MACALINAO VS BANK OF THE PHILIPPINE ISLANDSG.R. No. 175490 September 17, 2009 Facts

Petitioner Ileana Macalinao was an approved cardholder of BPI Mastercard, one of the credit card facilities of respondent Bank of the Philippine Islands (BPI).[3] Petitioner Macalinao made some purchases through the use of the said credit card and defaulted in paying for said purchases. She subsequently received a letter dated January 5, 2004 from respondent BPI, demanding payment of the amount of one hundred forty-one thousand five hundred eighteen pesos and thirty-four centavos (PhP 141,518.34), as follows: *table

 Under the Terms and Conditions Governing the Issuance and Use of the BPI Credit and BPI Mastercard,

the charges or balance thereof remaining unpaid after the payment due date indicated on the monthly Statement of Accounts shall bear interest at the rate of 3% per month and an additional penalty fee equivalent to another 3% per month. Particularly:

8. PAYMENT OF CHARGES BCC shall furnish the Cardholder a monthly Statement of Account (SOA) and the Cardholder agrees that all charges made through the use of the CARD shall be paid by the Cardholder as stated in the SOA on or before the last day for payment, which is twenty (20) days from the date of the said SOA, and such payment due date may be changed to an earlier date if the Cardholders account is considered overdue and/or with balances in excess of the approved credit limit, or to such other date as may be deemed proper by the CARD issuer with notice to the Cardholder on the same monthly SOA. If the last day fall on a Saturday, Sunday or a holiday, the last day for the payment automatically becomes the last working day prior to said payment date. However, notwithstanding the absence or lack of proof of service of the SOA of the Cardholder, the latter shall pay any and all charges made through the use of the CARD within thirty (30) days from date or dates thereof. Failure of the Cardholder to pay the charges made through the CARD within the payment period as stated in the SOA or within thirty (30) days from actual date or dates of purchase whichever occur earlier, shall render him in default without the necessity of demand from BCC, which the Cardholder expressly waives. The charges or balance thereof remaining unpaid after the payment due date indicated on the monthly Statement of Accounts shall bear interest at the rate of 3% per month for BPI Express Credit, BPI Gold Mastercard and an additional penalty fee equivalent to another 3% of the amount due for every month or a fraction of a months delay. PROVIDED that if there occurs any change on the prevailing market rates, BCC shall have the option to adjust the rate of interest and/or penalty fee due on the outstanding obligation with prior notice to the cardholder. The Cardholder hereby authorizes BCC to correspondingly increase the rate of such interest [in] the event of changes in the prevailing market rates, and to charge additional service fees as may be deemed necessary in order to maintain its service to the Cardholder. A CARD with outstanding balance unpaid after thirty (30) days from original billing statement date shall automatically be suspended, and those with accounts unpaid after ninety (90) days from said original billing/statement date shall automatically be cancel (sic), without prejudice to BCCs right to suspend or cancel any card anytime and for whatever reason. In case of default in his obligation as provided herein, Cardholder shall surrender his/her card to BCC and in addition to the interest and penalty charges aforementioned , pay the following liquidated damages and/or fees (a) a collection fee of 25% of the amount due if the account is referred to a collection agency or attorney; (b) service fee for every dishonored check issued by the cardholder in payment of his account without prejudice, however, to BCCs right of considering Cardholders account, and (c) a final fee equivalent to 25% of the unpaid balance, exclusive of litigation expenses and judicial cost, if the payment of the account is enforced though court action. Venue of all civil suits to enforce this Agreement or any other suit directly or indirectly arising from the relationship between the parties as established herein, whether arising from crimes, negligence or breach thereof, shall be in the process of courts of the City of Makati or in other courts at the option of BCC.[4] (Emphasis supplied.)

 For failure of petitioner Macalinao to settle her obligations, respondent BPI filed with the Metropolitan Trial

Court (MeTC) of Makati City a complaint for a sum of money against her and her husband, Danilo SJ. Macalinao. This was raffled to Branch 66 of the MeTC and was docketed as Civil Case No. 84462 entitled Bank of the Philippine Islands vs. Spouses Ileana Dr. Macalinao and Danilo SJ. Macalinao.[5]

In said complaint, respondent BPI prayed for the payment of the amount of one hundred fifty-four thousand six hundred eight pesos and seventy-eight centavos (PhP 154,608.78) plus 3.25% finance charges and late payment charges equivalent to 6% of the amount due from February 29, 2004 and an amount equivalent to 25% of the total amount due as attorneys fees, and of the cost of suit.[6]

After the summons and a copy of the complaint were served upon petitioner Macalinao and her husband, they failed to file their Answer.[7] Thus, respondent BPI moved that judgment be rendered in accordance with Section 6 of the Rule on Summary Procedure.[8] This was granted in an Order dated June 16, 2004.[9] Thereafter, respondent BPI submitted its documentary evidence.[10]

In its Decision dated August 2, 2004, the MeTC ruled in favor of respondent BPI and ordered petitioner Macalinao and her husband to pay the amount of PhP 141,518.34 plus interest and penalty charges of 2% per month, to wit:

WHEREFORE, finding merit in the allegations of the complaint supported by documentary evidence, judgment is hereby rendered in favor of the plaintiff, Bank of

the Philippine Islands and against defendant-spouses Ileana DR Macalinao and Danilo SJ Macalinao by ordering the latter to pay the former jointly and severally the following:

1.      The amount of PESOS: ONE HUNDRED FORTY ONE THOUSAND FIVE HUNDRED EIGHTEEN AND 34/100 (P141,518.34) plus interest and penalty charges of 2% per month from January 05, 2004 until fully paid;2.      P10,000.00 as and by way of attorneys fees; and3.      Cost of suit. SO ORDERED.[11] 

Only petitioner Macalinao and her husband appealed to the Regional Trial Court (RTC) of Makati City, their recourse docketed as Civil Case No. 04-1153. In its Decision dated October 14, 2004, the RTC affirmed in toto the decision of the MeTC and held:

In any event, the sum of P141,518.34 adjudged by the trial court appeared to be the result of a recomputation at the reduced rate of 2% per month. Note that the total amount sought by the plaintiff-appellee was P154,608.75 exclusive of finance charge of 3.25% per month and late payment charge of 6% per month.

 WHEREFORE, the appealed decision is hereby affirmed in toto. No pronouncement as to costs. SO ORDERED.[12] 

Unconvinced, petitioner Macalinao filed a petition for review with the CA, which was docketed as CA-G.R. SP No. 92031. The CA affirmed with modification the Decision of the RTC:

WHEREFORE, the appealed decision is AFFIRMED but MODIFIED with respect to the total amount due and interest rate. Accordingly, petitioners are jointly and severally ordered to pay respondent Bank of the Philippine Islands the following: 

1.      The amount of One Hundred Twenty Six Thousand Seven Hundred Six Pesos and Seventy Centavos plus interest and penalty charges of 3% per month from January 5, 2004 until fully paid;

2.      P10,000.00 as and by way of attorneys fees; and3.      Cost of Suit.

SO ORDERED.[13]Although sued jointly with her husband, petitioner Macalinao was the only one who filed the petition before

the CA since her husband already passed away on October 18, 2005.[14]In its assailed decision, the CA held that the amount of PhP 141,518.34 (the amount sought to be satisfied

in the demand letter of respondent BPI) is clearly not the result of the re-computation at the reduced interest rate as previous higher interest rates were already incorporated in the said amount. Thus, the said amount should not be made as basis in computing the total obligation of petitioner Macalinao. Further, the CA also emphasized that respondent BPI should not compound the interest in the instant case absent a stipulation to that effect. The CA also held, however, that the MeTC erred in modifying the amount of interest rate from 3% monthly to only 2% considering that petitioner Macalinao freely availed herself of the credit card facility offered by respondent BPI to the general public. It explained that contracts of adhesion are not invalid per se and are not entirely prohibited.

Petitioner Macalinaos motion for reconsideration was denied by the CA in its Resolution dated November 21, 2006. Hence, petitioner Macalinao is now before this Court with the following assigned errors:

I.THE REDUCTION OF INTEREST RATE, FROM 9.25% TO 2%, SHOULD BE UPHELD SINCE THE STIPULATED RATE OF INTEREST WAS UNCONSCIONABLE AND INIQUITOUS, AND THUS ILLEGAL.

II.THE COURT OF APPEALS ARBITRARILY MODIFIED THE REDUCED RATE OF INTEREST FROM 2% TO 3%, CONTRARY TO THE TENOR OF ITS OWN DECISION. 

III.THE COURT A QUO, INSTEAD OF PROCEEDING WITH A RECOMPUTATION, SHOULD HAVE DISMISSED THE CASE FOR FAILURE OF RESPONDENT BPI TO PROVE THE CORRECT AMOUNT OF PETITIONERS OBLIGATION, OR IN THE ALTERNATIVE, REMANDED THE CASE TO THE LOWER COURT FOR RESPONDENT BPI TO PRESENT PROOF OF THE CORRECT AMOUNT THEREOF.

Our RulingThe petition is partly meritorious.

The Interest Rate and Penalty Charge of 3% Per Month or 36% Per Annum Should Be Reduced to 2% Per Month or 24% Per Annum

In its Complaint, respondent BPI originally imposed the interest and penalty charges at the rate of 9.25% per month or 111% per annum. This was declared as unconscionable by the lower courts for being clearly excessive, and was thus reduced to 2% per month or 24% per annum. On appeal, the CA modified the rate of interest and penalty charge and increased them to 3% per month or 36% per annum based on the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, which governs the transaction between petitioner Macalinao and respondent BPI.

In the instant petition, Macalinao claims that the interest rate and penalty charge of 3% per month imposed by the CA is iniquitous as the same translates to 36% per annum or thrice the legal rate of interest.[15] On the other hand, respondent BPI asserts that said interest rate and penalty charge are reasonable as the same are based on the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card.[16]

We find for petitioner. We are of the opinion that the interest rate and penalty charge of 3% per month should be equitably reduced to 2% per month or 24% per annum.

Indeed, in the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, there was a stipulation on the 3% interest rate. Nevertheless, it should be noted that this is not the first time that this Court has considered the interest rate of 36% per annum as excessive and unconscionable. We held in Chua vs. Timan:[17]

The stipulated interest rates of 7% and 5% per month imposed on respondents loans must be equitably reduced to 1% per month or 12% per annum. We need not unsettle the principle we had affirmed in a plethora of cases that stipulated interest rates of 3% per month and higher are excessive, iniquitous, unconscionable and exorbitant. Such stipulations are void for being contrary to morals, if not against the law. While C.B. Circular No. 905-82, which took effect on January 1, 1983, effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless of maturity, nothing in the said circular could possibly be read as granting carte blanche authority to lenders to raise interest rates to levels which would either enslave their borrowers or lead to a hemorrhaging of their assets. (Emphasis supplied.)

  

Since the stipulation on the interest rate is void, it is as if there was no express contract thereon. Hence, courts may reduce the interest rate as reason and equity demand.[18]

The same is true with respect to the penalty charge. Notably, under the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, it was also stated therein that respondent BPI shall impose an additional penalty charge of 3% per month. Pertinently, Article 1229 of the Civil Code states:

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.In exercising this power to determine what is iniquitous and unconscionable, courts must consider the

circumstances of each case since what may be iniquitous and unconscionable in one may be totally just and equitable in another.[19]

In the instant case, the records would reveal that petitioner Macalinao made partial payments to respondent BPI, as indicated in her Billing Statements.[20]  Further, the stipulated penalty charge of 3% per month or 36% per annum, in addition to regular interests, is indeed iniquitous and unconscionable.

Thus, under the circumstances, the Court finds it equitable to reduce the interest rate pegged by the CA at 1.5% monthly to 1% monthly and penalty charge fixed by the CA at 1.5% monthly to 1% monthly or a total of 2% per month or 24% per annum in line with the prevailing jurisprudence and in accordance with Art. 1229 of the Civil Code.

 There Is No Basis for the Dismissal of the Case,

Much Less a Remand of the Same for Further Reception of Evidence  

Petitioner Macalinao claims that the basis of the re-computation of the CA, that is, the amount of PhP 94,843.70 stated on the October 27, 2002 Statement of Account, was not the amount of the principal obligation. Thus, this allegedly necessitates a re-examination of the evidence presented by the parties. For this reason, petitioner Macalinao further contends that the dismissal of the case or its remand to the lower court would be a more appropriate disposition of the case.

Such contention is untenable. Based on the records, the summons and a copy of the complaint were served upon petitioner Macalinao and her husband on May 4, 2004. Nevertheless, they failed to file their Answer despite such service. Thus, respondent BPI moved that judgment be rendered accordingly.[21] Consequently, a decision was rendered by the MeTC on the basis of the evidence submitted by respondent BPI. This is in consonance with Sec. 6 of the Revised Rule on Summary Procedure, which states:

Sec.  6.  Effect of failure to answer. Should the defendant fail to answer the complaint within the period above provided, the court, motu proprio, or on motion of the plaintiff, shall render judgment as may be warranted by the facts alleged in the complaint and limited to what is prayed for therein: Provided, however, that the court may in its discretion reduce the amount of damages and attorneys fees claimed for being excessive or otherwise unconscionable. This is without prejudice to the applicability of Section 3(c), Rule 10 of the Rules of Court, if there are two or more defendants. (As amended by the 1997 Rules of Civil Procedure; emphasis supplied.)

  

Considering the foregoing rule, respondent BPI should not be made to suffer for petitioner Macalinaos failure to file an answer and concomitantly, to allow the latter to submit additional evidence by dismissing or remanding the case for further reception of evidence. Significantly, petitioner Macalinao herself admitted the existence of her obligation to respondent BPI, albeit with reservation as to the principal amount. Thus, a dismissal of the case would cause great injustice to respondent BPI. Similarly, a remand of the case for further reception of evidence would unduly prolong the proceedings of the instant case and render inutile the proceedings conducted before the lower courts.

Significantly, the CA correctly used the beginning balance of PhP 94,843.70 as basis for the re-

computation of the interest considering that this was the first amount which appeared on the Statement of Account of petitioner Macalinao. There is no other amount on which the re-computation could be based, as can be gathered from the evidence on record. Furthermore, barring a showing that the factual findings complained of are totally devoid of support in the record or that they are so glaringly erroneous as to constitute serious abuse of discretion, such findings must stand, for this Court is not expected or required to examine or contrast the evidence submitted by the parties.[22]

In view of the ruling that only 1% monthly interest and 1% penalty charge can be applied to the beginning balance of PhP 94,843.70, this Court finds the following computation more appropriate: *table  

 

WHEREFORE, the petition is PARTLY GRANTED. The CA Decision dated June 30, 2006 in CA-G.R. SP No. 92031 is hereby MODIFIED with respect to the total amount due, interest rate, and penalty charge. Accordingly, petitioner Macalinao is ordered to pay respondent BPI the following:

 (1) The amount of one hundred twelve thousand three hundred nine pesos and fifty-two centavos

(PhP 112,309.52) plus interest and penalty charges of 2% per month from January 5, 2004 until fully paid; (2) PhP 10,000 as and by way of attorneys fees; and (3) Cost of suit.

 SO ORDERED.

CENTRAL BANK OF THE PHILIPPINES vs CITYTRUST BANKING CORPORATION G.R. No. 141835 February 4, 2009

Pursuant to Republic Act No. 625, the old Central Bank Law, respondent Citytrust Banking Corporation (Citytrust), formerly Feati Bank, maintained a demand deposit account with petitioner Central Bank of the Philippines, now Bangko Sentral ng Pilipinas.

 As required, Citytrust furnished petitioner with the names and corresponding signatures of five of its

officers authorized to sign checks and serve as drawers and indorsers for its account. And it provided petitioner with the list and corresponding signatures of its roving tellers authorized to withdraw, sign receipts and perform other transactions on its behalf. Petitioner later issued security identification cards to the roving tellers one of whom was Rounceval Flores (Flores).

 On July 15, 1977, Flores presented for payment to petitioners Senior Teller Iluminada dela Cruz

(Iluminada) two Citytrust checks of even date, payable to Citytrust, one in the amount of P850,000 and the other in the amount of P900,000, both of which were signed and indorsed by Citytrusts authorized signatory-drawers.

 After the checks were certified by petitioners Accounting Department, Iluminada verified them, prepared

the cash transfer slip on which she affixed her signature, stamped the checks with the notation Received Payment and asked Flores to, as he did, sign on the space above such notation. Instead of signing his name, however, Flores signed as Rosauro C. Cayabyab a fact Iluminada failed to notice.

 Iluminada thereupon sent the cash transfer slip and checks to petitioners Cash Department where an

officer verified and compared the drawers signatures on the checks against their specimen signatures provided by Citytrust, and finding the same in order, approved the cash transfer slip and paid the corresponding amounts to Flores. Petitioner then debited the amount of the checks totaling P1,750,000 from Citytrusts demand deposit account.

 More than a year and nine months later, Citytrust, by letter dated April 23, 1979, alleging that the checks

were already cancelled because they were stolen, demanded petitioner to restore the amounts covered thereby to its demand deposit account. Petitioner did not heed the demand, however.

 Citytrust later filed a complaint for estafa, with reservation on the filing of a separate civil action, against

Flores. Flores was convicted. Citytrust thereafter filed before the Regional Trial Court (RTC) of Manila a complaint for recovery of sum of

money with damages against petitioner which it alleged erred in encashing the checks and in charging the proceeds thereof to its account, despite the lack of authority of Rosauro C. Cayabyab.

 By Decision[1] of November 13, 1991, Branch 32 of the RTC of Manila found both Citytrust and petitioner

negligent and accordingly held them equally liable for the loss. Both parties appealed to the Court of Appeals which, by Decision[2] dated July 16, 1999, affirmed the trial courts decision, it holding that both parties contributed equally to the fraudulent encashment of the checks, hence, they should equally share the loss in consonance with Article 2179[3] vis a vis Article 1172[4] of the Civil Code.

 In arriving at its Decision, the appellate court noted that while Citytrust failed to take adequate

precautionary measures to prevent the fraudulent encashment of its checks, petitioner was not entirely blame-free in light of its failure to verify the signature of Citytrusts agent authorized to receive payment.

 Brushing aside petitioners contention that it cannot be sued, the appellate court held that petitioners

Charter specifically clothes it with the power to sue and be sued. Also brushing aside petitioners assertion that Citytrusts reservation of the filing of a separate civil action

against Flores precluded Citytrust from filing the civil action against it, the appellate court held that the action for the recovery of sum of money is separate and distinct and is grounded on a separate cause of action from that of the criminal case for estafa.

 Hence, the present appeal, petitioner maintaining that Flores having been an authorized roving teller,

Citytrust is bound by his acts. Also maintaining that it was not negligent in releasing the proceeds of the checks to Flores, the failure of its teller to properly verify his signature notwithstanding, petitioner contends that verification could be dispensed with, Flores having been known to be an authorized roving teller of Citytrust who had had numerous transactions with it (petitioner) on its (Citytrusts) behalf for five years prior to the questioned transaction.

 Attributing negligence solely to Citytrust, petitioner harps on Citytrusts allowing Flores to steal the checks

and failing to timely cancel them; allowing Flores to wear the issued identification card issued by it (petitioner); failing to report Flores absence from work on the day of the incident; and failing to explain the circumstances surrounding the supposed theft and cancellation of the checks.

 Drawing attention to Citytrusts considerable delay in demanding the restoration of the proceeds of the

checks, petitioners argue that, assuming arguendo that its teller was negligent, Citytrusts negligence, which preceded that committed by the teller, was the proximate cause of the loss or fraud.

 The petition is bereft of merit. Petitioners teller Iluminada did not verify Flores signature on the flimsy excuse that Flores had had

previous transactions with it for a number of years. That circumstance did not excuse the teller from focusing attention to or at least glancing at Flores as he was signing, and to satisfy herself that the signature he had just affixed matched that of his specimen signature. Had she done that, she would have readily been put on notice that Flores was affixing, not his but a fictitious signature.

 Given that petitioner is the government body mandated to supervise and regulate banking and other

financial institutions, this Courts ruling in Consolidated Bank and Trust Corporation v. Court of Appeals[5] illumines: 

The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan. Article 1980 of the Civil Code expressly provides that x x x savings x x x deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. There is a debtor-creditor relationship between the bank and its depositor. The bank is the debtor and the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand. The savings deposit agreement between the bank and the depositor is the contract that determines the rights and obligations of the parties.

 The law imposes on banks high standards in view of the fiduciary nature

of banking. Section 2 of Republic Act No. 8791 (RA 8791), which took effect on 13 June 2000, declares that the State recognizes the fiduciary nature of banking that requires high standards of integrity and performance. This new provision in the general banking law, introduced in 2000, is a statutory affirmation of Supreme Court decisions, starting with the 1990 case of Simex International v. Court of Appeals, holding that the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship.

 This fiduciary relationship means that the banks obligation to

observe high standards of integrity and performance is deemed written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family. Article 1172 of the Civil Code states that the degree of diligence required of an obligor is that prescribed by law or contract, and absent such stipulation then the diligence of a good father of a family. Section 2 of RA 8791 prescribes the statutory diligence required from banks that banks must observe high standards of integrity and performance in servicing their depositors. Although RA 8791 took effect almost nine years after the unauthorized withdrawal of the P300,000 from L.C. Diazs savings account, jurisprudence at the time of the withdrawal already imposed on banks the same high standard of diligence required under RA No. 8791. (Emphasis supplied)Citytrusts failure to timely examine its account, cancel the checks and notify petitioner of their alleged

loss/theft should mitigate petitioners liability, in accordance with Article 2179 of the Civil Code which provides that if the plaintiffs negligence was only contributory, the immediate and proximate cause of the injury being the defendants lack of due care, the plaintiff may recover damages, but the courts shall mitigate the damages to be awarded. For had Citytrust timely discovered the loss/theft and/or subsequent encashment, their proceeds or part thereof could have been recovered.

 In line with the ruling in Consolidated Bank, the Court deems it proper to allocate the loss between

petitioner and Citytrust on a 60-40 ratio. WHEREFORE, the assailed Court of Appeals Decision of July 16, 1999 is hereby AFFIRMED with

MODIFICATION, in that petitioner and Citytrust should bear the loss on a 60-40 ratio.

ALLIED BANKING CORPORATION vs MATEO G.R. No. 167420 June 5, 2009

FACTS: On February 19, 1996, Ruperto Jose Mateo (respondent) obtained a loan from petitioner in the amount of P950,000.00. To secure the payment of the loan, respondent executed in favor of petitioner a deed of real estate mortgage over a parcel of land registered in respondents name under Transfer Certificate of Title (TCT) No. 236351 of the Register of Deeds of Isabela. He likewise executed a promissory note in the amount of P950,000.00. Subsequently, respondent incurred default in the payment of his loan prompting petitioner to cause the extrajudicial foreclosure of the mortgage constituted on the subject property. The property was sold at public auction for P1,531,474.53 with petitioner as the sole and highest bidder. The Certificate of Sale was issued to petitioner, and was registered with the Register of Deeds on July 21, 1999.

 Respondent, through her attorney-in-fact, Warlita N. Mateo (Warlita), sent, on several dates, faxed letters

to petitioner signifying his desire to redeem the foreclosed property for P1.1 million pesos.

On July 21, 2000, or on the last day of the period for redemption, respondent, represented by Warlita, filed a case for legal redemption with prayer for temporary restraining order and preliminary injunction with the RTC of Isabela. 

On January 19, 2001, petitioner effected the consolidation of its ownership over the subject property and TCT No. 311043 was issued in its name on March 2, 2001.

 During the pre-trial conference on September 18, 2002, respondent offered to redeem the property for the

foreclosed amount of P1,531,474.53, but petitioner refused. Instead of continuing with the trial, the parties agreed to submit the case for summary judgment.

On October 21, 2004, the RTC rendered its Decision, the dispositive portion of which reads:WHEREFORE, in view of the foregoing premises, judgment is hereby rendered in favor of the plaintiff and against the defendant, ALLOWING the plaintiff to redeem from the defendant the property now covered by TCT No. T-311043 in the name of the defendant, upon payment of the amount of P1,531,474.53, plus one (1) percent as interest for one (1) month only, and ORDERING the defendant to accept the tender of redemption of the plaintiff and to deliver the proper certificate of redemption to the latter and finally, ordering the defendant to indemnify the plaintiff P30,000.00 as attorneys fees and cost of the suit.[3]

In so ruling, the RTC found that: (1) respondent had the right to redeem the foreclosed property from petitioner, as the one year period to redeem had not yet expired when respondent filed the instant case; (2) even prior to the filing of the case, respondent had sent petitioner several faxed letters to show his sincere desire to avail himself of the right to redeem the property from petitioner; (3) respondent already offered to pay the foreclosed price of P1,531,474.53 as in fact he had consigned P1.1 million in the Land Bank. The trial court also found that respondent began to exercise the right to redeem on August 10, 1999 when he, through Warlita, sent a letter to petitioner on his intention to redeem; thus, applying Section 28, Rule 39 of the Rules of Court, respondent should pay as redemption price the foreclosed amount of P1,531,474.53, plus one percent interest for the month that lapsed until August 10, 1999.Petitioner filed a Motion for Reconsideration, which was denied in an Order[4] dated February 10, 2005.

In denying the Motion for Reconsideration, the RTC ruled that respondents offer of P1,531,474.53 made during the pre-trial conference already covered petitioners bid price at the foreclosure auction sale, which already incorporated the interest, penalties, attorneys fees and other expenses of sale; that such purchase price should be the basis of the redemption price, plus interest at one percent, in order to afford respondent a greater chance to redeem the foreclosed property.

Dissatisfied, petitioner filed a petition for review on certiorari with the Court, alleging that:THE LOWER COURT DECIDED A QUESTION OF SUBSTANCE IN A WAY NOT

IN ACCORD WITH LAW AND WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT IN THAT:

 I.                   It is considered sufficient tender and consignation the

amount which was less than the price for which the property was bought and in the manner not in conformity with the law and settled jurisprudence.

 II. It applied the provisions of Sec. 28, Rule 39 of the Rules of Court and

Act No. 3135 in the computation of the redemption price even when the said basis has been superseded by Sec. 78 of the General Banking Act (now Section 47 of RA 8791).[5]

  

Petitioner contends that: (1) the RTC erred in considering the various offers made by respondent to redeem the subject property for the amount of P1.1 million as sufficient tender of payment for purposes of redemption; (2) the tender to be legally sufficient must be for the amount of the purchase price, plus the agreed interest rate on the principal obligation; (3) the RTC erred in considering the deposit of P1.1 million with Land Bank as sufficient consignation, since the amount should have been deposited in court and not anywhere else; (4) the offer to redeem in the amount of P1,531,474.53 was made only during the pre-trial conference, which was already way past the redemption period; and (5) the redemption price should be based on Section 47 of the General Banking Act.

In his Comment, respondent claims that the petition should be denied outright, because it raises questions of fact and not purely of law; that the issue as to the sufficiency or insufficiency of the amount tendered by respondent is a question of fact, as the Court should consider the factual evidence in relation to the computation of the purchase price paid by petitioner during the foreclosure sale and the price offered by respondent; that he offered to pay petitioners purchase amount of P1,531,474.53 during the pre-trial conference; that he can still exercise the right of redemption over the subject property; and that a previous tender of payment and consignation is only proper but is not essential when the redemptioner exercises his right to redeem the foreclosed property through the filing of a judicial action within the period of redemption.

In its Reply, petitioner argues that the case was decided on stipulation of facts by the parties; thus, any appeal from a judgment based on stipulation of facts can only be on questions of law; that, whether under Section 28, Rule 39 of the Rules of Court or Section 47 of the General Banking Act, the minimum redemption amount is P1,531,474.53, which was the amount paid by petitioner during the foreclosure sale.

Preliminarily, the Court would first address the procedural matter raised by respondent: that the petition should be denied outright because it raises questions of fact and not purely of law. Respondent claims that the issue as to the sufficiency or insufficiency of the amount tendered by respondent is a question of fact, which could not be raised in an appeal by certiorari under Rule 45.

We are not persuaded.  

Notably, it was already stipulated upon by the parties that respondent offered P1.1 million as redemption price before the filing of this action; thus, the issue is not the amount of redemption price, but the sufficiency of the amount offered by respondent that would warrant the redemption of the foreclosed property. This is a question of law as it calls for the correct application of law and jurisprudence on the matter, which is within the purview of Rule 45 of the Rules of Court. 

The Court will now address the main issues presented, to wit: (1)             Whether or not respondent still has the right to redeem the subject property; and (2)             Whether or not Section 78 of the General Banking Act[6] should be applied to the computation

of the redemption price.  Section 6 of Act No. 3135,[7] as amended by Act No. 4118, provides for a valid redemption, to wit:

 SEC. 6.  In all cases in which an extrajudicial sale is made under the

special power hereinbefore referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of said debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any time within the term of one year from and after the date of sale; and such redemption shall be governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six, inclusive,[8] of the Code of Civil Procedure, insofar as these are not inconsistent with the provisions of this Act.

  

Considering that petitioner is a banking institution, the determination of the redemption price for the foreclosed property should be governed by Section 78 of the General Banking Act. Union Bank of the Philippines v. Court of Appeals,[9] is instructive:

x x x Petitioners contention that Section 78 of the General Banking Act governs the determination of the redemption price of the subject property is meritorious. In Ponce de Leon v. Rehabilitation Finance Corporation, this Court had occasion to rule that Section 78 of the General Banking Act had the effect of amending Section 6 of Act No. 3135 insofar as the redemption price is concerned when the mortgagee is a bank, as in this case, or a banking or credit institution. The apparent conflict between the provisions of Act No. 3135 and the General Banking Act was, therefore, resolved in favor of the latter, being a special and subsequent legislation. This pronouncement was reiterated in the case of Sy v. Court of Appeals where we held that the amount at which the foreclosed property is redeemable is the amount due under the mortgage deed, or the outstanding obligation of the mortgagor plus interest and expenses in accordance with Section 78 of the General Banking Act. It was, therefore, manifest error on the part of the Court of Appeals to apply in the case at bar the provisions of Section 30, Rule 39 of the Rules of Court in fixing the redemption price of the subject foreclosed property.

And Section 78 provides:  

Sec. 78. In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which is security for any loan granted before the passage of this Act or under the provisions of this Act, the mortgagor or debtor whose real property has been sold at public auction, judicially or extrajudicially, for the full or partial payment of an obligation to any bank, banking or credit institution, within the purview of this Act shall

have the right, within one year after the sale of the real estate as a result of the foreclosure of the respective mortgage, to redeem the property by paying the amount fixed by the court in the order of execution, or the amount due under the mortgage deed, as the case may be, with interest thereon at the rate specified in the mortgage, and all the costs, and judicial and other expenses incurred by the bank or institution concerned by reason of the execution and sale and as a result of the custody of said property less the income received from the property.

  

In BPI Family Savings Bank, Inc. v. Veloso,[10] the Court had occasion to state the requirements for the redemption of the foreclosed property. The Court held:

The general rule in redemption is that it is not sufficient that a person offering to redeem manifests his desire to do so. The statement of intention must be accompanied by an actual and simultaneous tender of payment. This constitutes the exercise of the right to repurchase.

In several cases decided by the Court where the right to repurchase was held to have been properly exercised, there was an unequivocal tender of payment for the full amount of the repurchase price. Otherwise, the offer to redeem is ineffectual. Bona fide redemption necessarily implies a reasonable and valid tender of the entire repurchase price, otherwise the rule on the redemption period fixed by law can easily be circumvented.[11]

 In this case, it was stipulated upon by the parties that the real estate mortgage over respondents property

was foreclosed in the amount of P1,531,474.53, and that respondent offered the amount of P1.1 million as redemption price before the filing of the complaint. It has been held that the tender of payment must be for the full amount of the purchase price, i.e., the amount fixed by the court in the order of execution or the amount due under the mortgage deed, as the case may be, with interest thereon at the rate specified in the mortgage; and all the costs, and judicial and other expenses incurred by the bank or institution concerned by reason of the execution and sale and as a result of the custody of said property less the income received from the property. Thus, the amount of P1.1 million offered by respondent was ineffective, since not only did the amount not include the interest but it was even below the purchase price. Such offer did not effect a valid redemption, and petitioner was justified in refusing to accept such offer.

The RTC found that the instant case for legal redemption must prosper, as the one-year period to redeem had not yet expired when respondents filed the case. Notably, respondents filed the instant case on July 21, 2000 which was within one year from the registration of the Certificate of Sale on July 21, 1999. The question now is whether such judicial redemption is proper under the circumstances.

 In Hi Yield Realty, Inc v. Court of Appeals,[12] the Court held:

 What is the redemptioners option therefore when the redemption period

is about to expire and the redemption cannot take place on account of disagreement over the redemption price?

 According to jurisprudence, the redemptioner faced with such a problem

may preserve his right of redemption through judicial action which in every case must be filed within the one-year period of redemption. The filing of the court action to enforce redemption, being equivalent to a formal offer to redeem, would have the effect of preserving his redemptive rights and freezing the expiration of the one-year period. This is a fair interpretation provided the action is filed on time and in good faith, the redemption price is finally determined and paid within a reasonable time, and the rights of the parties are respected.

Stated otherwise, the foregoing interpretation, as applied to the case at bar, has three critical dimensions: (1) timely redemption or redemption by expiration date (or, as what happened in this case, the redemptioner was forced to resort to judicial action to freeze the expiration of the redemption period); (2) good faith as always, meaning, the filing of the private respondents action on August 13, 1993 must have been for the sole purpose of determining the redemption price and not to stretch the redemptive period indefinitely; and (3) once the redemption price is determined within a reasonable time, the redemptioner must make prompt payment in full.

Conversely, if private respondent had to resort to judicial action to stall the expiration of the redemptive period on August 13, 1993 because he and the petitioner could not agree on the redemption price which still had to be determined, private respondent could not thereby be expected to tender payment simultaneously with the filing of the action on said date.[13]

  

As above-stated, for the action to be considered filed in good faith, the filing of the action must have been for the sole purpose of determining the redemption price and not to stretch the redemptive period indefinitely. In this case, it was sufficiently shown that respondents offer of P1.1 million was even below the amount paid by petitioner in the foreclosure sale. Notably, in petitioners Answer to respondents complaint, it had alleged that, as of June 16, 2000, the redemption price of the foreclosed property consisting of the amount due under the mortgage deed, the interest specified in

the mortgage and all the costs and expenses incurred by petitioner from the sale and custody of the property already amounted to P2,058,825.73.[14] Yet, during the pre-trial conference, respondent merely offered to pay the amount of the auction price alone which was P1,531,474.53, without any payment of interest. In fact, respondent never even consigned such amount in court to show good faith.

It is not difficult to understand why the redemption price should either be fully offered in legal tender or else validly consigned in court. Only by such means can the auction winner be assured that the offer to redeem is being made in good faith.[15] Thus, the Court finds that respondents action for legal redemption was not filed in good faith. It was not filed for the purpose of determining the correct redemption price, but to stretch the redemption period indefinitely.[16]

 WHEREFORE, the petition for review is GRANTED. The Decision dated October 21, 2004, as well as the

Order dated February 10, 2005 of the Regional Trial Court, Branch 35, Santiago City, are hereby REVERSED and SET ASIDE. The action for legal redemption filed by respondent is hereby DISMISSED.

BANGAYAN vs RIZAL COMMERCIAL BANKING CORPORATION G.R. No. 149193 April 4, 2011

Before this Court is a Rule 45 Petition[1] questioning the Court of Appeals affirmance of a trial courts dismissal of a complaint for damages filed by a depositor against a bank for the dishonor of seven checks and for the wrongful disclosure of information regarding the depositors account contrary to the Bank Secrecy Act (Republic Act No. 1405).[2]The FactsPetitioner Ricardo Bangayan had a savings account and a current account with one of the branches of respondent Rizal Commercial Banking Corporation (RCBC).[3] These two accounts had an automatic transfer condition wherein checks issued by the depositor may be funded by any of the two accounts.[4]On 26 June 1992, petitioner Bangayan purportedly signed a Comprehensive Surety Agreement (the Surety Agreement)[5] with respondent RCBC in favor of nine corporations.[6] Under the Surety Agreement, the funds in petitioner Bangayans accounts with respondent RCBC would be used as security to guarantee any existing and future loan obligations, advances, credits/increases and other obligations, including any and all expenses that these corporations may incur with respondent bank.Petitioner Bangayan contests the veracity and due authenticity of the Surety Agreement on the ground that his signature thereon was not genuine, and that the agreement was not notarized.[7] Respondent RCBC refutes this claim, although it admitted that it was exceptional for a perfected Surety Agreement of the bank to be without a signature of the witness and to remain unnotarized. Mr. Eli Lao, respondent banks Group Head of Account Management, however, explained that the bank was still in the process of completing the Surety Agreement at that time.[8]The following are the transactions of respondent RCBC in relation to the Surety Agreement vis--vis the petitioner Bangayan.On 26 June 1992 (the same day that the Surety Agreement was allegedly signed), two of the corporations whose performance were guaranteed therein LBZ Commercial and Peaks Marketing were issued separate commercial letters of credit[9] by respondent RCBC for the importation of PVC resin from Korea. Three days later or on 29 June 1992, respondent RCBC issued a third letter of credit[10] in favor of another corporation, Final Sales Enterprise, whose obligations to respondent bank were likewise secured by petitioner Bangayan under the Surety Agreement. Mr. Lao claimed that respondent bank would not have extended the letters of credit in favor of the three corporations without petitioner Bangayan acting as surety.[11]On 26 August 1992, a fourth letter of credit[12] was issued by respondent RCBC for the importation of materials from Korea, this time by Lotec Marketing, another corporation enumerated in the Surety Agreement. The Korea Exchange Bank was designated as the advising bank for Lotec Marketings letter of credit.[13]On 15 September 1992, after the arrival of the shipments of the first three corporations from Korea, the Bureau of Customs (BOC) demanded via letter of the same date from respondent RCBC, which facilitated the three letters of credit, the remittance of import duties in the amount of thirteen million two hundred sixty-five thousand two hundred twenty-five pesos (PhP13,265,225).[14]Mr. Lao of respondent RCBC allegedly called petitioner Bangayan and informed him of the BOCs demand for payment of import duties.[15] According to Mr. Lao, petitioner allegedly replied that he understood the situation and assured Mr. Lao that he was doing everything he could to solve the problem.[16]

Considering the BOCs demand, respondent RCBC decided to put on hold the funds in petitioner Bangayans accounts by virtue of the authority given to it by petitioner under the Surety Agreement.[17] Respondent RCBC reasoned that as the collecting agent, it had to earmark sufficient funds in the account of petitioner Bangayan (the surety) to satisfy the tax obligations of the three corporations, in the event that they would fail to pay the same.[18] Thus, respondent bank refused payments drawn from petitioner Bangayans deposits, unless there was an order from the BOC.[19] Petitioner Bangayan, however, contests this action since respondent bank did not present any writ of garnishment that would authorize the freezing of his funds.[20]On 18 September 1992, two of the seven checks that were drawn against petitioner Bangayans Current Account No. 0109-8232-5 were presented for payment to respondent RCBC, namely: *table 

On the same day, the amounts of three million six hundred fifty thousand pesos (PhP3,650,000) and four million five hundred thousand pesos (PhP4,500,000)[23] were successively debited from the said current account, as shown in petitioner Bangayans passbook for the current account.[24] Alongside these two debit entries in the passbook was the transaction reference code DFT, which apparently stands for debit fund transfer.[25]

On 21 September 1992, the same amounts in the two checks were credited to petitioner Bangayans current account, under the transaction reference code CM, that stands for credit memo.[26] Moreover, petitioner Bangayans Checks Nos. 93799 and 93800 issued in favor of United Pacific Enterprises were also returned by respondent RCBC with the notation REFER TO DRAWER.[27]

On the same day that the checks were referred to petitioner Bangayan by respondent RCBC, United Pacific Enterprises, through Mr. Manuel Dente, demanded from petitioner Bangayan the payment of eight million one

hundred fifty thousand pesos (PhP8,150,000), which corresponded to the amounts of the two dishonored checks that were issued to it.[28] Nothing more has been alleged by petitioner on this particular matter.On 24 September 1992, the Korea Exchange Bank (the advising bank) informed respondent RCBC through a telex that it had already negotiated the fourth letter of credit for Lotec Marketings shipment, which amounted to seven hundred twelve thousand eight hundred U.S. dollars (US$712,800) and, thereafter, claimed reimbursement from respondent RCBC.[29]

This particular shipment by Lotec Marketing became the subject matter of an investigation conducted by the Customs Intelligence & Investigation Service of the BOC, according to respondent bank.[30] Both parties agreed that the BOC likewise conducted an investigation covering the importation of the three corporations LBZ Commercial, Peaks Marketing and Final Sales Enterprise - that were opened through the letters of credit issued by respondent RCBC.[31]

On 09 October 1992, respondent Philip Saria, who was an Account Officer of respondent banks Binondo Branch, signed and executed a Statement before the BOC, with the assistance of Atty. Arnel Z. Dolendo of respondent RCBC, on the banks letters of credit issued in favor of the three corporations.[32] Petitioner Bangayan cited this incident as the basis for the allegation in the Complaint he subsequently filed that respondent RCBC had disclosed to a third party (the BOC) information concerning the identity, nature, transaction and deposits including details of transaction related to and pertaining to his deposits with the said bank, in violation of the Bank Secrecy Act.[33] It must be pointed out that the trial court found that no evidence was introduced by (petitioner Bangayan) to substantiate his claim that (respondent RCBC) gave any classified information in violation of the Bank Secrecy Law.[34] Thus, the trial court considered the alleged disclosure of confidential bank information by respondent RCBC as a non-issue.[35]

On the same date, when Lotec Marketings loan obligation under the fourth letter of credit became due and demandable,[36] respondent RCBC issued an advice that it would debit the amount of twelve million seven hundred sixty-two thousand six hundred pesos (PhP12,762,600) from petitioner Bangayans current account to partially satisfy the guaranteed corporations loan.[37] At that time, petitioner Bangayans passbook for his current account showed that it had funds of twelve million seven hundred sixty-two thousand six hundred forty-five and 64/100 pesos (PhP12,762,645.64).[38]

On 12 October 1992, the amount of twelve million seven hundred sixty-two thousand and six hundred pesos (PhP12,762,600) was debited from petitioner Bangayans current account, consequently reducing the funds to forty-five and 64/100 pesos (PhP45.64).[39] Respondent RCBC claimed that the former amount was debited from petitioners account to partially pay Lotec Marketings outstanding obligation which stood at eighteen million forty-seven thousand thirty-three and 60/100 pesos (PhP18,047,033.60).[40] Lotec Marketing, thereafter, paid the balance of its obligation to respondent RCBC in the amount of five million three hundred thirty-eight thousand eight hundred nineteen and 20/100 pesos (PhP5,338,819.20)[41] under the fourth letter of credit.On 13 October 2010, the three corporations earlier adverted to paid the corresponding customs duties demanded by the BOC.[42] Receipts were subsequently issued by the BOC for the corporations payments, copies of which were received by Atty. Nelson Loyola, counsel of petitioner Bangayan in this case.[43] The trial court considered this as payment by petitioner of the three corporations obligations for custom duties.[44] Thereafter, respondent RCBC released to the corporations the necessary papers for their PVC resin shipments which were imported through the banks letters of credit.

On 15 October 2010, five other checks of petitioner Bangayan were presented for payment to respondent RCBC, namely: *table

 On 16 October 1992, these five checks were also dishonored by respondent RCBC on the ground that

they had been drawn against insufficient funds (DAIF) and were subsequently returned.[51]On 20 October 1992, Hinomoto Trading Company, one of the payees for two of the dishonored checks,[52]

demanded that petitioner Bangayan make good on his payments.[53] On 21 October 1992, the other payee of the three other dishonored checks,[54] Simplex Merchandising, likewise made a final demand on petitioner to replace the dishonored instruments.[55]

On 23 October 1992, petitioner Bangayan, through counsel, demanded that respondent bank restore all the funds to his account and indemnify him for damages.[56]

On 30 October 1992, nineteen thousand four hundred twenty-seven and 15/100 pesos (PhP19,427.15) was credited in petitioner Bangayans current account, with the transaction reference code INT referring to interest.[57] Petitioner explains that even if the outstanding balance at that time was reduced, this interest was earned based on the average daily balance of the account for the quarter and not just on the balance at that time, which was forty-five and 64/100 pesos (PhP45.64).[58]

The Case in the Trial CourtOn 09 November 1992, petitioner Bangayan filed a complaint for damages against respondent RCBC.[59]

Subsequently, respondent RCBC filed an Answer dated 02 December 1992 with compulsory counter-claims.[60] On 12 January 1993, respondent RCBC filed a Motion for Leave to File Attached Amended Answer and Amended Answer.[61]Petitioner Bangayan argues that at the time the dishonored checks were issued, there were sufficient funds in his accounts to cover them;[62] that he was informed by personnel of respondent RCBC that his accounts were garnished, but no notice or writ of garnishment was ever shown to him;[63] and that his name and reputation were tarnished because of the dishonor of checks that were issued in relation to his automotive business.[64]In its defense, respondent RCBC claims that petitioner Bangayan signed a Surety Agreement in favor of several companies that defaulted in their payment of customs duties that resulted in the imposition of a lien over the accounts, particularly for the payment of customs duties assessed by the Bureau of Customs.[65] Respondent bank further claimed that it had funded the letter of credit[66] availed of by Lotec Marketing to finance the latters importation with the account of petitioner Bangayan, who agreed to guarantee Lotec Marketings obligations under the Surety Agreement; and, that respondent bank applied petitioner Bangayans deposits to satisfy part of Lotec Marketings obligation in the amount of twelve million seven hundred sixty-two thousand and six hundred pesos (PhP12,762,600), which resulted in the depletion of the bank accounts.[67]Petitioner Bangayan also alleged that respondent RCBC disclosed to a third party (the BOC) classified information about the identity and nature of the transactions and deposits, in violation of the Bank Secrecy Act. Respondent RCBC counters that no confidential information on petitioners bank accounts was disclosed.Availing himself of discovery proceedings in the lower court, petitioner Bangayan filed a Request for Admission[68] and Request for Answer to Written Interrogatories,[69] to which respondent RCBC filed the corresponding Answers and

Objections to Interrogatories[70] and Response to Request for Admission.[71]During the presentation of complainants evidence, petitioner Bangayan, Atty. Randy Rutaquio, respondent

Saria and Manuel Dantes testified in open court. Petitioner Bangayan thereafter filed a Formal Offer of Evidence.[72]On the other hand, respondent RCBC presented Mr. Lao as its lone defense witness. Before the

termination of Mr. Laos direct examination, respondent RCBC filed a Motion to Inhibit Presiding Judge Pedro Santiago,[73] who subsequently denied the motion.[74] The Order denying the Motion to Inhibit was the subject matter of petitions filed by respondent RCBC in the Court of Appeals[75] and subsequently in this Court, which were all dismissed.

In the meantime, when respondent RCBCs witness (Mr. Lao) failed to appear at the hearing, Judge Santiago ordered that Mr. Laos testimony be stricken off the record despite respondent banks motion to have the case reset.[76] After the appellate proceedings for respondent RCBCs Petition as regards the Motion to Inhibit, however, Judge Santiago set aside his earlier Order and reinstated the testimony of Mr. Lao, subject to cross-examination.[77] Petitioner Bangayan took exception to the Order reinstating Mr. Laos testimony, but continued to conduct his cross examination with a reservation to raise the Order in the appellate courts.[78]

Respondent RCBC thereafter filed its Formal Offer of Exhibits.[79]On 17 October 1994, the trial court rendered a Decision, the dispositive portion of which reads:

 WHEREFORE, premises above considered, plaintiff not having proved

that defendant RCBC acted wrongly, maliciously and negligently in dishonoring his 7 checks, nor has the bank given any confidential informations against the plaintiff in violation of R.A. 1405 and the defendant bank having established on the contrary that plaintiff has no sufficient funds for his said checks, the instant complaint is hereby DISMISSED.[80] (Emphasis supplied)

 When his omnibus motion[81] to have the Decision reconsidered was denied,[82] petitioner Bangayan filed

a notice of appeal.[83]The Ruling of the Court of Appeals

After petitioner Bangayan[84] and respondent RCBC[85] filed their respective appeal briefs, the Court of Appeals affirmed the trial courts decision in toto.[86] The appellate court found that the dishonor of the checks by respondent RCBC was not without good reason, considering that petitioner Bangayans account had been debited owing to his obligations as a surety in favor of several corporations. Thus, the Court Appeals found there was no dishonest purpose, or some moral obliquity, or conscious doing of wrong, or breach of a known duty, or some motive or interest, or ill will that partakes (sic) nature of fraud that can be attributed to respondent RCBC.[87] It likewise ruled that petitioner Bangayan cannot raise the question as to the genuineness, authenticity and due execution of the Surety Agreement for the first time on appeal.[88]

This Decision of the appellate court is the subject of the instant Petition for Review on Certiorari filed by petitioner Bangayan under Rule 45 of the Rules of Court.[89]

Assignment of ErrorsPetitioner Bangayan makes the following assignment of errors:

A. THE COURT OF APPEALS ACTED WITH GROSS ARBITRARINESS AND IN BLATANT VIOLATION OF THE CONSTITUTIONAL RIGHTS OF THE PETITITONER TO DUE PROCESS, AND A FAIR TRIAL:

(1) WHEN IT REINSTATED THE TESTIMONY OF ELI LAO ALREADY STRICKEN OFF THE RECORDS UPON PRIOR ORDER OF THE RTC AFFIRMED BY THE COURT OFAPPEALS AND CONFIRMED BY THE SUPREME COURT;(2) WHEN IT SANCTIONED THE CAVALIER ACT OF RESPONDENTS IN DEMEANING THE RULES ON DISCOVERY PROCEDURE;(3) WHEN IT RENDERED A DECISION WHICH IS CONTRARY TO THE FACTS AND THE EVIDENCE PRESENTED AT THE TRIAL; and(4) WHEN IT REFUSED TO APPLY THE LAWS SQUARELY IN POINT ON THE MATTER IN CONTROVERSY.

B. THE HONORABLE COURT OF APPEALS DECIDED THIS CASE IN A WAY NOT IN ACCORD WITH THE APPLICABLE DECISIONS OF THE HONORABLE SUPREME COURT;C. THERE ARE SPECIAL AND IMPORTANT REASONS THAT REQUIRE A REVIEW OF THE CA DECISION;D. THE DECISION OF THE COURT OF APPEALS IS NEITHER JUST NOR IN ACCORD WITH THE RULES OF LAW AND JURISPRUDENCE NOR IS IT EQUITABLE AND IT IGNORES THE PREVIOUS RULINGS OF THE SUPREME COURT IN EARLIER PRECEDENT CASES.[90]

The IssuesA. Whether respondent RCBC was justified in dishonoring the checks, and, consequently, whether

petitioner Bangayan is entitled to damages arising from the dishonor.B. Whether there was reversible error on the part of the lower court in allowing the testimony of Mr. Lao,

despite its earlier Order to strike off the testimony.C. Whether respondent RCBC violated the Bank Secrecy Act.

The Ruling of the Court 

Preliminarily, petitioner Bangayan raises questions of fact[91] regarding the authenticity of the Surety Agreement and the events leading up to the dishonor of the seven checks. However, petitions for review on certiorari under Rule 45 are limited only to pure questions of law[92] and, generally, questions of fact are not reviewable[93] since this Court is not a trier of facts.[94] Although respondent RCBC briefly treated this procedural matter,[95] the Court finds that the instant Petition is indeed subject to dismissal because the determination of questions of fact is improper in a Rule 45 proceeding.[96] In any case, even if procedural rules were to be relaxed at this instance, the substantial merits of petitioner Bangayans cause is nonetheless insufficient to reverse the decisions of the trial and appellate courts, as will be discussed in detail below.A. There was no malice or bad faith on the part of

respondent RCBC in the dishonor of the checks, since its actions were justified by petitioner Bangayans obligations under the Surety Agreement.

 The Court is unconvinced by petitioner Bangayans arguments that respondent RCBC acted with malice or bad faith in dishonoring the seven checks, which would entitle him to an award of damages.At the heart of the controversy is the Surety Agreement that secured the obligations of the nine corporations in favor of respondent RCBC.

Petitioner Bangayan denies the genuineness, authenticity and due execution of the alleged agreement on the following grounds: (a) his signature on the document is not genuine; (b) the Surety Agreement was never notarized; and (c) the alleged accounts, being guaranteed, appear in a separate piece of paper that does not bear his signature or conformity.[97]Both the trial and the appellate courts gave credence to the Surety Agreement, which categorically guaranteed the four corporations obligations to respondent RCBC under the letters of credit. Petitioner Bangayan did not provide sufficient reason for the Court to reverse these findings. The evidence on record supports the conclusion arrived at by the lower court and the Court of Appeals.First, aside from his bare allegations, petitioner Bangayan failed to establish how his signature in the Surety Agreement was forged and therefore, not genuine.

Before a private document is offered as authentic, its due execution and authenticity must be proved: (a) either by anyone who has seen the document executed or written; or (b) by evidence of the genuineness of the signature or handwriting of the maker.[98] As a rule, forgery cannot be presumed and must be proved by clear, positive and convincing evidence.[99] The burden of proof rests on the party alleging forgery.[100] Mere allegation of forgery is not evidence.[101]

Mr. Lao, witness for respondent RCBC, identified the Surety Agreement[102] as well as the genuineness of petitioner Bangayans signature therein using petitioners signature cards in his bank accounts.[103] The trial and the appellate courts gave due credence to the identification and authentication of the Surety Agreement made by Mr. Lao.[104]

In Deheza-Inamarga v. Alano,[105] the Court ruled that:The question of forgery is one of fact. It is well-settled that when

supported by substantial evidence or borne out by the records, the findings of fact of the Court of Appeals are conclusive and binding on the parties and are not reviewable by this Court.

It is a hornbook doctrine that the findings of fact of trial courts are entitled to great weight on appeal and should not be disturbed except for strong and valid reasons. It is not a function of this Court to analyze and weigh evidence by the parties all over again. Our jurisdiction is limited to reviewing errors of law that might have been committed by the Court of Appeals. Where the factual findings of the trial court are affirmed in toto by the Court of Appeals as in this case, there is great reason for not disturbing such findings and for regarding them as not reviewable by this Court . (Emphasis supplied)

 Furthermore, petitioner Bangayan did not adduce any evidence to support his claim of forgery, despite the opportunity to do so. Considering that there was evidence on record of his genuine signature and handwriting (the signature card and the dishonored checks themselves), nothing should have prevented petitioner Bangayan from submitting the Surety Agreement for examination or comparison by a handwriting expert.

Even respondent RCBC did not interpose any objection when the possibility of forwarding the signature card and Surety Agreement forwarded to the National Bureau of Investigation for examination was raised during the testimony of Mr. Lao:

ATTY. LOYOLAConsidering the delicate nature or the significance of the signatures in the signature cards and the risk of my admitting the authenticity of a mere xerox copies [sic] and considering further that it is our position that the surety agreement as well as specimen signatures on the signature cards must be submitted to the Court and later forwarded to the NBI, Question Document Section, for examination, I am in no position to admit now that the machine copies in the signature cards are faithful reproduction. Accordingly, I am hoping at this stage that the surety agreement and the signature cards be forwarded to the NBI later on for examination and in the mean time, the questioned documents be entrusted to the custody of the Honorable Court.

ATTY. POBLADOR

With respect to the manifestation of counsel that the documents with the signatures should be submitted to the NBI, we have no objection, but at this juncture, we are only asking, Your Honor, if the xerox copies are faithful reproduction of the original.[106] (Emphasis supplied) 

Despite his intention to have the signatures in the Surety Agreement compared with those in the signature cards, petitioner Bangayan did not have the questioned document examined by a handwriting expert in rebuttal and simply relied on his bare allegations. There is no clear, positive and convincing evidence to show that his signature in the Surety Agreement was indeed forged. As petitioner failed to discharge his burden of demonstrating that his signature was forged, there is no reason to overturn the factual findings of the lower courts with respect to the genuineness and due execution of the Surety Agreement.Second, the mere absence of notarization does not necessarily render the Surety Agreement invalid.

Notarization of a private document converts the document into a public one, renders it admissible in court without further proof of its authenticity, and is entitled to full faith and credit upon its face.[107] However, the irregular notarization or, for that matter, the lack of notarization does not necessarily affect the validity of the contract reflected in the document.[108]On its face, the Surety Agreement is not notarized, even if respondent RCBCs standard form for that agreement makes provisions for it. The non-completion of the notarization form, however, does not detract from the validity of the agreement, especially in this case where the genuineness and due authenticity of petitioner Bangayans signature in the contract was not successfully assailed.

The failure to notarize the Surety Agreement does not invalidate petitioner Bangayans consent to act as surety for the nine corporations obligations to respondent RCBC. Contracts are obligatory in whatever form they may have been entered into, provided all essential requisites are present[109] and the notarization is not an essential requisite for the validity of a Surety Agreement.[110]Third, that the annex of the Surety Agreement does not bear petitioner Bangayans signature is not a sufficient ground to invalidate the main agreement altogether. As the records will bear out, the Surety Agreement enumerated the names of the corporation whose obligations petitioner Bangayan are securing. The annex to the Surety Agreement enumerated not only the names of the corporations but their respective addresses as well.[111] The corporations enumerated in the annex correspond to the nine corporations enumerated in the main body of the Surety Agreement. Ordinarily, the name and address of the principal borrower whose obligation is sought to be assured by the surety is placed in the body of the agreement, but in this case the addresses could not all fit in the body of the document, thus, requiring that the address be written in an annex. The Surety Agreement itself noted that the principal places of business and postal addresses of the nine corporations were to be found in an attached document.Fourth, petitioner Bangayan never contested the existence of the Surety Agreement prior to the filing of the Complaint. When Mr. Lao informed him of the letter from the BOC regarding the failure of the three corporations to pay the customs duties under the letters of credit, the petitioner assured respondent bank that he is doing everything he can to solve the problem.[112] If petitioner Bangayan purportedly never signed the Surety Agreement, he would have been surprised or at least perplexed that respondent RCBC would contact him regarding the three corporations letters of credit, when, as he claims, he never agreed to act as their surety. Instead, he acknowledged the situation and even offered to solve the predicament of these borrower corporations. In fact, Atty. Loyola, petitioners counsel in this case, even obtained copies of the BOC receipts after the three corporations paid the customs duties for their importation under the letters of credit giving a possible interpretation that petitioner was himself answering the obligations of the three corporations for the unpaid customs duties.It must be emphasized that petitioner Bangayan did not complain against the four corporations which had benefitted from his bank account. He claims to have no reasonable connection to these borrower corporations and denies having signed the Surety Agreement. If true, nothing should have stopped him from taking these corporations to court and demanding compensation as well as damages for their unauthorized use of his bank account. Yet, these bank accounts were put on hold and/or depleted by the letters of credit issued to the four entities. That petitioner did not include them in the present suit strengthens the finding that he had indeed consented to act as surety for those entities, and that there seems to be no arms length relationship between petitioner and the three entities.

Whatever damage to petitioner Bangayans interest or reputation from the dishonor of the seven checks was a consequence of his agreement to act as surety for the corporations and their failure to pay their loan obligations, advances and other expenses.

With respect to the first two dishonored checks, respondent RCBC had already put on hold petitioner Bangayans account to answer for the customs duties being demanded from the bank by the BOC. In fact, the trial court considered the referral of these checks to petitioner Bangayan as an effort by respondent RCBC to allow its depositor an opportunity to arrange his accounts and provide funds for his checks.[113] It likewise appeared to the appellate court that the funds in petitioners account served as the lien of the custom duties assessed; thus, the funds cannot be considered as sufficient to cover future transactions.[114]On the other hand, the five other checks were subsequently dishonored because petitioner Bangayans account was by that time already depleted due to the partial payment of Lotec Marketings loan obligation.[115] Although the lien earlier imposed on petitioners account was lifted when the three corporations paid the customs duties,[116] the account was almost completely depleted when the funds were subsequently used to partially pay Lotec Marketings outstanding obligation under the fourth letter of credit.[117] Respondent RCBC was compelled to fully debit the funds to satisfy the main loan obligation of Lotec Marketing, which petitioner had guaranteed in joint and several capacity.

What must be underscored in respondent RCBCs immediate action of applying petitioner Bangayans account to the Lotec Marketing is the nature of the loan instrument used in this case a letter of credit. In a letter of credit, the engagement of the issuing bank (respondent RCBC in this instance) is to pay the seller or beneficiary of the credit (or the advising bank, Korean Exchange Bank, in this instance) once the draft and the required documents are presented to it.[118] This independence principle in letters of credit assures the seller or the beneficiary of prompt payment independent of any breach of the main contract and precludes the issuing bank from determining whether the main contract is actually

accomplished or not.[119]In this case, respondent RCBC, as the issuing bank for Lotec Marketings letter of credit had to make

prompt payment to Korea Exchange Bank (the advising bank) when the obligation became due and demandable. Precisely because of the independence principle in letters of credit and the need for prompt payment,[120] respondent RCBC required a Surety Agreement from petitioner Bangayan before issuing the letters of credit in favor of the four corporations, including Lotec Marketing.

Under Articles 2199[121] and 2200[122] of the Civil Code, actual or compensatory damages are those awarded in satisfaction of or in recompense for loss or injury sustained.[123] They proceed from a sense of natural justice and are designed to repair the wrong that has been done.[124]

In all seven dishonored checks, respondent RCBC properly exercised its right as a creditor under the Surety Agreement to apply the petitioner Bangayans funds in his accounts as security for the obligations of the four corporations under the letters of credit. Thus, petitioner Bangayan cannot attribute any wrong or misconduct to respondent RCBC since there was no malice or bad faith on the part of respondent in dishonoring the checks. Any damage to petitioner arising from the dishonor of those checks was brought about, not by the banks actions, but by the corporations that defaulted on their obligations that petitioner had guaranteed to pay. The trial and the appellate courts, therefore, committed no reversible error in disallowing the award of damages to petitioner.B. The trial court did not commit reversible error

when it reinstated the testimony of Mr. Lao and allowed petitioner Bangayan to cross-examine him.

Petitioner Bangayan also assails the lower courts order that reinstated the direct testimony of Mr. Lao, respondent RCBCs lone witness. Petitioner claims that Judge Santiago acted with partiality by reinstating Mr. Laos testimony, because this Court in another case had already sustained the lower courts earlier Order striking out the testimony. Hence, petitioner says that the judges reinstatement of Mr. Laos testimony was in violation of petitioners right to due process.Petitioner Bangayans arguments are unmeritorious.

Discretionary power is generally exercised by trial judges in furtherance of the convenience of the courts and the litigants, the expedition of business, and in the decision of interlocutory matters on conflicting facts where one tribunal could not easily prescribe to another the appropriate rule of procedure.[125] Thus, the Court ruled:

In its very nature, the discretionary control conferred upon the trial judge over the proceedings had before him implies the absence of any hard-and-fast rule by which it is to be exercised, and in accordance with which it may be reviewed. But the discretion conferred upon the courts is not a willful, arbitrary, capricious and uncontrolled discretion. It is a sound, judicial discretion which should always be exercised with due regard to the rights of the parties and the demands of equity and justice. As was said in the case of The Styria vs. Morgan (186 U.S., 1, 9): The establishment of a clearly defined rule of action would be the end of discretion, and yet discretion should not be a word for arbitrary will or inconsiderate action. So in the case of Goodwin vs. Prime (92 Me., 355), it was said that discretion implies that in the absence of positive law or fixed rule the judge is to decide by his view of expediency or by the demands of equity and justice.

There being no positive law or fixed rule to guide the judge in the court below in such cases, there is no positive law or fixed rule to guide a court of appeals in reviewing his action in the premises, and such courts will not therefore attempt to control the exercise of discretion by the court below unless it plainly appears that there was inconsiderate action or the exercise of mere arbitrary will, or in other words that his action in the premises amounted to an abuse of discretion. But the right of an appellate court to review judicial acts which lie in the discretion of inferior courts may properly be invoked upon a showing of a strong and clear case of abuse of power to the prejudice of the appellant, or that the ruling objected to rested on an erroneous principle of law not vested in discretion.[126] (Emphasis supplied)

  

Prior to a final judgment, trial courts have plenary control over the proceedings including the judgment, and in the exercise of a sound judicial discretion, may take such proper action in this regard as truth and justice may require.[127]In the instant case, the trial court was within the exercise of its discretionary and plenary control of the proceedings when it reconsidered motu propio its earlier order striking out the testimony of Mr. Lao[128] and ordered it reinstated.[129] The order of the judge cannot be considered as willful, arbitrary, capricious and uncontrolled discretion, since his action allowed respondent bank to present its case fully, especially considering that Mr. Lao was the sole witness for the defense.Petitioner Bangayans reliance[130] on the Decisions of the Court of Appeals (CA-G.R. SP No. 31865) and this Court (G.R. No. 115922) with respect to respondent RCBCs Petition is misplaced. Contrary to his claim, what respondent RCBC questioned in those cases was the denial by Judge Santiago of its Motion for Inhibition.[131] As respondent pointed out, its Petitions to the Court of Appeals and the Court simply prayed for the reversal of the denial of the Motion for Inhibition and did not include the Order striking out the testimony of Mr. Lao. Even the appellate court (CA-G.R. CV No. 48479) noted that what was resolved by the High Court was the issue of Inhibition of the Judge and not the striking out of the testimony of Mr. Eli Lao.[132]Neither can petitioner Bangayan claim any deprivation of due process when the trial court ordered the reinstatement of Mr. Laos testimony without any motion or prayer from respondent RCBC. The right of a party to confront and cross-examine opposing witnesses in a judicial litigation, be it criminal or civil in nature, or in proceedings before administrative tribunals with quasi-judicial powers, is a fundamental right which is part of due process.[133] This right, however, has always been understood as requiring not necessarily an actual cross-examination but merely an opportunity to exercise the right to cross-examine if desired.[134] What is proscribed by statutory norm and jurisprudential precept is the absence of the opportunity to cross-examine.[135]

In this case, petitioner Bangayans right to due process was not violated, as he was given the freedom and opportunity to cross-examine and confront Mr. Lao on the latters testimony. Even if respondent RCBC had not filed any motion, it was well within the courts discretion to have Mr. Laos testimony reinstated in the interest of substantial justice. The proceedings in the trial court in this civil case were adversarial in nature insofar as the parties, in the process of attaining justice, were made to advocate their respective positions in order to ascertain the truth.[136] The truth-seeking function of the judicial system is best served by giving an opportunity to all parties to fully present their case, subject to procedural and evidentiary rules. Absent any blatant neglect or willful delay, both parties should be afforded equal latitude in presenting the evidence and the testimonies of their witnesses in favor of their respective positions, as well as in testing the credibility and the veracity of the opposing partys claims through cross-examination.

The Court finds no reversible error on the part of the trial court in allowing the full presentation of the reinstated testimony of respondent RCBCs lone witness, especially since the other party was afforded the occasion to cross-examine the witness and in fact availed himself of the opportunity. Although he expressly reserved his right to question the courts reinstatement of the testimony of the witness, petitioner Bangayan did not satisfactorily offer convincing arguments to overturn the trial courts order. That the court gave petitioner the opportunity to cross-examine Mr. Lao a remedy that petitioner even fully availed himself of negates the allegation of bias against the Judge.The timing of petitioner Bangayans allegations of prejudice on the part of Judge Santiago is suspect, since the latter had already rendered a Decision unfavorable to petitioners cause.

A motion to inhibit shall be denied if filed after a member of the court has already given an opinion on the merits of the case, the rationale being that a litigant cannot be permitted to speculate on the action of the court . . . (only to) raise an objection of this sort after the decision has been rendered.[137]

When respondent RCBC moved for Judge Santiagos inhibition, petitioner even interposed an objection and characterized as unfounded respondent banks charge of partiality.[138] It is now too late in the day to suddenly accuse Judge Santiago of prejudice in the proceedings below, after he has already rendered an unfavorable judgment against petitioner. If at all, the latters claim that Judge Santiago was biased in favoring respondent RCBC is a mere afterthought that fails to support a reversal by the Court.C. Respondent RCBC did not violate the Bank

Secrecy Act.The Court affirms the trial courts findings which were likewise concurred with by the Court of Appeals that the alleged violation of the Bank Secrecy Act was not substantiated:

The Customss investigation with a subpoena/duces tecum sent to witness Mr. Lao on the three companies, Final Sales Enterprises, Peak Marketing and LBZ Commercial, guaranteed by plaintiff naturally raised an alarm. Mr. Lao was asked to bring documents on the questioned importations. The witness denied having given any statement in connection therewith. No evidence was introduced by plaintiff to substantiate his claim that defendant bank gave any classified information in violation of Republic Act No. 1405. On this score, plaintiff has no cause of action for damages against said defendant RCBC.[139] In his Memorandum, petitioner Bangayan argues that there was a wrongful disclosure by respondents

RCBC and Philip Saria of confidential information regarding his bank accounts in violation of the Bank Secrecy Act.[140] However, petitioner failed to identify which confidential information respondents divulged before the BOC that would make them liable under the said law.Section 2 of the Bank Secrecy Act provides:

All deposits of whatever nature with banks or banking institutions in the Philippines including investments in bonds issued by the Government of the Philippines, its political subdivisions and its instrumentalities, are hereby considered as of an absolutely confidential nature and may not be examined, inquired or looked into by any person, government official, bureau or office, except upon written permission of the depositor, or in cases of impeachment, or upon order of a competent court in cases of bribery or dereliction of duty of public officials, or in cases where the money deposited or invested is the subject matter of the litigation.

  

Petitioner Bangayan claims that respondent Saria divulged confidential information through the Affidavit he submitted to the BOC.[141] However, nothing in respondent Sarias Affidavit before the BOC showed that details of petitioner Bangayans bank accounts with respondent bank was disclosed. If at all, respondent Saria merely discussed his functions as an account officer in respondent bank and identified petitioner as the one who had guaranteed the payment or obligations of the importers under the Surety Agreement.According to petitioner Bangayan, the responses of respondent RCBCs officers in relation to the BOCs actions led to unsavory news reports that disparaged petitioners good character and reputation and exposed him to public ridicule and contempt.[142] However, as the appellate court correctly found, the humiliation and embarrassment that petitioner Bangayan suffered in the business community was not brought about by the alleged violation of the Bank Secrecy Act; it was due to the smuggling charges filed by the Bureau of Customs which found their way in the headlines of newspapers.[143]

Both the trial and appellate courts correctly found that petitioner Bangayan did not satisfactorily introduce evidence to substantiate his claim that defendant bank gave any classified information in violation of the Bank Secrecy Act. Failing to adduce further evidence in the instant Petition with respect to the banks purported disclosure of confidential information as regards his accounts, petitioner cannot be awarded any damages arising from an unsubstantiated and unproved violation of the Bank Secrecy Act.Rules of DiscoveryThe Court finds that petitioner Bangayans argument as regards the banks purported failure to comply with the rules of discovery is not substantive enough to warrant further discussion by this Court. Petitioner has not alleged any different

outcome that would be generated if we were to agree with him on this point. If petitioner is unsatisfied with respondent RCBCs responses, then his remedy is to expose the falsity (if any) of the banks responses in the various modes of discovery during the trial proper. He could have confronted respondent with contradictory statements, testimonies or other countervailing evidence. The Court affirms the findings of the appellate court that the rules of discovery were not treated lightly by respondent RCBC.[144]

In summary, petitioner Bangayan failed to establish that the dishonor of the seven checks by respondent RCBC entitled him to damages, since the dishonor arose from his own voluntary agreement to act as surety for the four corporations letters of credit. There was no bad faith or malice on the part of respondent bank, as it merely acted within its rights as a creditor under the Surety Agreement.

IN VIEW OF THE FOREGOING, the instant Petition for Review on Certiorari filed by Ricardo B. Bangayan is DENIED. The Decisions of the trial court and appellate court dismissing the Complaint for damages filed by Bangayan against respondents Rizal Commercial Banking Corporation and Philip Saria are hereby AFFIRMED.

SPOUSES VILLANUEVA vs COURT OF APPEALS G.R. No. 163433 August 22, 2011  FACTS: Sometime in 1994, herein petitioners applied for separate loans amounting to P100,000.00 and P125,000.00, which were granted by herein respondent Provident Rural Bank of Sta. Cruz, Laguna, Inc. (respondent Bank). As security for the loans, petitioners executed two separate promissory notes the due dates of which both fall on August 20, 1995.4 Petitioners also executed two separate real estate mortgages over the same parcel of agricultural land located in Sta. Cruz, Laguna.5 Petitioners failed to pay their loans when they became due. As a consequence, on June 14, 1996, respondent Bank filed a petition for extrajudicial foreclosure of the abovementioned mortgages with the Office of the Provincial Sheriff of Laguna. As of June 10, 1996, petitioners' obligations amounted to P287,187.50, plus interests, charges and expenses. On June 25, 1996 the Provincial Sheriff issued a Notice of Sale of the subject mortgaged property.6 It would appear, however, that the auction sale did not push through because on June 9, 2000, respondent Bank re-applied for extrajudicial foreclosure of the same mortgage. On July 25, 2000, the Provincial Sheriff issued a Notice of Sale Re-Application of Foreclosure Case and set the public auction of the subject property on August 25, 2000.7 As of June 15, 2000, petitioners' mortgage debt was P713,465.35, plus interests, charges and expenses. Petitioners then wrote a letter-request addressed to the Officer-in-Charge of the Office of the Clerk of Court of the RTC, Santa Cruz, Laguna questioning the amount of its outstanding obligations to respondent Bank and requesting that the public auction scheduled on August 25, 2000 be suspended until after its objection to the amount being sought by respondent Bank is resolved by the court.8 However, petitioners letter-request was denied. Aggrieved, petitioners filed, on August 2, 2000, a Petition for Declaratory Relief, Accounting and Damages praying that the stipulated interests, charges and expenses on its loans be declared null and void for being contrary to law, morals, good customs, public order or public policy as they are exorbitant, usurious, iniquitous and unconscionable. The Petition was docketed as Civil Case No. SC-4032.9 On September 5, 2000, respondent Bank filed a Motion to Dismiss contending that the petition is barred by res judicata and that petitioners are guilty of forum shopping.10 Respondent Bank argued that: on August 23, 1996, petitioners filed a complaint (docketed as Civil Case No. SC-3422) against it (respondent Bank) before the RTC of Sta. Cruz, Laguna, Branch 86, seeking to declare as usurious the interests, penalties and other charges which petitioners and respondent Bank had agreed upon in the subject real estate mortgages and promissory notes; that these same stipulated interest, penalties and other charges are the subject matter of the petition for declaratory relief; that respondent Bank also filed a Motion to Dismiss in Civil Case No. SC-3422 on the ground of lack of cause of action and suspension of the usury law; that respondent Bank's Motion to Dismiss was denied by the RTC but upon appeal, the CA, in CA-G.R. SP No. 49065, annulled the RTC Order and granted the said Motion. Petitioners filed their Opposition to respondent Bank's Motion to Dismiss.11 Subsequently, on July 31, 2001, the RTC issued an Order dismissing petitioners' Petition for Declaratory Relief holding that the said Petition is barred by prior judgment, considering that the decision of the CA in CA-G.R. SP No. 49065 already settled the issues of usury and the right of petitioners to claim the abolition or reduction of the subject interest rates, which are the same issues raised by petitioners in their Petition for Declaratory Relief.12 Petitioners then filed an appeal with the CA assailing the abovementioned Order of the RTC. On June 16, 2003, the CA promulgated the presently assailed Decision affirming the Order of the RTC and ruling that all the elements of res judicata are present. Petitioners' Motion for Reconsideration was denied by the CA via its April 28, 2004 Resolution. Hence, the present petition for review on certiorari. Petitioners contend that the principle of res judicata does not apply in the present case on the ground that there is no

identity of subject matter and cause of action in Civil Case Nos. 3422 and 4032. Petitioners further argue that even if all the elements of res judicata are present in the instant case, equity dictates that this principle should not be applied; otherwise, the court would be sanctioning respondent Bank's enrichment at the expense of petitioners through the imposition of exorbitant, unconscionable and usurious interest rates, penalties and other charges; in such a case, petitioners claim that justice would be sacrificed in favor of technicality. Lastly, petitioners aver that they did not violate the rule on forum shopping because Civil Case No. SC-3422, the case being cited by respondent Bank in its Motion to Dismiss, was already decided by the CA in 1999, before petitioners filed their Petition for Declaratory Relief on August 2, 2000, and that there is no other pending case involving the same parties, subject matter and cause of action. The petition lacks merit. Anent petitioners' first contention, res judicata literally means a matter adjudged; a thing judicially acted upon or decided; a thing or matter settled by judgment.13 It lays the rule that an existing final judgment or decree rendered on the merits, without fraud or collusion, by a court of competent jurisdiction, upon any matter within its jurisdiction, is conclusive of the rights of the parties or their privies, in all other actions or suits in the same or any other judicial tribunal of concurrent jurisdiction on the points and matters in issue in the first suit.14 The elements of res judicata are: (1) the judgment sought to bar the new action must be final; (2) the decision must have been rendered by a court having jurisdiction over the subject matter and the parties; (3) the disposition of the case must be a judgment on the merits; and (4) there must be as between the first and second action, identity of parties, subject matter, and causes of action.15 The Court finds that the CA and the RTC did not err in finding that all of the abovementioned elements are present in the instant case. There is no dispute that the first three elements, as enumerated above, are present. As correctly held by the CA, the issues raised in Civil Case No. SC-3422 were already decided with finality by this Court when it denied petitioners' petition for review on certiorari in its Resolution dated August 23, 1999 in G.R. No. 139385. The said Resolution became final and executory on December 20, 1999. With respect to the fourth element, there is also no dispute that there is identity of parties. However, the Court is not persuaded by petitioners' argument that there is no identity of subject matter and cause of action. On the issue of identity of subject matter, this Court has held that the subject of an action is defined as the matter or thing with respect to which the controversy has arisen, concerning which a wrong has been done.16 The subject matters in Civil Case No. SC-3422 are the interest rates as well as penalties and other charges stipulated in the promissory notes and real estate mortgages executed by petitioners. These are the same subject matters in Civil Case No. SC-4032. As to the cause of action, Rule 2, Section 2 of the Rules of Court defines cause of action as the act or omission by which a party violates a right of another. With respect to the identity of causes of action, this Court has laid down the test in determining whether or not the causes of action in the first and second cases are identical, to wit: would the same evidence support and establish both the present and former cause of action? If so, the former recovery is a bar; if otherwise, it does not stand in the way of the former action.17 In the instant case, the cause of action in both Civil Case Nos. SC-3422 and 4032 is the act of respondent Bank in imposing what petitioners alleged as exorbitant, unconscionable and usurious interest rates, penalties and other charges. There is, thus, no doubt that the same evidence is required to establish the cause of action in both of these cases. In fact, the issues (whether or not the interest rates, penalties and charges imposed by respondent Bank are usurious and unconscionable) and the reliefs sought (reduction of the said interest rates, penalties and surcharges to an amount not exceeding 12% per annum) in both cases are essentially the same. Neither is the Court persuaded by petitioners' contention that, in any case, the Court should not apply the principle of res judicata because to do so would be tantamount to allowing respondent Bank to unjustifiably and illegally enrich itself at the expense of petitioners by imposing interests, penalties and other charges beyond what the law and equity allows. It is true that res judicata is to be disregarded if its rigid application would involve the sacrifice of justice to technicality.18 However, the present case does not fall under this exception. Petitioners contend that the interest rate of 24% per annum stipulated in the mortgage contract, which they executed in favor of respondent Bank, is usurious. This Court has consistently held that for sometime now, usury has been legally non-existent and that interest can now be charged as lender and borrower may agree upon.19 In fact, Section 1 of Central Bank Circular No. 905, Series of 1982, which took effect on January 1, 1983, expressly provides that [t]he rate of interest, including commissions, premiums, fees and other charges, on a loan or forbearance of any money, goods, or credits, regardless of maturity and whether secured or unsecured, that may be charged or collected by any person, whether natural or juridical, shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended. Nonetheless, this Court has also held in a number of cases, that nothing in the circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets.20 Thus, the stipulated interest rates are illegal if they are unconscionable.

 The question now is whether the 24% per annum interest rate is unreasonable under the circumstances obtaining in the present case. The Court rules in the negative. In Spouses Zacarias Bacolor and Catherine Bacolor v. Banco Filipino Savings and Mortgage Bank, Dagupan City Branch,21 this Court held that the interest rate of 24% per annum on a loan of P244,000.00, agreed upon by the parties, may not be considered as unconscionable and excessive. As such, the Court ruled that the borrowers cannot renege on their obligation to comply with what is incumbent upon them under the contract of loan as the said contract is the law between the parties and they are bound by its stipulations.22 Also, in Garcia v. Court of Appeals,23 this Court sustained the agreement of the parties to a 24% per annum interest on an P8,649,250.00 loan finding the same to be reasonable and clearly evidenced by the amended credit line agreement entered into by the parties as well as two promissory notes executed by the borrower in favor of the lender. Based on the above jurisprudence, the Court finds that the 24% per annum interest rate, provided for in the subject mortgage contracts for a loan of P225,000.00, may not be considered unconscionable. Moreover, considering that the mortgage agreement was freely entered into by both parties, the same is the law between them and they are bound to comply with the provisions contained therein. The Court also upholds the validity of the 6% per annum penalty charge. In Development Bank of the Philippines v. Family Foods Manufacturing Co., Ltd.,24 this Court, sustaining the validity of an 8% per annum penalty charge on separate loans of P500,000.00 and P440,000.00, held that: 

This Court has recognized a penalty clause as an accessory obligation which the parties attach to a principal obligation for the purpose of insuring the performance thereof by imposing on the debtor a special prestation (generally consisting in the payment of a sum of money) in case the obligation is not fulfilled or is irregularly or inadequately fulfilled. The enforcement of the penalty can be demanded by the creditor only when the non-performance is due to the fault or fraud of the debtor. The non-performance gives rise to the presumption of fault; in order to avoid the payment of the penalty, the debtor has the burden of proving an excuse the failure of the performance was due to either force majeure or the acts of the creditor himself.

 In this case, respondents failed to discharge the burden. Thus, they cannot avoid the payment of the agreed penalty charge.25

  In a similar manner, herein petitioners bound themselves to pay the stipulated penalty charge of 6% per annum of the principal amount of loan as penalty for inexcusable neglect to pay any amount of t[he] loan when due.26 Since petitioners failed to present evidence that their failure to perform their obligation was due to either force majeure or the acts of respondent Bank or to any justifiable or excusable cause, they are obliged to pay the penalty charge as agreed upon. Lastly, it is wrong for petitioners to argue that they are not guilty of forum shopping on the ground that there is no other pending case involving the same parties, subject matter and cause of action as their petition for declaratory relief. Settled is the rule that forum shopping is the act of a litigant who repetitively availed of several judicial remedies in different courts, simultaneously or successively, all substantially founded on the same transactions and the same essential facts and circumstances, and all raising substantially the same issues, either pending in or already resolved adversely by some other court, to increase his chances of obtaining a favorable decision if not in one court, then in another.27 Forum shopping can be committed in three ways: (1) by filing multiple cases based on the same cause of action and with the same prayer, the previous case not having been resolved yet (where the ground for dismissal is litis pendentia); (2) by filing multiple cases based on the same cause of action and with the same prayer, the previous case having been finally resolved (where the ground for dismissal is res judicata); and (3) by filing multiple cases based on the same cause of action but with different prayers (splitting of causes of action, where the ground for dismissal is also either litis pendentia or res judicata).28 More particularly, the elements of forum-shopping are: (a) identity of parties or at least such parties that represent the same interests in both actions; (b) identity of rights asserted and reliefs prayed for, the relief being founded on the same facts; (c) identity of the two preceding particulars, such that any judgment rendered in the other action will, regardless of which party is successful, amount to res judicata in the action under consideration.29 

All the abovementioned elements are present in the instant case. As discussed earlier, petitioners petition for declaratory relief involves the same parties, cause of action and reliefs prayed for as Civil Case No. SC-3422 which

case was decided with finality by this Court as shown by the entry of judgment dated December 20, 1999 in G.R. No. 139385. In addition, it has been held above that the judgment in Civil Case No. SC-3422 (G.R. No. 139385) amounts to res judicata in the present case. Contrary to petitioners' asseveration, Civil Case No. SC-3422 need not be pending in order that the rule on forum shopping may apply, because as mentioned above, forum shopping may still be committed if one files multiple cases involving the same parties causes of action and prayer and the previous case has already been finally resolved. Hence, there is no other conclusion than that petitioners are guilty of forum shopping. 

WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals dated June 16, 2003 and April 28, 2004, respectively, are AFFIRMED.

PHILIPPINE COMMERCIAL INTERNATIONAL BANK vs BALMACEDA G.R. No. 158143 September 21, 2011  

FACTUAL ANTECEDENTS

On September 10, 1993, PCIB filed an action for recovery of sum of money with damages before the RTC against Antonio Balmaceda, the Branch Manager of its Sta. Cruz, Manila branch. In its complaint, PCIB alleged that between 1991 and 1993, Balmaceda, by taking advantage of his position as branch manager, fraudulently obtained and encashed 31 Managers checks in the total amount of Ten Million Seven Hundred Eighty Two Thousand One Hundred Fifty Pesos (P10,782,150.00). On February 28, 1994, PCIB moved to be allowed to file an amended complaint to implead Rolando Ramos as one of the recipients of a portion of the proceeds from Balmacedas alleged fraud. PCIB also increased the number of fraudulently obtained and encashed Managers checks to 34, in the total amount of Eleven Million Nine Hundred Thirty Seven Thousand One Hundred Fifty Pesos (P11,937,150.00). The RTC granted this motion. Since Balmaceda did not file an Answer, he was declared in default. On the other hand, Ramos filed an Answer denying any knowledge of Balmacedas scheme. According to Ramos, he is a reputable businessman engaged in the business of buying and selling fighting cocks, and Balmaceda was one of his clients. Ramos admitted receiving money from Balmaceda as payment for the fighting cocks that he sold to Balmaceda, but maintained that he had no knowledge of the source of Balmacedas money. 

THE RTC DECISION 

On September 22, 2000, the RTC issued a decision in favor of PCIB, with the following dispositive portion: 

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendants as follows:

 1. Ordering defendant Antonio Balmaceda to pay the amount of

P11,042,150.00 with interest thereon at the legal rate from [the] date of his misappropriation of the said amount until full restitution shall have been made[.]

 2. Ordering defendant Rolando Ramos to pay the amount of P895,000.00

with interest at the legal rate from the date of misappropriation of the said amount until full restitution shall have been made[.]

 3. Ordering the defendants to pay plaintiff moral damages in the sum of

P500,000.00 and attorneys fees in the amount of ten (10%) percent of the total misappropriated amounts sought to be recovered.

 4. Plus costs of suit. SO ORDERED.[4]  

From the evidence presented, the RTC found that Balmaceda, by taking undue advantage of his position and authority as branch manager of the Sta. Cruz, Manila branch of PCIB, successfully obtained and misappropriated the banks funds by falsifying several commercial documents. He accomplished this by claiming that he had been instructed by one of the Banks corporate clients to purchase Managers checks on its behalf, with the value of the checks to be debited from the clients corporate bank account. First, he would instruct the Bank staff to prepare the application forms for the purchase of Managers checks, payable to several persons. Then, he would forge the signature of the clients authorized representative on these forms and sign the forms as PCIBs approving officer. Finally, he would have an authorized officer of PCIB issue the Managers checks. Balmaceda would subsequently ask his subordinates to release the Managers checks to him, claiming that the client had requested that he deliver the checks.[5] After receiving the Managers checks, he encashed them by forging the signatures of the payees on the checks.

 In ruling that Ramos acted in collusion with Balmaceda, the RTC noted that although the Managers checks

payable to Ramos were crossed checks, Balmaceda was still able to encash the checks.[6] After Balmaceda encashed

three of these Managers checks, he deposited most of the money into Ramos account.[7] The RTC concluded that from the P11,937,150.00 that Balmaceda misappropriated from PCIB, P895,000.00 actually went to Ramos. Since the RTC disbelieved Ramos allegation that the sum of money deposited into his Savings Account (PCIB, Pasig branch) were proceeds from the sale of fighting cocks, it held Ramos liable to pay PCIB the amount of P895,000.00.

 THE COURT OF APPEALS DECISION

 On appeal, the CA dismissed the complaint against Ramos, holding that no sufficient evidence existed to prove that Ramos colluded with Balmaceda in the latters fraudulent manipulations.[8] According to the CA, the mere fact that Balmaceda made Ramos the payee in some of the Managers checks does not suffice to prove that Ramos was complicit in Balmacedas fraudulent scheme. It observed that other persons were also named as payees in the checks that Balmaceda acquired and encashed, and PCIB only chose to go after Ramos. With PCIBs failure to prove Ramos actual participation in Balmacedas fraud, no legal and factual basis exists to hold him liable. 

The CA also found that PCIB acted illegally in freezing and debiting P251,910.96 from Ramos bank account. The CA thus decreed: 

WHEREFORE, the appeal is granted. The Decision of the trial court rendered on September 22, 2000[,] insofar as appellant Ramos is concerned, is SET ASIDE, and the complaint below against him is DISMISSED. Appellee is hereby ordered to release the amount of P251,910.96 to appellant Ramos plus interest at [the] legal rate computed from September 30, 1993 until appellee shall have fully complied therewith. Appellee is likewise ordered to pay appellant Ramos the following: 

a)                  P50,000.00 as moral damagesb)                  P50,000.00 as exemplary damages, andc)                  P20,000.00 as attorneys fees.

 No costs.

 SO ORDERED.[9]  

THE PETITION In the present petition, PCIB avers that: 

ITHE APPELLATE COURT ERRED IN HOLDING THAT THERE IS NO EVIDENCE TO HOLD THAT RESPONDENT RAMOS ACTED IN COMPLICITY WITH RESPONDENT BALMACEDA

 II 

THE APPELLATE COURT ERRED IN ORDERING THE PETITIONER TO RELEASE THE AMOUNT OF P251,910.96 TO RESPONDENT RAMOS AND TO PAY THE LATTER MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS FEES[10]  PCIB contends that the circumstantial evidence shows that Ramos had knowledge of, and acted in

complicity with Balmaceda in, the perpetuation of the fraud. Ramos explanation that he is a businessman and that he received the Managers checks as payment for the fighting cocks he sold to Balmaceda is unconvincing, given the large sum of money involved. While Ramos presented evidence that he is a reputable businessman, this evidence does not explain why the Managers checks were made payable to him in the first place.

 PCIB maintains that it had the right to freeze and debit the amount of P251,910.96 from Ramos bank

account, even without his consent, since legal compensation had taken place between them by operation of law. PCIB debited Ramos bank account, believing in good faith that Ramos was not entitled to the proceeds of the Managers checks and was actually privy to the fraud perpetrated by Balmaceda. PCIB cannot thus be held liable for moral and exemplary damages. 

OUR RULING We partly grant the petition. 

At the outset, we observe that the petition raises mainly questions of fact whose resolution requires the re-examination of the evidence on record. As a general rule, petitions for review on certiorari only involve questions of law.

[11] By way of exception, however, we can delve into evidence and the factual circumstance of the case when the findings of fact in the tribunals below (in this case between those of the CA and of the RTC) are conflicting. When the exception applies, we are given latitude to review the evidence on record to decide the case with finality.[12]

 Ramos participation in Balmacedas scheme not proven  From the testimonial and documentary evidence presented, we find it beyond question that Balmaceda, by taking advantage of his position as branch manager of PCIBs Sta. Cruz, Manila branch, was able to apply for and obtain Managers checks drawn against the bank account of one of PCIBs clients. The unsettled question is whether Ramos, who received a portion of the money that Balmaceda took from PCIB, should also be held liable for the return of this money to the Bank. 

PCIB insists that it presented sufficient evidence to establish that Ramos colluded with Balmaceda in the scheme to fraudulently secure Managers checks and to misappropriate their proceeds. Since Ramos defense anchored on mere denial of any participation in Balmacedas wrongdoing is an intrinsically weak defense, it was error for the CA to exonerate Ramos from any liability.

 In civil cases, the party carrying the burden of proof must establish his case by a preponderance of

evidence, or evidence which, to the court, is more worthy of belief than the evidence offered in opposition.[13] This Court, in Encinas v. National Bookstore, Inc.,[14] defined preponderance of evidence in the following manner:

 "Preponderance of evidence" is the weight, credit, and value of the aggregate evidence on either side and is usually considered to be synonymous with the term "greater weight of the evidence" or "greater weight of the credible evidence." Preponderance of evidence is a phrase which, in the last analysis, means probability of the truth. It is evidence which is more convincing to the court as worthy of belief than that which is offered in opposition thereto.

  

The party, whether the plaintiff or the defendant, who asserts the affirmative of an issue has the onus to prove his assertion in order to obtain a favorable judgment, subject to the overriding rule that the burden to prove his cause of action never leaves the plaintiff. For the defendant, an affirmative defense is one that is not merely a denial of an essential ingredient in the plaintiff's cause of action, but one which, if established, will constitute an "avoidance" of the claim.[15] 

Thus, PCIB, as plaintiff, had to prove, by preponderance of evidence, its positive assertion that Ramos conspired with Balmaceda in perpetrating the latters scheme to defraud the Bank. In PCIBs estimation, it successfully accomplished this through the submission of the following evidence:

 [1] Exhibits A, D, PPPP, QQQQ, and RRRR and their submarkings, the application forms

for MCs, show that [these MCs were applied for in favor of Ramos;] [2] Exhibits K, N, SSSS, TTTT, and UUUU and their submarkings prove that the MCs

were issued in favor of x x x Ramos[; and] [3] [T]estimonies of the witness for [PCIB].[16]

  

We cannot accept these submitted pieces of evidence as sufficient to satisfy the burden of proof that PCIB carries as plaintiff.

 On its face, all that PCIBs evidence proves is that Balmaceda used Ramos name as a payee when he

filled up the application forms for the Managers checks. But, as the CA correctly observed, the mere fact that Balmaceda made Ramos the payee on some of the Managers checks is not enough basis to conclude that Ramos was complicit in Balmacedas fraud; a number of other people were made payees on the other Managers checks yet PCIB never alleged them to be liable, nor did the Bank adduce any other evidence pointing to Ramos participation that would justify his separate treatment from the others. Also, while Ramos is Balmacedas brother-in-law, their relationship is not sufficient, by itself, to render Ramos liable, absent concrete proof of his actual participation in the fraudulent scheme.

 Moreover, the evidence on record clearly shows that Balmaceda acted on his own when he applied for the

Managers checks against the bank account of one of PCIBs clients, as well as when he encashed the fraudulently acquired Managers checks.

 Mrs. Elizabeth Costes, the Area Manager of PCIB at the time of the relevant events, testified that

Balmaceda committed all the acts necessary to obtain the unauthorized Managers checks from filling up the application form by forging the signature of the clients representative, to forging the signatures of the payees in order to encash the checks. As Mrs. Costes stated in her testimony: very long testimony

 Mrs. Nilda Laforteza, the Commercial Account Officer of PCIBs Sta. Cruz, Manila branch at the time the

events of this case occurred, confirmed Mrs. Costes testimony by stating that it was Balmaceda who forged Ramos signature on the Managers checks where Ramos was the payee, so as to encash the amounts indicated on the checks.[19] Mrs. Laforteza also testified that Ramos never went to the PCIB, Sta. Cruz, Manila branch to encash the checks since Balmaceda was the one who deposited the checks into Ramos bank account. As revealed during Mrs. Lafortezas cross-examination:

 Q: Mrs. Laforteza, these checks that were applied for by Mr.

Balmaceda, did you ever see my client go to the bank to encash these checks?A: No it is Balmaceda who is depositing in his behalf.

 Q: Did my client ever call up the bank concerning this amount?A: Yes he is not going to call PCIBank Sta. Cruz branch because his

account is maintained at Pasig. 

Q: So Mr. Balmaceda was the one who just remitted or transmitted the amount that you claimed [was sent] to the account of my client?

A: Yes.[20] (emphases ours)  

Even Mrs. Rodelia Nario, presented by PCIB as its rebuttal witness to prove that Ramos encashed a Managers check for P480,000.00, could only testify that the money was deposited into Ramos PCIB bank account. She could not attest that Ramos himself presented the Managers check for deposit in his bank account.[21] These testimonies clearly dispute PCIBs theory that Ramos was instrumental in the encashment of the Managers checks.

 We also find no reason to doubt Ramos claim that Balmaceda deposited these large sums of money into

his bank account as payment for the fighting cocks that Balmaceda purchased from him. Ramos presented two witnesses Vicente Cosculluela and Crispin Gadapan who testified that Ramos previously engaged in the business of buying and selling fighting cocks, and that Balmaceda was one of Ramos biggest clients.

 Quoting from the RTC decision, PCIB stresses that Ramos own witness and business partner, Cosculluela, testified that the biggest net profit he and Ramos earned from a single transaction with Balmaceda amounted to no more than P100,000.00, for the sale of approximately 45 fighting cocks.[22] In PCIBs view, this testimony directly contradicts Ramos assertion that he received approximately P400,000.00 from his biggest transaction with Balmaceda. To PCIB, the testimony also renders questionable Ramos assertion that Balmaceda deposited large amounts of money into his bank account as payment for the fighting cocks. 

On this point, we find that PCIB misunderstood Cosculluelas testimony. A review of the testimony shows that Cosculluela specifically referred to the net profit that they earned from the sale of the fighting cocks;[23] PCIB apparently did not take into account the capital, transportation and other expenses that are components of these transactions. Obviously, in sales transactions, the buyer has to pay not only for the value of the thing sold, but also for the shipping costs and other incidental costs that accompany the acquisition of the thing sold. Thus, while the biggest net profit that Ramos and Cosculluela earned in a single transaction amounted to no more than P100,000.00,[24] the inclusion of the actual acquisition costs of the fighting cocks, the transportation expenses (i.e., airplane tickets from Bacolod or Zamboanga to Manila) and other attendant expenses could account for the P400,000.00 that Balmaceda deposited into Ramos bank account.

 Given that PCIB failed to establish Ramos participation in Balmacedas scheme, it was not even necessary

for Ramos to provide an explanation for the money he received from Balmaceda. Even if the evidence adduced by the plaintiff appears stronger than that presented by the defendant, a judgment cannot be entered in the plaintiffs favor if his evidence still does not suffice to sustain his cause of action;[25] to reiterate, a preponderance of evidence as defined must be established to achieve this result. 

PCIB itself at fault as employer 

In considering this case, one point that cannot be disregarded is the significant role that PCIB played which contributed to the perpetration of the fraud. We cannot ignore that Balmaceda managed to carry out his fraudulent scheme primarily because other PCIB employees failed to carry out their assigned tasks flaws imputable to PCIB itself as the employer.

 Ms. Analiza Vega, an accounting clerk, teller and domestic remittance clerk working at the PCIB, Sta.

Cruz, Manila branch at the time of the incident, testified that Balmaceda broke the Banks protocol when he ordered the Banks employees to fill up the application forms for the Managers checks, to be debited from the bank account of one of the banks clients, without providing the necessary Authority to Debit from the client.[26] PCIB also admitted that these Managers checks were subsequently released to Balmaceda, and not to the clients representative, based solely on Balmacedas word that the client had tasked him to deliver these checks.[27]

 Despite Balmacedas gross violations of bank procedures mainly in the processing of the applications for

Managers checks and in the releasing of the Managers checks Balmacedas co-employees not only turned a blind eye to his actions, but actually complied with his instructions. In this way, PCIBs own employees were unwitting accomplices in

Balmacedas fraud. Another telling indicator of PCIBs negligence is the fact that it allowed Balmaceda to encash the

Managers checks that were plainly crossed checks. A crossed check is one where two parallel lines are drawn across its face or across its corner.[28] Based on jurisprudence, the crossing of a check has the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once to the one who has an account with the bank; and (c) the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose and he must inquire if he received the check pursuant to this purpose; otherwise, he is not a holder in due course.[29] In other words, the crossing of a check is a warning that the check should be deposited only in the account of the payee. When a check is crossed, it is the duty of the collecting bank to ascertain that the check is only deposited to the payees account.[30] In complete disregard of this duty, PCIBs systems allowed Balmaceda to encash 26 Managers checks which were all crossed checks, or checks payable to the payees account only.

 The General Banking Law of 2000[31] requires of banks the highest standards of integrity and

performance. The banking business is impressed with public interest. Of paramount importance is the trust and confidence of the public in general in the banking industry. Consequently, the diligence required of banks is more than that of a Roman pater familias or a good father of a family.[32] The highest degree of diligence is expected.[33]

 While we appreciate that Balmaceda took advantage of his authority and position as the branch manager

to commit these acts, this circumstance cannot be used to excuse the manner the Bank through its employees handled its clients bank accounts and thereby ignored established bank procedures at the branch managers mere order. This lapse is made all the more glaring by Balmacedas repetition of his modus operandi 33 more times in a period of over one year by the Banks own estimation. With this kind of record, blame must be imputed on the Bank itself and its systems, not solely on the weakness or lapses of individual employees. Principle of unjust enrichment not applicable

 PCIB maintains that even if Ramos did not collude with Balmaceda, it still has the right to recover the

amounts unjustly received by Ramos pursuant to the principle of unjust enrichment. This principle is embodied in Article 22 of the Civil Code which provides: 

 Article 22. Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.  To have a cause of action based on unjust enrichment, we explained in University of the Philippines v.

Philab Industries, Inc.[34] that: Unjust enrichment claims do not lie simply because one party benefits from the efforts or obligations of others, but instead it must be shown that a party was unjustly enriched in the sense that the term unjustly could mean illegally or unlawfully. Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally prove that another party knowingly received something of value to which he was not entitled and that the state of affairs are such that it would be unjust for the person to keep the benefit. Unjust enrichment is a term used to depict result or effect of failure to make remuneration of or for property or benefits received under circumstances that give rise to legal or equitable obligation to account for them; to be entitled to remuneration, one must confer benefit by mistake, fraud, coercion, or request. Unjust enrichment is not itself a theory of reconvey. Rather, it is a prerequisite for the enforcement of the doctrine of restitution.[35] (emphasis ours)  

Ramos cannot be held liable to PCIB on account of unjust enrichment simply because he received payments out of money secured by fraud from PCIB. To hold Ramos accountable, it is necessary to prove that he received the money from Balmaceda, knowing that he (Ramos) was not entitled to it. PCIB must also prove that Ramos, at the time that he received the money from Balmaceda, knew that the money was acquired through fraud. Knowledge of the fraud is the link between Ramos and PCIB that would obligate Ramos to return the money based on the principle of unjust enrichment. 

However, as the evidence on record indicates, Ramos accepted the deposits that Balmaceda made directly into his bank account, believing that these deposits were payments for the fighting cocks that Balmaceda had purchased. Significantly, PCIB has not presented any evidence proving that Ramos participated in, or that he even knew of, the fraudulent sources of Balmacedas funds. PCIB illegally froze and debited Ramos assets

 We also find that PCIB acted illegally in freezing and debiting Ramos bank account. In BPI Family Bank v.

Franco,[36] we cautioned against the unilateral freezing of bank accounts by banks, noting that: 

More importantly, [BPI Family Bank] does not have a unilateral right to freeze the accounts of Franco based on its mere suspicion that the funds therein were proceeds of the multi-million peso scam Franco was allegedly involved in. To grant [BPI Family Bank], or any bank for that matter, the right to take whatever action it pleases on deposits which it supposes are derived from shady transactions, would open the floodgates of public distrust in the banking industry.[37]

  

We see no legal merit in PCIBs claim that legal compensation took place between it and Ramos, thereby warranting the automatic deduction from Ramos bank account. For legal compensation to take place, two persons, in their own right, must first be creditors and debtors of each other.[38] While PCIB, as the depositary bank, is Ramos debtor in the amount of his deposits, Ramos is not PCIBs debtor under the evidence the PCIB adduced. PCIB thus had no basis, in fact or in law, to automatically debit from Ramos bank account. On the award of damages 

Although PCIBs act of freezing and debiting Ramos account is unlawful, we cannot hold PCIB liable for moral and exemplary damages. Since a contractual relationship existed between Ramos and PCIB as the depositor and the depositary bank, respectively, the award of moral damages depends on the applicability of Article 2220 of the Civil Code, which provides: 

Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. [emphasis ours]  

Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious commission of a wrong; it partakes of the nature of fraud.[39] 

As the facts of this case bear out, PCIB did not act out of malice or bad faith when it froze Ramos bank account and subsequently debited the amount of P251,910.96 therefrom. While PCIB may have acted hastily and without regard to its primary duty to treat the accounts of its depositors with meticulous care and utmost fidelity,[40] we find that its actions were propelled more by the need to protect itself, and not out of malevolence or ill will. One may err, but error alone is not a ground for granting moral damages.[41]

 We also disallow the award of exemplary damages. Article 2234 of the Civil Code requires a party to first prove that he is entitled to moral, temperate or compensatory damages before he can be awarded exemplary damages. Since no reason exists to award moral damages, so too can there be no reason to award exemplary damages.

We deem it just and equitable, however, to uphold the award of attorneys fees in Ramos favor. Taking into consideration the time and efforts involved that went into this case, we increase the award of attorneys fees from P20,000.00 to P75,000.00.

 WHEREFORE, the petition is PARTIALLY GRANTED. We AFFIRM the decision of the Court of Appeals

dated April 29, 2003 in CA-G.R. CV No. 69955 with the MODIFICATION that the award of moral and exemplary damages in favor of Rolando N. Ramos is DELETED, while the award of attorneys fees is INCREASED to P75,000.00. Costs against the Philippine Commercial International Bank.

LAND BANK OF THE PHILIPPINES vs PEREZ G.R. No. 166884 June 13, 2012

FACTS: Petitioner Land Bank of the Philippines (LBP) is a government financial institution and the official depository of the Philippines.[3] Respondents are the officers and representatives of Asian Construction and Development Corporation (ACDC), a corporation incorporated under Philippine law and engaged in the construction business.[4] On June 7, 1999, LBP filed a complaint for estafa or violation of Article 315, paragraph 1(b) of the Revised Penal Code, in relation to P.D. 115, against the respondents before the City Prosecutors Office in Makati City. In the affidavit-complaint[5] of June 7, 1999, the LBPs Account Officer for the Account Management Development, Edna L. Juan, stated that LBP extended a credit accommodation to ACDC through the execution of an Omnibus Credit Line Agreement (Agreement)[6] between LBP and ACDC on October 29, 1996. In various instances, ACDC used the Letters of Credit/Trust Receipts Facility of the Agreement to buy construction materials. The respondents, as officers and representatives of ACDC, executed trust receipts[7] in connection with the construction materials, with a total principal amount of P52,344,096.32. The trust receipts matured, but ACDC failed to return to LBP the proceeds of the construction projects or the construction materials subject of the trust receipts. LBP sent ACDC a demand letter,[8] dated May 4, 1999, for the payment of its debts, including those under the Trust Receipts Facility in the amount of P66,425,924.39. When ACDC failed to comply with the demand letter, LBP filed the affidavit-complaint. The respondents filed a joint affidavit[9] wherein they stated that they signed the trust receipt documents on or about the same time LBP and ACDC executed the loan documents; their signatures were required by LBP for the release of the loans. The trust receipts in this case do not contain (1) a description of the goods placed in trust, (2) their invoice values,

and (3) their maturity dates, in violation of Section 5(a) of P.D. 115. Moreover, they alleged that ACDC acted as a subcontractor for government projects such as the Metro Rail Transit, the Clark Centennial Exposition and the Quezon Power Plant in Mauban, Quezon. Its clients for the construction projects, which were the general contractors of these projects, have not yet paid them; thus, ACDC had yet to receive the proceeds of the materials that were the subject of the trust receipts and were allegedly used for these constructions. As there were no proceeds received from these clients, no misappropriation thereof could have taken place. On September 30, 1999, Makati Assistant City Prosecutor Amador Y. Pineda issued a Resolution[10] dismissing the complaint. He pointed out that the evidence presented by LBP failed to state the date when the goods described in the letters of credit were actually released to the possession of the respondents. Section 4 of P.D. 115 requires that the goods covered by trust receipts be released to the possession of the entrustee after the latters execution and delivery to the entruster of a signed trust receipt. He adds that LBPs evidence also fails to show the date when the trust receipts were executed since all the trust receipts are undated. Its dispositive portion reads: 

WHEREFORE, premises considered, and for insufficiency of evidence, it is respectfully recommended that the instant complaints be dismissed, as upon approval, the same are hereby dismissed.[11]

  

LBP filed a motion for reconsideration which the Makati Assistant City Prosecutor denied in his order of January 7, 2000.[12]

On appeal, the Secretary of Justice reversed the Resolution of the Assistant City Prosecutor. In his resolution of August 1, 2002,[13] the Secretary of Justice pointed out that there was no question that the goods covered by the trust receipts were received by ACDC. He likewise adopted LBPs argument that while the subjects of the trust receipts were not mentioned in the trust receipts, they were listed in the letters of credit referred to in the trust receipts. He also noted that the trust receipts contained maturity dates and clearly set out their stipulations. He further rejected the respondents defense that ACDC failed to remit the payments to LBP due to the failure of the clients of ACDC to pay them. The dispositive portion of the resolution reads:

 WHEREFORE, the assailed resolution is REVERSED and SET ASIDE.

The City Prosecutor of Makati City is hereby directed to file an information for estafa under Art. 315 (1) (b) of the Revised Penal Code in relation to Section 13, Presidential Decree No. 115 against respondents Lamberto C. Perez, Nestor C. Kun, [Ma. Estelita P. Angeles-Panlilio] and Napoleon O. Garcia and to report the action taken within ten (10) days from receipt hereof.[14]

  

The respondents filed a motion for reconsideration of the resolution dated August 1, 2002, which the Secretary of Justice denied.[15] He rejected the respondents submission that Colinares v. Court of Appeals[16] does not apply to the case. He explained that in Colinares, the building materials were delivered to the accused before they applied to the bank for a loan to pay for the merchandise; thus, the ownership of the merchandise had already been transferred to the entrustees before the trust receipts agreements were entered into. In the present case, the parties have already entered into the Agreement before the construction materials were delivered to ACDC. 

Subsequently, the respondents filed a petition for review before the Court of Appeals. After both parties submitted their respective Memoranda, the Court of Appeals promulgated the assailed decision of January 20, 2005.[17] Applying the doctrine in Colinares, it ruled that this case did not involve a trust receipt transaction, but a mere loan. It emphasized that construction materials, the subject of the trust receipt transaction, were delivered to ACDC even before the trust receipts were executed. It noted that LBP did not offer proof that the goods were received by ACDC, and that the trust receipts did not contain a description of the goods, their invoice value, the amount of the draft to be paid, and their maturity dates. It also adopted ACDCs argument that since no payment for the construction projects had been received by ACDC, its officers could not have been guilty of misappropriating any payment. The dispositive portion reads: 

WHEREFORE, in view of the foregoing, the Petition is GIVEN DUE COURSE. The assailed Resolutions of the respondent Secretary of Justice dated August 1, 2002 and February 17, 2003, respectively in I.S. No. 99-F-9218-28 are hereby REVERSED and SET ASIDE.[18]  

LBP now files this petition for review on certiorari, dated March 15, 2005, raising the following error: 

THE COURT OF APPEALS GRAVELY ERRED WHEN IT REVERSED AND SET ASIDE THE RESOLUTIONS OF THE HONORABLE SECRETARY OF JUSTICE BY APPLYING THE RULING IN THE CASE OF COLINARES V. COURT OF APPEALS, 339 SCRA 609, WHICH IS NOT APPLICABLE IN THE CASE AT BAR.[19]  

On April 8, 2010, while the case was pending before this Court, the respondents filed a motion to dismiss.[20] They informed the Court that LBP had already assigned to Philippine Opportunities for Growth and Income, Inc. all of its rights,

title and interests in the loans subject of this case in a Deed of Absolute Sale dated June 23, 2005 (attached as Annex C of the motion). The respondents also stated that Avent Holdings Corporation, in behalf of ACDC, had already settled ACDCs obligation to LBP on October 8, 2009. Included as Annex A in this motion was a certification[21] issued by the Philippine Opportunities for Growth and Income, Inc., stating that it was LBPs successor-in-interest insofar as the trust receipts in this case are concerned and that Avent Holdings Corporation had already settled the claims of LBP or obligations of ACDC arising from these trust receipts.

We deny this petition. 

The disputed transactions are not trust receipts.  

Section 4 of P.D. 115 defines a trust receipt transaction in this manner: Section 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the meaning of this Decree, is any transaction by and between a person referred to in this Decree as the entruster, and another person referred to in this Decree as entrustee, whereby the entruster, who owns or holds absolute title or security interests over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter's execution and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or for other purposes substantially equivalent to any of the following: 1. In the case of goods or documents, (a) to sell the goods or procure their sale; or (b) to manufacture or process the goods with the purpose of ultimate sale: Provided, That, in the case of goods delivered under trust receipt for the purpose of manufacturing or processing before its ultimate sale, the entruster shall retain its title over the goods whether in its original or processed form until the entrustee has complied fully with his obligation under the trust receipt; or (c) to load, unload, ship or tranship or otherwise deal with them in a manner preliminary or necessary to their sale[.]  There are two obligations in a trust receipt transaction. The first is covered by the provision that refers to

money under the obligation to deliver it (entregarla) to the owner of the merchandise sold. The second is covered by the provision referring to merchandise received under the obligation to return it (devolvera) to the owner. Thus, under the Trust Receipts Law,[22] intent to defraud is presumed when (1) the entrustee fails to turn over the proceeds of the sale of goods covered by the trust receipt to the entruster; or (2) when the entrustee fails to return the goods under trust, if they are not disposed of in accordance with the terms of the trust receipts.[23]

 In all trust receipt transactions, both obligations on the part of the trustee exist in the alternative the return

of the proceeds of the sale or the return or recovery of the goods, whether raw or processed.[24] When both parties enter into an agreement knowing that the return of the goods subject of the trust receipt is not possible even without any fault on the part of the trustee, it is not a trust receipt transaction penalized under Section 13 of P.D. 115; the only obligation actually agreed upon by the parties would be the return of the proceeds of the sale transaction. This transaction becomes a mere loan,[25] where the borrower is obligated to pay the bank the amount spent for the purchase of the goods.

 Article 1371 of the Civil Code provides that [i]n order to judge the intention of the contracting parties, their

contemporaneous and subsequent acts shall be principally considered. Under this provision, we can examine the contemporaneous actions of the parties rather than rely purely on the trust receipts that they signed in order to understand the transaction through their intent.

 We note in this regard that at the onset of these transactions, LBP knew that ACDC was in the

construction business and that the materials that it sought to buy under the letters of credit were to be used for the following projects: the Metro Rail Transit Project and the Clark Centennial Exposition Project.[26] LBP had in fact authorized the delivery of the materials on the construction sites for these projects, as seen in the letters of credit it attached to its complaint.[27] Clearly, they were aware of the fact that there was no way they could recover the buildings or constructions for which the materials subject of the alleged trust receipts had been used. Notably, despite the allegations in the affidavit-complaint wherein LBP sought the return of the construction materials,[28] its demand letter dated May 4, 1999 sought the payment of the balance but failed to ask, as an alternative, for the return of the construction materials or the buildings where these materials had been used.[29]

 The fact that LBP had knowingly authorized the delivery of construction materials to a construction site of two government projects, as well as unspecified construction sites, repudiates the idea that LBP intended to be the owner of those construction materials. As a government financial institution, LBP should have been aware that the materials were to be

used for the construction of an immovable property, as well as a property of the public domain. As an immovable property, the ownership of whatever was constructed with those materials would presumably belong to the owner of the land, under Article 445 of the Civil Code which provides: 

Article 445. Whatever is built, planted or sown on the land of another and the improvements or repairs made thereon, belong to the owner of the land, subject to the provisions of the following articles.  

Even if we consider the vague possibility that the materials, consisting of cement, bolts and reinforcing steel bars, would be used for the construction of a movable property, the ownership of these properties would still pertain to the government and not remain with the bank as they would be classified as property of the public domain, which is defined by the Civil Code as: 

Article 420. The following things are property of public dominion: (1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character;(2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth.  

In contrast with the present situation, it is fundamental in a trust receipt transaction that the person who advanced payment for the merchandise becomes the absolute owner of said merchandise and continues as owner until he or she is paid in full, or if the goods had already been sold, the proceeds should be turned over to him or to her.[30] Thus, in concluding that the transaction was a loan and not a trust receipt, we noted in Colinares that the industry or line of work that the borrowers were engaged in was construction. We pointed out that the borrowers were not importers acquiring goods for resale.[31] Indeed, goods sold in retail are often within the custody or control of the trustee until they are purchased. In the case of materials used in the manufacture of finished products, these finished products if not the raw materials or their components similarly remain in the possession of the trustee until they are sold. But the goods and the materials that are used for a construction project are often placed under the control and custody of the clients employing the contractor, who can only be compelled to return the materials if they fail to pay the contractor and often only after the requisite legal proceedings. The contractors difficulty and uncertainty in claiming these materials (or the buildings and structures which they become part of), as soon as the bank demands them, disqualify them from being covered by trust receipt agreements. 

Based on these premises, we cannot consider the agreements between the parties in this case to be trust receipt transactions because (1) from the start, the parties were aware that ACDC could not possibly be obligated to reconvey to LBP the materials or the end product for which they were used; and (2) from the moment the materials were used for the government projects, they became public, not LBPs, property. 

Since these transactions are not trust receipts, an action for estafa should not be brought against the respondents, who are liable only for a loan. In passing, it is useful to note that this is the threat held against borrowers that Retired Justice Claudio Teehankee emphatically opposed in his dissent in People v. Cuevo,[32] restated in Ong v. CA, et al.:[33]

 The very definition of trust receipt x x x sustains the lower courts rationale in dismissing the information that the contract covered by a trust receipt is merely a secured loan. The goods imported by the small importer and retail dealer through the banks financing remain of their own property and risk and the old capitalist orientation of putting them in jail for estafa for non-payment of the secured loan (granted after they had been fully investigated by the bank as good credit risks) through the fiction of the trust receipt device should no longer be permitted in this day and age.  As the law stands today, violations of Trust Receipts Law are criminally punishable, but no criminal

complaint for violation of Article 315, paragraph 1(b) of the Revised Penal Code, in relation with P.D. 115, should prosper against a borrower who was not part of a genuine trust receipt transaction. Misappropriation or abuse of confidence is absent in this case.  

Even if we assume that the transactions were trust receipts, the complaint against the respondents still should have been dismissed. The Trust Receipts Law punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another, regardless of whether the latter is the owner or not. The law does not singularly seek to enforce payment of the loan, as there can be no violation of [the] right against imprisonment for non-payment of a debt.[34]

 

In order that the respondents may be validly prosecuted for estafa under Article 315, paragraph 1(b) of the Revised Penal Code,[35] in relation with Section 13 of the Trust Receipts Law, the following elements must be established: (a) they received the subject goods in trust or under the obligation to sell the same and to remit the proceeds thereof to [the trustor], or to return the goods if not sold; (b) they misappropriated or converted the goods and/or the proceeds of the sale; (c) they performed such acts with abuse of confidence to the damage and prejudice of Metrobank; and (d) demand was made on them by [the trustor] for the remittance of the proceeds or the return of the unsold goods.[36]

 In this case, no dishonesty or abuse of confidence existed in the handling of the construction materials. In this case, the misappropriation could be committed should the entrustee fail to turn over the proceeds of

the sale of the goods covered by the trust receipt transaction or fail to return the goods themselves. The respondents could not have failed to return the proceeds since their allegations that the clients of ACDC had not paid for the projects it had undertaken with them at the time the case was filed had never been questioned or denied by LBP. What can only be attributed to the respondents would be the failure to return the goods subject of the trust receipts.

 We do not likewise see any allegation in the complaint that ACDC had used the construction materials in a

manner that LBP had not authorized. As earlier pointed out, LBP had authorized the delivery of these materials to these project sites for which they were used. When it had done so, LBP should have been aware that it could not possibly recover the processed materials as they would become part of government projects, two of which (the Metro Rail Transit Project and the Quezon Power Plant Project) had even become part of the operations of public utilities vital to public service. It clearly had no intention of getting these materials back; if it had, as a primary government lending institution, it would be guilty of extreme negligence and incompetence in not foreseeing the legal complications and public inconvenience that would arise should it decide to claim the materials. ACDCs failure to return these materials or their end product at the time these trust receipts expired could not be attributed to its volition. No bad faith, malice, negligence or breach of contract has been attributed to ACDC, its officers or representatives. Therefore, absent any abuse of confidence or misappropriation on the part of the respondents, the criminal proceedings against them for estafa should not prosper.

 In Metropolitan Bank,[37] we affirmed the city prosecutors dismissal of a complaint for violation of the Trust

Receipts Law. In dismissing the complaint, we took note of the Court of Appeals finding that the bank was interested only in collecting its money and not in the return of the goods. Apart from the bare allegation that demand was made for the return of the goods (raw materials that were manufactured into textiles), the bank had not accompanied its complaint with a demand letter. In addition, there was no evidence offered that the respondents therein had misappropriated or misused the goods in question. The petition should be dismissed because the OSG did not file it and the civil liabilities have already been settled.  

The proceedings before us, regarding the criminal aspect of this case, should be dismissed as it does not appear from the records that the complaint was filed with the participation or consent of the Office of the Solicitor General (OSG). Section 35, Chapter 12, Title III, Book IV of the Administrative Code of 1987 provides that:

 Section 35. Powers and Functions. The Office of the Solicitor General shall represent the Government of the Philippines, its agencies and instrumentalities and its officials and agents in any litigation, proceedings, investigation or matter requiring the services of lawyers. x x x It shall have the following specific powers and functions: (1) Represent the Government in the Supreme Court and the Court of Appeals in all criminal proceedings; represent the Government and its officers in the Supreme Court, the Court of Appeals and all other courts or tribunals in all civil actions and special proceedings in which the Government or any officer thereof in his official capacity is a party. (Emphasis provided.)  In Heirs of Federico C. Delgado v. Gonzalez,[38] we ruled that the preliminary investigation is part of a

criminal proceeding. As all criminal proceedings before the Supreme Court and the Court of Appeals may be brought and defended by only the Solicitor General in behalf of the Republic of the Philippines, a criminal action brought to us by a private party alone suffers from a fatal defect. The present petition was brought in behalf of LBP by the Government Corporate Counsel to protect its private interests. Since the representative of the People of the Philippines had not taken any part of the case, it should be dismissed. On the other hand, if we look at the mandate given to the Office of the Government Corporate Counsel, we find that it is limited to the civil liabilities arising from the crime, and is subject to the control and supervision of the public prosecutor. Section 2, Rule 8 of the Rules Governing the Exercise by the Office of the Government Corporate Counsel of its Authority, Duties and Powers as Principal Law Office of All Government Owned or Controlled Corporations, filed before the Office of the National Administration Register on September 5, 2011, reads: 

Section 2. Extent of legal assistance The OGCC shall represent the complaining GOCC

in all stages of the criminal proceedings.  The legal assistance extended is not limited to the preparation of appropriate sworn statements but shall include all aspects of an effective private prosecution including recovery of civil liability arising from the crime, subject to the control and supervision of the public prosecutor.  Based on jurisprudence, there are two exceptions when a private party complainant or offended party in a

criminal case may file a petition with this Court, without the intervention of the OSG: (1) when there is denial of due process of law to the prosecution, and the State or its agents refuse to act on the case to the prejudice of the State and the private offended party;[39] and (2) when the private offended party questions the civil aspect of a decision of the lower court.[40]

 In this petition, LBP fails to allege any inaction or refusal to act on the part of the OSG, tantamount to a

denial of due process. No explanation appears as to why the OSG was not a party to the case. Neither can LBP now question the civil aspect of this decision as it had already assigned ACDCs debts to a third person, Philippine Opportunities for Growth and Income, Inc., and the civil liabilities appear to have already been settled by Avent Holdings Corporation, in behalf of ACDC. These facts have not been disputed by LBP. Therefore, we can reasonably conclude that LBP no longer has any claims against ACDC, as regards the subject matter of this case, that would entitle it to file a civil or criminal action.

 WHEREFORE, we DENY the petition and AFFIRM the January 20, 2005 decision of the Court of Appeals

in CA-G.R. SP No. 76588. No costs.

MERCADO vs ALLIED BANKING CORPORATION G.R. No. 171460 July 24, 2007

Facts: Petitioners are heirs of Perla N. Mercado (Perla). Perla, during her lifetime, owned several pieces of real property situated in different provinces of the Philippines. Respondent, on the other hand, is a banking institution duly authorized as such under the Philippine laws.

On 28 May 1992, Perla executed a Special Power of Attorney (SPA) in favor of her husband, Julian D. Mercado (Julian) over several pieces of real property registered under her name, authorizing the latter to perform the following acts:

1. To act in my behalf, to sell, alienate, mortgage, lease and deal otherwise over the different parcels of land described hereinafter, to wit:

 a)                  Calapan, Oriental Mindoro Properties covered by Transfer Certificates of Title Nos. T-53618 - 3,522 Square Meters, T-46810 3,953 Square Meters, T-53140 177 Square Meters, T-21403 263 square Meters, T- 46807 39 Square Meters of the Registry of Deeds of Oriental Mindoro;

 b)                 Susana Heights, Muntinlupa covered by Transfer Certificates of Title Nos. T-108954 600 Square Meters and RT-106338 805 Square Meters of the Registry of Deeds of Pasig (now Makati);

c)                 Personal property 1983 Car with Vehicle Registration No. R-16381; Model 1983; Make Toyota; Engine No. T- 2464

2.                  To sign for and in my behalf any act of strict dominion or ownership any sale, disposition, mortgage, lease or any other transactions including quit-claims, waiver and relinquishment of rights in and over the parcels of land situated in General Trias, Cavite, covered by Transfer Certificates of Title Nos. T-112254 and T-112255 of the Registry of Deeds of Cavite, in conjunction with his co-owner and in the person ATTY. AUGUSTO F. DEL ROSARIO;

3.                  To exercise any or all acts of strict dominion or ownership over the above-mentioned properties, rights and interest therein. (Emphasis supplied.)

 On the strength of the aforesaid SPA, Julian, on 12 December 1996, obtained a loan from the respondent in the amount of P3,000,000.00, secured by real estate mortgage constituted on TCT No. RT-18206 (106338) which covers a parcel of land with an area of 805 square meters, registered with the Registry of Deeds of Quezon City (subject property).[5] 

Still using the subject property as security, Julian obtained an additional loan from the respondent in the sum of P5,000,000.00, evidenced by a Promissory Note[6] he executed on 5 February 1997 as another real estate mortgage (REM).

 It appears, however, that there was no property identified in the SPA as TCT No. RT 18206 (106338) and

registered with the Registry of Deeds of Quezon City. What was identified in the SPA instead was the property covered by TCT No. RT-106338 registered with the Registry of Deeds of Pasig.

 Subsequently, Julian defaulted on the payment of his loan obligations. Thus, respondent initiated extra-

judicial foreclosure proceedings over the subject property which was subsequently sold at public auction wherein the respondent was declared as the highest bidder as shown in the Sheriffs Certificate of Sale dated 15 January 1998.[7]

 On 23 March 1999, petitioners initiated with the RTC an action for the annulment of REM constituted over

the subject property on the ground that the same was not covered by the SPA and that the said SPA, at the time the loan obligations were contracted, no longer had force and effect since it was previously revoked by Perla on 10 March 1993, as evidenced by the Revocation of SPA signed by the latter.[8]

 Petitioners likewise alleged that together with the copy of the Revocation of SPA, Perla, in a Letter dated

23 January 1996, notified the Registry of Deeds of Quezon City that any attempt to mortgage or sell the subject property must be with her full consent documented in the form of an SPA duly authenticated before the Philippine Consulate General in New York. [9]

 In the absence of authority to do so, the REM constituted by Julian over the subject property was null and

void; thus, petitioners likewise prayed that the subsequent extra-judicial foreclosure proceedings and the auction sale of the subject property be also nullified.

 In its Answer with Compulsory Counterclaim,[10] respondent averred that, contrary to petitioners

allegations, the SPA in favor of Julian included the subject property, covered by one of the titles specified in paragraph 1(b) thereof, TCT No. RT- 106338 registered with the Registry of Deeds of Pasig (now Makati). The subject property was purportedly registered previously under TCT No. T-106338, and was only subsequently reconstituted as TCT RT-18206 (106338). Moreover, TCT No. T-106338 was actually registered with the Registry of Deeds of Quezon City and not before the Registry of Deeds of Pasig (now Makati). Respondent explained that the discrepancy in the designation of the Registry of Deeds in the SPA was merely an error that must not prevail over the clear intention of Perla to include the subject property in the said SPA. In sum, the property referred to in the SPA Perla executed in favor of Julian as covered by TCT No. 106338 of the Registry of Deeds of Pasig (now Makati) and the subject property in the case at bar, covered by RT 18206 (106338) of the Registry of Deeds of Quezon City, are one and the same.

 On 23 September 2003, the RTC rendered a Decision declaring the REM constituted over the subject

property null and void, for Julian was not authorized by the terms of the SPA to mortgage the same. The court a quo likewise ordered that the foreclosure proceedings and the auction sale conducted pursuant to the void REM, be nullified. The dispositive portion of the Decision reads:

 WHEREFORE, premises considered, judgment is hereby rendered in favor of the [herein petitioners] and against the [herein respondent] Bank:

 1. Declaring the Real Estate Mortgages constituted and registered under Entry Nos. PE-4543/RT-18206 and 2012/RT-18206 annotated on TCT No. RT-18206 (106338) of the Registry of Deeds of Quezon City as NULL and VOID;

 2. Declaring the Sheriffs Sale and Certificate of Sale under FRE No. 2217 dated January 15, 1998 over the property covered by TCT No. RT-18206 (106338) of the Registry of Deeds of Quezon City as NULL and VOID;

 3. Ordering the defendant Registry of Deeds of Quezon City to cancel the annotation of Real Estate Mortgages appearing on Entry Nos. PE-4543/RT-18206 and 2012/RT-18206 on TCT No. RT-18206 (106338) of the Registry of Deeds of Quezon City;

 4. Ordering the [respondent] Bank to deliver/return to the [petitioners] represented by their attorney-in-fact Alfredo M. Perez, the original Owners Duplicate Copy of TCT No. RT-18206 (106338) free from the encumbrances referred to above; and

 5. Ordering the [respondent] Bank to pay the [petitioners] the amount of P100,000.00 as for attorneys fees plus cost of the suit. 

The other claim for damages and counterclaim are hereby DENIED for lack of merit.[11]

  

Aggrieved, respondent appealed the adverse Decision before the Court of Appeals. In a Decision dated 12 October 2005, the Court of Appeals reversed the RTC Decision and upheld the

validity of the REM constituted over the subject property on the strength of the SPA. The appellate court declared that Perla intended the subject property to be included in the SPA she executed in favor of Julian, and that her subsequent revocation of the said SPA, not being contained in a public instrument, cannot bind third persons.

 The Motion for Reconsideration interposed by the petitioners was denied by the Court of Appeals in its

Resolution dated 15 February 2006. Petitioners are now before us assailing the Decision and Resolution rendered by the Court of Appeals

raising several issues, which are summarized as follows I WHETHER OR NOT THERE WAS A VALID MORTGAGE CONSTITUTED OVER

SUBJECT PROPERTY.II WHETHER OR NOT THERE WAS A VALID REVOCATION OF THE SPA.III WHETHER OR NOT THE RESPONDENT WAS A MORTGAGEE-IN- GOOD FAITH.

For a mortgage to be valid, Article 2085 of the Civil Code enumerates the following essential requisites: Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:

 (1) That they be constituted to secure the fulfillment of a principal obligation;

 (2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;

 (3) That the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for

the purpose. Third persons who are not parties to the principal obligation may secure

the latter by pledging or mortgaging their own property.  

In the case at bar, it was Julian who obtained the loan obligations from respondent which he secured with the mortgage of the subject property. The property mortgaged was owned by his wife, Perla, considered a third party to the loan obligations between Julian and respondent. It was, thus, a situation recognized by the last paragraph of Article 2085 of the Civil Code afore-quoted. However, since it was not Perla who personally mortgaged her own property to secure Julians loan obligations with respondent, we proceed to determining if she duly authorized Julian to do so on her behalf.

 Under Article 1878 of the Civil Code, a special power of attorney is necessary in cases where real rights

over immovable property are created or conveyed.[12] In the SPA executed by Perla in favor of Julian on 28 May 1992, the latter was conferred with the authority to sell, alienate, mortgage, lease and deal otherwise the different pieces of real and personal property registered in Perlas name. The SPA likewise authorized Julian [t]o exercise any or all acts of strict dominion or ownership over the identified properties, and rights and interest therein. The existence and due execution of this SPA by Perla was not denied or challenged by petitioners.

 There is no question therefore that Julian was vested with the power to mortgage the pieces of property

identified in the SPA. However, as to whether the subject property was among those identified in the SPA, so as to render Julians mortgage of the same valid, is a question we still must resolve.

 Petitioners insist that the subject property was not included in the SPA, considering that it contained an

exclusive enumeration of the pieces of property over which Julian had authority, and these include only: (1) TCT No. T-53618, with an area of 3,522 square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (2) TCT No. T-46810, with an area of 3,953 square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (3) TCT No. T-53140, with an area of 177 square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (4) TCT No. T-21403, with an area of 263 square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (5) TCT No. T- 46807, with an area of 39 square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (6) TCT No. T-108954, with an area of 690 square meters and located at Susana Heights, Muntinlupa; (7) RT-106338 805 Square Meters registered with the Registry of Deeds of Pasig (now Makati); and (8) Personal Property consisting of a 1983 Car with Vehicle Registration No. R-16381, Model 1983, Make Toyota, and Engine No. T- 2464. Nowhere is it stated in the SPA that Julians authority extends to the subject property covered by TCT No. RT 18206 (106338) registered with the Registry of Deeds of Quezon City. Consequently, the act of Julian of constituting a mortgage over the subject property is unenforceable for having been done without authority.

 Respondent, on the other hand, mainly hinges its argument on the declarations made by the Court of

Appeals that there was no property covered by TCT No. 106338 registered with the Registry of Deeds of Pasig (now Makati); but there exists a property, the subject property herein, covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds of Quezon City. Further verification would reveal that TCT No. RT-18206 is merely a reconstitution of TCT No. 106338, and the property covered by both certificates of title is actually situated in Quezon City and not Pasig. From the foregoing circumstances, respondent argues that Perla intended to include the subject property in the SPA, and the failure of the instrument to reflect the recent TCT Number or the exact designation of the Registry of Deeds, should not defeat Perlas clear intention.

 After an examination of the literal terms of the SPA, we find that the subject property was not among those enumerated therein. There is no obvious reference to the subject property covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds of Quezon City. 

There was also nothing in the language of the SPA from which we could deduce the intention of Perla to include the subject property therein. We cannot attribute such alleged intention to Perla who executed the SPA when the language of the instrument is bare of any indication suggestive of such intention. Contrariwise, to adopt the intent theory advanced by the respondent, in the absence of clear and convincing evidence to that effect, would run afoul of the express tenor of the SPA and thus defeat Perlas true intention. In cases where the terms of the contract are clear as to leave no room for interpretation, resort to circumstantial evidence to ascertain the true intent of the parties, is not countenanced. As aptly stated in the case of JMA House, Incorporated v. Sta. Monica Industrial and Development Corporation,[13] thus: 

[T]he law is that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control. When the language of the contract is explicit, leaving no doubt as to the intention of the drafters, the courts may not read into it [in] any other intention that would contradict its main import. The clear terms of the contract should never be the subject matter of interpretation. Neither abstract justice nor the rule on liberal interpretation justifies the creation of a contract for the parties which they did not make themselves or the imposition upon one party to a contract or obligation not assumed simply or merely to avoid seeming hardships. The true meaning must be enforced, as it is to be presumed that the contracting parties know their scope and effects.[14]

  

Equally relevant is the rule that a power of attorney must be strictly construed and pursued. The instrument will be held to

grant only those powers which are specified therein, and the agent may neither go beyond nor deviate from the power of attorney.[15] Where powers and duties are specified and defined in an instrument, all such powers and duties are limited and are confined to those which are specified and defined, and all other powers and duties are excluded.[16] This is but in accord with the disinclination of courts to enlarge the authority granted beyond the powers expressly given and those which incidentally flow or derive therefrom as being usual and reasonably necessary and proper for the performance of such express powers.[17] Even the commentaries of renowned Civilist Manresa[18] supports a strict and limited construction of the terms of a power of attorney:

 The law, which must look after the interests of all, cannot permit a man to

express himself in a vague and general way with reference to the right he confers upon another for the purpose of alienation or hypothecation, whereby he might be despoiled of all he possessed and be brought to ruin, such excessive authority must be set down in the most formal and explicit terms, and when this is not done, the law reasonably presumes that the principal did not mean to confer it.

  

In this case, we are not convinced that the property covered by TCT No. 106338 registered with the Registry of Deeds of Pasig (now Makati) is the same as the subject property covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds of Quezon City. The records of the case are stripped of supporting proofs to verify the respondents claim that the two titles cover the same property. It failed to present any certification from the Registries of Deeds concerned to support its assertion. Neither did respondent take the effort of submitting and making part of the records of this case copies of TCTs No. RT-106338 of the Registry of Deeds of Pasig (now Makati) and RT-18206 (106338) of the Registry of Deeds of Quezon City, and closely comparing the technical descriptions of the properties covered by the said TCTs. The bare and sweeping statement of respondent that the properties covered by the two certificates of title are one and the same contains nothing but empty imputation of a fact that could hardly be given any evidentiary weight by this Court. Having arrived at the conclusion that Julian was not conferred by Perla with the authority to mortgage the subject property under the terms of the SPA, the real estate mortgages Julian executed over the said property are therefore unenforceable. 

Assuming arguendo that the subject property was indeed included in the SPA executed by Perla in favor of Julian, the said SPA was revoked by virtue of a public instrument executed by Perla on 10 March 1993. To address respondents assertion that the said revocation was unenforceable against it as a third party to the SPA and as one who relied on the same in good faith, we quote with approval the following ruling of the RTC on this matter:

 Moreover, an agency is extinguished, among others, by its revocation

(Article 1999, New Civil Code of the Philippines). The principal may revoke the agency at will, and compel the agent to return the document evidencing the agency. Such revocation may be express or implied (Article 1920, supra).

 In this case, the revocation of the agency or Special Power of Attorney is

expressed and by a public document executed on March 10, 1993. The Register of Deeds of Quezon City was even notified that any attempt

to mortgage or sell the property covered by TCT No. [RT-18206] 106338 located at No. 21 Hillside Drive, Blue Ridge, Quezon City must have the full consent documented in the form of a special power of attorney duly authenticated at the Philippine Consulate General, New York City, N.Y., U.S.A.

 The non-annotation of the revocation of the Special Power of Attorney on

TCT No. RT-18206 is of no consequence as far as the revocations existence and legal effect is concerned since actual notice is always superior to constructive notice. The actual notice of the revocation relayed to defendant Registry of Deeds of Quezon City is not denied by either the Registry of Deeds of Quezon City or the defendant Bank. In which case, there appears no reason why Section 52 of the Property Registration Decree (P.D. No. 1529) should not apply to the situation. Said Section 52 of P.D. No. 1529 provides:

 Section 52. Constructive notice upon

registration. Every conveyance, mortgage, lease, lien, attachment, order, judgment, instrument or entry affecting registered land shall, if registered, filed or entered in the Office of the Register of Deeds for the province or city where the land to which it relates lies, be constructive notice to all persons from the time of such registering, filing or entering. (Pres. Decree No. 1529, Section 53) (emphasis ours) It thus developed that at the time the first loan transaction with defendant

Bank was effected on December 12, 1996, there was on record at the Office of the Register of Deeds of Quezon City that the special power of attorney granted Julian, Sr. by

Perla had been revoked. That notice, works as constructive notice to third parties of its being filed, effectively rendering Julian, Sr. without authority to act for and in behalf of Perla as of the date the revocation letter was received by the Register of Deeds of Quezon City on February 7, 1996.[19]

 Given that Perla revoked the SPA as early as 10 March 1993, and that she informed the Registry of Deeds of Quezon City of such revocation in a letter dated 23 January 1996 and received by the latter on 7 February 1996, then third parties to the SPA are constructively notified that the same had been revoked and Julian no longer had any authority to mortgage the subject property. Although the revocation may not be annotated on TCT No. RT-18206 (106338), as the RTC pointed out, neither the Registry of Deeds of Quezon City nor respondent denied that Perlas 23 January 1996 letter was received by and filed with the Registry of Deeds of Quezon City. Respondent would have undoubtedly come across said letter if it indeed diligently investigated the subject property and the circumstances surrounding its mortgage.

The final issue to be threshed out by this Court is whether the respondent is a mortgagee-in-good faith. Respondent fervently asserts that it exercised reasonable diligence required of a prudent man in dealing with the subject property.

 Elaborating, respondent claims to have carefully verified Julians authority over the subject property which

was validly contained in the SPA. It stresses that the SPA was annotated at the back of the TCT of the subject property. Finally, after conducting an investigation, it found that the property covered by TCT No. 106338, registered with the Registry of Deeds of Pasig (now Makati) referred to in the SPA, and the subject property, covered by TCT No. 18206 (106338) registered with the Registry of Deeds of Quezon City, are one and the same property. From the foregoing, respondent concluded that Julian was indeed authorized to constitute a mortgage over the subject property.

We are unconvinced. The property listed in the real estate mortgages Julian executed in favor of PNB is the one covered by TCT#RT-18206(106338). On the other hand, the Special Power of Attorney referred to TCT No. RT-106338 805 Square Meters of the Registry of Deeds of Pasig now Makati. The palpable difference between the TCT numbers referred to in the real estate mortgages and Julians SPA, coupled with the fact that the said TCTs are registered in the Registries of Deeds of different cities, should have put respondent on guard. Respondents claim of prudence is debunked by the fact that it had conveniently or otherwise overlooked the inconsistent details appearing on the face of the documents, which it was relying on for its rights as mortgagee, and which significantly affected the identification of the property being mortgaged. In Arrofo v. Quio,[20] we have elucidated that:

 [Settled is the rule that] a person dealing with registered lands [is not

required] to inquire further than what the Torrens title on its face indicates. This rule, however, is not absolute but admits of exceptions. Thus, while its is true, x x x that a person dealing with registered lands need not go beyond the certificate of title, it is likewise a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts which should put a reasonable man on his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor or mortgagor. His mere refusal to face up the fact that such defect exists, or his willful closing of his eyes to the possibility of the existence of a defect in the vendors or mortgagors title, will not make him an innocent purchaser for value, if it afterwards develops that the title was in fact defective, and it appears that he had such notice of the defect as would have led to its discovery had he acted with the measure of precaution which may be required of a prudent man in a like situation.

  

By putting blinders on its eyes, and by refusing to see the patent defect in the scope of Julians authority, easily discernable from the plain terms of the SPA, respondent cannot now claim to be an innocent mortgagee.

 Further, in the case of Abad v. Guimba,[21] we laid down the principle that where the mortgagee does not

directly deal with the registered owner of real property, the law requires that a higher degree of prudence be exercised by the mortgagee, thus: 

While [the] one who buys from the registered owner does not need to look behind the certificate of title, one who buys from [the] one who is not [the] registered owner is expected to examine not only the certificate of title but all factual circumstances necessary for [one] to determine if there are any flaws in the title of the transferor, or in [the] capacity to transfer the land. Although the instant case does not involve a sale but only a mortgage, the same rule applies inasmuch as the law itself includes a mortgagee in the term purchaser.[22]

  

This principle is applied more strenuously when the mortgagee is a bank or a banking institution. Thus, in the case of Cruz v. Bancom Finance Corporation,[23] we ruled:

 Respondent, however, is not an ordinary mortgagee; it is a mortgagee-

bank. As such, unlike private individuals, it is expected to exercise greater care and prudence in its dealings, including those involving registered lands. A banking institution is expected to exercise due diligence before entering into a mortgage contract. The ascertainment of the status or condition of a property offered to it as security for a loan

must be a standard and indispensable part of its operations.[24] Hence, considering that the property being mortgaged by Julian was not his, and there are additional

doubts or suspicions as to the real identity of the same, the respondent bank should have proceeded with its transactions with Julian only with utmost caution. As a bank, respondent must subject all its transactions to the most rigid scrutiny, since its business is impressed with public interest and its fiduciary character requires high standards of integrity and performance.[25] Where respondent acted in undue haste in granting the mortgage loans in favor of Julian and disregarding the apparent defects in the latters authority as agent, it failed to discharge the degree of diligence required of it as a banking corporation.

 Thus, even granting for the sake of argument that the subject property and the one identified in the SPA

are one and the same, it would not elevate respondents status to that of an innocent mortgagee. As a banking institution, jurisprudence stringently requires that respondent should take more precautions than an ordinary prudent man should, to ascertain the status and condition of the properties offered as collateral and to verify the scope of the authority of the agents dealing with these. Had respondent acted with the required degree of diligence, it could have acquired knowledge of the letter dated 23 January 1996 sent by Perla to the Registry of Deeds of Quezon City which recorded the same. The failure of the respondent to investigate into the circumstances surrounding the mortgage of the subject property belies its contention of good faith. 

On a last note, we find that the real estate mortgages constituted over the subject property are unenforceable and not null and void, as ruled by the RTC. It is best to reiterate that the said mortgage was entered into by Julian on behalf of Perla without the latters authority and consequently, unenforceable under Article 1403(1) of the Civil Code. Unenforceable contracts are those which cannot be enforced by a proper action in court, unless they are ratified, because either they are entered into without or in excess of authority or they do not comply with the statute of frauds or both of the contracting parties do not possess the required legal capacity.[26] An unenforceable contract may be ratified, expressly or impliedly, by the person in whose behalf it has been executed, before it is revoked by the other contracting party.[27] Without Perlas ratification of the same, the real estate mortgages constituted by Julian over the subject property cannot be enforced by any action in court against Perla and/or her successors in interest.

In sum, we rule that the contracts of real estate mortgage constituted over the subject property covered by TCT No. RT 18206 (106338) registered with the Registry of Deeds of Quezon City are unenforceable. Consequently, the foreclosure proceedings and the auction sale of the subject property conducted in pursuance of these unenforceable contracts are null and void. This, however, is without prejudice to the right of the respondent to proceed against Julian, in his personal capacity, for the amount of the loans.

 WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition is GRANTED. The Decision dated 12

October 2005 and its Resolution dated 15 February 2006 rendered by the Court of Appeals in CA-G.R. CV No. 82636, are hereby REVERSED. The Decision dated 23 September 2003 of the Regional Trial Court of Quezon City, Branch 220, in Civil Case No. Q-99-37145, is hereby REINSTATED and AFFIRMED with modification that the real estate mortgages constituted over TCT No. RT 18206 (106338) are not null and void but UNENFORCEABLE. No costs.Sps Panlilio vs CITIBANK G.R. No. 156335 November 28, 2007  

The case originated as a Complaint[2] for a sum of money and damages, filed with the RTC of Makati City on March 2, 1999, by the spouses Raul and Amalia Panlilio (petitioners) against Citibank N.A. (respondent) FACTS: On October 10, 1997, petitioner Amalia Panlilio (Amalia) visited respondent's Makati City office and deposited one million pesos (PhP1 million) in the bank's Citihi account, a fixed-term savings account with a higher-than-average interest.[3] On the same day, Amalia also opened a current or checking account with respondent, to which interest earnings of the Citihi account were to be credited.[4] Respondent assigned one of its employees, Jinky Suzara Lee (Lee), to personally transact with Amalia and to handle the accounts.[5] 

Amalia opened the accounts as ITF or in trust for accounts, as they were intended to benefit her minor children, Alejandro King Aguilar and Fe Emanuelle C. Panlilio, in case she would meet an untimely death.[6] To open these accounts, Amalia signed two documents: a Relationship Opening Form (ROF)[7] and an Investor Profiling and Suitability Questionnaire (Questionnaire).[8]

Amalia's initial intention was to invest the money in a Citibank product called the Peso Repriceable Promissory Note (PRPN), a product which had a higher interest. However, as the PRPN was not available that day, Amalia put her money in the Citihi savings account.[9]

More than a month later, or on November 28, 1997, Amalia phoned Citibank saying she wanted to place an investment, this time in the amount of three million pesos (PhP3 million). Again, she spoke with Lee, the bank employee, who introduced her to Citibank's various investment offerings. After the phone conversation, apparently decided on where to invest the money, Amalia went to Citibank bringing a PCIBank check in the amount of three million pesos (PhP3 million). During the visit, Amalia instructed Lee on what to do with the PhP3 million. Later, she learned that out of the said amount, PhP2,134,635.87 was placed by Citibank in a Long-Term Commercial Paper (LTCP), a debt instrument that paid a high interest, issued by the corporation Camella and Palmera Homes (C&P Homes).[10] The rest of the money was placed in two PRPN accounts, in trust for each of Amalia's two children.[11]

Allegations differ between petitioners and respondent as to whether Amalia instructed Lee to place the money in the LTCP of C&P Homes.[12]

An LTCP is an evidence of indebtedness, with a maturity period of more than 365 days, issued by a corporation to any person or entity.[13] It is in effect a loan obtained by a corporation (as borrower) from the investing public (as lender)[14] and is one of many instruments that investment banks can legally buy on behalf of their clients, upon the latter's express instructions, for investment purposes.[15] LTCPs' attraction is that they usually have higher yields than most investment instruments. In the case of the LTCP issued by C&P Homes, the gross interest rate was 16.25% per annum at the time Amalia made her investment.On November 28, 1997, the day she made the PhP3million investment, Amalia signed the following documents: a

Directional Investment Management Agreement (DIMA),[17] Term Investment Application (TIA),[18] and Directional Letter/Specific Instructions.[19] Key features of the DIMA and the Directional Letter are provisions that essentially clear Citibank of any obligation to guarantee the principal and interest of the investment, absent fraud or negligence on the latter's part. The provisions likewise state that all risks are to be assumed by the investor (petitioner).

 As to the amount invested, only PhP2,134,635.87 out of the PhP3 million brought by Amalia was placed in

the LTCP since, according to Lee, this was the only amount of LTCP then available.[20] According to Lee, the balance of the PhP3 million was placed in two PRPN accounts, each one in trust for Amalia's two children, per her instructions.[21]

 Following this investment, respondent claims to have regularly sent confirmations of investment (COIs) to

petitioners.[22] A COI is a one-page, computer generated document informing the customer of the investment earlier made with the bank. The first of these COIs was received by petitioners on or about December 9, 1997, as admitted by Amalia, which is around a week after the investment was made.[23] Respondent claims that other succeeding COIs were sent to and received by petitioners.

 Amalia claims to have called Lee as soon as she received the first COI in December 1997, and demanded

that the investment in LTCP be withdrawn and placed in a PRPN.[24] Respondent, however, denies this, claiming that Amalia merely called to clarify provisions in the COI and did not demand a withdrawal.[25]

 On August 6, 1998, petitioners met with respondent's other employee, Lizza Colet, to preterminate the

LTCP and their other investments. Petitioners were told that as to the LTCP, liquidation could be made only if there is a willing buyer, a prospect which could be difficult at that time because of the economic crisis. Still, petitioners signed three sets of Sales Order Slip to sell the LTCP and left these with Colet.[26]

 On August 18, 1998, Amalia, through counsel, sent her first formal, written demand to respondent for a

withdrawal of her investment as soon as possible.[27] The same was followed by another letter dated September 7, 1998, which reiterated the same demands.[28] In answer to the letters, respondent noted that the investment had a 2003 maturity, was not a deposit, and thus, its return to the investor was not guaranteed by respondent; however, it added that the LTCP may be sold prior to maturity and had in fact been put up for sale, but such sale was subject to the availability of buyers in the secondary market.[29] At that time, respondent was not able to find a buyer for the LTCP. As this response did not satisfy petitioners, Amalia again wrote respondent, this time a final demand letter dated September 21, 1998, asking for a reconsideration and a return of the money she invested.[30] In reply, respondent wrote a letter dated October 12, 1998 stating that despite efforts to sell the LTCP, no willing buyers were found and that even if a buyer would come later, the price would be lower than Amalia's original investment.[31]

 Thus, petitioners filed with the RTC their complaint against respondent for a sum of money and damages. The Complaint[32] essentially demanded a return of the investment, alleging that Amalia never instructed

respondent's employee Lee to invest the money in an LTCP; and that far from what Lee executed, Amalia's instructions were to invest the money in a trust account with an interest of around 16.25% with a term of 91 days. Further, petitioners alleged that it was only later, or on December 8, 1997, when Amalia received the first confirmation of investment (COI) from respondent, that she and her husband learned of Lee's infidelity to her orders. The COI allegedly informed petitioners that the money was placed in an LTCP of C&P Homes with a maturity in 2003, and that the investment was not guaranteed by respondent. Petitioners also claimed that as soon as Amalia received the COI, she immediately called Lee; however, the latter allegedly convinced her to ignore the COI, that C&P Homes was an Ayala company, that the investment was secure, and that it could be easily withdrawn; hence, Amalia decided not to immediately withdraw the investment. Several months later, or on August 6, 1998, petitioners allegedly wanted to withdraw the investment to buy a property; however, they failed to do so, since respondent told them the LTCP had not yet matured, and that no buyers were willing to buy it. Hence, they sent various demand letters to respondent, asking for a return of their money; and when these went unheeded, they filed the complaint.

 In its Answer,[33] respondent admitted that, indeed, Amalia was its client and that she invested the

amounts stated in the complaint. However, respondent disputed the claim that Amalia opened a trust account with a request for an interest rate of around 16.25% with a term of 91 days; instead, respondent presented documents stating that Amalia opened a directional investment management account, with investments to be made in C&P Homes' LTCP with a 2003 maturity. Respondent disputed allegations that it violated petitioners' express instructions. Respondent likewise denied that Amalia, upon her receipt of the COI, immediately called respondent and protested the investment in LTCP, its 2003 maturity and Citibank's lack of guarantee. According to respondent, no such protest was made and petitioners actually decided to liquidate their investment only months later, after the newspapers reported that Ayala Land, Inc. was cancelling plans to invest in C&P Homes.

 The rest of respondent's Answer denied (1) that it convinced Amalia not to liquidate or withdraw her

investment or to ignore the contents of the COI; (2) that it assured Amalia that the investment could be easily or quickly withdrawn or sold; (3) that it misrepresented that C&P was an Ayala company, implying that C&P had secure finances; and (4) that respondent had been unfaithful to and in breach of its contractual obligations.

 After trial, the RTC rendered its Decision,[34] dated February 16, 2000, the dispositive portion of which

states: The foregoing considered, the court hereby rules in favor of plaintiffs and

order defendant to pay: 

1.      The sum of PhP2,134,635.87 representing the actual amount deposited by plaintiffs with defendant plus interest corresponding to time deposit during the time material to this action from date of filing of this case until fully paid;

2.      The sum of PhP300,000.00 representing moral damages;3.      The sum of PhP100,000.00 representing attorney's fees;4.      Costs.

 SO ORDERED.[35]

 The RTC upheld all the allegations of petitioners and concluded that Amalia never instructed Citibank to

invest the money in an LTCP. Thus, the RTC found Citibank in violation of its contractual and fiduciary duties and held it liable to return the money invested by petitioners plus damages.

 Respondent appealed to the CA. On appeal, in its Decision promulgated on May 28, 2002, the CA reversed the Decision of the RTC, thus:

 WHEREFORE, premises considered, the assailed decision dated 16

February 2000 is REVERSED and SET ASIDE and a new one entered DISMISSING Civil Case No. 99-500.[36] The CA held that with respect to the amount of PhP2,134,635.87, the account opened by Amalia was an

investment management account; as a result, the money invested was the sole and exclusive obligation of C&P Homes, the issuer of the LTCP, and was not guaranteed or insured by herein respondent Citibank;[37] that Amalia opened such an account as evidenced by the documents she executed with Citibank, namely, the Directional Investment Management Agreement (DIMA), Term Investment Application (TIA), and Directional Letter/Specific Instructions, which were all dated November 28, 1997, the day Amalia brought the money to Citibank. Further, the CA brushed aside petitioners' arguments that Amalia failed to understand the true nature of the LTCP investment, and that she failed to read the documents as they were written in fine print. The CA ruled that petitioners could not seek the court's aid to extricate them from their contractual obligations. Citing jurisprudence, the CA held that the courts protected only those who were innocent victims of fraud, and not those who simply made bad bargains or exercised unwise judgment.

 On petitioners' motion for reconsideration, the CA reiterated its ruling and denied the motion in a

Resolution[38] dated December 11, 2002. Thus, the instant petition which raises issues, summarized as follows: (1) whether petitioners are bound by

the terms and conditions of the Directional Investment Management Agreement (DIMA), Term Investment Application (TIA), Directional Letter/Specific Instructions, and Confirmations of Investment (COIs); (2) and whether petitioners are entitled to take back the money they invested from respondent bank; or stated differently, whether respondent is obliged to return the money to petitioners upon their demand prior to maturity.

 Petitioners contend that they are not bound by the terms and conditions of the DIMA, Directional Letter and COIs because these were inconsistent with the TIA and other documents they signed.[39] Further, they claim that the DIMA and the Directional letter were signed in blank or contained unauthorized intercalations by Citibank.[40] Petitioners argue that contrary to the contents of the documents, they did not instruct Citibank to invest in an LTCP or to put their money in such high-risk, long-term instruments.[41] The Court notes the factual nature of the questions raised in the petition. Although the general rule is that only questions of law are entertained by the Court in petitions for review on certiorari,[42] as the Court is not tasked to repeat the lower courts' analysis or weighing of evidence,[43] there are instances when the Court may resolve factual issues, such as (1) when the trial court misconstrued facts and circumstances of substance which if considered would alter the outcome of the case;[44] and (2) when the findings of facts of the CA and the trial court differ.[45] In the instant case, the CA completely reversed the findings of facts of the trial court on the ground that the RTC failed to appreciate certain facts and circumstances. Thus, applying the standing jurisprudence on the matter,[46] the Court proceeded to examine the evidence on record. 

The Court's Ruling The Court finds no merit in the petition. After a careful examination of the records, the Court affirms the CA's ruling for being more in accord with the facts and evidence on record.On the first issue of whether petitioners are bound by the terms and conditions of the DIMA, TIA, Directional Letter and COIs, the Court holds in the affirmative and finds for respondent. The DIMA, Directional Letter and COIs are evidence of the contract between the parties and are binding on them, following Article 1159 of the Civil Code which states that contracts have the force of law between the parties and must be complied with in good faith.[47] In particular, petitioner Amalia affixed her signatures on the DIMA, Directional Letter and TIA, a clear evidence of her consent which, under Article 1330 of the same Code, she cannot deny absent any evidence of mistake, violence, intimidation, undue influence or fraud.[48] As the documents have the effect of law, an examination is in order to reveal what underlies petitioners' zeal to exclude

these from consideration. Under the DIMA, the following provisions appear:

 4. Nature of Agreement THIS AGREEMENT IS AN AGENCY AND NOT

A TRUST AGREEMENT. AS SUCH, THE PRINCIPAL SHALL AT ALL TIMES RETAIN LEGAL TITLE TO THE FUNDS AND PROPERTIES SUBJECT OF THE ARRANGEMENT.

THIS AGREEMENT IS FOR FINANCIAL RETURN AND FOR THE APPRECIATION OF ASSETS OF THE ACCOUNT. THIS AGREEMENT DOES NOT GUARANTEE A YIELD, RETURN OR INCOME BY THE INVESTMENT MANAGER. AS SUCH, PAST PERFORMANCE OF THE ACCOUNT IS NOT A GUARANTY OF FUTURE PERFORMANCE AND THE INCOME OF INVESTMENTS CAN FALL AS WELL AS RISE DEPENDING ON PREVAILING MARKET CONDITIONS. IT IS UNDERSTOOD THAT THIS INVESTMENT MANAGEMENT AGREEMENT IS NOT COVERED BY THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) AND THAT LOSSES, IF ANY, SHALL BE FOR THE ACCOUNT OF THE PRINCIPAL. (Underscoring supplied.) 

x x x x 6. Exemption from Liability. - In the absence of fraud, bad faith, or gross or willful negligence on the part of the INVESTMENT MANAGER or any person acting in its behalf, the INVESTMENT MANAGER shall not be liable for any loss or damage to the Portfolio arising out of or in connection with any act done or omitted or caused to be done or omitted by the INVESTMENT MANAGER pursuant to the terms and conditions herein agreed upon, and pursuant to and in accordance with the written instructions of the PRINCIPAL to carry out the powers, duties and purposes for which this Agreement is executed. The PRINCIPAL will hold the INVESTMENT MANAGER free and harmless from any liability, claim, damage or fiduciary responsibility that may arise from any investment made pursuant to this Agreement and to such letters or instructions under Paragraph 3 hereof due to the default, bankruptcy or insolvency of the Borrower/Issuer or the Broker/Dealer handling the transaction and or their failure in any manner to comply with any of their obligations under the aforesaid transactions, it being the PRINCIPAL'S understanding and intention that the investments/reinvestments under this account shall be strictly for his/its account and risk except as indicated above. The INVESTMENT MANAGER shall manage the Portfolio with the skill, care, prudence, and diligence necessary under the prevailing circumstances that a good father of the family, acting in a like capacity and familiar with such matters, would exercise in the conduct of an enterprise of like character and with similar aims. (Underscoring supplied.) 

x x x x 11. Withdrawal of Income/Principal Subject to availability of funds and taking into consideration the commitment of this account to third parties, the PRINCIPAL may withdraw the income/principal of the Portfolio or portion thereof upon request or application thereof from the Bank. The INVESTMENT MANAGER shall not be required to inquire as to the income/principal so withdrawn from the Portfolio. Any income of the Portfolio not withdrawn shall be accumulated and added to the principal of the Portfolio for further investment and reinvestment.[49] (Underscoring supplied.)

 Under the Directional Letter, which constituted petitioners' instructions to respondent, the following provisions are found:

 In the absence of fraud, bad faith or gross or willful negligence on your part or any person acting in your behalf, you shall not be held liable for any loss or damage arising out of or in connection with any act done or performed or caused to be done or performed by you pursuant to the terms and conditions of our Agreement. I/We shall hold you free and harmless from any liability, claim, damage, or fiduciary responsibility that may arise from this investment made pursuant to the foregoing due to the default, bankruptcy or insolvency of the Borrower/Issuer, or the Broker/Dealer handling the aforesaid transactions/s, it being our intention and understanding that the investment/reinvestment under these transaction/s shall be strictly for my/our account and risk. In case of default of the Borrower/Issuers, we hereby authorize you at your sole option, to terminate the investment/s therein and deliver to us the securities/loan documents then constituting the assets of my/our DIMA/trust account with you for me/us to undertake the necessary legal action to collect and/or recover from the borrower/issuers.[50] (Underscoring supplied.)

 

The documents, characterized by the quoted provisions, generally extricate respondent from liability in case the investment is lost. Accordingly, petitioners assumed all risks and the task of collecting from the borrower/issuer C&P Homes.  Petitioners admit receiving only the first COI on December 8, 1997.[52] The evidence on record, however, supports respondent's contentions that petitioners received the three other COIs on February 12, 1998,[53] May 14, 1998,[54] and August 14, 1998,[55] before petitioners' first demand letter dated August 18, 1998.[56] The DIMA, Directional Letter, TIA and COIs, read together, establish the agreement between the parties as an investment management agreement, which created a principal-agent relationship between petitioners as principals and respondent as agent for investment purposes. The agreement is not a trust or an ordinary bank deposit; hence, no trustor-trustee-beneficiary or even borrower-lender relationship existed between petitioners and respondent with respect to the DIMA account. Respondent purchased the LTCPs only as agent of petitioners; thus, the latter assumed all obligations or inherent risks entailed by the transaction under Article 1910 of the Civil Code, which provides:

 Article 1910. The principal must comply with all the obligations which the agent may have contracted within the scope of his authority. As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly.

 The transaction is perfectly legal, as investment management activities may be exercised by a banking institution, pursuant to Republic Act No. 337 or the General Banking Act of 1948, as amended, which was the law then in effect. Section 72 of said Act provides: 

Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than building and loan associations may perform the following services: 

(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the safeguarding of such effects;

(b) Act as financial agent and buy and sell, by order of and for the account of their customers, shares, evidences of indebtedness and all types of securities;

(c) Make collections and payments for the account of others and perform such other services for their customers as are not incompatible with banking business.

(d) Upon prior approval of the Monetary Board, act as managing agent, adviser, consultant or administrator of investment management/ advisory/consultancy accounts.

 The banks shall perform the services permitted under subsections (a), (b) and (c) of this section as depositories or as agents. Accordingly, they shall keep the funds, securities and other effects which they thus receive duly separated and apart from the bank's own assets and liabilities. The Monetary Board may regulate the operations authorized by this section in order to insure that said operations do not endanger the interests of the depositors and other creditors of the banks. (Emphasis supplied.) 

while Section 74 prohibits banks from guaranteeing obligations of any person, thus: 

Sec. 74. No bank or banking institution shall enter, directly, or indirectly into any contract of guaranty or suretyship, or shall guarantee the interest or principal of any obligation of any person, copartnership, association, corporation or other entity. The provisions of this section shall, however, not apply to the following: (a) borrowing of money by banking institution through the rediscounting of receivables; (b) acceptance of drafts or bills of exchange (c) certification of checks; (d) transactions involving the release of documents attached to items received for collection; (e) letters of credit transaction, including stand-by arrangements; (f) repurchase agreements; (g) shipside bonds; (h) ordinary guarantees or indorsements in favor of foreign creditors where the principal obligation involves loans and credits extended directly by foreign investment purposes; and (i) other transactions which the Monetary Board may, by regulation, define or specify as not covered by the prohibition. (Emphasis supplied.)

 Nothing also taints the legality of the LTCP bought in behalf of petitioners. C&P Homes' LTCP was duly registered with the Securities and Exchange Commission while the issuer was accredited by the Philippine Trust Committee.[57] The evidence also sustains respondent's claim that its trust department handled the account only because it was the department tasked to oversee the trust, and other fiduciary and investment management services of the bank.[58] Contrary to petitioners' claim, this did not mean that petitioners opened a trust account. This is consistent with Bangko Sentral ng Pilipinas (BSP) regulations, specifically the Manual of Regulations for Banks (MORB), which groups a bank's trust, and other fiduciary and investment management activities under the same set of regulations, to wit: 

PART FOUR: TRUST, OTHER FIDUCIARY BUSINESS AND INVESTMENT

MANAGEMENT ACTIVITIES x x x x

Sec. X402 Scope of Regulations. These regulations shall govern the grant of authority to and the management, administration and conduct of trust, other fiduciary business and investment management activities (as these terms are defined in Sec. X403) of banks. The regulations are divided into three (3)Sub-Parts where:A. Trust and Other Fiduciary Business shall apply to banks authorized to engage in trust and other fiduciary business including investment management activities;B. Investment Management Activities shall apply to banks without trust authority but with authority to engage in investment management activities; andC. General Provisions shall apply to both. x x x xSec. X403 Definitions. For purposes of regulating the operations of trust and other fiduciary business and investment management activities, unless the context clearly connotes otherwise, the following shall have the meaning indicated.a. Trust business shall refer to any activity resulting from a trustor-trustee relationship (trusteeship) involving the appointment of a trustee by a trustor for the administration, holding, management of funds and/or properties of the trustor by the trustee for the use, benefit or advantage of the trustor or of others called beneficiaries.b. Other fiduciary business shall refer to any activity of a trust-licensed bank resulting from a contract or agreement whereby the bank binds itself to render services or to act in a representative capacity such as in an agency, guardianship, administratorship of wills, properties and estates, executorship, receivership, and other similar services which do not create or result in a trusteeship. It shall exclude collecting or paying agency arrangements and similar fiduciary services which are inherent in the use of the facilities of the other operating departments of said bank. Investment management activities, which are considered as among other fiduciary business, shall be separately defined in the succeeding item to highlight its being a major source of fiduciary business.c. Investment management activity shall refer to any activity resulting from a contract or agreement primarily for financial return whereby the bank (the investment manager) binds itself to handle or manage investible funds or any investment portfolio in a representative capacity as financial or managing agent, adviser, consultant or administrator of financial or investment management, advisory, consultancy or any similar arrangement which does not create or result in a trusteeship. (Emphasis supplied.)

 The Court finds no proof to sustain petitioners' contention that the DIMA and Directional Letter contradict other papers on record, or were signed in blank, or had unauthorized intercalations.[59] Petitioners themselves admit that Amalia signed the DIMA and the Directional Letter, which bars them from disowning the contract on the belated claim that she signed it in blank or did not read it first because of the fine print.[60] On the contrary, the evidence does not support these latter allegations, and it is highly improbable that someone fairly educated and with investment experience would sign a document in blank or without reading it first.[61] Petitioners owned various businesses and were clients of other banks, which omits the possibility of such carelessness.[62] Even more damning for petitioners is that, on record, Amalia admitted that it was not her habit to sign in blank and that the contents of the documents were explained to her before she signed.[63] Testimonial evidence and the complaint itself contained allegations that petitioners' reason for transferring their money from local banks to respondent is because it is safer to do so,[64] a clear indicia of their intelligence and keen business sense which they could not have easily surrendered upon meeting with respondent. Nothing irregular or illegal attends the execution or construction of the DIMA and the Directional Letter, as their provisions merely conform with BSP regulations governing these types of transactions. Specifically, the MORB mandates that investment managers act as agents, not as trustees, of the investor;[65] that the investment manager is prohibited from guaranteeing returns on the funds or properties;[66] that a written document should state that the account is not covered by the PDIC; and that losses are to be borne by clients.[67] That these legal requirements were communicated to petitioners is evident in Amalia's signatures on the documents and in testimony to this effect.[68] As to the allegation that the documents were in fine print, the Court notes that although the print may have looked smaller than average, they were nevertheless of the same size throughout the documents, so that no part or provision is hidden from the reader. The Court also takes judicial notice that the print is no smaller than those found in similar contracts in common usage, such as insurance, mortgage, sales contracts and even ordinary bank deposit contracts. In the documents in question, the provisions hurtful to petitioners' cause were likewise in no smaller print than the rest of the document, as indeed they were even highlighted either in bold or in all caps. This disposes of the argument that they were designed to hide their damaging nature to the signatory.[69] The conclusion is that the print is readable and should not have prevented petitioners from studying the papers before their signing. Considering petitioners' social stature, the nature of the transaction and the amount of money involved, the Court presumes that petitioners exercised adequate care and diligence in studying the contract prior to its execution.[70] 

In Sweet Lines, Inc. v. Teves,[71] the Court pronounced the general rule regarding contracts of adhesion, thus: 

x x x there are certain contracts almost all the provisions of which have been drafted only by one party, usually a corporation. Such contracts are called contracts of adhesion, because the only participation of the other party is the signing of his signature or his adhesion thereto. Insurance contracts, bills of lading, contracts of sale of lots on the installment plan fall into this category.x x x it is drafted only by one party, usually the corporation, and is sought to be accepted or adhered to by the other party x x x who cannot change the same and who are thus made to adhere hereto on the take it or leave it basis.x x x it is hardly just and proper to expect the passengers to examine their tickets received from crowded/congested counters, more often than not during rush hours, for conditions that may be printed thereon, much less charge them with having consented to the conditions, so printed, especially if there are a number of such conditions in fine print, as in this case.

 However, Sweet Lines[72] further expounded that the validity and/or enforceability of contracts of adhesion will have to be determined by the peculiar circumstances obtaining in each case and the nature of the conditions or terms sought to be enforced.[73] Thus, while any ambiguity, obscurity or doubt in a contract of adhesion is construed or resolved strictly against the party who prepared it,[74] it is also equally obvious that in a case where no such ambiguity, obscurity or doubt exists, no such construction is warranted. This was the case in the DIMA and the Directional Letter signed by Amalia in the instant controversy. The parties to this case only disagree on whether petitioners were properly informed of the contents of the documents. But as earlier stated, petitioners were free to read and study the contents of the papers before signing them, without compulsion to sign immediately or even days after, as indeed the parties were even free not to sign the documents at all. Unlike in Sweet Lines, where the plaintiffs had no choice but to take the services of monopolistic transport companies during rush hours, in the instant case, petitioners were under no such pressure; petitioners were free to invest anytime and through any of the dozens of local and foreign banks in the market. In addition, it has been held that contracts of adhesion are not necessarily voidable. The Court has consistently held that contracts of adhesion, wherein one party imposes a ready-made form of contract on the other, are contracts not entirely prohibited, since the one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives hisconsent.[75] It is the rule that these contracts are upheld unless they are in the nature of a patently lopsided deal where blind adherence is not justified by other factual circumstances.[76] Petitioners insist that other documents Amalia signed -- that is, the ROF,[77] Questionnaire[78] and TIA[79] -- contradict the DIMA and Directional Letter. Specifically, they argue that under the ROF and the Questionnaire, they manifested an intent to invest only in a time deposit in the medium term of over a year to three years, with no risk on the capital, or with returns in line with a time deposit.[80] However, this contention is belied by the evidence and testimony on record. Respondent explains that investors fill up the ROF and Questionnaire only when they first visit the bank and only for the account they first opened,[81] as confirmed by the evidence on record and the fact that there were no subsequent ROFs and Questionnaires presented by petitioners. The ROF and Questionnaire were filled up when the PhP1 million Citihi savings account was opened by Amalia on October 10, 1997, during her first visit to the bank. When Amalia returned more than a month later on November 28, 1997, a change in her investment attitude occurred in that she wanted to invest an even bigger amount (PhP3 million) and her interest had shifted to high-yield but riskier long-term instruments like PRPNs and LTCPs. When Amalia proceeded to sign new documents like the DIMA and the Directional Letter for the LTCP investment, despite their obviously different contents from those she was used to signing for ordinary deposits, she essentially confirmed that she knew what she was agreeing to and that it was different from all her previous transactions. In addition, even the ROF and Questionnaire signed by Amalia during the first visit contained provisions that clearly contradict petitioners' claims. The ROF contained the following:

 I/We declare the above information to be correct. I/We hereby acknowledge to have received, read, understood and agree to be bound by the general terms and conditions applicable and governing my/our account/s and/or investment/s which appear in a separate brochure/manual as well as separate documents relative to said account/s and/or investment/s. Said terms and conditions shall likewise apply to all our existing and future account/s and/or investment/s with Citibank. I/We hereby further authorize Citibank to open additional account/s and/or investment/s in the future with the same account title as contained in this relationship opening form subject to the rules governing the aforementioned account/s and/or investment/s and the terms and conditions therein or herein. I/We agree to notify you in writing of any change in the information supplied in this relationship opening form.[82] (Emphasis supplied.)

 while the Questionnaire had the following provisions: 

I am aware that investment products are not bank deposits or other obligations of, or guaranteed or insured by Citibank N.A., Citicorp or their affiliates. I am aware that the principal and interest of my investments are obligations of the borrower/issuer.

They are subject to risk and possible loss of principal. Past performance is not indicative of future performance. In addition, investments are not covered by the Philippine Deposit Insurance Corporation (PDIC) or the Federal Deposit Insurance Corporation (FDIC).[83]

 . Petitioners insist that the amount PhP3 million in the TIA does not tally with the actual value of the investment which appeared on the first COI, which was PhP2,134,635.87. Petitioners add that the TIA's interest rate of around 16.25% with the term 91 days contradicts the COI's interest rate of 16.95% with a tenor of 75 days repriceable after 91 days.[85] Further, petitioners claim that the word TRUST inscribed on the TIA obviously meant that they opened a trust account, and not any other account.[86] The explanation of respondent is plausible. Only PhP2,134,635.87 out of the PhP3 million was placed in the LTCP since this was the only amount of LTCP then available, while the balance was placed in two PRPN accounts, each one in trust for Amalia's two children, upon her instructions.[87] The disparity in the interest rate is also explained by the fact that the 16.95% rate placed in the COI is gross and not net interest,[88] and that it is subject to repricing every 91 days. The Court gives credence to respondent's explanation that the word TRUST appearing on the TIA simply means that the account is to be handled by the bank's trust department, which handles not only the trust business but also the other fiduciary business and investment management activities of the bank, while the ITF or in trust for appearing on the other documents only signifies that the money was invested by Amalia in trust for her two children, a device that she uses even in her ordinary deposit accounts with other banks.[89] The ITF device allows the children to obtain the money without need of paying estate taxes in case Amalia meets a premature death.[90] However, it creates a trustee-beneficiary relationship only between Amalia and her children, and not between Amalia, her children, and Citibank.

All the documents signed by Amalia, including the DIMA and Directional Letter, show that her agreement with respondent is one of agency, and not a trust.The DIMA, TIA, Directional Letter and COIs, viewed altogether, establish without doubt the transaction between the parties, that on November 28, 1997, with PhP3 million in tow, Amalia opened an investment management account with respondent, under which she instructed the latter as her agent to invest the bulk of the money in LTCP. Petitioners had other chances to protest respondent's alleged disregard of their instructions. The COIs sent by respondent to petitioners encapsulate the spirit of the DIMA and Directional Letter, with the proviso that should there be any deviations from petitioners' instructions, they may inform respondent in writing within seven days. Assuming arguendo that respondent violated the instructions, petitioners did not file a single timely written protest, however, despite their admission that they received the first COI on December 8, 1997.[91] It took eight months for petitioners to formally demand the return of their investment through their counsel in a letter dated August 18, 1998.[92] The letter, however, did not even contest the placement of the money in an LTCP, but merely its maturity in the year 2003. Prior to the letter, it has been shown that petitioners had received COIs on February 12, 1998,[93] May 14, 1998,[94] and August 14, 1998,[95] and in between, petitioners never demanded a return of the money they invested.Petitioners' acts and omissions strongly indicate that they in fact conformed to the agreement in the months after the signing. In that period, they were receiving their bank statements and earning interest from the investment, as in fact, C&P Homes under the LTCP continuously paid interest even up to the time the instant case was already on trial.[96] When petitioners finally contested the contract months after its signing, it was suspiciously during the time when newspaper reports came out that C&P Homes' stock had plunged in value and that Ayala Land was withdrawing its offer to invest in the company.[97] The connection is too obvious to ignore. It is reasonable to conclude that petitioners' repudiation of the agreement was nothing more than an afterthought, a reaction to the negative events in the market and an effort to flee from a losing investment. Anent the second issue, whether petitioners are entitled to recover from respondent the amount of PhP2,134,635.87 invested under the LTCP, the Court agrees with the CA in dismissing the complaint filed by petitioners.Petitioners may not seek a return of their investment directly from respondent at or prior to maturity. As earlier explained, the investment is not a deposit and is not guaranteed by respondent. Absent any fraud or bad faith, the recourse of petitioners in the LTCP is solely against the issuer, C&P Homes, and only upon maturity. The DIMA states, thus: 

11. Withdrawal of Income/Principal Subject to availability of funds and taking into consideration the commitment of this account to third parties, the PRINCIPAL may withdraw the income/principal of the Portfolio or portion thereof upon request or application thereof from the Bank. The INVESTMENT MANAGER shall not be required to inquire as to the income/principal so withdrawn from the Portfolio. Any income of the Portfolio not withdrawn shall be accumulated and added to the principal of the Portfolio for further investment and reinvestment.[98] (Emphasis supplied.)

 It is clear that since the money is committed to C&P Homes via LTCP for five years, or until 2003, petitioners may not seek its recovery from respondent prior to the lapse of this period. Petitioners must wait and meanwhile just be content with receiving their interest regularly. If petitioners want the immediate return of their investment before the maturity date, their only way is to find a willing buyer to purchase the LTCP at an agreed price, or to go directly against the issuer C&P Homes, not against the respondent. The nature of the DIMA and the other documents signed by the parties calls for this condition. The DIMA states that respondent is a mere agent of petitioners and that losses from both the principal and interest of the investment are strictly on petitioners' account. Meanwhile, the Directional Letter clearly states that the investment is to be made in an LTCP which, by definition, has a term of more than 365 days.[99] Prior to the expiry of the term, which in the case of the C&P Homes

LTCP is five years, petitioners may not claim back their investment, especially not from respondent bank. Having bound themselves under the contract as earlier discussed, petitioners are governed by its provisions. Petitioners as principals in an agency relationship are solely obliged to observe the solemnity of the transaction entered into by the agent on their behalf, absent any proof that the latter acted beyond its authority.[100] Concomitant to this obligation is that the principal also assumes the risks that may arise from the transaction.[101] Indeed, as in the instant case, bank regulations prohibit banks from guaranteeing profits or the principal in an investment management account.[102] Hence, the CA correctly dismissed petitioners complaint against respondent. 

WHEREFORE, the Petition is DENIED. For lack of evidence, the Decision of the Court of Appeals dated dated May 28, 2002 and its Resolution of December 11, 2002, are AFFIRMED.

Citibank vs Sps Cabamongan G.R. No. 146918 May 2, 2006   FACTS: On August 16, 1993, spouses Luis and Carmelita Cabamongan opened a joint and/or foreign currency time deposit in trust for their sons Luis, Jr. and Lito at the Citibank, N.A., Makati branch, with Reference No. 60-22214372, in the amount of $55,216.69 for a term of 182 days or until February 14, 1994, at 2.5625 per cent interest per annum.[3] Prior to maturity, or on November 10, 1993, a person claiming to be Carmelita went to the Makati branch and pre-terminated the said foreign currency time deposit by presenting a passport, a Bank of America Versatele Card, an ATM card and a Mabuhay Credit Card.[4] She filled up the necessary forms for pre-termination of deposits with the assistance of Account Officer Yeye San Pedro. While the transaction was being processed, she was casually interviewed by San Pedro about her personal circumstances and investment plans.[5] Since the said person failed to surrender the original Certificate of Deposit, she had to execute a notarized release and waiver document in favor of Citibank, pursuant to Citibanks internal procedure, before the money was released to her.[6] The release and waiver document[7] was not notarized on that same day but the money was nonetheless given to the person withdrawing.[8] The transaction lasted for about 40 minutes.[9]

 After said person left, San Pedro realized that she left behind an identification card.[10] Thus, San Pedro

called up Carmelitas listed address at No. 48 Ranger Street, Moonwalk Village, Las Pinas, Metro Manila on the same day to have the card picked up.[11] Marites, the wife of Lito, received San Pedros call and was stunned by the news that Carmelita preterminated her foreign currency time deposit because Carmelita was in the United States at that time.[12] The Cabamongan spouses work and reside in California. Marites made an overseas call to Carmelita to inform her about what happened.[13] The Cabamongan spouses were shocked at the news. It seems that sometime between June 10 and 16, 1993, an unidentified person broke in at the couples residence at No. 3268 Baldwin Park Boulevard, Baldwin Park, California. Initially, they reported that only Carmelitas jewelry box was missing, but later on, they discovered that other items, such as their passports, bank deposit certificates, including the subject foreign currency deposit, and identification cards were also missing.[14] It was only then that the Cabamongan spouses realized that their passports and bank deposit certificates were lost.[15]

 Through various overseas calls, the Cabamongan spouses informed Citibank, thru San Pedro, that

Carmelita was in the United States and did not preterminate their deposit and that the person who did so was an impostor who could have also been involved in the break-in of their California residence. San Pedro told the spouses to submit the necessary documents to support their claim but Citibank concluded nonetheless that Carmelita indeed preterminated her deposit. In a letter dated September 16, 1994, the Cabamongan spouses, through counsel, made a formal demand upon Citibank for payment of their preterminated deposit in the amount of $55,216.69 with legal interests.[16] In a letter dated November 28, 1994, Citibank, through counsel, refused the Cabamongan spouses demand for payment, asserting that the subject deposit was released to Carmelita upon proper identification and verification.[17]

 On January 27, 1995, the Cabamongan spouses filed a complaint against Citibank before the Regional

Trial Court of Makati for Specific Performance with Damages, docketed as Civil Case No 95-163 and raffled to Branch 150 (RTC).[18]

 In its Answer dated April 20, 1995, Citibank insists that it was not negligent of its duties since the subject

deposit was released to Carmelita only upon proper identification and verification.[19] At the pre-trial conference the parties failed to arrive at an amicable settlement.[20] Thus, trial on the

merits ensued. For the plaintiffs, the Cabamongan spouses themselves and Florenda G. Negre, Documents Examiner II of

the Philippine National Police (PNP) Crime Laboratory in Camp Crame, Quezon City, testified. The Cabamongan spouses, in essence, testified that Carmelita could not have preterminated the deposit account since she was in California at the time of the incident.[21] Negre testified that an examination of the questioned signature and the samples of the standard signatures of Carmelita submitted in the RTC showed a significant divergence. She concluded that they were not written by one and the same person.[22]

 For the respondent, Citibank presented San Pedro and Cris Cabalatungan, Vice-President and In-Charge

of Security and Management Division. Both San Pedro and Cabalatungan testified that proper bank procedure was followed and the deposit was released to Carmelita only upon proper identification and verification.[23]

 On July 1, 1997, the RTC rendered a decision in favor of the Cabamongan spouses and against Citibank,

the dispositive portion of which reads, thus: WHEREFORE, premises considered, defendant Citibank, N.A., is hereby

ordered to pay the plaintiffs the following:

 1) the principal amount of their Foreign Currency Deposit (Reference No. 6022214372) amounting to $55,216.69 or its Phil. Currency equivalent plus interests from August 16, 1993 until fully paid;

2) Moral damages of P50,000.00; 3) Attorneys fees of P50,000.00; and 4) Cost of suit. SO ORDERED.

The RTC reasoned that:xxx Citibank, N.A., committed negligence resulting to the undue suffering of the plaintiffs. The forgery of the signatures of plaintiff Carmelita Cabamongan on the questioned documents has been categorically established by the handwriting expert. xxx Defendant bank was clearly remiss in its duty and obligations to treat plaintiffs account with the highest degree of care, considering the nature of their relationship. Banks are under the obligation to treat the accounts of their depositors with meticulous care. This is the reason for their established procedure of requiring several specimen signatures and recent picture from potential depositors. For every transaction, the depositors signature is passed upon by personnel to check and countercheck possible irregularities and therefore must bear the blame when they fail to detect the forgery or discrepancy.Despite the favorable decision, the Cabamongan spouses filed on October 1, 1997 a motion to partially

reconsider the decision by praying for an increase of the amount of the damages awarded.[26] Citibank opposed the motion.[27] On November 19, 1997, the RTC granted the motion for partial reconsideration and amended the dispositive portion of the decision as follows: WHEREFORE, defendant Citibank, N.A., is hereby ordered to pay the plaintiffs the following:1) the principal amount of their foreign currency deposit (Reference No. 6022214372) amounting to $55,216.69 or its Philippine currency equivalent (at the time of its actual payment or execution) plus legal interest from Aug. 16, 1993 until fully paid.2) moral damages in the amount of P200,000.00;3) exemplary damages in the amount of P100,000.00;4) attorneys fees of P100,000.00;5) litigation expenses of P200,000.00;6)      cost of suit.

Dissatisfied, Citibank filed an appeal with the CA, docketed as CA-G.R. CV No. 59033.[29] On January 26, 2001, the CA rendered a decision sustaining the finding of the RTC that Citibank was negligent, ratiocinating in this wise:

In the instant case, it is beyond dispute that the subject foreign currency deposit was pre-terminated on 10 November 1993. But Carmelita Cabamongan, who works as a nursing aid (sic) at the Sierra View Care Center in Baldwin Park, California, had shown through her Certificate of Employment and her Daily Time Record from the [sic] January to December 1993 that she was in the United States at the time of the incident. 

Defendant Citibank, N.A., however, insists that Carmelita was the one who pre-terminated the deposit despite claims to the contrary. Its basis for saying so is the fact that the person who made the transaction on the incident mentioned presented a valid passport and three (3) other identification cards. The attending account officer examined these documents and even interviewed said person. She was satisfied that the person presenting the documents was indeed Carmelita Cabamongan. However, such conclusion is belied by these following circumstances. 

First, the said person did not present the certificate of deposit issued to Carmelita Cabamongan. This would not have been an insurmountable obstacle as the bank, in the absence of such certificate, allows the termination of the deposit for as long as the depositor executes a notarized release and waiver document in favor of the bank. However, this simple procedure was not followed by the bank, as it terminated the deposit and actually delivered the money to the impostor without having the said document notarized on the flimsy excuse that another department of the bank was in charge of notarization. The said procedure was obviously for the protection of the bank but it deliberately ignored such precaution. At the very least, the conduct of the bank amounts to negligence. 

Second, in the internal memorandum of Account Officer Yeye San Pedro regarding the incident, she reported that upon comparing the authentic signatures of Carmelita Cabamongan on file with the bank with the signatures made by the person claiming to be Cabamongan on the documents required for the termination of the deposit, she noticed that one letter in the latter [sic] signatures was different from that in the standard signatures. She requested said person to sign again and scrutinized the identification cards presented. Presumably, San Pedro was satisfied with the second set of signatures made as she eventually authorized the termination of the deposit. However, upon examination of the signatures made during the incident by the Philippine National Police (PNP) Crime Laboratory, the said signatures turned out to be forgeries. As the qualifications of Document Examiner Florenda Negre were established and she satisfactorily testified on her findings during the trial, we have no reason to doubt the validity of her findings. Again, the banks negligence is patent. San Pedro was able to detect discrepancies in the signatures but she did not exercise additional precautions to ascertain the identity of the person she was dealing with. In fact, the entire transaction took only 40 minutes to complete despite the anomalous situation. Undoubtedly, the bank

could have done a better job. Third, as the bank had on file pictures of its depositors, it is inconceivable

how bank employees could have been duped by an impostor. San Pedro admitted in her testimony that the woman she dealt with did not resemble the pictures appearing on the identification cards presented but San Pedro still went on with the sensitive transaction. She did not mind such disturbing anomaly because she was convinced of the validity of the passport. She also considered as decisive the fact that the impostor had a mole on her face in the same way that the person in the pictures on the identification cards had a mole. These explanations do not account for the disparity between the pictures and the actual appearance of the impostor. That said person was allowed to withdraw the money anyway is beyond belief. 

The above circumstances point to the banks clear negligence. Bank transactions pass through a successive [sic] of bank personnel, whose duty is to check and countercheck transactions for possible errors. While a bank is not expected to be infallible, it must bear the blame for failing to discover mistakes of its employees despite established bank procedure involving a battery of personnel designed to minimize if not eliminate errors. In the instant case, Yeye San Pedro, the employee who primarily dealt with the impostor, did not follow bank procedure when she did not have the waiver document notarized. She also openly courted disaster by ignoring discrepancies between the actual appearance of the impostor and the pictures she presented, as well as the disparities between the signatures made during the transaction and those on file with the bank. But even if San Pedro was negligent, why must the other employees in the hierarchy of the banks work flow allow such thing to pass unnoticed and unrectified?The CA, however, disagreed with the damages awarded by the RTC. It held that, insofar as the date from

which legal interest of 12% is to run, it should be counted from September 16, 1994 when extrajudicial demand was made. As to moral damages, the CA reduced it to P100,000.00 and deleted the awards of exemplary damages and litigation expenses. Thus, the dispositive portion of the CA decision reads:

WHEREFORE, the decision of the trial court dated 01 July 1997, and its order dated 19 November 1997, are hereby AFFIRMED with the MODIFICATION that the legal interest for actual damages awarded in the amount of $55,216.69 shall run from 16 September 1994; exemplary damages amounting to P100,000.00 and litigation expenses amounting to P200,000.00 are deleted; and moral damages is reduced to P100,000.00.The Cabamongan spouses filed a motion for partial reconsideration on the matter of the award of damages

in the decision.[32] On July 30, 2001, theCA granted in part said motion and modified its decision as follows:

1. The actual damages in amount of $55,216.69, representing the amount of appellees foreign currency time deposit shall earn an interest of 2.5625% for the period 16 August 1993 to 14 February 1994, as stipulated in the contract; 

2. From 16 September 1994 until full payment, the amount of $55,216.69 shall earn interest at the legal rate of 12% per annum, and;

3. The award of moral damages is reduced to P50,000.00.[33]Dissatisfied, both parties filed separate petitions for review on certiorari with this Court. The Cabamongan

spouses petition, docketed as G.R. No. 149234, was denied by the Court per its Resolution dated October 17, 2001.[34] On the other hand, Citibanks petition was given due course by the Court per Resolution dated December 10, 2001 and the parties were required to submit their respective memoranda.[35]

 Citibank poses the following errors for resolution:1. THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND GRAVELY

ABUSED ITS DISCRETION IN UPHOLDING THE LOWER COURTS DECISION WHICH IS NOT BASED ON CLEAR EVIDENCE BUT ON GRAVE MISAPPREHENSION OF FACTS.

 2. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN UPHOLDING THE

DECISION OF THE TRIAL COURT AWARDING MORAL DAMAGES WHEN IN FACT THERE IS NO BASIS IN LAW AND FACT FOR SAID AWARD.

 3. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE

PRINCIPAL AMOUNT OF US$55,216.69 SHOULD EARN INTEREST AT THE RATE OF 12% PER ANNUM FROM 16 SEPTEMBER 1994 UNTIL FULL PAYMENT.[36]

 Anent the first ground, Citibank contends that the CA erred in affirming the RTCs finding that it was

negligent since the said courts failed to appreciate the extra diligence of a good father of a family exercised by Citibank thru San Pedro. 

As to the second ground, Citibank argues that the Cabamongan spouses are not entitled to moral damages since moral damages can be awarded only in cases of breach of contract where the bank has acted willfully, fraudulently or in bad faith. It submits that it has not been shown in this case that Citibank acted willfully, fraudulently or in bad faith and mere negligence, even if the Cabamongan spouses suffered mental anguish or serious anxiety on account thereof, is not a ground for awarding moral damages.

On the third ground, Citibank avers that the interest rate should not be 12% but the stipulated rate of 2.5625% per annum. It adds that there is no basis to pay the interest rate of 12% per annum from September 16, 1994 until

full payment because as of said date there was no legal ground yet for the Cabamongan spouses to demand payment of the principal and it is only after a final judgment is issued declaring that Citibank is obliged to return the principal amount of US$55,216.69 when the right to demand payment starts and legal interest starts to run.

On the other hand, the Cabamongan spouses contend that Citibanks negligence has been established by evidence. As to the interest rate, they submit that the stipulated interest of 2.5635% should apply for the 182-day contract period from August 16, 1993 to February 14, 1993; thereafter, 12% should apply. They further contend that the RTCs award of exemplary damages of P100,000.00 should be maintained. They submit that the CA erred in treating the award of litigation expenses as lawyers fees since they have shown that they incurred actual expenses in litigating their claim against Citibank. They also contend that the CA erred in reducing the award of moral damages in view of the degree of mental anguish and emotional fears, anxieties and nervousness suffered by them.[37]

 Subsequently, Citibank, thru a new counsel, submitted a Supplemental Memorandum,[38] wherein it posits

that, assuming that it was negligent, the Cabamongan spouses were guilty of contributory negligence since they failed to notify Citibank that they had migrated to the United States and were residents thereat and after having been victims of a burglary, they should have immediately assessed their loss and informed Citibank of the disappearance of the bank certificate, their passports and other identification cards, then the fraud would not have been perpetuated and the losses avoided. It further argues that since the Cabamongan spouses are guilty of contributory negligence, the doctrine of last clear chance is inapplicable.

 Citibanks assertion that the Cabamongan spouses are guilty of contributory negligence and non-

application of the doctrine of last clear chance cannot pass muster since these contentions were raised for the first time only in their Supplemental Memorandum. Indeed, the records show that said contention were neither pleaded in the petition for review and the memorandum nor in Citibanks Answer to the complaint or in its appellants brief filed with the CA. To consider the alleged facts and arguments raised belatedly in a supplemental pleading to herein petition for review at this very late stage in the proceedings would amount to trampling on the basic principles of fair play, justice and due process.[39]

 The Court has repeatedly emphasized that, since the banking business is impressed with public interest, of

paramount importance thereto is the trust and confidence of the public in general. Consequently, the highest degree of diligence[40] is expected,[41] 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,[43] always having in mind the fiduciary nature of their relationship.

 In this case, it has been sufficiently shown that the signatures of Carmelita in the forms for pretermination

of deposits are forgeries. Citibank, with its signature verification procedure, failed to detect the forgery. Its negligence consisted in the omission of that degree of diligence required of banks. The Court has held that a bank is bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged.[45] Such principle equally applies here.

Citibank cannot label its negligence as mere mistake or human error. Banks handle daily transactions involving millions of pesos.[46] By the very nature of their works the degree of responsibility, care and trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and employees.[47] Banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees.[48]

The Court agrees with the observation of the CA that Citibank, thru Account Officer San Pedro, openly courted disaster when despite noticing discrepancies in the signature and photograph of the person claiming to be Carmelita and the failure to surrender the original certificate of time deposit, the pretermination of the account was allowed. Even the waiver document was not notarized, a procedure meant to protect the bank. For not observing the degree of diligence required of banking institutions, whose business is impressed with public interest, Citibank is liable for damages.

As to the interest rate, Citibank avers that the claim of the Cabamongan spouses does not constitute a loan or forbearance of money and therefore, the interest rate of 6%, not 12%, applies.

The Court does not agree.The time deposit subject matter of herein petition is a simple loan. The provisions of the New Civil Code on

simple loan govern the contract between a bank and its depositor.  Specifically, Article 1980 thereof categorically provides that . . . savings . . . deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan.  Thus, the relationship between a bank and its depositor is that of a debtor-creditor, the depositor being the creditor as it lends the bank money, and the bank is the debtor which agrees to pay the depositor on demand.

 The applicable interest rate on the actual damages of $55,216.69, should be in accordance with the

guidelines set forth in Eastern Shipping Lines, Inc. v. Court of Appeals[49] to wit: I.  When an obligation, regardless of its source, i.e., law, contracts, quasi-

contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on Damages of the Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest, in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn

legal interest from the time it is judicially demanded.  In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum.  No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained).  The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

Thus, in a loan or forbearance of money, the interest due should be that stipulated in writing, and in the absence thereof, the rate shall be 12% per annum counted from the time of demand. Accordingly, the stipulated interest rate of 2.562% per annum shall apply for the 182-day contract period from August 16, 1993 to February 14, 1994. For the period from the date of extra-judicial demand, September 16, 1994, until full payment, the rate of 12% shall apply. As for the intervening period between February 15, 1994 to September 15, 1994, the rate of interest then prevailing granted by Citibank shall apply since the time deposit provided for roll over upon maturity of the principal and interest.[51] 

As to moral damages, in culpa contractual or breach of contract, as in the case before the Court, moral damages are recoverable only if the defendant has acted fraudulently or in bad faith,[52] or is found guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligations.[53] The act of Citibanks employee in allowing the pretermination of Cabamongan spouses account despite the noted discrepancies in Carmelitas signature and photograph, the absence of the original certificate of time deposit and the lack of notarized waiver dormant, constitutes gross negligence amounting to bad faith under Article 2220 of the Civil Code.

 There is no hard-and-fast rule in the determination of what would be a fair amount of moral damages since

each case must be governed by its own peculiar facts.  The yardstick should be that it is not palpably and scandalously excessive.[54] The amount of P50,000.00 awarded by the CA is reasonable and just. Moreover, said award is deemed final and executory insofar as respondents are concerned considering that their petition for review had been denied by the Court in its final and executory Resolution dated October 17, 2001 in G.R. No. 149234.

Finally, Citibank contends that the award of attorneys fees should be deleted since such award appears only in the dispositive portion of the decision of the RTC and the latter failed to elaborate, explain and justify the same.

Article 2208 of the New Civil Code enumerates the instances where such may be awarded and, in all cases, it must be reasonable, just and equitable if the same were to be granted. Attorneys fees as part of damages are not meant to enrich the winning party at the expense of the losing litigant. They are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate.[55] The award of attorneys fees is the exception rather than the general rule. As such, it is necessary for the court to make findings of facts and law that would bring the case within the exception and justify the grant of such award. The matter of attorneys fees cannot be mentioned only in the dispositive portion of the decision.[56] They must be clearly explained and justified by the trial court in the body of its decision. Consequently, the award of attorneys fees should be deleted.

WHEREFORE, the instant petition is PARTIALLY GRANTED. The assailed Decision and Resolution are AFFIRMED with MODIFICATIONS, as follows:

1. The interest shall be computed as follows: a. The actual damages in principal amount of $55,216.69,

representing the amount of foreign currency time deposit shall earn interest at the stipulated rate of 2.5625% for the period August 16, 1993 to February 14, 1994;

b. From February 15, 1994 to September 15, 1994, the principal amount of $55,216.69 and the interest earned as of February 14, 1994 shall earn interest at the rate then prevailing granted by Citibank;

c. From September 16, 1994 until full payment, the principal amount of $55,216.69 and the interest earned as of September 15, 1994, shall earn interest at the legal rate of 12% per annum;

2. The award of attorneys fees is DELETED. No pronouncement as to costs.