though incapable of pecuniary estimations, are
evidence, they are not exclusive. Other evidence may be in the category of an award designed to compensate the
presented in lieu thereof if they are not available, as in case of claimant for actual injury suffered and not to impose a penalty
loss, destruction or disappearance. The fact of payment may be
on the wrongdoer; It is not intended to enrich a complainant at
the expense of the defendant.

However, the award of P1,000,000.00 exemplary damages is


also far too excessive and should likewise be reduced to an
equitable level.

ISSUE:
WHETHER THE ACT OF ISSUANCE OF RECEIPT PROPER -
NO

HELD:

Finally, we find petitioner's act of issuing the manager's checks


and corresponding receipt before payment thereof was
completely counted reckless and grossly negligent. It is an
appalling breach of bank procedures and must never be
repeated.

In Bautista v. Mangaldan Rural Bank, Inc., we stated that the


banking system has become an indispensable institution in the
modern world and plays a vital role in the economic life of every
civilized society. Whether as mere passive entities for the safe-
keeping and saving of money or as active instruments of
business and commerce, banks have attained an unbiquitous
presence among the people, who have come to regard them
with respect and even gratitude and, most of all, confidence.
MBTC also issued 4 debit memos representing service and
G.R. No. 112576 October 26, 1994 penalty charges for the returned checks.

(CA-GR CV No. 26571)

RBPG and Isabel Katigbak filed an action for damages against


MBTC.
METROPOLITAN BANK AND TRUST COMPANY, petitioner,
vs.
THE HON. COURT OF APPEALS, RURAL BANK OF PADRE
GARCIA, INC. and ISABEL R. KATIGBAK, respondents. It was established later that the reason why the CM did not
reflect in RBPG’s account was due to the inadvertence and
mishandling of the messenger which resulted to the CM not
being delivered to the department in charge of processing the
Katigbak is the president and director of RBPG, while MBTC is same; consequently, when MBTC received from the clearing
the rural bank's depository bank, where Katigbak maintains department the checks in question, the stated balance in
current accounts. RBPG's account was only P5,498.58 which excluded the
unprocessed credit advice of P304,000.00 resulting in the
dishonor of the aforementioned checks.
April 6, 1982, MBTC received from the CB a credit memo dated
April 5, 1982 that its demand deposit account was credited with
P304,000.00 for the account of RBPG, representing loans MBTC also contends that the bank and its officers acted with no
granted by the Central Bank to RBPG. deliberate intent on their part to cause injury or damage to
plaintiffs, explaining the circumstances that gave rise to the
bouncing checks situation. Metrobank's negligence arising from
Katigbak issued several checks in the total amount of their messenger's misrouting of the credit advice resulting in the
P300,000.00, payable to Dr. Felipe and Mrs. Eliza Roque for return of the checks in question, despite daily reporting of credit
P25,000.00 each. memos and a corresponding daily radio message confirmation,
and Mr. Dungo's improper handling of clients led to the
messenger's dismissal from service and Mr. Dungo's transfer
from Metro Manila to Mindoro.
Dr. and Mrs. Roque deposited the checks with PBC, but the
checks were returned by MBTC with the annotations "DAIF —
TNC" (Drawn Against Insufficient Funds — Try Next Clearing)
so they were redeposited on April 14, 1982, which was again RTC: in favour of plaintiff; defendant is ordered to pay
dishonored for the following reason: "DAIF — TNC — NO temperate(50k), moral(500k), including attorney's fees, litigation
ADVICE FROM CB." expenses and the costs of the suit(100k); did not award actual
damages in the amount of P50,000.00 representing the amount
The Roques went to Katigbak and the latter paid them in of the two (2) checks payable to Dr. Felipe C. Roque and Mrs.
P50,000 cash. Elisa Roque.

CA: delete temperate damages, reduce moral(50k-RBPC; 100k-


Katigbak); atty’s fees(50k)
While Katigbak was on a business-vacation trip, she received
overseas phone calls from Mrs. San Juan informing her that a
certain Mr. Dungo, Assistant Cashier of MBTC insisted on
talking to Mrs. San Juan (Dungo thought she is Isabel Katigbak), ISSUE: Whether RBPG and Rodriguez are legally entitled to
berating her about the checks which bounced, saying "Nag- moral damages and attorney's fees – YES
issue kayo ng tseke, wala namang pondo."

HELD:
Mrs. Katigbak asked Mrs. San Juan to request MBTC to check
and verify the records regarding the CB credit memo for There is no merit in petitioner's argument that it should not be
P304,000.00 but Mrs. San Juan received another insulting call considered negligent, much less be held liable for damages on
from Mr. Dungo ("Bakit kayo nag-issue ng tseke na wala account of the inadvertence of its bank employee as Article 1173
namang pondo, Three Hundred Thousand na.") When Mrs. San of the Civil Code only requires it to exercise the diligence of a
Juan explained to him the need to verify the records regarding good pater familias.
the Central Bank memo, he merely brushed it aside, telling her
sarcastically that he was very sure that no such credit memo
existed. As borne out by the records, the dishonoring of the respondent's
checks committed through negligence by the petitioner bank on
April 6, 1982 was rectified only on April 15, 1992 or nine (9) days
Subsequent events led to hospitalization of Katigbak for 2 days. after receipt of the credit memo. Clearly, petitioner bank was
remiss in its duty and obligation to treat private respondent's
account with the highest degree of care, considering the
fiduciary nature of their relationship. The bank is under
obligation to treat the accounts of its depositors with meticulous
care, whether such account consists only of a few hundred
pesos or of millions. It must bear the blame for failing to discover
the mistake of its employee despite the established procedure
requiring bank papers to pass through bank personnel whose
duty it is to check and countercheck them for possible
errors. Responsibility arising from negligence in the
performance of every kind of obligation is demandable. While
the bank's negligence may not have been attended with malice
and bad faith, nevertheless, it caused serious anxiety,
embarrassment and humiliation to private respondents for which
they are entitled to recover reasonable moral damages.

It was established that when Mrs. Katigbak learned that her


checks were not being honored and Mr. Dungo repeatedly made
the insulting phone calls, her wounded feelings and the mental
anguish suffered by her caused her blood pressure to rise
beyond normal limits, necessitating medical attendance for two
(2) days at a hospital.

The damage to private respondents' reputation and social


standing entitles them to moral damages. Moral damages
include physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock,
social humiliation and similar injury.

The CA justified its deletion of temperate damages when MBTC


reasoned out that the amount of P50,000.00 is not part of the
relief prayed for in the complaint, aside from the fact that the
amount allegedly suffered by Mrs. Katigbak is susceptible of
proof.

The carelessness of petitioner bank, aggravated by the lack of


promptness in repairing the error and the arrogant attitude of the
bank officer handling the matter, justifies the grant of moral
damages, which are clearly not excessive and unconscionable.

Moreover, considering the nature and extent of the services


rendered by private respondent's counsel, both in the trial and
appellate courts, the Court deems it just and equitable that
attorney's fees in the amount
G.R. No. 116181 April 17, 1996 receipt may be used as evidence against one just as any other
declaration or admission. A simple receipt not under seal is
PHILIPPINE NATIONAL BANK, petitioner, presumptive evidence only and may be rebutted or explained by
vs. other evidence of mistake in giving it, or of non-payment or of
COURT OF APPEALS and CARMELO H. the circumstances under which it was given.
FLORES, respondents.

Although a receipt is not conclusive evidence, in the case at


FACTS: bench, an exhaustive review of the records fails to disclose any
other evidence sufficient and strong enough to overturn the
Flores, business man engaged in real estate, purchased from
acknowledgment embodied in petitioner's own receipt (as to the
PNB 2 manager's checks worth P500,000.00 each, paying a
amount of money it actually received).
total of P1,000,040.00, including the service charge. A receipt
for said amount was issued by the petitioner.

In Monfort v. Aguinaldo, the receipts of payment, although not


exclusive, were deemed to be the best evidence. The best
On 12 July 1989, Flores presented these checks at the Baguio
evidence for proving payment is by the evidence of receipts
Hyatt Casino unit of PNB. However, PNB initially refused to
showing the same is also admitted. What respondents claim is
encash the checks but after a lengthy discussion, it agreed to
that there is no rule which provides that payment can only be
encash one 1 of the checks, and deferred the payment of the
proved by receipts. While receipts are deemed to be the best
other check. Flores tried to encash the chck on several
evidence, they are not exclusive. Other evidence may be
occasions, to no avail.
presented in lieu thereof if they are not available, as in case of
loss, destruction or disappearance. The fact of payment may be
established not only by documentary evidence, but also by parol
Left with no other choice, Flores filed a case with the RTC. evidence

In its Answer, PNB claimed that only P900,000.00 and P40.00 Here, the evidence presented by PNB (application form) has no
bank charges were actually paid by Flores when he purchased probative value because it did not show proof of payment. The
the 2 manager's checks worth P1,000,000.00. It alleged that due testimonies were also not given credence because they were
to Flores' "demanding attitude and temper," petitioner's money self-serving and were given by bank employees involved in the
counter, Rowena Montes, who, at that time was still new at her fiasco.
job, made an error in good faith in issuing the receipt for
P1,000,040.00.
ISSUE:

RTC ruled in favour of Flores: 100k-amount dishonoured; 1M-


moral; 1M-exemplary; 50k-attorneys fee; cost of suit.
WHETHER THE AWARD FOR MORAL DAMAGES,
EXEMPLARY DAMAGES, AND ATTORNEY'S FEES, AS
COMPARED TO THE ACTUAL CLAIM OF P100,000 IS
CA – affirmed RTC decision. DISPROPORTIONATE AND UNCONSCIONABLE. – YES

ISSUE: HELD:

WHETHER THE CA ERRED IN HOLDING THAT, THE BEST Since there is no doubt as to the fact that the plaintiff purchased
EVIDENCE TO SHOW WHETHER MR. FLORES PAID THE from the defendant bank 2 manager's check worth P500,000.00
PNB CASINO UNIT P900,040 OR P1,000,040 IN each as this was evidenced by an official receipt, then the
PURCHASING THE TWO MANAGER'S CHECKS EACH existence of the manager's check created a fiduciary
WORTH P500,000 IS THE RECEIPT FOR P1,000,040. – NO relationship between the defendant bank and the plaintiff and
therefore any breach thereof must be borne by the negligent
party. In this case, the money counter who, among her other
HELD: duties, is in charge of counting the money received from a client
purchasing a manager's check did not perform her duty with
diligence and due care. This may be gathered from her
testimony that she did not wait for the counting machine to finish
A "receipt" is defined as a written and signed acknowledgment counting the money for the plaintiff is a VIP client and he was in
that money has been paid or goods have been delivered. A a hurry as he was tapping the window. Equally negligent is
receipt is merely presumptive evidence and is not conclusive. A Reynaldo Castor for not doing anything when he noticed that
written acknowledgment that money or a thing of value has been their money counters who entertained the plaintiff were rattled.
received. Since a receipt is a mere acknowledgment of From these unfolded facts, the so-called honest mistake
payment, it may be subject to explanation or contradiction. A
pleaded is therefore misplaced and perforced, defendant must Finally, we find petitioner's act of issuing the manager's checks
suffer the consequences of its own negligent acts. and corresponding receipt before payment thereof was
completely counted reckless and grossly negligent. It is an
appalling breach of bank procedures and must never be
repeated.
However, we give consideration to petitioner's allegation that the
award of P1,000,000.00 moral damages and P1,000,000.00
exemplary damages in addition to Flores' actual claim of
P100,000.00 is "inordinately disproportionate and In Bautista v. Mangaldan Rural Bank, Inc., we stated that the
unconscionable." banking system has become an indispensable institution in the
modern world and plays a vital role in the economic life of every
civilized society. Whether as mere passive entities for the safe-
keeping and saving of money or as active instruments of
Under the circumstances obtaining in the case at bench, we rule
business and commerce, banks have attained an unbiquitous
that the award of moral and exemplary damages is patently
presence among the people, who have come to regard them
excessive and should be reduced to a reasonable amount. We
with respect and even gratitude and, most of all, confidence.
take into consideration the following factors:

First, Flores' contention that he lost the opportunity to purchase


a house and lot in Baguio City due to petitioner's gross
negligence is based solely on his own testimony and a mere
general statement at that. The broker he named during his
cross-examination on 10 July 1990, a Mr. Nick Buendia was not
even presented to confirm the allegation

Second, the award of moral damages in the amount of


P1,000,000.00 is obviously not proportionate to the actual
losses of P100,000.00 sustained by Flores. In RCPI
v. Rodriguez, we ruled that … where the awards of moral and
exemplary damages are far too excessive compared to the
actual losses sustained by the aggrieved party, this Court ruled
that they should be reduced to more reasonable amounts.

In other words, the moral damages awarded must be


commensurate with the loss or injury suffered.

Moral damages though incapable of pecuniary estimations, are


in the category of an award designed to compensate the
claimant for actual injury suffered and not to impose a penalty
on the wrongdoer; It is not intended to enrich a complainant at
the expense of the defendant.

However, the award of P1,000,000.00 exemplary damages is


also far too excessive and should likewise be reduced to an
equitable level.

ISSUE:

WHETHER THE ACT OF ISSUANCE OF RECEIPT PROPER -


NO

HELD:
HILARIO P. SORIANO, Petitioner. vs. People of the documents, under Article 315, paragraph 1(b), in relation to
Philippines, Banko Sentral ng Pilipinas (BSP), Philippine Article 172 of the RPC and PD 1689. It basically alleged that
Deposit Insurance Corporation (PDIC), Public Prosecutor petitioner and his co-accused, in abuse of the confidence
Antonio C. Buan, and State Prosecutor Arlberto R. reposed in them as RBSM officers, caused the falsification of a
Fonacier, Respondents. number of loan documents, making it appear that one Enrico
Carlos filled up the same, and thereby succeeded in securing a
G.R. No. 162336 February 1, 2010 loan and converting the loan proceeds for their personal gain
and benefit.

DOCTRINE: The Second Information docketed as Criminal Case No. 238-


M-2001, was for violation of Section 83 of RA 337, as amended
 The prohibition in Section 83 is broad enough to cover by PD 1795. The said provision refers to the prohibition against
various modes of borrowing. It covers loans by a bank the so-called DOSRI loans. The information alleged that, in his
director or officer which are made either: (1) directly, capacity as President of RBSM, petitioner indirectly secured
(2) indirectly, (3) for himself, (4) or as the an P8 million loan with RBSM, for his personal use and benefit,
representative or agent of others. It applies even if the without the written consent and approval of the bank's Board of
director or officer is a mere guarantor, indorser or Directors, without entering the said transaction in the bank's
surety for someone else's loan or is in any manner an records, and without transmitting a copy of the transaction to the
obligor for money borrowed from the bank or loaned by supervising department of the bank. His ruse was facilitated by
it. The covered transactions are prohibited unless the placing the loan in the name of an unsuspecting RBSM
approval, reportorial and ceiling requirements under depositor, one Enrico Carlos.
Section 83 are complied with.
Petitioner’s Contention:
 A direct borrowing is obviously one that is made in the Petitioner moved to quash] these informations on two grounds:
name of the DOSRI himself or where the DOSRI is a that the court had no jurisdiction over the offense charged, and
named party, while an indirect borrowing includes one that the facts charged do not constitute an offense.
that is made by a third party, but the DOSRI has a stake
in the transaction. Petitioner argued that the letter transmitted by the BSP to the
DOJ constituted the complaint and hence was defective for
failure to comply with the mandatory requirements of Section
3(a), Rule 112 of the Rules of Court, such as the statement of
FACTS:
address of petitioner and oath and subscription. Moreover,
Sometime in 2000, the Office of Special Investigation (OSI) of petitioner argued that the officers of OSI, who were the
the Bangko Sentral ng Pilipinas (BSP), through its signatories to the letter-complaint, were not authorized by the
officers, transmitted a letter to Jovencito Zuo, Chief State BSP Governor, much less by the Monetary Board, to file the
Prosecutor of the Department of Justice (DOJ). The letter complaint. According to petitioner, this alleged fatal oversight
attached as annexes five affidavits, which would allegedly serve violated Section 18, pars. (c) and (d) of the New Central Bank
as bases for filing criminal charges for Estafa thru Falsification Act (RA 7653).
of Commercial Documents, in relation to Presidential Decree
Petitioner contended that the commission of estafa under RPC
(PD) No. 1689, and for Violation of Section 83 of RA 337, as
is inherently incompatible with the violation of DOSRI of RA 337,
amended by PD 1795, against, inter alia, petitioner herein
as amended by PD 1795), hence a person cannot be charged
Hilario P. Soriano. It was stated in the affidavits that spouses
for both offenses. He argued that a violation of DOSRI law
Enrico and Amalia Carlos appeared to have an outstanding loan
requires the offender to obtain a loan from his bank, without
of P8 million with the Rural Bank of San Miguel (Bulacan), Inc.
complying with procedural, reportorial, or ceiling
(RBSM), but had never applied for nor received such loan; that
requirements. On the other hand, estafa under RPC requires the
it was petitioner, who was then president of RBSM, who had
offender to misappropriate or convert something that he holds
ordered, facilitated, and received the proceeds of the loan; and
in trust, or on commission, or for administration, or under
that the P8 million loan had never been authorized by RBSM's
any other obligation involving the duty to return the same.
Board of Directors and no report thereof had ever been
submitted to the Department of Rural Banks, Supervision and Petitioner theorized that the characterization of possession is
Examination Sector of the BSP. different in the two offenses. If petitioner acquired the loan as
DOSRI, he owned the loaned money and therefore, cannot
The letter of the OSI, which was not subscribed under oath,
misappropriate or convert it as contemplated in the offense of
ended with a request that a preliminary investigation be
estafa. Conversely, if petitioner committed estafa, then he
conducted and the corresponding criminal charges be filed
merely held the money in trust for someone else and therefore,
against petitioner at his last known address.
did not acquire a loan in violation of DOSRI rules.
State Prosecutor Albert R. Fonacier proceeded with the PI. The
RTC Ruling:
investigating officer issued a Resolution finding probable cause
and correspondingly filed two separate informations against Ruled in favor of the respondents.
petitioner before the Regional Trial Court (RTC) of Malolos,
Bulacan. CA RULING:

The first Information docketed as Criminal Case No. 237-M- The CA denied the petition on both issues presented by
2001, was for estafa through falsification of commercial petitioner.
Petitioners Motion for Reconsideration was likewise denied for The next question is whether there can also be, at the same
lack of merit. Hence, this petition. time, a charge for DOSRI violation in such a situation wherein
the accused bank officer did not secure a loan in his own name,
but was alleged to have used the name of another person in
order to indirectly secure a loan from the bank. We answer this
ISSUE:
in the affirmative. Section 83 of RA 337 reads:

Section 83. No director or officer of any banking institution shall,


1. W/N a loan transaction within the ambit of the DOSRI
either directly or indirectly, for himself or as the representative
law could also be the subject of Estafa under the RPC?
or agent of others, borrow any of the deposits of funds of such
YES
bank, nor shall he become a guarantor, indorser, or surety for
2. W/N the complaint complied with the mandatory
loans from such bank to others, or in any manner be an obligor
requirements provided under Section 3(a), Rule 112 of
for moneys borrowed from the bank or loaned by it, except with
the Rules of Court and Section 18, paragraphs (c) and
the written approval of the majority of the directors of the bank,
(d) ofRepublic Act No. 7653? YES
excluding the director concerned. Any such approval shall be
entered upon the records of the corporation and a copy of such
HELD: entry shall be transmitted forthwith to the Superintendent of
Banks. The office of any director or officer of a bank who violates
1. W/N a loan transaction within the ambit of the the provisions of this section shall immediately become vacant
DOSRI law could also be the subject of Estafa and the director or officer shall be punished by imprisonment of
under the RPC? YES not less than one year nor more than ten years and by a fine of
not less than one thousand nor more than ten thousand pesos. x
We have examined the two informations against petitioner and
xx
we find that they contain allegations which, if hypothetically
admitted, would establish the essential elements of the crime of The prohibition in Section 83 is broad enough to cover
DOSRI violation and estafa thru falsification of commercial various modes of borrowing. It covers loans by a bank
documents. director or officer (like herein petitioner) which are made
either: (1) directly, (2) indirectly, (3) for himself, (4) or as the
Petitioner raises the theory that he could not possibly be held representative or agent of others. It applies even if the
liable for estafa in concurrence with the charge for DOSRI director or officer is a mere guarantor, indorser or surety
violation. According to him, the DOSRI charge presupposes that for someone else's loan or is in any manner an obligor for
he acquired a loan, which would make the loan proceeds money borrowed from the bank or loaned by it. The covered
his own money and which he could neither possibly
transactions are prohibited unless the approval, reportorial
misappropriate nor convert to the prejudice of another, as and ceiling requirements under Section 83 are complied
required by the statutory definition of estafa. On the other hand, with.
if petitioner did not acquire any loan, there can be no DOSRI
violation to speak of. Thus, petitioner posits that the two The prohibition is intended to protect the public, especially the
offenses cannot co-exist. This theory does not persuade us. depositors from the overborrowing of bank funds by bank
officers, directors, stockholders and related interests, as such
Petitioners theory is based on the false premises that the loan
overborrowing may lead to bank failures. It has been said that
was extended to him by the bank in his own name, and that he
banking institutions are not created for the benefit of the
became the owner of the loan proceeds. Both premises are
directors [or officers]. While directors have great powers as
wrong.
directors, they have no special privileges as individuals. They
The bank money (amounting to P8 million) which came to cannot use the assets of the bank for their own benefit except
the possession of petitioner was money held in trust or as permitted by law. Stringent restrictions are placed about them
administration by him for the bank, in his fiduciary capacity so that when acting both for the bank and for one of themselves
as the President of said bank. It is not accurate to say that at the same time, they must keep within certain prescribed lines
petitioner became the owner of the P8 million because it regarded by the legislature as essential to safety in the banking
was the proceeds of a loan. That would have been correct if business.
the bank knowingly extended the loan to petitioner
A direct borrowing is obviously one that is made in the
himself. But that is not the case here. According to the
name of the DOSRI himself or where the DOSRI is a named
information for estafa, the loan was supposed to be for
party, while an indirect borrowing includes one that is made
another person, a certain Enrico Carlos; petitioner, through
by a third party, but the DOSRI has a stake in the
falsification, made it appear that said Enrico Carlos applied
transaction. The latter type indirect borrowing applies here.
for the loan when in fact he (Enrico Carlos) did not. Through
The information in Criminal Case 238-M-2001 alleges that
such fraudulent device, petitioner obtained the loan
petitioner in his capacity as President of Rural Bank of San
proceeds and converted the same. Under these
Miguel San Ildefonso branch x x x indirectly borrow[ed] or
circumstances, it cannot be said that petitioner became
secure[d] a loan with [RBSM] x x x knowing fully well that
the legal owner of the P8 million. Thus, petitioner remained
the same has been done by him without the written consent
the banks fiduciary with respect to that money, which
and approval of the majority of the board of directors x x x,
makes it capable of misappropriation or conversion in his
and which consent and approval the said accused
hands.
deliberately failed to obtain and enter the same upon the
records of said banking institution and to transmit a copy
thereof to the supervising department of the said bank x x
x by using the name of one depositor Enrico Carlos x x x,
the latter having no knowledge of the said loan, and once in
possession of the said amount of eight million pesos (P8
million), [petitioner] converted the same to his own
personal use and benefit.

The foregoing information describes the manner of securing the


loan as indirect; names petitioner as the benefactor of the
indirect loan; and states that the requirements of the law were
not complied with. It contains all the required elements for a
violation of Section 83, even if petitioner did not secure the loan
in his own name.

The broad interpretation of the prohibition in Section 83 is


justified by the fact that it even expressly covers loans to third
parties where the third parties are aware of the transaction (such
as principals represented by the DOSRI), and where the
DOSRIs interest does not appear to be beneficial but even
burdensome (such as in cases when the DOSRI acts as a mere
guarantor or surety). If the law finds it necessary to protect the
bank and the banking system in such situations, it will surely be
illogical for it to exclude a case like this where the DOSRI
acted for his own benefit, using the name of an unsuspecting
person. A contrary interpretation will effectively allow a DOSRI
to use dummies to circumvent the requirements of the law.

2. W/N the complaint complied with the mandatory


requirements provided under Section 3(a), Rule
112 of the Rules of Court and Section 18,
paragraphs (c) and (d) ofRepublic Act No. 7653?
YES

We held in Soriano v. Hon. Casanova, after a close scrutiny of


the letters transmitted by the BSP to the DOJ, that these were
not intended to be the complaint, as envisioned under the
Rules. They did not contain averments of personal knowledge
of the events and transactions constitutive of any offense. The
letters merely transmitted for preliminary investigation the
affidavits of people who had personal knowledge of the acts
of petitioner. We ruled that these affidavits, not the letters
transmitting them, initiated the preliminary
investigation. Since these affidavits were subscribed under
oath by the witnesses who executed them before a notary
public, then there was substantial compliance with Section
3(a), Rule 112 of the Rules of Court.

Anent the contention that there was no authority from the BSP
Governor or the Monetary Board to file a criminal case against
Soriano, we held that the requirements of Section 18,
paragraphs (c) and (d) of RA 7653 did not apply because the
BSP did not institute the complaint but merely transmitted the
affidavits of the complainants to the DOJ.

We further held that since the offenses for which Soriano was
charged were public crimes, authority holds that it can be
initiated by any competent person with personal knowledge of
the acts committed by the offender. Thus, the witnesses who
executed the affidavits clearly fell within the purview of any
competent person who may institute the complaint for a public
crime.
THE GOVERNMENT OF THE PHILIPPINE ISLANDS (on from the Register of Deeds of Tarlac. However, no reply was
relation of the Attorney-General), plaintiff, vs. EL HOGAR received. El Hogar filed a complaint with the Chief of the General
FILIPINO, defendant. Land Registration Office. The certificate of title to the San
Clemente land was received by El Hogar and a board resolution
G.R. No. L-26649 July 13, 1927 authorizing Benzon to find a buyer was issued. Alcantara, the
buyer of the land, was given extension of time to make payment
DOCTRINE: but defaulted so the contract treated rescinded. Efforts were
made to find another buyer. Respondent acquired title in
December 1920 until the property was finally sold to Felipa
 Section 21 of the Corporation Law expressly gives the
power to the corporation to provide in its by-laws for Alberto in July 1926. The interval exceeded 5 years but the
the qualifications of directors; and the requirement of period did not commence to run until May 7, 1921 when the
security from them for the proper discharge of the register of deeds delivered the new certificate of title. It has been
duties of their office, in the manner prescribed in article held that a purchaser of land registered under the Torrens
70, is highly prudent and in conformity with good system cannot acquire the status of an innocent purchaser for
practice. Article 76, prohibiting directors from making value unless the vendor is able to place the owner’s duplicate in
loans to themselves, is of course designed to prevent his hands showing the title to be in the vendor.
the possibility of the looting of the corporation by
unscrupulous directors. A more discreet provision to During the period before May 1921, El Hogar was not in a
insert in the by-laws of a building and loan association position to pass an indefeasible title to any purchaser.
would be hard to imagine. Clearly, the eighth cause of Therefore, El Hogar cannot be held accountable for this delay
action cannot be sustained which was not due to its fault. Likewise, the period from March
25, 1926 to April 20, 1926 must not be part of the five-year period
FACTS: because this was the period where respondent was under the
obligation to sell the property to Alcantara prior to the contract’s
This is a quo warranto proceeding, alleging 17 causes of action, rescission due to Alcantara’s non-payment.
instituted originally in this court by the Philippine Government on
the relation of the Attorney-General against the building and loan Another circumstance causing the delay is the fact that El Hogar
association known as El Hogar Filipino, for the purpose of purchased the property in the full amount of the loan made by
depriving it of its corporate franchise, excluding it from all the former owner which is nearly P24K when it was
corporate rights and privileges, and effecting a final dissolution subsequently found that the property was not salable and later
of said corporation. sold for P6K notwithstanding El Hogar’s efforts to find a
purchaser upon better terms.
The Philippine Commission enacted Act No. 1459, also known
as the Corporation Law, on March 1, 1906. El Hogar Filipino,
organized in 1911 under the laws of the Philippine Islands, was
the first corporation organized under Sec. 171-190 Act No. 1459, ISSUE: Whether the acts of respondent corporation merit its
devoted to the subject of building and loan associations, their dissolution or deprivation of its corporate franchise and to
organization and administration. In the said law, the capital of exclude it from all corporate rights and privileges.
the corporation was not permitted to exceed P3M, but Act No. HELD: SUSTAINED only as to administering of real property not
2092 amended the statute, permitting capitalization to the owned by it and when permitted by contract.
amount of 10M.
Causes of action
El Hogar took advantage of the amendment of Act No. 1459 and
amended its AOI as a result thereof, stating that the amount of CAUSE OF ACTION 1: W/N El Hogar is illegally holding title to
capital must not exceed what has been stated in Act No. 2092. real property in excess of 5 years, in violation of the law that
This resulted to El Hogar having 5,826 shareholders, 125,750 while corporations may loan funds upon real estate security,
shares with paid-up value of P8.7M. The corporation paid they shall dispose of the same within 5 years after receiving title
P7.16M to its withdrawing stockholders.
Held: NO. El Hogar has not offended the law in such a way that
The Government of the Philippine Islands filed an action against its charter has to be forfeited. The evident purpose behind the
El Hogar due to the alleged illegal holding title to real property law restricting the rights of corporations with respect to the
for a period exceeding five (5) years after the same was bought tenure of land was to prevent the revival of the entail or
in a foreclosure sale. Sec. 13(5) of the Corporation Law states other similar institution by which land could be fettered and
that corporations must dispose of real estate obtained within 5 its alienation hampered. In the case, El Hogar had in GF
years from receiving the title. The Philippine Government also disposed of the property at the expiration of the period fixed
prays that El Hogar be excluded from all corporate rights and by law. Under the circumstances the destruction of the
privileges and effecting a final dissolution of said corporation. corporation would bring irreparable loss upon thousands of
innocent shareholders of the corporation without any
It appears from the records that El Hogar was the holder of a corresponding benefit to the public.
recorded mortgage on the San Clemente land as security for a
P24K loan to El Hogar. However, shareholders and borrowers CAUSE OF ACTION 2: W/N el Hogar is illegally owning and
defaulted in payment so El Hogar foreclosed the mortgage and holding a business lot in excess of the reasonable requirements
purchased the land during the auction sale. A deed of and in contravention of the Corpo law that every corporation has
conveyance in favor of El Hogar was executed and sent to the the power to purchase hold lease real property as reasonable
Register of Deeds of Tralac with a request that the certificate of and necessary required for the transaction of the lawful business
title be cancelled and a new one be issued in favor of El Hogar
Held: NO. The law expressly declares that corporations may necessary to the exercise of any of the granted powers.
acquire such real estate as is reasonably necessary to enable Here, El Hogar has gone beyond its powers but this does not
them to carry out the purposes for which they were created; and mean that it should be dissolved.
we are of the opinion that the owning of a business lot upon
which to construct and maintain its offices is reasonably CAUSE OF ACTION 7: W/N the royalty paid to the founder of el
necessary to a building and loan association such as the Hogar, Antonio Melian, as compensation for his services
respondent was at the time this property was acquired. A rendered by him during the early stages of the organization of
different ruling on this point would compel important enterprises the corporation, is unconscionable, excessive, and thus
to conduct their business exclusively in leased offices — a result necessitates dissolution
which could serve no useful end but would retard industrial
HELD: NOT REALLY. If the amount of the compensation now
growth and be inimical to the best interests of society. El Hogar
appears to be a subject of legitimate criticism, this must be due
is entitled to the beneficial use of its property.
to the extraordinary development of the association in recent
CAUSE OF ACTION 3: W/N el Hogar has engaged in activities years. If the Melian contract had been clearly ultra vires — which
foreign to the purposes for which the corporation was created is not charged and is certainly untrue — its continued
and not reasonably necessary to its legitimate ends, specifically: performance might conceivably be enjoined in such a
proceeding as this; but if the defect from which it suffers is mere
(1) the administration of the offices in the El Hogar building not matter for an action because Melian is not a party. It is
used by the respondent itself and the renting of such offices to rudimentary in law that an action to annul a contract cannot be
the public; maintained without joining both the contracting parties as
(2) the administration and management of properties belonging defendants. Moreover, the proper party to bring such an action
to delinquent shareholders of the association; is either the corporation itself, or some shareholder who has an
(3) the management of some parcels of improved real estate interest to protect.
situated in Manila not under mortgage to it, but owned by
shareholders, and has held itself out by advertisement as CAUSE OF ACTION 8: W/N articles 70 and 76 of El Hogar’s
prepared to do so constitution by-laws are unlawful? NO

Held: Article 70 of the by-laws in effect requires that persons elected


to the board of directors must be holders of shares of the paid
(1) NO. The activities clearly fall within the legitimate up value of P5,000 which shall be held as security may be put
powers of the respondent. (SEE CAUSE OF ACTION 2) If the up in the behalf of any director by some other holder of shares
respondent had the power to acquire the lt, construct the edifice in the amount stated. Article 76 of the by-laws declares that
the directors waive their right as shareholders to receive
and hold it beneficially, as there decided, the beneficial
loans from the association.
administration by it of such parts of the building as are let to
others must necessarily be lawful.
It is asserted, under the eight cause of action, that article 70 is
(2) No, the clause is VALID. The case for the government objectionable in that, under the requirement for security, a poor
supposes that the only remedy which the respondent has in member, or wage-earner, cannot serve as director, irrespective
case of default on the part of its shareholders is to proceed to of other qualifications and that as a matter of fact only men of
enforce collection of the whole loan in the manner contemplated means actually sit on the board. Article 76 is criticized on the
ground that the provision requiring directors to renounce
in section 185 of the Corporation Law. But, according to said
their right to loans unreasonably limits their rights and
section, the association may treat the whole indebtedness as
privileges as members. There is nothing of value in either of
due, "at the option of the board of directors," and this remedy is theses suggestions. Section 21 of the Corporation Law
not made exclusive. The clause giving the association the right expressly gives the power to the corporation to provide in
to take over the property which constitutes the security for the its by-laws for the qualifications of directors; and the
delinquent debt and to manage it with a view to the satisfaction requirement of security from them for the proper discharge
of the obligations due to the debtor than the immediate of the duties of their office, in the manner prescribed in
enforcement of the entire obligation, and the clause allowing this article 70, is highly prudent and in conformity with good
course are VALID. practice. Article 76, prohibiting directors from making loans
to themselves, is of course designed to prevent the
3) Yes, this practice is unauthorized by law. The possibility of the looting of the corporation by
administration of property in the manner described is more unscrupulous directors. A more discreet provision to insert
befitting to the business of a real estate agent or trust company in the by-laws of a building and loan association would be
than to the business of a building and loan association. The hard to imagine. Clearly, the eighth cause of action cannot
practice to which this criticism is directed relates of course solely be sustained.
to the management and administration of properties which are
not mortgaged to the association. The circumstance that the
owner of the property may have been required to subscribe to
one or more shares of the association with a view to qualifying CAUSE OF ACTION 9: W/N el Hogar had abused its franchise
him to receive this service is of no significance. It is a general in issuing special shares, which is alleged to be illegal and
rule of law that corporations possess only such express inconsistent with the plan and purposes of building and loan
powers. The management and administration of the associations, and that these are held by well-to-do people purely
property of the shareholders of the corporation is not for investment purposes and not by wage-earners for savings
expressly authorized by law, and we are unable to see that,
upon any fair construction of the law, these activities are
HELD: The ground for supposing the issuance of the "special" of losses suffered and profits made by the corporation and in
shares to be unlawful is that special shares are not mentioned violation of the requirement s of the corpo code.
in the Corporation Law as one of the forms of security which may
be issued by the association. Upon examination of the nature of HELD: NO. El Hogar has the right to maintain these
the special shares in the light of American usage, it will be found reserves. It is true that the corporation law does not expressly
that said shares are precisely the same kind of shares that, in grant this power, but we think it is to be implied. It is a fact of
some American jurisdictions, are generally known as advance common observation that all commercial enterprises encounter
payment shares; in if close attention be paid to the language periods when earnings fall below the average, and the prudent
used in the last sentence of section 178 of the Corporation Law, manager makes provision for such contingencies. Fluctuations
it will be found that special shares where evidently created for in the dividend rate are highly detrimental to any fiscal
the purpose of meeting the condition cause by the prepayment institutions, while uniformity in the payments of dividends,
of dues that is there permitted. continued over long periods, supplies the surest foundations of
public confidence.
It will escape notice that the provision quoted say that interest
shall not be allowed on the advance payments at a greater rate Moreover, it is said that the practice of the association in
than 6% per annum nor for a longer period than one year. The declaring regularly a 10 per cent dividend is in effect a
word "interest " as there used must be taken in its true sense of guaranty by the association of a fixed dividend which is
compensation for the used of money loaned, and it not must not contrary to the intention of the statute. The government
be confused with the dues upon which it is contemplated that insists upon an interpretation of section 188 of the Corporation
the interest may be paid. Now, in the absence of any showing Law that is altogether too strict and literal. From the fact that the
to the contrary, we infer that no interest is ever paid by the statute provides that profits and losses shall be annually
association in any amount for the advance payments made apportioned among the shareholders it is argued that all
on these shares; and the reason is to be found in the fact earnings should be distributed without carrying anything to the
that the participation of the special shares in the earnings reserve. But it will be noted that it is provided in the same section
of the corporation, in accordance with section 188 of the that the profits and losses shall be determined by the board
Corporation Law, sufficiently compensates the shareholder of directors: and this means that they shall exercise the usual
for the advance payments made by him; and no other discretion of good businessmen in allocating a portion of the
incentive is necessary to induce inventors to purchase the annual profits to purposes needful to the welfare of the
stock. association. The law contemplates the distribution of earnings
and losses after other legitimate obligations have been met. Our
It will be observed that the final 20% of the par value of each conclusion is that the respondent has the power to maintain
special share is not paid for by the shareholder with funds the reserves criticized in the eleventh and twelfth counts of
out of the pocket. The amount is satisfied by applying a portion the complaint; and at any rate, if it be supposed that the
of the shareholder's participation in the annual earnings. But as reserves referred to have become excessive, the remedy is
the right of every shareholder to such participation in the in the hands of the Legislature.
earnings is undeniable, the portion thus annually applied is as
much the property of the shareholder as if it were in fact taken CAUSE OF ACTION 13: W/n el Hogar illegally departed from its
out of his pocket. It follows that the mission of the special shares charter because it has made loans which were intended to be
does not involve any violation of the principle that the shares used by the borrowers for other purposes than the building of
must be sold at par.Thus, here, there is express authority. Also, homes.
in Severino vs. El Hogar Filipino, implied authority to issue such
HELD: There is no statute here expressly declaring that loans
shares is allowed.
may be made by these associations solely for the purpose of
CAUSE OF ACTION 10: W/n El Hogar is pursuing illegally a building homes. On the contrary, the building of homes is
policy of depreciating, at an excessive rate at the discretion of mentioned in section 171 of the Corporation Law as only one
its Board, the value of real properties acquired by it at its sales, among several ends which building and loan associations are
thereby frustrating the right of SHs to participate annually and designed to promote.) Also, section 181 of the Corporation Law
equally in the earnings. expressly authorities the Board of directors of the association
from time to time to fix the premium to be charged. The primary
HELD: NO. There is an erroneous notion as to what a court design of building and loan associations should be to help poor
may do in determining the internal policy of a business people to procure homes of their own. But in this jurisdiction at
corporation. If the criticism contained in the brief of the least the lawmaker has taken care not to limit the activities of
Attorney-General upon the practice of the respondent building and loan associations in an exclusive manner, and the
association with respect to depreciation be well founded, the exercise of the broader powers must in the end approve itself to
Legislature should supply the remedy by defining the extent to the business community.
which depreciation may be allowed by building and loan
associations. Certainly this court cannot undertake to
control the discretion of the board of directors of the
CAUSE OF ACTION 16: W/n the el Hogar charter may be
association about an administrative matter as to which they
revoked because various loans now outstanding have been
have legitimate power of action.
made by the respondent to corporations and partnerships, and
CAUSE OF ACTIONs 11 AND 12 :W/n el Hogar’s charter that these entities have in some instances subscribed to shares
should be revoked because it illegally maintains excessive in the respondent for the sole purpose of obtaining such loans,
reserve funds and because it pursues a policy, allegedly and that some of these juridical entities became shareholders
unlawful, of paying a straight annual dividend of 10% regardless merely for the purpose of qualifying themselves to take loans
from the association.
HELD: The Corporation Law declares that "any person" may
become a stockholder in building and loan associations. The
word "person" appears to be here used in its general sense, and
there is nothing in the context to indicate that the expression is
used in the restricted sense of both natural and artificial persons,
as indicated in section 2 of the Administrative Code. The word
"person" or persons," is NOT to be taken in this broad sense in
every part of the Corporation Law. For instance, it would seem
reasonable to say that the incorporators of a corporation ought
to be natural persons, although in section 6 it is said that five or
more "persons", although in section 6 it is said that five or more
"persons," not exceeding fifteen, may form a private corporation.
But the context there, as well as the common sense of the
situation, suggests that natural persons are meant.

When it is said, however, in section 173, that "any person" may


become a stockholder in a building and loan association, no
reason is seen why the phrase may not be taken in its proper
broad sense of either a natural or artificial person. At any rate
the question whether these loans and the attendant
subscriptions were properly made involves a consideration of
the power of the subscribing corporations and partnerships to
own the stock and take the loans; and it is not alleged in the
complaint that they were without power in the premises.

CAUSE OF ACTION 17: W/n el Hogar, in disposing of real


estate purchased in the collection of defaulted loans, on credit
at first and then sold and mortgaged to el Hogar to secure
payment of the purchase price, had incurred several outstanding
loans, and that that the persons and entities to which said
properties are sold under the condition charged are not
members or shareholders nor are they made members or
shareholders of the defendant.

HELD: NO. This part of the complaint is based upon a mere


technicality of bookkeeping. The central idea involved in the
discussion is the provision of the Corporation Law requiring
loans to be stockholders only and on the security of real estate
and shares in the corporation, or of shares alone. It seems to be
that, when the respondent sells property acquired at its own
foreclosure sales and takes a mortgage to secure the deferred
payments, the obligation of the purchaser is a true loan, and
hence prohibited.

But in requiring the respondent to sell real estate which it


acquires in connection with the collection of its loans within five
years after receiving title to the same, the law does not prescribe
that the property must be sold for cash or that the purchaser
shall be a shareholder in the corporation. Such sales can of
course be made upon terms and conditions approved by the
parties; and when the association takes a mortgage to secure
the deferred payments, the obligation of the purchaser cannot
be fairly described as arising out of a loan. Nor does the fact that
it is carried as a loan on the books of the respondent make it a
loan on the books of the respondent make it a loan in law. The
contention of the Government under this head is untenable.

Respondent is enjoined in the future from administering real


property not owned by itself, except as may be permitted to
it by contract when a borrowing shareholder defaults in his
obligation. In all other respects, the complaint is DISMISSED.
their legal priority, was to enforce the provisions of sections 48,
49 and 50 of the Insolvency Law in the sense that they are made
[G.R. No. 43682. March 31, 1938.] applicable to cases of insolvency or bankruptcy and liquidation
of banks. No other deduction can be made from the phrase "in
In re Liquidation of Mercantile Bank of China. TAN TIONG
the order of their legal priority" employed by the law, for there
TICK, claimants-appellant, v. AMERICAN APOTHECARIES
being no law establishing any priority in the order of payment of
CO., ET AL., Claimants-Appellees.
credits, the legislature could not reasonably refer to any
legislation upon the subject, unless the interpretation above
stated is accepted.

DOCTRINES:
5. ID.; ID.; SET OFF OF CREDITS. — The Bank Commissioner
1. BANKS; CHARACTER OF CURRENT ACCOUNT AND set off the claims of the appellant against what the bank had
SAVINGS DEPOSITS, APPLICABLE LAW. — Current account against him. The court approved this set off over the objection
and savings deposits are not preferred credits in the cases, like of the appellant. The appellees contend that the set off does not
the present, involving the insolvency and liquidation of a bank, lie in this case because otherwise it would prejudice them and
where there are various creditors and it becomes necessary to the other creditors in the liquidation. Held: That the court’s ruling
ascertain the preference of various credits. These deposits are is not error. "It may be stated as a general rule that when a
essentially mercantile contracts and should, therefore, be depositor is indebted to a bank, and the debts are mutual — that
governed by the provisions of the Code of Commerce, pursuant is, between the same parties and in the same right — the bank
to its article 2. may apply the deposit, or such portion thereof as may be
necessary, to the payment of the debt due it by the depositor,
provided there is no express agreement to the contrary and the
2. ID.; ID.; COMMERCIAL LOANS. — In accordance with deposit is not specifically applicable to some other particular
article 309 of the Code of Commerce, the so-called current purpose." (7 Am. Jur., par. 629, p. 455.) The situation referred
account and savings deposits have lost the character of deposits to by the appellees is inevitable because section 1639 of the
properly so called, and are converted into simple commercial Revised Administrative Code, as amended by Act No. 3519,
loans, because the bank disposed of the funds deposited by the provides that the Bank Commissioner shall reduce the assets of
claimant for its ordinary transactions and for the banking the bank into cash and this cannot be done without first
business in which it was engaged. That the bank had the liquidating individually the accounts of the debtors of said bank,
authority of the claimant to make use of the money deposited on and in making this individual liquidation the debtors are entitled
current and savings accounts is deducible from the fact that the to set off, by way of compensation, their claims against the bank.
bank has been paying interest on both deposits, and the
claimant himself asks that he be allowed interest up to the time
when the bank ceased its operations. Moreover, according to 6. ID.; ID.; INTEREST. — Under articles 1101 and 1108 of the
sections 125 of the Corporation Law and 9 of Act No. 3154, said Civil Code, interest is allowed by way of indemnity for damages
bank is authorized to make use of the current account, savings, suffered, in the cases wherein the obligation consists in the
and fixed deposits provided it retains in its treasury a certain payment of money. In view thereof, Held: That in the absence of
percentage of the amounts of said deposits. any express law or of any applicable provision of the Code of
Commerce, it is not proper to pay this last kind of interest to the
appellant upon his deposits in the bank, for this would be
3. ID.; PREFERENCE OF CREDITS IN CASES OF anomalous and unjustified in a liquidation or insolvency of a
INSOLVENCY AND LIQUIDATION OF A BANK. — Even after bank. This rule should be strictly observed in the instant case
the enactment of the Insolvency Law there was no law in this because it is understood that the assets should be prorated
jurisdiction governing the order or preference of credits in cases among all the creditors as they are insufficient to pay all the
of insolvency and liquidation of a bank. But the Philippine obligations of the bank.
Legislature subsequently enacted Act No. 3519, amending
various sections of the Revised Administrative Code, which took
effect on February 20, 1929, and section 1641 of this latter
Code, as amended by said Act, provides that "In the case of the
liquidation of a bank or banking institution, after payment of the FACTS:
costs of the proceedings, including reasonable expenses,
In the proceedings for the liquidation of the Mercantile Bank of
commissions and fees of the Bank Commissioner, to be allowed
China, the appellant presented a written claim alleging: that
by the court, the Bank Commissioner shall pay the debts of the
when this bank ceased to operate on September 19, 1931, his
institution, under decree of the court in the order of their legal
current account in said bank showed a balance of P9,657.50 in
priority."cralaw virtua1aw library
his favor; that on the same date his savings account in the said
bank also showed a balance in his favor of P20,000 plus interest
then due amounting to P194.78; that, on the other hand, he
4. ID.; ID.; LEGISLATIVE INTENTION. — From this section owed the bank in the amount of P13,262.58, the amount of the
1641 it is inferred that the intention of the Philippine Legislature, trust receipts which he signed because of his withdrawal from
in providing that the Bank Commissioner shall pay the debts of the bank of certain merchandise consigned to him without
the company by virtue of an order of the court in the order of paying the drafts drawn upon him by the remittors thereof; that
the credits thus described should be set off against each other
according to law, and on such set off being made it appeared
that he was still the creditor of the bank in the sum of ISSUES:
P16,589.70.
1. WHETHER OR NOT THE CURRENT ACCOUNT AND
SAVINGS DEPOSIT ARE NOT PREFERRED CREDITS? YES

And he asked that the court order the Bank Commissioner to 2. WHAT IS THE APPLICABLE LAW IN THIS CASE TO
pay him the aforesaid balance and that the same be declared as DETERMINE THE PREFERENCE OF THE APPELLANT’S
a preferred credit. The claim was referred to the commissioner CREDITS, CONSIDERING THAT THERE HAPPENS TO BE
appointed by the court, who at the same time acted as referee, OTHER CREDITORS? INSOLVENCY LAW
and this officer recommended that the balance claimed be paid
3. WHETHER OR NOT THE SET OFF OF CLAIMS DOES NOT
without interest and as an ordinary credit. The court approved
LIE IN THIS CASE BECAUSE IT WOULD PREJUDICE THE
the recommendation and entered judgment in accordance
APPELLEES AND THE OTHER CREDITORS IN THE
therewith. The claimant took an appeal.
LIQUIDATION? NO

4. WHETHER OR NOT THE APPELLANT IS NOT ENTITLED


In his report the commissioner classified the claims presented TO CHARGE INTEREST ON THE AMOUNTS OF HIS
under the following six groups:" CLAIMS? YES

(First) Current accounts, savings and fixed deposits.

(Second) Checks or drafts sold by the Mercantile Bank of China HELD:


and not paid by the correspondents or banks against which they
FIRST ISSUE:
were drawn.
1. Revolving the claims under the first group of the report of the
(Third) Checks or drafts issued by the Mercantile Bank of China
commissioner, the court rejected the recommendation of this
in payment or reimbursement of drafts or goods sent to it for
official to the effect that they be declared ordinary credits only,
collection by banks and foreign commercial houses against
and approved them as preferred credits. However, in
merchants or commercial entities of Manila.
considering the other claims, among them that of the appellant,
(Fourth) Drafts for collection received by the Mercantile Bank of classified under the fifth group, the court approved the
China to be collected from merchants and commercial entities in recommendation of the commissioner that they be declared
Manila, and which were pending collection on the date of the ordinary credits; in other words, the court considered and
suspension of payments. declared the claim of the appellant as an ordinary credit just
because the latter is at the same time a debtor of the bank,
(Fifth) Claims of depositors who are at the same time debtors notwithstanding the fact that his claim is of the same kind as
of the Mercantile Bank of China. those classified under the first group, inasmuch as they are also
current account and savings deposits.
(Sixth) Various claims."

But we are of the opinion, for the reason presently to be


"RECOMMENDATION OF THE COMMISSIONER” stated, that current account and savings deposits are not
preferred credits in the cases, like the present, involving the
insolvency and liquidation of a bank, where there are
"Having established the existence of such deposits in the name various creditors and it becomes necessary to ascertain the
of Tan Tiong Tick and the latter having recognized the obligation preference of various credits.
in favor of the bank alleged by the Bank Commissioner, for the
security of which he constituted the savings deposit in the
amount of P20,000, it is recommended that from this amount In our opinion, these deposits are essentially mercantile
there be deducted the amount of the obligation of P13,778.90 contracts and should, therefore, be governed by the provisions
which the claimant acknowledges in favor of the Mercantile Bank of the Code of Commerce.
of China, and that the difference, plus the other current account
deposit of P7,390.11, be considered as ordinary credits subject
to the equal division of the funds of the said bank.
The Code of Commerce contains express provisions regulating
deposits of the nature under consideration, and they are articles
303 to 310. The first and the second to the last of the said articles
"As to the interest on said deposits also claimed by Mr. Tan are as follows:
Tiong Tick, the rejection thereof is recommended in view of the
fact that the Bank Commissioner has not credited any interest to
the current and savings accounts of the Mercantile Bank of
China, and it would be unfair that interest, not credited to the "ART. 303. In order that a deposit may be considered
others, be allowed to this claimant." commercial, it is necessary —
"1. That the depositary, at least, be a merchant. the court made at the hearing mentioned in section forty-three
or at any ordinary hearing, is the assignee or any creditor whose
right in the estate of the insolvent has been established shall
petition in writing for such hearing and the court in its discretion
"2. That the things deposited be commercial objects.
shall to order, the creditors, however, retaining such rights in
said property as belong to the insolvent, and subrogating him
whenever they shall have complied with all obligations
"3. That the deposit constitute in itself a commercial transaction, concerning said property.
or be made by reason or as a consequence of commercial
transactions."

"ART. 309. Whenever, with the consent of the depositor, the "SEC. 49. All creditors, except those whose claims are
depositary disposes of the articles on deposit either for himself mentioned in the next following section, whose debts are duly
or for his business, or for transactions intrusted to him by the proved and allowed shall be entitled to share in the property and
former, the rights and obligations of the depositary and of the estate pro rata, after the property belonging to other persons
depositor shall cease, and the rules and provisions applicable to referred to in the last preceding section has been deducted
the commercial loans, commission, or contract which took the therefrom, without priority or preference whatever: Provided,
place of the deposit shall be observed." That any debt proved by any person liable as bail, surety,
guarantor, or otherwise, for the debtor, shall not be paid to the
person so proving the same until satisfactory evidence shall be
produced of the payment of such debt by such person so liable,
In accordance with article 309, the so-called current
and the share to which such debt would be entitled may be paid
account and savings deposits have lost the character of
into court, or otherwise held, for the benefit of the party entitled
deposits properly so-called, and are converted into simple
thereto, as the court may direct.
commercial loans, because the bank disposed of the funds
deposited by the claimant for its ordinary transactions and
for the banking business in which it was engaged. That the
bank had the authority of the claimant to make use of the "SEC. 50. The following are the preferred claims which shall be
money deposited on current and savings accounts is paid in the order named:
deducible from the fact that the bank has been paying
interest on both deposits, and the claimant himself asks
that he be allowed interest up to the time when the bank "(a) Necessary funeral expenses of the debtor, or of his
ceased its operations. wife, or children who are under their parental authority and have
no property of their own, when approved by the court;

Therefore, the bank, without the necessity of the claimant’s


consent, was by law authorized to dispose of the deposits, "(b) Debts due for personal services rendered the insolvent
subject to the limitation indicated. by employees, laborers, or domestic servants immediately
preceding the commencement of proceedings in insolvency;

We, therefore, conclude that the law applicable to the


appellant’s claims is the Code of Commerce and that his "(c) Compensation due the laborers or their dependents
current and savings accounts have been converted into under the provisions of Act Numbered Thirty-four hundred and
simple commercial loans. twenty-eight, known as the Workmen’s Compensation Act, as
amended by Act Numbered Thirty-eight hundred and twelve,
and under the provisions of Act Numbered Eighteen hundred
SECOND ISSUE: and seventy-four, known as the Employers’ Liability Act, and of
other laws providing for payment of indemnity for damages in
The Philippine Legislature subsequently enacted Act No. 1956, cases of labor accidents;
also known as the Insolvency Law, which took effect on May 20,
1909, containing provisions regarding preference of credits; but
its section 52 provides that all the provisions of the law shall not
"(d) Legal expenses, and expenses incurred in the
apply to corporations engaged principally in the banking
administration of the insolvent’s estate for the common interest
business, and among them should be understood included the
of the creditors, when properly authorized and approved by the
Mercantile Bank of China. Said sections provide:
court;

"SEC. 48. Merchandise, effects, and any other kind of property


"(e) Debts, taxes, and assessments due the Insular
found among the property of the insolvent, the ownership of
Government;
which has not been conveyed to him by a legal and irrevocable
title, shall be considered to be the property of other persons and
shall be placed at the disposal of its lawful owners on order of
"(f) Debts, taxes, and assessments due to any province or We hold that the court’s ruling is not error. "It may be stated
provinces of the Philippine Islands; as a general rule that when a depositor is indebted to a bank,
and the debts are mutual — that is, between the same parties
and in the same right — the bank may apply the deposit, or such
portion thereof as may be necessary, to the payment of the debt
"(g) Debts, taxes, and assessments due to any municipally
due it by the depositor, provided there is no express agreement
or municipalities of the Philippine Islands;
to the contrary and the deposit is not specifically applicable to
some other particular purpose." The situation referred to by
the appellees is inevitable because section 1639 of the
"All other creditors shall be paid pro rata." (As amended by Act ’Revised Administrative Code, as amended by Act No. 3519,
No. 3962.) provides that the Bank Commissioner shall reduce the
assets of the bank into cash and this cannot be done
without first liquidating individually the accounts of the
"ART. 52. . . . The provisions of this Act shall not apply to debtors of said bank, and in making this individual
corporations engaged principally in the banking business, or to liquidation the debtors are entitled to set off, by way of
any other corporation as to which there is any special provision compensation, their claims against the bank.
of law for its liquidation in case of insolvency

FOURTH ISSUE:
It appears that even after the enactment of the Insolvency
Upon this point a distinction must be made between the interest
Law there was no law in this jurisdiction governing the
which the deposits should earn from their existence until the
order or preference of credits in cases of insolvency and
bank ceased to operate, and that which they may earn from the
liquidation of a bank. But the Philippine Legislature
time the bank’s operations were stopped until the date of
subsequently enacted Act No. 3519, amending various sections
payment of the deposits.
of the Revised Administrative Code, which took effect on
February 20, 1929, and section 1641 of this latter Code, as
amended by said Act, provides:
As to the first class, we hold that it should be paid because such
interest has been earned in the ordinary course of the bank’s
business and before the latter has been declared in a state of
"SEC. 1641. Distribution of assets. — In the case of the
liquidation. Moreover, the bank being authorized by law to make
liquidation of a bank or banking institution, after payment of the
use of the deposits, with the limitation stated, to invest the same
costs of the proceedings, including reasonable expenses, in its business and other operations, it may be presumed that
commissions and fees of the Bank Commissioner, to be allowed it bound itself to pay interest to the deposits as in fact it
by the court, the Bank Commissioner shall pay the debts of the paid interest prior to the dates of the said claims.
institution, under decree of the court in the order of their legal
priority."

As to the interest (second class) which may be charged from


the date the bank ceased to do business because it was
From this section 1641 we deduce that the intention of the
declared in a state of liquidation, we held that the said interest
Philippine Legislature, in providing that the Bank Commissioner
should not be paid.
shall pay the debts of the company by virtue of an order of the
court in the order of their legal priority, was to enforce the
provisions of sections 48, 49 and 50 of the Insolvency Law in the
sense that they are made applicable to cases of insolvency or Under articles 1101 and 1108 of the Civil Code, interest is
bankruptcy and liquidation of banks. No other deduction can allowed by way of indemnity for damages suffered, in the
be made from the phrase "in the order of their legal priority" cases wherein the obligation consists in the payment of
employed by the law, for there being no law establishing money. In view of this, we hold that in the absence of any
any priority in the order of payment of credits, the express law or of any applicable provision of the Code of
legislature could not reasonably refer to any legislation Commerce, it is not proper to pay this last kind of interest
upon the subject, unless the interpretation above stated is to the appellant upon his deposits in the bank, for this
accepted. would be anomalous and unjustified in a liquidation or
insolvency of a bank. This rule should be strictly observed
in the instant case because it is understood that the assets
should be prorated among all the creditors as they are
Examining now the claims of the appellant, it appears that insufficient to pay all the obligations of the bank.
none of them falls under any of the cases specified by
sections 48, 49 and 50 of the Insolvency Law; wherefore, we
conclude that the appellant’s claims, consisting of his
current and savings accounts, are not preferred credits.

THIRD ISSUE:
G.R. No. 89252 May 24, 1993 the corporate affairs of the other two (2) were administered and
managed for the benefit of one. There is simply not enough
RAUL SESBREÑO, petitioner, vs. evidence of record to justify disregarding the separate
corporate personalities of delta and Pilipinas and to hold them
HON. COURT OF APPEALS, DELTA MOTORS
CORPORATION AND PILIPINAS BANK, respondents. liable for any assumed or undetermined liability of Philfinance
to petitioner.

Same; Civil Law; For the protection of investors,


depository or custodianship agreements made an integral
part of money market transactions.- We believe and so hold
DOCTRINES: that a contract of deposit was constituted by the act of
Philfinance in designating Pilipinas as custodian or depositary
Commercial Law; Non-negotiable Promissory
bank. The depositor was initially Philfinance; the obligation of
Notes; An instrument though marked non-negotiable, may
the depository was owed, however, to petitioner Sesbreño as
nevertheless be assigned or transferred.- A non-negotiable
beneficiary of the custodianship or depository agreement. We
instrument may, obviously, not be negotiated; but it may be
do not consider that this is a simple case of a stipulation pour
assigned or transferred, absent an express prohibition against
autri. The custodianship or depositary agreement was
assignment or transfer written in the face of the instrument.
established as an integral part of the money market transaction
The words "not negotiable," stamped on the face of the bill of
entered into by petitioner with Philfinance. Petitioner bought a
lading, did not destroy its assignability, but the sole effect was
portion of DMC PN No. 2731; Philfinance as assignor-vendor
to exempt the bill from the statutory provisions relative thereto,
deposited that Note with Pilipinas in order that the thing sold
and a bill, though not negotiable, may be transferred by
would be placed outside the control of the vendor.
assignment; the assignee taking subject to the equities
between the original parties. DMC PN No. 2731, while marked Same; Same; Extinguishment of Obligations;
"non-negotiable," was not at the same time stamped "non- Compensation may defeat assignee’s rights before notice
transferable" or "non-assignable." It contained no stipulation of the assignment is given to the debtor- In other words,
which prohibited Philfinance from assigning or transferring, in petitioner notified Delta of his rights as assignee after
whole or in part, that Note. compensation had taken place by operation of law because
the offsetting instruments had both reached maturity. It is a
Same; Assignment of Credit; Debtor’s consent
firmly settled doctrine that the rights of an assignee are not any
not needed to effectuate assignment.- Apropos Delta's
greater that the rights of the assignor, since the assignee is
complaint that the partial assignment by Philfinance of DMC
merely substituted in the place of the assignor 20 and that the
PN No. 2731 had been effected without the consent of Delta,
assignee acquires his rights subject to the equities — i.e., the
we note that such consent was not necessary for the validity
defenses — which the debtor could have set up against the
and enforceability of the assignment in favor of petitioner.
original assignor before notice of the assignment was given to
Delta's argument that Philfinance's sale or assignment of part
the debtor. At the time that Delta was first put to notice of the
of its rights to DMC PN No. 2731 constituted conventional
assignment in petitioner's favor on 14 July 1981, DMC PN No.
subrogation, which required its (Delta's) consent, is quite
2731 had already been discharged by compensation. Since
mistaken.
the assignor Philfinance could not have then compelled
Same; Same; Agreement prohibiting transfer payment anew by Delta of DMC PN No. 2731, petitioner, as
cannot be invoked against assignee who, without notice assignee of Philfinance, is similarly disabled from collecting
parted with valuable consideration in good faith- We find from Delta the portion of the Note assigned to him.
nothing in his "Letter of Agreement" which can be reasonably Same; Same; Solidary Liability- The solidary
construed as a prohibition upon Philfinance assigning or
liability that petitioner seeks to impute Pilipinas cannot,
transferring all or part of DMC PN No. 2731, before the maturity
however, be lightly inferred. Under article 1207 of the Civil
thereof. It is scarcely necessary to add that, even had this
Code, "there is a solidary liability only when the law or the
"Letter of Agreement" set forth an explicit prohibition of transfer
nature of the obligation requires solidarity," The record here
upon Philfinance, such a prohibition cannot be invoked against
exhibits no express assumption of solidary liability vis-a-vis
an assignee or transferee of the Note who parted with valuable
petitioner, on the part of Pilipinas. Petitioner has not pointed to
consideration in good faith and without notice of such
us to any law which imposed such liability upon Pilipinas nor
prohibition. It is not disputed that petitioner was such an
has petitioner argued that the very nature of the custodianship
assignee or transferee.
assumed by private respondent Pilipinas necessarily implies
Same; Corporations; Grounds for piercing the solidary liability under the securities, custody of which was
veil of corporate fiction- Secondly, it is not disputed that taken by Pilipinas. Accordingly, we are unable to hold Pilipinas
Philfinance and private respondents Delta and Pilipinas have solidarily liable with Philfinance and private respondent Delta
been organized as separate corporate entities. Petitioner asks under DMC PN No. 2731.
us to pierce their separate corporate entities, but has been
able only to cite the presence of a common Director — Mr.
Ricardo Silverio, Sr., sitting on the Board of Directors of all
three (3) companies. Petitioner has neither alleged nor proved
that one or another of the three (3) concededly related
companies used the other two (2) as mere alter egos or that
FACTS:
Petitioner Raul Sesbreño made a money market placement in As petitioner had failed to collect his investment and interest
the amount of P300,000.00 with the Philippine Underwriters thereon, he filed on 28 September 1982 an action for damages
Finance Corporation ("Philfinance"), Cebu Branch; the with the Regional Trial Court ("RTC") of Cebu City, Branch 21,
placement, with a term of thirty-two (32) days, would mature against private respondents Delta and Pilipinas.
on 13 March 1981.

RTC: dismissed the complaint and counterclaims for lack of


Petitioner sought to encash the postdated checks issued by merit and for lack of cause of action.
Philfinance. However, the checks were dishonored for having
been drawn against insufficient funds. Thereafter, Philfinance
delivered to petitioner the DCR No. 10805 issued by private CA: denied the appeal.
respondent Pilipinas Bank ("Pilipinas").

Petitioner moved for reconsideration of the above Decision,


Petitioner approached Ms. Elizabeth de Villa of private
without success. Hence, this Petition for Review on Certiorari.
respondent Pilipinas, Makati Branch, and handed her a
demand letter informing the bank that his placement with
Philfinance in the amount reflected in the DCR No. 10805 had
remained unpaid and outstanding, and that he in effect was ISSUES:
asking for the physical delivery of the underlying promissory
1. WHETHER OR NOT THE ASSIGNMENT
note. Petitioner then examined the original of the DMC PN No.
EFFECTED BY PHILFINANCE IN FAVOR OF
2731 and found: that the security had been issued on 10 April
PETITIONER WAS A VALID? YES
1980; that it would mature on 6 April 1981; that it had a face
value of P2,300,833.33, with the Philfinance as "payee" and 2. WHETHER OR NOT COMPENSATION HAD TAKEN
private respondent Delta Motors Corporation ("Delta") as PLACE? YES
"maker;" and that on face of the promissory note was stamped
"NON NEGOTIABLE." Pilipinas did not deliver the Note, nor 3. WHETHER OR NOT PILIPINAS BECAME
any certificate of participation in respect thereof, to petitioner. SOLIDARILY LIABLE WITH PHILFINANCE AND
DELTA? NO

Petitioner later made similar demand letters asking private


respondent Pilipinas for physical delivery of the original of HELD:
DMC PN No. 2731. Pilipinas allegedly referred all of
petitioner's demand letters to Philfinance for written FIRST ISSUE:
instructions, as has been supposedly agreed upon in
Apropos Delta's complaint that the partial assignment by
"Securities Custodianship Agreement" between Pilipinas and
Philfinance of DMC PN No. 2731 had been effected without
Philfinance. Philfinance did not provide the appropriate
the consent of Delta, we note that such consent was not
instructions; Pilipinas never released DMC PN No. 2731, nor
necessary for the validity and enforceability of the assignment
any other instrument in respect thereof, to petitioner.
in favor of petitioner. Delta's argument that Philfinance's sale
or assignment of part of its rights to DMC PN No. 2731
constituted conventional subrogation, which required its
Petitioner also made a written demand upon private (Delta's) consent, is quite mistaken. Conventional subrogation,
respondent Delta for the partial satisfaction of DMC PN No. which in the first place is never lightly inferred, must be clearly
2731, explaining that Philfinance, as payee thereof, had established by the unequivocal terms of the substituting
assigned to him said Note to the extent of P307,933.33. Delta, obligation or by the evident incompatibility of the new and old
however, denied any liability to petitioner on the promissory obligations on every point. Nothing of the sort is present in the
note, and explained in turn that it had previously agreed with instant case.
Philfinance to offset its DMC PN No. 2731 (along with DMC
PN No. 2730) against Philfinance PN No. 143-A issued in favor
of Delta.
It is in fact difficult to be impressed with Delta's complaint,
since it released its DMC PN No. 2731 to Philfinance, an entity
engaged in the business of buying and selling debt instruments
In the meantime, Philfinance was placed under the joint and other securities, and more generally, in money market
management of the Securities and exchange commission transactions. In Perez v. Court of Appeals, the Court,
("SEC") and the Central Bank. Pilipinas delivered to the SEC speaking through Mme. Justice Herrera, made the following
DMC PN No. 2731, which to date apparently remains in the important statement:
custody of the SEC.

There is another aspect to this case. What is involved here is


a money market transaction.
Delta of DMC PN No. 2731, petitioner, as assignee of
Philfinance, is similarly disabled from collecting from Delta the
As defined by Lawrence Smith "the money market is a portion of the Note assigned to him.
market dealing in standardized short-term credit
instruments (involving large amounts) where lenders and
borrowers do not deal directly with each other but through
a middle manor a dealer in the open market." It involves It bears some emphasis that petitioner could have notified
"commercial papers" which are instruments "evidencing Delta of the assignment or sale was effected on 9 February
indebtness of any person or entity. . ., which are issued, 1981. He could have notified Delta as soon as his money
endorsed, sold or transferred or in any manner conveyed market placement matured on 13 March 1981 without
to another person or entity, with or without recourse". The payment thereof being made by Philfinance; at that time,
fundamental function of the money market device in its compensation had yet to set in and discharge DMC PN No.
operation is to match and bring together in a most 2731. Again petitioner could have notified Delta on 26
impersonal manner both the "fund users" and the "fund March 1981 when petitioner received from Philfinance the
suppliers." The money market is an "impersonal market", Denominated Custodianship Receipt ("DCR") No. 10805
free from personal considerations. "The market mechanism issued by private respondent Pilipinas in favor of
is intended to provide quick mobility of money and petitioner. Petitioner could, in fine, have notified Delta at
securities." any time before the maturity date of DMC PN No. 2731.
Because petitioner failed to do so, and because the record
XXXXXXXXXX is bare of any indication that Philfinance had itself notified
Delta of the assignment to petitioner, the Court is
compelled to uphold the defense of compensation raised
by private respondent Delta. Of course, Philfinance
As noted, the assignment to petitioner was made on 9
remains liable to petitioner under the terms of the
February 1981 or from forty-nine (49) days before the "co-
assignment made by Philfinance to petitioner.
terminal maturity" date, that is to say, before any compensation
had taken place. Further, the assignment to petitioner would
have prevented compensation had taken place between
Philfinance and Delta, to the extent of P304,533.33, because THIRD ISSUE:
upon execution of the assignment in favor of petitioner,
Philfinance and Delta would have ceased to be creditors and We find nothing in the DCR that establishes an obligation on
debtors of each other in their own right to the extent of the the part of Pilipinas to pay petitioner the amount of
amount assigned by Philfinance to petitioner. Thus, we P307,933.33 nor any assumption of liability in solidum with
conclude that the assignment effected by Philfinance in Philfinance and Delta under DMC PN No. 2731.
favor of petitioner was a valid one and that petitioner
accordingly became owner of DMC PN No. 2731 to the
extent of the portion thereof assigned to him. We find nothing written in printers ink on the DCR which could
reasonably be read as converting Pilipinas into an obligor
under the terms of DMC PN No. 2731 assigned to petitioner,
either upon maturity thereof or any other time. We note that
both in his complaint and in his testimony before the trial court,
SECOND ISSUE: petitioner referred merely to the obligation of private
respondent Pilipinas to effect the physical delivery to him of
The record shows, however, that petitioner notified Delta of the DMC PN No. 2731.25 Accordingly, petitioner's theory that
fact of the assignment to him only on 14 July 1981, 19 that is, Pilipinas had assumed a solidary obligation to pay the amount
after the maturity not only of the money market placement represented by a portion of the Note assigned to him by
made by petitioner but also of both DMC PN No. 2731 and Philfinance, appears to be a new theory constructed only after
Philfinance PN No. 143-A. In other words, petitioner notified the trial court had ruled against him. The solidary liability that
Delta of his rights as assignee after compensation had petitioner seeks to impute Pilipinas cannot, however, be
taken place by operation of law because the offsetting lightly inferred. Under article 1207 of the Civil Code, "there is
instruments had both reached maturity. It is a firmly a solidary liability only when the law or the nature of the
settled doctrine that the rights of an assignee are not any obligation requires solidarity," The record here exhibits no
greater that the rights of the assignor, since the assignee express assumption of solidary liability vis-a-vis
is merely substituted in the place of the assignor and that petitioner, on the part of Pilipinas. Petitioner has not pointed
the assignee acquires his rights subject to the equities — to us to any law which imposed such liability upon Pilipinas nor
i.e., the defenses — which the debtor could have set up has petitioner argued that the very nature of the custodianship
against the original assignor before notice of the assumed by private respondent Pilipinas necessarily implies
assignment was given to the debtor. solidary liability under the securities, custody of which was
taken by Pilipinas. Accordingly, we are unable to hold
Pilipinas solidarily liable with Philfinance and private
At the time that Delta was first put to notice of the assignment respondent Delta under DMC PN No. 2731.
in petitioner's favor on 14 July 1981, DMC PN No. 2731 had
already been discharged by compensation. Since the assignor
Philfinance could not have then compelled payment anew by
We do not, however, mean to suggest that Pilipinas has no
responsibility and liability in respect of petitioner under the
terms of the DCR. To the contrary, we find, after prolonged In the case at bar, the custodian-depositary bank Pilipinas
analysis and deliberation, that private respondent refused to deliver the security deposited with it when
Pilipinas had breached its undertaking under the DCR to petitioner first demanded physical delivery thereof on 2
petitioner Sesbreño. April 1981. We must again note, in this connection, that on 2
April 1981, DMC PN No. 2731 had not yet matured and
therefore, compensation or offsetting against Philfinance PN
No. 143-A had not yet taken place. Instead of complying with
[CUSTODIANSHIP OR DEPOSITRAY AGREEMENT] the demand of the petitioner, Pilipinas purported to
require and await the instructions of Philfinance, in
We believe and so hold that a contract of deposit was
obvious contravention of its undertaking under the DCR
constituted by the act of Philfinance in designating
to effect physical delivery of the Note upon receipt of
Pilipinas as custodian or depositary bank. The depositor
"written instructions" from petitioner Sesbreño. The
was initially Philfinance; the obligation of the depository was
ostensible term written into the DCR (i.e., "should this [DCR]
owed, however, to petitioner Sesbreño as beneficiary of the
remain outstanding in your favor thirty [30] days after its
custodianship or depository agreement. We do not consider
maturity") was not a defense against petitioner's demand for
that this is a simple case of a stipulation pour autri. The
physical surrender of the Note on at least three grounds:
custodianship or depositary agreement was established
firstly, such term was never brought to the attention of
as an integral part of the money market transaction
petitioner Sesbreño at the time the money market
entered into by petitioner with Philfinance. Petitioner
placement with Philfinance was made; secondly, such
bought a portion of DMC PN No. 2731; Philfinance as
term runs counter to the very purpose of the
assignor-vendor deposited that Note with Pilipinas in order that
custodianship or depositary agreement as an integral part
the thing sold would be placed outside the control of the
of a money market transaction; and thirdly, it is
vendor. Indeed, the constituting of the depositary or
inconsistent with the provisions of Article 1988 of the Civil
custodianship agreement was equivalent to constructive
Code noted above. Indeed, in principle, petitioner became
delivery of the Note (to the extent it had been sold or
entitled to demand physical delivery of the Note held by
assigned to petitioner) to petitioner. It will be seen that
Pilipinas as soon as petitioner's money market placement
custodianship agreements are designed to facilitate
matured on 13 March 1981 without payment from
transactions in the money market by providing a basis for
Philfinance.
confidence on the part of the investors or placers that the
instruments bought by them are effectively taken out of the
pocket, as it were, of the vendors and placed safely beyond
their reach, that those instruments will be there available to the
placers of funds should they have need of them. The
depositary in a contract of deposit is obliged to return the
security or the thing deposited upon demand of the
depositor (or, in the presented case, of the beneficiary) of
the contract, even though a term for such return may have
been established in the said contract. Accordingly, any
stipulation in the contract of deposit or custodianship that runs
counter to the fundamental purpose of that agreement or which
was not brought to the notice of and accepted by the placer-
beneficiary, cannot be enforced as against such beneficiary-
placer.

We believe that the position taken above is supported by


considerations of public policy. If there is any party that
needs the equalizing protection of the law in money market
transactions, it is the members of the general public whom
place their savings in such market for the purpose of
generating interest revenues. The custodian bank, if it is not
related either in terms of equity ownership or management
control to the borrower of the funds, or the commercial paper
dealer, is normally a preferred or traditional banker of such
borrower or dealer (here, Philfinance). The custodian bank
would have every incentive to protect the interest of its client
the borrower or dealer as against the placer of funds. The
providers of such funds must be safeguarded from the impact
of stipulations privately made between the borrowers or
dealers and the custodian banks, and disclosed to fund-
providers only after trouble has erupted.