[G.R. No. 127469.

January 15, 2004]

PHILIPPINE BANKING CORPORATION, petitioner, vs.
COURT OF APPEALS and LEONILO MARCOS,
respondents.
CARPIO, J.:

The Antecedent Facts

On 30 August 1989, Leonilo Marcos (Marcos) filed
with the trial court a Complaint for Sum of Money
with Damages[3] against petitioner Philippine Banking
Corporation (BANK).*4+
Marcos alleged that sometime in 1982, the BANK
through Florencio B. Pagsaligan (Pagsaligan), one of
the officials of the BANK and a close friend of Marcos,
persuaded him to deposit money with the BANK.
Marcos yielded to Pagsaligans persuasion and claimed
he made a time deposit with the BANK on two
occasions. The first was on 11 March 1982 for
P664,897.67. The BANK issued Receipt No. 635734 for
this time deposit. On 12 March 1982, Marcos claimed
he again made a time deposit with the BANK for
P764,897.67. The BANK did not issue an official
receipt for this time deposit but it acknowledged a
deposit of this amount through a letter-certification
Pagsaligan issued. The time deposits earned interest
at 17% per annum and had a maturity period of 90
days.

Marcos alleged that Pagsaligan kept the various time
deposit certificates on the assurance that the BANK
would take care of the certificates, interests and
renewals. Marcos claimed that from the time of the
deposit, he had not received the principal amount or
its interest.
Sometime in March 1983, Marcos wanted to withdraw
from the BANK his time deposits and the accumulated
interests to buy materials for his construction
business. However, the BANK through Pagsaligan
convinced Marcos to keep his time deposits intact and
instead to open several domestic letters of credit. The
BANK required Marcos to give a marginal deposit of
30% of the total amount of the letters of credit. The
time deposits of Marcos would secure 70% of the
letters of credit. Since Marcos trusted the BANK and
Pagsaligan, he signed blank printed forms of the
application for the domestic letters of credit, trust
receipt agreements and promissory notes.

Marcos executed three Trust Receipt Agreements
totalling P851,250, broken down as follows: (1) Trust
Receipt No. CD 83.7 dated 8 March 1983 for P300,000;
(2) Trust Receipt No. CD 83.9 dated 15 March 1983 for
P300,000; and (3) Trust Receipt No. CD 83.10 dated 15
March 1983 for P251,250. Marcos deposited the
required 30% marginal deposit for the trust receipt
agreements. Marcos claimed that his obligation to the
BANK was therefore only P595,875 representing 70%
of the letters of credit.

Marcos believed that he and the BANK became
creditors and debtors of each other. Marcos expected
the BANK to offset automatically a portion of his time
deposits and the accumulated interest with the
amount covered by the three trust receipts totalling
P851,250 less the 30% marginal deposit that he had
paid. Marcos argued that if only the BANK applied his
time deposits and the accumulated interest to his
remaining obligation, which is 70% of the total amount
of the letters of credit, he would have paid completely
his debt. Marcos further pointed out that since he did
not apply for a renewal of the trust receipt
agreements, the BANK had no right to renew the
same.

Marcos accused the BANK of unjustly demanding
payment for the total amount of the trust receipt
agreements without deducting the 30% marginal
deposit that he had already made. He decried the
BANKs unlawful charging of accumulated interest
because he claimed there was no agreement as to the
payment of interest. The interest arose from
numerous alleged extensions and penalties. Marcos
reiterated that there was no agreement to this effect
because his time deposits served as the collateral for
his remaining obligation.

Marcos also denied that he obtained another loan
from the BANK for P500,000 with interest at 25% per
annum supposedly covered by Promissory Note No.
20-979-83 dated 24 October 1983. Marcos bewailed
the BANKs belated claim that his time deposits were
applied to this void promissory note on 12 March
1985.

In sum, Marcos claimed that:

(1) his time deposit with the BANK in the total
sum of P1,428,795.34[5] has earned accumulated
interest since March 1982 up to the present in the
total amount of P1,727,305.45 at the rate of 17% per
annum so his total money with defendant (the BANK)
is P3,156,100.79 less the amount of P595,875
representing the 70% balance of the marginal deposit
and/or balance of the trust agreements; and

(2) his indebtedness was only P851,250 less the
30% paid as marginal deposit or a balance of
P595,875, which the BANK should have automatically
deducted from his time deposits and accumulated
interest, leaving the BANKs indebtedness to him at
P2,560,025.79.

Marcos prayed the trial court to declare Promissory
Note No. 20-979-83 void and to order the BANK to pay
the amount of his time deposits with interest. He also
sought the award of moral and exemplary damages as
well as attorneys fees for P200,000 plus 25% of the
amount due.

On 18 September 1989, summons and a copy of the
complaint were served on the BANK.[6]

On 9 October 1989, the BANK filed its Answer with
Counterclaim. The BANK denied the allegations in the
complaint. The BANK believed that the suit was
Marcos desperate attempt to avoid liability under
several trust receipt agreements that were the subject
of a criminal complaint.

The BANK alleged that as of 12 March 1982, the total
amount of the various time deposits of Marcos was
only P764,897.67 and not P1,428,795.35[7] as alleged
in the complaint. The P764,897.67 included the
P664,897.67 that Marcos deposited on 11 March
1982.

The BANK pointed out that Marcos delivered to the
BANK the time deposit certificates by virtue of the
Deed of Assignment dated 2 June 1989. Marcos
executed the Deed of Assignment to secure his various
loan obligations. The BANK claimed that these loans
are covered by Promissory Note No. 20-756-82 dated
2 June 1982 for P420,000 and Promissory Note No. 20-
979-83 dated 24 October 1983 for P500,000. The
BANK stressed that these obligations are separate and
distinct from the trust receipt agreements.
When Marcos defaulted in the payment of Promissory
Note No. 20-979-83, the BANK debited his time
deposits and applied the same to the obligation that is
now considered fully paid.[8] The BANK insisted that
the Deed of Assignment authorized it to apply the
time deposits in payment of Promissory Note No. 20-
979-83.
In March 1982, the wife of Marcos, Consolacion
Marcos, sought the advice of Pagsaligan. Consolacion
informed Pagsaligan that she and her husband needed
to finance the purchase of construction materials for
their business, L.A. Marcos Construction Company.
Pagsaligan suggested the opening of the letters of
credit and the execution of trust receipts, whereby the
BANK would agree to purchase the goods needed by
the client through the letters of credit. The BANK
would then entrust the goods to the client, as
entrustee, who would undertake to deliver the
proceeds of the sale or the goods themselves to the
entrustor within a specified time.

The BANK claimed that Marcos freely entered into the
trust receipt agreements. When Marcos failed to
account for the goods delivered or for the proceeds of
the sale, the BANK filed a complaint for violation of
Presidential Decree No. 115 or the Trust Receipts Law.
Instead of initiating negotiations for the settlement of
the account, Marcos filed this suit.

The BANK denied falsifying Promissory Note No. 20-
979-83. The BANK claimed that the promissory note is
supported by documentary evidence such as Marcos
application for this loan and the microfilm of the
cashiers check issued for the loan. The BANK insisted
that Marcos could not deny the agreement for the
payment of interest and penalties under the trust
receipt agreements. The BANK prayed for the
dismissal of the complaint, payment of damages,
attorneys fees and cost of suit.

On 15 December 1989, the trial court on motion of
Marcos counsel issued an order declaring the BANK in
default for filing its answer five days after the 15-day
period to file the answer had lapsed.[9] The trial court
also held that the answer is a mere scrap of paper
because a copy was not furnished to Marcos. In the
same order, the trial court allowed Marcos to present
his evidence ex parte on 18 December 1989. On that
date, Marcos testified and presented documentary
evidence. The case was then submitted for decision.

On 19 December 1989, Marcos received a copy of the
BANKs Answer with Compulsory Counterclaim.

On 29 December 1989, the BANK filed an opposition
to Marcos motion to declare the BANK in default. On
9 January 1990, the BANK filed a motion to lift the
order of default claiming that it had only then learned
of the order of default. The BANK explained that its
delayed filing of the Answer with Counterclaim and
failure to serve a copy of the answer on Marcos was
due to excusable negligence. The BANK asked the trial
court to set aside the order of default because it had a
valid and meritorious defense.

On 7 February 1990, the trial court issued an order
setting aside the default order and admitting the
BANKs Answer with Compulsory Counterclaim. The
trial court ordered the BANK to present its evidence
on 12 March 1990.

On 5 March 1990, the BANK filed a motion praying to
cross-examine Marcos who had testified during the
ex-parte hearing of 18 December 1989. On 12 March
1990, the trial court denied the BANKs motion and
directed the BANK to present its evidence. Trial then
ensued.

The BANK presented two witnesses, Rodolfo Sales, the
Branch Manager of the BANKs Cubao Branch since
1987, and Pagsaligan, the Branch Manager of the
same branch from 1982 to 1986.

On 24 April 1990, the counsel of Marcos cross-
examined Pagsaligan. Due to lack of material time,
the trial court reset the continuation of the cross-
examination and presentation of other evidence. The
succeeding hearings were postponed, specifically on
24, 27 and 28 of August 1990, because of the BANKs
failure to produce its witness, Pagsaligan. The BANK
on these scheduled hearings also failed to present
other evidence.

On 7 September 1990, the BANK moved to postpone
the hearing on the ground that Pagsaligan could not
attend the hearing because of illness. The trial court
denied the motion to postpone and on motion of
Marcos counsel ruled that the BANK had waived its
right to present further evidence. The trial court
considered the case submitted for decision. The BANK
moved for reconsideration, which the trial court
denied.

On 8 October 1990, the trial court rendered its
decision in favor of Marcos. Aggrieved, the BANK
appealed to the Court of Appeals.

On 10 December 1996, the Court of Appeals modified
the decision of the trial court by reducing the amount
of actual damages and deleting the attorneys fees
awarded to Marcos.

The Ruling of the Trial Court

The trial court ruled that the total amount of time
deposits of Marcos was P1,429,795.34 and not only
P764,897.67 as claimed by the BANK. The trial court
found that Marcos made a time deposit on two
occasions. The first time deposit was made on 11
March 1982 for P664,897.67 as shown by Receipt No.
635743. On 12 March 1982, Marcos again made a
time deposit for P764,897.67 as acknowledged by
Pagsaligan in a letter of certification. The two time
deposits thus amounted to P1,429,795.34.

The trial court pointed out that no receipt was issued
for the 12 March 1982 time deposit because the letter
of certification was sufficient. The trial court made a
finding that the certification letter did not include the
time deposit made on 11 March 1982. The 12 March
1982 deposit was in cash while the 11 March 1982
deposit was in checks which still had to clear. The
checks were not included in the certification letter
since the BANK could not credit the amounts of the
checks prior to clearing. The trial court declared that
even the Deed of Assignment acknowledged that
Marcos made several time deposits as the Deed stated
that the assigment was charged against various time
deposits.

The trial court recognized the existence of the Deed of
Assignment and the two loans that Marcos supposedly
obtained from the BANK on 28 May 1982 for P340,000
and on 2 June 1982 for P420,000. The two loans
amounted to P760,000. On 2 June 1982, the same day
that he secured the second loan, Marcos executed a
Deed of Assignment assigning to the BANK P760,000
of his time deposits. The trial court concluded that
obviously the two loans were immediately paid by
virtue of the Deed of Assignment.

The trial court found it strange that Marcos borrowed
money from the BANK at a higher rate of interest
instead of just withdrawing his time deposits. The trial
court saw no rhyme or reason why Marcos had to
secure the loans from the BANK. The trial court was
convinced that Marcos did not know that what he had
signed were loan applications and a Deed of
Assignment in payment for his loans. Nonetheless,
the trial court recognized the said loan of P760,000
and its corresponding payment by virtue of the Deed
of Assignment for the equal sum.*10+

If the BANKs claim is true that the time deposits of
Marcos amounted only to P764,897.67 and he had
already assigned P760,000 of this amount, the trial
court pointed out that what would be left as of 3 June
1982 would only be P4,867.67.[11] Yet, after the time
deposits had matured, the BANK allowed Marcos to
open letters of credit three times. The three letters of
credit were all secured by the time deposits of Marcos
after he had paid the 30% marginal deposit. The trial
court opined that if Marcos time deposit was only
P764,897.67, then the letters of credit totalling
P595,875 (less 30% marginal deposit) was guaranteed
by only P4,867.67,[12] the remaining time deposits
after Marcos had executed the Deed of Assignment
for P760,000.

According to the trial court, a security of only
P4,867.67[13] for a loan worth P595,875 (less 30%
marginal deposit) is not only preposterous, it is also
comical. Worse, aside from allowing Marcos to have
unsecured trust receipts, the BANK still claimed to
have granted Marcos another loan for P500,000 on 25
October 1983 covered by Promissory Note No. 20-979-
83. The BANK is a commercial bank engaged in the
business of lending money. Allowing a loan of more
than a million pesos without collateral is in the words
of the trial court, an impossibility and a gross
violation of Central Bank Rules and Regulations, which
no Bank Manager has such authority to grant.*14+
Thus, the trial court held that the BANK could not have
granted Marcos the loan covered by Promissory Note
No. 20-979-83 because it was unsecured by any
collateral.

The trial court required the BANK to produce the
original copies of the loan application and Promissory
Note No. 20-979-83 so that it could determine who
applied for this loan. However, the BANK presented to
the trial court only the machine copies of the
duplicate of these documents.

Based on the machine copies of the duplicate of the
two documents, the trial court noticed the following
discrepancies: (1) Marcos signature on the two
documents are merely initials unlike in the other
documents submitted by the BANK; (2) it is highly
unnatural for the BANK to only have duplicate copies
of the two documents in its custody; (3) the address of
Marcos in the documents is different from the place of
residence as stated by Marcos in the other documents
annexed by the BANK in its Answer; (4) Pagsaligan
made it appear that a check for the loan proceeds of
P470,588 less bank charges was issued to Marcos but
the checks payee was one ATTY. LEONILO MARCOS
and, as the trial court noted, Marcos is not a lawyer;
and (5) Pagsaligan was not sure what branch of the
BANK issued the check for the loan proceeds. The trial
court was convinced that Marcos did not execute the
questionable documents covering the P500,000 loan
and Pagsaligan used these documents as a means to
justify his inability to explain and account for the time
deposits of Marcos.

The trial court noted the BANKs defective
documentation of its transaction with Marcos. First,
the BANK was not in possession of the original copies
of the documents like the loan applications. Second,
the BANK did not have a ledger of the accounts of
Marcos or of his various transactions with the BANK.
Last, the BANK did not issue a certificate of time
deposit to Marcos. Again, the trial court attributed
the BANKs lapses to Pagsaligans scheme to defraud
Marcos of his time deposits.

The trial court also took note of Pagsaligans
demeanor on the witness stand. Pagsaligan evaded
the questions by giving unresponsive or inconsistent
answers compelling the trial court to admonish him.
When the trial court ordered Pagsaligan to produce
the documents, he conveniently became sick*15+
and thus failed to attend the hearings without
presenting proof of his physical condition.

The trial court disregarded the BANKs assertion that
the time deposits were converted into a savings
account at 14% or 10% per annum upon maturity. The
BANK never informed Marcos that his time deposits
had already matured and these were converted into a
savings account. As to the interest due on the trust
receipts, the trial court ruled that there is no basis for
such a charge because the documents do not stipulate
any interest.

In computing the amount due to Marcos, the trial
court took into account the marginal deposit that
Marcos had already paid which is equivalent to 30% of
the total amount of the three trust receipts. The three
trust receipts totalling P851,250 would then have a
balance of P595,875. The balance became due in
March 1987 and on the same date, Marcos time
deposits of P669,932.30 had already earned interest
from 1983 to 1987 totalling P569,323.21 at 17% per
annum. Thus, the trial court ruled that the time
deposits in 1987 totalled P1,239,115. From this
amount, the trial court deducted P595,875, the
amount of the trust receipts, leaving a balance on the
time deposits of P643,240 as of March 1987.
However, since the BANK failed to return the time
deposits of Marcos, which again matured in March
1990, the time deposits with interest, less the amount
of trust receipts paid in 1987, amounted to
P971,292.49 as of March 1990.

In the alternative, the trial court ruled that even if
Marcos had only one time deposit of P764,897.67 as
claimed by the BANK, the time deposit would have still
earned interest at the rate of 17% per annum. The
time deposit of P650,163 would have increased to
P1,415,060 in 1987 after earning interest. Deducting
the amount of the three trust receipts, Marcos time
deposits still totalled P1,236,969.30 plus interest.

The dispositive portion of the decision of the trial
court reads:

WHEREFORE, under the foregoing circumstances,
judgment is hereby rendered in favor of Plaintiff,
directing Defendant Bank as follows:

1) to return to Plaintiff his time deposit in the sum
of P971,292.49 with interest thereon at the legal rate,
until fully restituted;
2) to pay attorneys fees of P200,000.00; *and+
3) [to pay the] cost of these proceedings.

IT IS SO ORDERED.[16]

The Ruling of the Court of Appeals

The Court of Appeals addressed the procedural and
substantive issues that the BANK raised.

The appellate court ruled that the trial court
committed a reversible error when it denied the
BANKs motion to cross-examine Marcos. The
appellate court ruled that the right to cross-examine is
a fundamental right that the BANK did not waive
because the BANK vigorously asserted this right. The
BANKs failure to serve a notice of the motion to
Marcos is not a valid ground to deny the motion to
cross-examine. The appellate court held that the
motion to cross-examine is one of those non-litigated
motions that do not require the movant to provide a
notice of hearing to the other party.

The Court of Appeals pointed out that when the trial
court lifted the order of default, it had the duty to
afford the BANK its right to cross-examine Marcos.
This duty assumed greater importance because the
only evidence supporting the complaint is Marcos ex-
parte testimony. The trial court should have tested the
veracity of Marcos testimony through the distilling
process of cross-examination. The Court of Appeals,
however, believed that the case should not be
remanded to the trial court because Marcos
testimony on the time deposits is supported by
evidence on record from which the appellate court
could make an intelligent judgment.

On the second procedural issue, the Court of Appeals
held that the trial court did not err when it declared
that the BANK had waived its right to present its
evidence and had submitted the case for decision.
The appellate court agreed with the grounds relied
upon by the trial court in its Order dated 7 September
1990.

The Court of Appeals, however, differed with the
finding of the trial court as to the total amount of the
time deposits. The appellate court ruled that the total
amount of the time deposits of Marcos is only
P764,897.67 and not P1,429,795.34 as found by the
trial court. The certification letter issued by Pagsaligan
showed that Marcos made a time deposit on 12 March
1982 for P764,897.67. The certification letter shows
that the amount mentioned in the letter was the
aggregate or total amount of the time deposits of
Marcos as of that date. Therefore, the P764,897.67
already included the P664,897.67 time deposit made
by Marcos on 11 March 1982.

The Court of Appeals further explained:

Besides, the Official Receipt (Exh. B, p. 32, Records)
dated March 11, 1982 covering the sum of
P664,987.67 time deposit did not provide for a
maturity date implying clearly that the amount
covered by said receipt forms part of the total sum
shown in the letter-certification which contained a
maturity date. Moreover, it taxes ones credulity to
believe that appellee would make a time deposit on
March 12, 1982 in the sum of P764,897.67 which
except for the additional sum of P100,000.00 is
practically identical (see underlined figures) to the
sum of P664,897.67 deposited the day before March
11, 1982.

Additionally, We agree with the contention of the
appellant that the lower court wrongly appreciated
the testimony of Mr. Pagsaligan. Our finding is
strengthened when we consider the alleged
application for loan by the appellee with the appellant
in the sum of P500,000.00 dated October 24, 1983.
(Exh. J, p. 40, Records), wherein it was stated that
the loan is for additional working capital versus the
various time deposit amounting to P760,000.00.[17]
(Emphasis supplied)

The Court of Appeals sustained the factual findings of
the trial court in ruling that Promissory Note No. 20-
979-83 is void. There is no evidence of a bank ledger
or computation of interest of the loan. The appellate
court blamed the BANK for failing to comply with the
orders of the trial court to produce the documents on
the loan. The BANK also made inconsistent
statements. In its Answer to the Complaint, the BANK
alleged that the loan was fully paid when it debited
the time deposits of Marcos with the loan. However,
in its discussion of the assigned errors, the BANK
claimed that Marcos had yet to pay the loan.

The appellate court deleted the award of attorneys
fees. It noted that the trial court failed to justify the
award of attorneys fees in the text of its decision.
The dispositive portion of the decision of the Court of
Appeals reads:

WHEREFORE, premises considered, the appealed
decision is SET ASIDE. A new judgment is hereby
rendered ordering the appellant bank to return to the
appellee his time deposit in the sum of P764,897.67
with 17% interest within 90 days from March 11, 1982
in accordance with the letter-certification and with
legal interest thereafter until fully paid. Costs against
the appellant.

SO ORDERED.[18] (Emphasis supplied)

The Issues

The BANK anchors this petition on the following
issues:

1) WHETHER OR NOT THE PETITIONER [sic] ABLE TO
PROVE THE PRIVATE RESPONDENTS OUTSTANDING
OBLIGATIONS SECURED BY THE ASSIGNMENT OF TIME
DEPOSITS?

1.1) COROLLARILY, WHETHER OR NOT THE
PROVISIONS OF SECTION 8 RULE 10 OF [sic] THEN
REVISED RULES OF COURT BE APPLIED [sic] SO AS TO
CREATE A JUDICIAL ADMISSION ON THE GENUINENESS
AND DUE EXECUTION OF THE ACTIONABLE
DOCUMENTS APPENDED TO THE PETITIONERS
ANSWER?

2) WHETHER OR NOT PETITIONER [sic] DEPRIVED
OF DUE PROCESS WHEN THE LOWER COURT HAS [sic]
DECLARED PETITIONER TO HAVE WAIVED
PRESENTATION OF FURTHER EVIDENCE AND
CONSIDERED THE CASE SUBMITTED FOR
RESOLUTION?[19]

The Ruling of the Court

The petition is without merit.

Procedural Issues

There was no violation of the BANKs right to
procedural due process when the trial court denied
the BANKs motion to cross-examine Marcos. Prior to
the denial of the motion, the trial court had properly
declared the BANK in default. Since the BANK was in
default, Marcos was able to present his evidence ex-
parte including his own testimony. When the trial
court lifted the order of default, the BANK was
restored to its standing and rights in the action.
However, as a rule, the proceedings already taken
should not be disturbed.[20] Nevertheless, it is within
the trial courts discretion to reopen the evidence
submitted by the plaintiff and allow the defendant to
challenge the same, by cross-examining the plaintiffs
witnesses or introducing countervailing evidence.[21]
The 1964 Rules of Court, the rules then in effect at the
time of the hearing of this case, recognized the trial
courts exercise of this discretion. The 1997 Rules of
Court retained this discretion.[22] Section 3, Rule 18
of the 1964 Rules of Court reads:

Sec. 3. Relief from order of default. A party
declared in default may any time after discovery
thereof and before judgment file a motion under oath
to set aside the order of default upon proper showing
that his failure to answer was due to fraud, accident,
mistake or excusable neglect and that he has a
meritorious defense. In such case the order of default
may be set aside on such terms and conditions as the
judge may impose in the interest of justice. (Emphasis
supplied)

The records show that the BANK did not ask the trial
court to restore its right to cross-examine Marcos
when it sought the lifting of the default order on 9
January 1990. Thus, the order dated 7 February 1990
setting aside the order of default did not confer on the
BANK the right to cross-examine Marcos. It was only
on 2 March 1990 that the BANK filed the motion to
cross-examine Marcos. During the 12 March 1990
hearing, the trial court denied the BANKs oral
manifestation to grant its motion to cross-examine
Marcos because there was no proof of service on
Marcos. The BANKs counsel pleaded for
reconsideration but the trial court denied the plea and
ordered the BANK to present its evidence. Instead of
presenting its evidence, the BANK moved for the
resetting of the hearing and when the trial court
denied the same, the BANK informed the trial court
that it was elevating the denial to the upper
court.*23+

To repeat, the trial court had previously declared the
BANK in default. The trial court therefore had the right
to decide whether or not to disturb the testimony of
Marcos that had already been terminated even before
the trial court lifted the order of default.

We do not agree with the appellate courts ruling that
a motion to cross-examine is a non-litigated motion
and that the trial court gravely abused its discretion
when it denied the motion to cross-examine. A
motion to cross-examine is adversarial. The adverse
party in this case had the right to resist the motion to
cross-examine because the movant had previously
forfeited its right to cross-examine the witness. The
purpose of a notice of a motion is to avoid surprises
on the opposite party and to give him time to study
and meet the arguments.[24] In a motion to cross-
examine, the adverse party has the right not only to
prepare a meaningful opposition to the motion but
also to be informed that his witness is being recalled
for cross-examination. The proof of service was
therefore indispensable and the trial court was correct
in denying the oral manifestation to grant the motion
for cross-examination.

We find no justifiable reason to relax the application
of the rule on notice of motions[25] to this case. The
BANK could have easily re-filed the motion to cross-
examine with the requisite notice to Marcos. It did
not do so. The BANK did not make good its threat to
elevate the denial to a higher court. The BANK waited
until the trial court rendered a judgment on the merits
before questioning the interlocutory order of denial.

While the right to cross-examine is a vital element of
procedural due process, the right does not necessarily
require an actual cross-examination, but merely an
opportunity to exercise this right if desired by the
party entitled to it.*26+ Clearly, the BANKs failure to
cross-examine is imputable to the BANK when it lost
this right[27] as it was in default and failed thereafter
to exhaust the remedies to secure the exercise of this
right at the earliest opportunity.

The two other procedural lapses that the BANK
attributes to the appellate and trial courts deserve
scant consideration.

The BANK raises for the very first time the issue of
judicial admission on the part of Marcos. The BANK
even has the audacity to fault the Court of Appeals for
not ruling on this issue when it never raised this
matter before the appellate court or before the trial
court. Obviously, this issue is only an afterthought. An
issue raised for the first time on appeal and not raised
timely in the proceedings in the lower court is barred
by estoppel.[28]

The BANK cannot claim that Marcos had admitted the
due execution of the documents attached to its
answer because the BANK filed its answer late and
even failed to serve it on Marcos. The BANKs answer,
including the actionable documents it pleaded and
attached to its answer, was a mere scrap of paper.
There was nothing that Marcos could specifically deny
under oath. Marcos had already completed the
presentation of his evidence when the trial court lifted
the order of default and admitted the BANKs answer.
The provision of the Rules of Court governing
admission of actionable documents was not enacted
to reward a party in default. We will not allow a party
to gain an advantage from its disregard of the rules.

As to the issue of its right to present additional
evidence, we agree with the Court of Appeals that the
trial court correctly ruled that the BANK had waived
this right. The BANK cannot now claim that it was
deprived of its right to conduct a re-direct
examination of Pagsaligan. The BANK postponed the
hearings three times[29] because of its inability to
secure Pagsaligans presence during the hearings. The
BANK could have presented another witness or its
other evidence but it obstinately insisted on the
resetting of the hearing because of Pagsaligans
absence allegedly due to illness.

The BANKs propensity for postponements had long
delayed the case. Its motion for postponement based
on Pagsaligans illness was not even supported by
documentary evidence such as a medical certificate.
Documentary evidence of the illness is necessary
before the trial court could rule that there is a
sufficient basis to grant the postponement.[30]

The BANKs Fiduciary Duty to its Depositor

The BANK is liable to Marcos for offsetting his time
deposits with a fictitious promissory note. The
existence of Promissory Note No. 20-979-83 could
have been easily proven had the BANK presented the
original copies of the promissory note and its
supporting evidence. In lieu of the original copies, the
BANK presented the machine copies of the duplicate
of the documents. These substitute documents have
no evidentiary value. The BANKs failure to explain the
absence of the original documents and to maintain a
record of the offsetting of this loan with the time
deposits bring to fore the BANKs dismal failure to
fulfill its fiduciary duty to Marcos.

Section 2 of Republic Act No. 8791 (General Banking
Law of 2000) expressly imposes this fiduciary duty on
banks when it declares that the State recognizes the
fiduciary nature of banking that requires high
standards of integrity and performance. This
statutory declaration merely echoes the earlier
pronouncement of the Supreme Court in Simex
International (Manila) Inc. v. Court of Appeals[31]
requiring banks to treat the accounts of its depositors
with meticulous care, always having in mind the
fiduciary nature of their relationship.*32+ The Court
reiterated this fiduciary duty of banks in subsequent
cases.[33]

Although RA No. 8791 took effect only in the year
2000,[34] at the time that the BANK transacted with
Marcos, jurisprudence had already imposed on banks
the same high standard of diligence required under RA
No. 8791.[35] 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. Thus, the BANKs fiduciary
duty imposes upon it a higher level of accountability
than that expected of Marcos, a businessman, who
negligently signed blank forms and entrusted his
certificates of time deposits to Pagsaligan without
retaining copies of the certificates.

The business of banking is imbued with public interest.
The stability of banks largely depends on the
confidence of the people in the honesty and efficiency
of banks. In Simex International (Manila) Inc. v. Court
of Appeals[36] we pointed out the depositors
reasonable expectations from a bank and the banks
corresponding duty to its depositor, as follows:

In every case, the depositor expects the bank to treat
his account with the utmost fidelity, whether such
account consists only of a few hundred pesos or of
millions. The bank must record every single
transaction accurately, down to the last centavo, and
as promptly as possible. This has to be done if the
account is to reflect at any given time the amount of
money the depositor can dispose of as he sees fit,
confident that the bank will deliver it as and to
whomever he directs.

As the BANKs depositor, Marcos had the right to
expect that the BANK was accurately recording his
transactions with it. Upon the maturity of his time
deposits, Marcos also had the right to withdraw the
amount due him after the BANK had correctly debited
his outstanding obligations from his time deposits.

By the very nature of its business, the BANK should
have had in its possession the original copies of the
disputed promissory note and the records and ledgers
evidencing the offsetting of the loan with the time
deposits of Marcos. The BANK inexplicably failed to
produce the original copies of these documents.
Clearly, the BANK failed to treat the account of Marcos
with meticulous care.

The BANK claims that it is a reputable banking
institution and that it has no reason to forge
Promissory Note No. 20-979-83. The trial court and
appellate court did not rule that it was the bank that
forged the promissory note. It was Pagsaligan, the
BANKs branch manager and a close friend of Marcos,
whom the trial court categorically blamed for the
fictitious loan agreements. The trial court held that
Pagsaligan made up the loan agreement to cover up
his inability to account for the time deposits of
Marcos.

Whether it was the BANKs negligence and inefficiency
or Pagsaligans misdeed that deprived Marcos of the
amount due him will not excuse the BANK from its
obligation to return to Marcos the correct amount of
his time deposits with interest. The duty to observe
high standards of integrity and performance
imposes on the BANK that obligation. The BANK
cannot also unjustly enrich itself by keeping Marcos
money.

Assuming Pagsaligan was behind the spurious
promissory note, the BANK would still be accountable
to Marcos. We have held that a bank is liable for the
wrongful acts of its officers done in the interest of the
bank or in their dealings as bank representatives but
not for acts outside the scope of their authority.[37]
Thus, we held:

A bank holding out its officers and agents as worthy of
confidence will not be permitted to profit by the
frauds they may thus be enabled to perpetrate in the
apparent scope of their employment; nor will it be
permitted to shirk its responsibility for such frauds,
even though no benefit may accrue to the bank
therefrom (10 Am Jur 2d, p. 114). Accordingly, a
banking corporation is liable to innocent third persons
where the representation is made in the course of its
business by an agent acting within the general scope
of his authority even though, in the particular case,
the agent is secretly abusing his authority and
attempting to perpetrate a fraud upon his principal or
some other person, for his own ultimate benefit.[38]

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

The BANK failed to produce the best evidence the
original copies of the loan application and promissory
note. The Best Evidence Rule provides that the court
shall not receive any evidence that is merely
substitutionary in its nature, such as photocopies, as
long as the original evidence can be had.[39] Absent a
clear showing that the original writing has been lost,
destroyed or cannot be produced in court, the
photocopy must be disregarded, being unworthy of
any probative value and being an inadmissible piece of
evidence.[40]

What the BANK presented were merely the machine
copies of the duplicate of the loan application and
promissory note. No explanation was ever offered by
the BANK for its inability to produce the original copies
of the documentary evidence. The BANK also did not
comply with the orders of the trial court to submit the
originals.

The purpose of the rule requiring the production of
the best evidence is the prevention of fraud.[41] If a
party is in possession of evidence and withholds it,
and seeks to substitute inferior evidence in its place,
the presumption naturally arises that the better
evidence is withheld for fraudulent purposes, which its
production would expose and defeat.[42]

The absence of the original of the documentary
evidence casts suspicion on the existence of
Promissory Note No. 20-979-83 considering the
BANKs fiduciary duty to keep efficiently a record of its
transactions with its depositors. Moreover, the
circumstances enumerated by the trial court bolster
the conclusion that Promissory Note No. 20-979-83 is
bogus. The BANK has only itself to blame for the
dearth of competent proof to establish the existence
of Promissory Note No. 20-979-83.

Total Amount Due to Marcos

The BANK and Marcos do not now dispute the ruling
of the Court of Appeals that the total amount of time
deposits that Marcos placed with the BANK is only
P764,897.67 and not P1,429,795.34 as found by the
trial court. The BANK has always argued that Marcos
time deposits only totalled P764,897.67.[43] What the
BANK insists on in this petition is the trial courts
violation of its right to procedural due process and the
absence of any obligation to pay or return anything to
Marcos. Marcos, on the other hand, merely prays for
the affirmation of either the trial court or appellate
court decision.[44] We uphold the finding of the Court
of Appeals as to the amount of the time deposits as
such finding is in accord with the evidence on record.

Marcos claimed that the certificates of time deposit
were with Pagsaligan for safekeeping. Marcos was
only able to present the receipt dated 11 March 1982
and the letter-certification dated 12 March 1982 to
prove the total amount of his time deposits with the
BANK. The letter-certification issued by Pagsaligan
reads:

March 12, 1982

Dear Mr. Marcos:

This is to certify that we are taking care in your behalf
various Time Deposit Certificates with an aggregate
value of PESOS: SEVEN HUNDRED SIXTY FOUR
THOUSAND EIGHT HUNDRED NINETY SEVEN AND
67/100 (P764,897.67) ONLY, issued today for 90 days
at 17% p.a. with the interest payable at maturity on
June 10, 1982.

Thank you.

Sgd. FLORENCIO B. PAGSALIGAN
Branch Manager[45]

The foregoing certification is clear. The total amount
of time deposits of Marcos as of 12 March 1982 is
P764,897.67, inclusive of the sum of P664,987.67 that
Marcos placed on time deposit on 11 March 1982.
This is plainly seen from the use of the word
aggregate.

We are not swayed by Marcos testimony that the
certification is actually for the first time deposit that
he placed on 11 March 1982. The letter-certification
speaks of various Time Deposits Certificates with an
aggregate value of P764,897.67. If the amount
stated in the letter-certification is for a single time
deposit only, and did not include the 11 March 1982
time deposit, then Marcos should have demanded a
new letter of certification from Pagsaligan. Marcos is
a businessman. While he already made an error in
judgment in entrusting to Pagsaligan the certificates of
time deposits, Marcos should have known the
importance of making the letter-certification reflect
the true nature of the transaction. Marcos is bound
by the letter-certification since he was the one who
prodded Pagsaligan to issue it.

We modify the amount that the Court of Appeals
ordered the BANK to return to Marcos. The appellate
court did not offset Marcos outstanding debt with the
BANK covered by the three trust receipt agreements
even though Marcos admits his obligation under the
three trust receipt agreements. The total amount of
the trust receipts is P851,250 less the 30% marginal
deposit of P255,375 that Marcos had already paid the
BANK. This reduced Marcos total debt with the BANK
to P595,875 under the trust receipts.

The trial and appellate courts found that the parties
did not agree on the imposition of interest on the loan
covered by the trust receipts and thus no interest is
due on this loan. However, the records show that the
three trust receipt agreements contained stipulations
for the payment of interest but the parties failed to fill
up the blank spaces on the rate of interest. Put
differently, the BANK and Marcos expressly agreed in
writing on the payment of interest[46] without,
however, specifying the rate of interest. We,
therefore, impose the legal interest of 12% per
annum, the legal interest for the forbearance of
money,[47] on each of the three trust receipts.

Based on Marcos testimony*48+ and the BANKs letter
of demand,[49] the trust receipt agreements became
due in March 1987. The records do not show exactly
when in March 1987 the obligation became due. In
accordance with Article 2212 of the Civil Code, in such
a case the court shall fix the period of the duration of
the obligation.*50+ The BANKs letter of demand is
dated 6 March 1989. We hold that the trust receipts
became due on 6 March 1987.

Marcos payment of the marginal deposit of P255,375
for the trust receipts resulted in the proportionate
reduction of the three trust receipts. The reduced
value of the trust receipts and their respective interest
as of 6 March 1987 are as follows:

1. Trust Receipt No. CD 83.7 issued on 8 March
1983 originally for P300,000 was reduced to
P210,618.75 with interest of P101,027.76.[51]

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

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

When the trust receipts became due on 6 March 1987,
Marcos owed the BANK P880,812.48. This amount
included P595,875, the principal value of the three
trust receipts after payment of the marginal deposit,
and P284,937.48, the interest then due on the three
trust receipts.

Upon maturity of the three trust receipts, the BANK
should have automatically deducted, by way of
offsetting, Marcos outstanding debt to the BANK from
his time deposits and its accumulated interest.
Marcos time deposits of P764,897.67 had already
earned interest[54] of P616,318.92 as of 6 March
1987.*55+ Thus, Marcos total funds with the BANK
amounted to P1,381,216.59 as of the maturity of the
trust receipts. After deducting P880,812.48, the
amount Marcos owed the BANK, from Marcos funds
with the BANK of P1,381,216.59, Marcos remaining
time deposits as of 6 March 1987 is only P500,404.11.
The accumulated interest on this P500,404.11 as of 30
August 1989, the date of filing of Marcos complaint
with the trial court, is P211,622.96.[56] From 30
August 1989, the interest due on the accumulated
interest of P211,622.96 should earn legal interest at
12% per annum pursuant to Article 2212[57] of the
Civil Code.

The BANKs dismal failure to account for Marcos
money justifies the award of moral[58] and exemplary
damages.[59] Certainly, the BANK, as employer, is
liable for the negligence or the misdeed of its branch
manager which caused Marcos mental anguish and
serious anxiety.[60] Moral damages of P100,000 is
reasonable and is in accord with our rulings in similar
cases involving banks negligence with regard to the
accounts of their depositors.[61]

We also award P20,000 to Marcos as exemplary
damages. The law allows the grant of exemplary
damages by way of example for the public good.[62]
The public relies on the banks fiduciary duty to
observe the highest degree of diligence. The banking
sector is expected to maintain at all times this high
level of meticulousness.[63]

WHEREFORE, the decision of the Court of Appeals is
AFFIRMED with MODIFICATION. Petitioner Philippine
Banking Corporation is ordered to return to private
respondent Leonilo Marcos P500,404.11, the
remaining principal amount of his time deposits, with
interest at 17% per annum from 30 August 1989 until
full payment. Petitioner Philippine Banking
Corporation is also ordered to pay to private
respondent Leonilo Marcos P211,622.96, the
accumulated interest as of 30 August 1989, plus 12%
legal interest per annum from 30 August 1989 until
full payment. Petitioner Philippine Banking
Corporation is further ordered to pay P100,000 by way
of moral damages and P20,000 as exemplary damages
to private respondent Leonilo Marcos.

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

MANUEL M. SERRANO, petitioner,
vs.
CENTRAL BANK OF THE PHILIPPINES; OVERSEAS
BANK OF MANILA; EMERITO M. RAMOS, SUSANA B.
RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS
DELA RAMA, HORACIO DELA RAMA, ANTONIO B.
RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO
LEDESMA, VICTORIA RAMOS TANJUATCO, and
TEOFILO TANJUATCO, respondents.

Rene Diokno for petitioner.

F.E. Evangelista & Glecerio T. Orsolino for respondent
Central Bank of the Philippines.

Feliciano C. Tumale, Pacifico T. Torres and Antonio B.
Periquet for respondent Overseas Bank of Manila.

Josefina G. Salonga for all other respondents.



CONCEPCION, JR., J.:

Petition for mandamus and prohibition, with
preliminary injunction, that seeks the establishment of
joint and solidary liability to the amount of Three
Hundred Fifty Thousand Pesos, with interest, against
respondent Central Bank of the Philippines and
Overseas Bank of Manila and its stockholders, on the
alleged failure of the Overseas Bank of Manila to
return the time deposits made by petitioner and
assigned to him, on the ground that respondent
Central Bank failed in its duty to exercise strict
supervision over respondent Overseas Bank of Manila
to protect depositors and the general public. 1
Petitioner also prays that both respondent banks be
ordered to execute the proper and necessary
documents to constitute all properties fisted in Annex
"7" of the Answer of respondent Central Bank of the
Philippines in G.R. No. L-29352, entitled "Emerita M.
Ramos, et al vs. Central Bank of the Philippines," into a
trust fund in favor of petitioner and all other
depositors of respondent Overseas Bank of Manila. It
is also prayed that the respondents be prohibited
permanently from honoring, implementing, or doing
any act predicated upon the validity or efficacy of the
deeds of mortgage, assignment. and/or conveyance or
transfer of whatever nature of the properties listed in
Annex "7" of the Answer of respondent Central Bank
in G.R. No. 29352. 2

A sought for ex-parte preliminary injunction against
both respondent banks was not given by this Court.

Undisputed pertinent facts are:

On October 13, 1966 and December 12, 1966,
petitioner made a time deposit, for one year with 6%
interest, of One Hundred Fifty Thousand Pesos
(P150,000.00) with the respondent Overseas Bank of
Manila. 3 Concepcion Maneja also made a time
deposit, for one year with 6-% interest, on March 6,
1967, of Two Hundred Thousand Pesos (P200,000.00)
with the same respondent Overseas Bank of Manila. 4

On August 31, 1968, Concepcion Maneja, married to
Felixberto M. Serrano, assigned and conveyed to
petitioner Manuel M. Serrano, her time deposit of
P200,000.00 with respondent Overseas Bank of
Manila. 5

Notwithstanding series of demands for encashment of
the aforementioned time deposits from the
respondent Overseas Bank of Manila, dating from
December 6, 1967 up to March 4, 1968, not a single
one of the time deposit certificates was honored by
respondent Overseas Bank of Manila. 6

Respondent Central Bank admits that it is charged
with the duty of administering the banking system of
the Republic and it exercises supervision over all doing
business in the Philippines, but denies the petitioner's
allegation that the Central Bank has the duty to
exercise a most rigid and stringent supervision of
banks, implying that respondent Central Bank has to
watch every move or activity of all banks, including
respondent Overseas Bank of Manila. Respondent
Central Bank claims that as of March 12, 1965, the
Overseas Bank of Manila, while operating, was only on
a limited degree of banking operations since the
Monetary Board decided in its Resolution No. 322,
dated March 12, 1965, to prohibit the Overseas Bank
of Manila from making new loans and investments in
view of its chronic reserve deficiencies against its
deposit liabilities. This limited operation of respondent
Overseas Bank of Manila continued up to 1968. 7

Respondent Central Bank also denied that it is
guarantor of the permanent solvency of any banking
institution as claimed by petitioner. It claims that
neither the law nor sound banking supervision
requires respondent Central Bank to advertise or
represent to the public any remedial measures it may
impose upon chronic delinquent banks as such action
may inevitably result to panic or bank "runs". In the
years 1966-1967, there were no findings to declare
the respondent Overseas Bank of Manila as insolvent.
8

Respondent Central Bank likewise denied that a
constructive trust was created in favor of petitioner
and his predecessor in interest Concepcion Maneja
when their time deposits were made in 1966 and 1967
with the respondent Overseas Bank of Manila as
during that time the latter was not an insolvent bank
and its operation as a banking institution was being
salvaged by the respondent Central Bank. 9

Respondent Central Bank avers no knowledge of
petitioner's claim that the properties given by
respondent Overseas Bank of Manila as additional
collaterals to respondent Central Bank of the
Philippines for the former's overdrafts and emergency
loans were acquired through the use of depositors'
money, including that of the petitioner and
Concepcion Maneja. 10

In G.R. No. L-29362, entitled "Emerita M. Ramos, et al.
vs. Central Bank of the Philippines," a case was filed by
the petitioner Ramos, wherein respondent Overseas
Bank of Manila sought to prevent respondent Central
Bank from closing, declaring the former insolvent, and
liquidating its assets. Petitioner Manuel Serrano in this
case, filed on September 6, 1968, a motion to
intervene in G.R. No. L-29352, on the ground that
Serrano had a real and legal interest as depositor of
the Overseas Bank of Manila in the matter in litigation
in that case. Respondent Central Bank in G.R. No. L-
29352 opposed petitioner Manuel Serrano's motion to
intervene in that case, on the ground that his claim as
depositor of the Overseas Bank of Manila should
properly be ventilated in the Court of First Instance,
and if this Court were to allow Serrano to intervene as
depositor in G.R. No. L-29352, thousands of other
depositors would follow and thus cause an avalanche
of cases in this Court. In the resolution dated October
4, 1968, this Court denied Serrano's, motion to
intervene. The contents of said motion to intervene
are substantially the same as those of the present
petition. 11

This Court rendered decision in G.R. No. L-29352 on
October 4, 1971, which became final and executory on
March 3, 1972, favorable to the respondent Overseas
Bank of Manila, with the dispositive portion to wit:

WHEREFORE, the writs prayed for in the petition are
hereby granted and respondent Central Bank's
resolution Nos. 1263, 1290 and 1333 (that prohibit the
Overseas Bank of Manila to participate in clearing,
direct the suspension of its operation, and ordering
the liquidation of said bank) are hereby annulled and
set aside; and said respondent Central Bank of the
Philippines is directed to comply with its obligations
under the Voting Trust Agreement, and to desist from
taking action in violation therefor. Costs against
respondent Central Bank of the Philippines. 12

Because of the above decision, petitioner in this case
filed a motion for judgment in this case, praying for a
decision on the merits, adjudging respondent Central
Bank jointly and severally liable with respondent
Overseas Bank of Manila to the petitioner for the
P350,000 time deposit made with the latter bank, with
all interests due therein; and declaring all assets
assigned or mortgaged by the respondents Overseas
Bank of Manila and the Ramos groups in favor of the
Central Bank as trust funds for the benefit of
petitioner and other depositors. 13

By the very nature of the claims and causes of action
against respondents, they in reality are recovery of
time deposits plus interest from respondent Overseas
Bank of Manila, and recovery of damages against
respondent Central Bank for its alleged failure to
strictly supervise the acts of the other respondent
Bank and protect the interests of its depositors by
virtue of the constructive trust created when
respondent Central Bank required the other
respondent to increase its collaterals for its overdrafts
said emergency loans, said collaterals allegedly
acquired through the use of depositors money. These
claims shoud be ventilated in the Court of First
Instance of proper jurisdiction as We already pointed
out when this Court denied petitioner's motion to
intervene in G.R. No. L-29352. Claims of these nature
are not proper in actions for mandamus and
prohibition as there is no shown clear abuse of
discretion by the Central Bank in its exercise of
supervision over the other respondent Overseas Bank
of Manila, and if there was, petitioner here is not the
proper party to raise that question, but rather the
Overseas Bank of Manila, as it did in G.R. No. L-29352.
Neither is there anything to prohibit in this case, since
the questioned acts of the respondent Central Bank
(the acts of dissolving and liquidating the Overseas
Bank of Manila), which petitioner here intends to use
as his basis for claims of damages against respondent
Central Bank, had been accomplished a long time ago.

Furthermore, both parties overlooked one
fundamental principle in the nature of bank deposits
when the petitioner claimed that there should be
created a constructive trust in his favor when the
respondent Overseas Bank of Manila increased its
collaterals in favor of respondent Central Bank for the
former's overdrafts and emergency loans, since these
collaterals were acquired by the use of depositors'
money.

Bank deposits are in the nature of irregular deposits.
They are really loans because they earn interest. All
kinds of bank deposits, whether fixed, savings, or
current are to be treated as loans and are to be
covered by the law on loans. 14 Current and savings
deposit are loans to a bank because it can use the
same. The petitioner here in making time deposits
that earn interests with respondent Overseas Bank of
Manila was in reality a creditor of the respondent
Bank and not a depositor. The respondent Bank was in
turn a debtor of petitioner. Failure of he respondent
Bank to honor the time deposit is failure to pay s
obligation as a debtor and not a breach of trust arising
from depositary's failure to return the subject matter
of the deposit

WHEREFORE, the petition is dismissed for lack of
merit, with costs against petitioner.

SO ORDERED.

G.R. No. 88013 March 19, 1990

SIMEX INTERNATIONAL (MANILA), INCORPORATED,
petitioner,
vs.
THE HONORABLE COURT OF APPEALS and TRADERS
ROYAL BANK, respondents.

Don P. Porcuincula for petitioner.

San Juan, Gonzalez, San Agustin & Sinense for private
respondent.



CRUZ, J.:

We are concerned in this case with the question of
damages, specifically moral and exemplary damages.
The negligence of the private respondent has already
been established. All we have to ascertain is whether
the petitioner is entitled to the said damages and, if
so, in what amounts.

The parties agree on the basic facts. The petitioner is a
private corporation engaged in the exportation of
food products. It buys these products from various
local suppliers and then sells them abroad, particularly
in the United States, Canada and the Middle East.
Most of its exports are purchased by the petitioner on
credit.

The petitioner was a depositor of the respondent bank
and maintained a checking account in its branch at
Romulo Avenue, Cubao, Quezon City. On May 25, 1981,
the petitioner deposited to its account in the said bank
the amount of P100,000.00, thus increasing its balance
as of that date to P190,380.74. 1 Subsequently, the
petitioner issued several checks against its deposit but
was suprised to learn later that they had been
dishonored for insufficient funds.

The dishonored checks are the following:

1. Check No. 215391 dated May 29, 1981, in
favor of California Manufacturing Company, Inc. for
P16,480.00:

2. Check No. 215426 dated May 28, 1981, in
favor of the Bureau of Internal Revenue in the amount
of P3,386.73:

3. Check No. 215451 dated June 4, 1981, in
favor of Mr. Greg Pedreo in the amount of P7,080.00;

4. Check No. 215441 dated June 5, 1981, in favor
of Malabon Longlife Trading Corporation in the
amount of P42,906.00:

5. Check No. 215474 dated June 10, 1981, in
favor of Malabon Longlife Trading Corporation in the
amount of P12,953.00:

6. Check No. 215477 dated June 9, 1981, in favor
of Sea-Land Services, Inc. in the amount of
P27,024.45:

7. Check No. 215412 dated June 10, 1981, in
favor of Baguio Country Club Corporation in the
amount of P4,385.02: and

8. Check No. 215480 dated June 9, 1981, in favor
of Enriqueta Bayla in the amount of P6,275.00. 2

As a consequence, the California Manufacturing
Corporation sent on June 9, 1981, a letter of demand
to the petitioner, threatening prosecution if the
dishonored check issued to it was not made good. It
also withheld delivery of the order made by the
petitioner. Similar letters were sent to the petitioner
by the Malabon Long Life Trading, on June 15, 1981,
and by the G. and U. Enterprises, on June 10, 1981.
Malabon also canceled the petitioner's credit line and
demanded that future payments be made by it in cash
or certified check. Meantime, action on the pending
orders of the petitioner with the other suppliers
whose checks were dishonored was also deferred.

The petitioner complained to the respondent bank on
June 10, 1981. 3 Investigation disclosed that the sum
of P100,000.00 deposited by the petitioner on May 25,
1981, had not been credited to it. The error was
rectified on June 17, 1981, and the dishonored checks
were paid after they were re-deposited. 4

In its letter dated June 20, 1981, the petitioner
demanded reparation from the respondent bank for
its "gross and wanton negligence." This demand was
not met. The petitioner then filed a complaint in the
then Court of First Instance of Rizal claiming from the
private respondent moral damages in the sum of
P1,000,000.00 and exemplary damages in the sum of
P500,000.00, plus 25% attorney's fees, and costs.

After trial, Judge Johnico G. Serquinia rendered
judgment holding that moral and exemplary damages
were not called for under the circumstances.
However, observing that the plaintiff's right had been
violated, he ordered the defendant to pay nominal
damages in the amount of P20,000.00 plus P5,000.00
attorney's fees and costs. 5 This decision was affirmed
in toto by the respondent court. 6

The respondent court found with the trial court that
the private respondent was guilty of negligence but
agreed that the petitioner was nevertheless not
entitled to moral damages. It said:

The essential ingredient of moral damages is proof of
bad faith (De Aparicio vs. Parogurga, 150 SCRA 280).
Indeed, there was the omission by the defendant-
appellee bank to credit appellant's deposit of
P100,000.00 on May 25, 1981. But the bank rectified
its records. It credited the said amount in favor of
plaintiff-appellant in less than a month. The
dishonored checks were eventually paid. These
circumstances negate any imputation or insinuation of
malicious, fraudulent, wanton and gross bad faith and
negligence on the part of the defendant-appellant.

It is this ruling that is faulted in the petition now
before us.

This Court has carefully examined the facts of this case
and finds that it cannot share some of the conclusions
of the lower courts. It seems to us that the negligence
of the private respondent had been brushed off rather
lightly as if it were a minor infraction requiring no
more than a slap on the wrist. We feel it is not enough
to say that the private respondent rectified its records
and credited the deposit in less than a month as if this
were sufficient repentance. The error should not have
been committed in the first place. The respondent
bank has not even explained why it was committed at
all. It is true that the dishonored checks were, as the
Court of Appeals put it, "eventually" paid. However,
this took almost a month when, properly, the checks
should have been paid immediately upon
presentment.

As the Court sees it, the initial carelessness of the
respondent bank, aggravated by the lack of
promptitude in repairing its error, justifies the grant of
moral damages. This rather lackadaisical attitude
toward the complaining depositor constituted the
gross negligence, if not wanton bad faith, that the
respondent court said had not been established by the
petitioner.

We also note that while stressing the rectification
made by the respondent bank, the decision practically
ignored the prejudice suffered by the petitioner. This
was simply glossed over if not, indeed, disbelieved.
The fact is that the petitioner's credit line was
canceled and its orders were not acted upon pending
receipt of actual payment by the suppliers. Its business
declined. Its reputation was tarnished. Its standing
was reduced in the business community. All this was
due to the fault of the respondent bank which was
undeniably remiss in its duty to the petitioner.

Article 2205 of the Civil Code provides that actual or
compensatory damages may be received "(2) for injury
to the plaintiff s business standing or commercial
credit." There is no question that the petitioner did
sustain actual injury as a result of the dishonored
checks and that the existence of the loss having been
established "absolute certainty as to its amount is not
required." 7 Such injury should bolster all the more
the demand of the petitioner for moral damages and
justifies the examination by this Court of the validity
and reasonableness of the said claim.

We agree that moral damages are not awarded to
penalize the defendant but to compensate the
plaintiff for the injuries he may have suffered. 8 In the
case at bar, the petitioner is seeking such damages for
the prejudice sustained by it as a result of the private
respondent's fault. The respondent court said that the
claimed losses are purely speculative and are not
supported by substantial evidence, but if failed to
consider that the amount of such losses need not be
established with exactitude precisely because of their
nature. Moral damages are not susceptible of
pecuniary estimation. Article 2216 of the Civil Code
specifically provides that "no proof of pecuniary loss is
necessary in order that moral, nominal, temperate,
liquidated or exemplary damages may be
adjudicated." That is why the determination of the
amount to be awarded (except liquidated damages) is
left to the sound discretion of the court, according to
"the circumstances of each case."

From every viewpoint except that of the petitioner's,
its claim of moral damages in the amount of
P1,000,000.00 is nothing short of preposterous. Its
business certainly is not that big, or its name that
prestigious, to sustain such an extravagant pretense.
Moreover, a corporation is not as a rule entitled to
moral damages because, not being a natural person, it
cannot experience physical suffering or such
sentiments as wounded feelings, serious anxiety,
mental anguish and moral shock. The only exception
to this rule is where the corporation has a good
reputation that is debased, resulting in its social
humiliation. 9

We shall recognize that the petitioner did suffer injury
because of the private respondent's negligence that
caused the dishonor of the checks issued by it. The
immediate consequence was that its prestige was
impaired because of the bouncing checks and
confidence in it as a reliable debtor was diminished.
The private respondent makes much of the one
instance when the petitioner was sued in a collection
case, but that did not prove that it did not have a good
reputation that could not be marred, more so since
that case was ultimately settled. 10 It does not appear
that, as the private respondent would portray it, the
petitioner is an unsavory and disreputable entity that
has no good name to protect.

Considering all this, we feel that the award of nominal
damages in the sum of P20,000.00 was not the proper
relief to which the petitioner was entitled. Under
Article 2221 of the Civil Code, "nominal damages are
adjudicated in order that a right of the plaintiff, which
has been violated or invaded by the defendant, may
be vindicated or recognized, and not for the purpose
of indemnifying the plaintiff for any loss suffered by
him." As we have found that the petitioner has indeed
incurred loss through the fault of the private
respondent, the proper remedy is the award to it of
moral damages, which we impose, in our discretion, in
the same amount of P20,000.00.

Now for the exemplary damages.

The pertinent provisions of the Civil Code are the
following:

Art. 2229. Exemplary or corrective damages are
imposed, by way of example or correction for the
public good, in addition to the moral, temperate,
liquidated or compensatory damages.

Art. 2232. In contracts and quasi-contracts, the
court may award exemplary damages if the defendant
acted in a wanton, fraudulent, reckless, oppressive, or
malevolent manner.

The banking system is an indispensable institution in
the modern world and plays a vital role in the
economic life of every civilized nation. Whether as
mere passive entities for the safekeeping and saving of
money or as active instruments of business and
commerce, banks have become an ubiquitous
presence among the people, who have come to regard
them with respect and even gratitude and, most of all,
confidence. Thus, even the humble wage-earner has
not hesitated to entrust his life's savings to the bank of
his choice, knowing that they will be safe in its custody
and will even earn some interest for him. The ordinary
person, with equal faith, usually maintains a modest
checking account for security and convenience in the
settling of his monthly bills and the payment of
ordinary expenses. As for business entities like the
petitioner, the bank is a trusted and active associate
that can help in the running of their affairs, not only in
the form of loans when needed but more often in the
conduct of their day-to-day transactions like the
issuance or encashment of checks.

In every case, the depositor expects the bank to treat
his account with the utmost fidelity, whether such
account consists only of a few hundred pesos or of
millions. The bank must record every single
transaction accurately, down to the last centavo, and
as promptly as possible. This has to be done if the
account is to reflect at any given time the amount of
money the depositor can dispose of as he sees fit,
confident that the bank will deliver it as and to
whomever he directs. A blunder on the part of the
bank, such as the dishonor of a check without good
reason, can cause the depositor not a little
embarrassment if not also financial loss and perhaps
even civil and criminal litigation.

The point is that as a business affected with public
interest and because of the nature of its functions, the
bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in
mind the fiduciary nature of their relationship. In the
case at bar, it is obvious that the respondent bank was
remiss in that duty and violated that relationship.
What is especially deplorable is that, having been
informed of its error in not crediting the deposit in
question to the petitioner, the respondent bank did
not immediately correct it but did so only one week
later or twenty-three days after the deposit was made.
It bears repeating that the record does not contain
any satisfactory explanation of why the error was
made in the first place and why it was not corrected
immediately after its discovery. Such ineptness comes
under the concept of the wanton manner
contemplated in the Civil Code that calls for the
imposition of exemplary damages.

After deliberating on this particular matter, the Court,
in the exercise of its discretion, hereby imposes upon
the respondent bank exemplary damages in the
amount of P50,000.00, "by way of example or
correction for the public good," in the words of the
law. It is expected that this ruling will serve as a
warning and deterrent against the repetition of the
ineptness and indefference that has been displayed
here, lest the confidence of the public in the banking
system be further impaired.

ACCORDINGLY, the appealed judgment is hereby
MODIFIED and the private respondent is ordered to
pay the petitioner, in lieu of nominal damages, moral
damages in the amount of P20,000.00, and exemplary
damages in the amount of P50,000.00 plus the original
award of attorney's fees in the amount of P5,000.00,
and costs.
SO ORDERED.

G.R. No. 69162 February 21, 1992

BANK OF THE PHILIPPINE ISLANDS, petitioner,
vs.
THE INTERMEDIATE APPELLATE COURT and the
SPOUSES ARTHUR CANLAS and VIVIENE CANLAS,
respondents.

Leonen, Ramirez & Associates for petitioner.

L. Emmanuel B. Canilao for private respondents.



GRIO-AQUINO, J.:

In a decision dated September 3, 1984, the
Intermediate Appellate Court (now Court of Appeals)
in AC-G.R. CV No. 69178 entitled, "Arthur A. Canlas, et
al., Plaintiff-Appellees vs. Commercial Bank and Trust
Company of the Philippines, Defendant-Appellant,"
reduced to P105,000 the P465,000 damage-award of
the trial court to the private respondents for an error
of a bank teller which resulted in the dishonor of two
small checks which the private respondents had issued
against their joint current account. This petition for
review of that decision was filed by the Bank.

The respondent spouses, Arthur and Vivienne Canlas,
opened a joint current account No. 210-520-73 on
April 25, 1977 in the Quezon City branch of the
Commercial Bank and Trust Company of the
Philippines (CBTC) with an initial deposit of P2,250.
Prior thereto, Arthur Canlas had an existing separate
personal checking account No. 210-442-41 in the same
branch.

When the respondent spouses opened their joint
current account, the "new accounts" teller of the bank
pulled out from the bank's files the old and existing
signature card of respondent Arthur Canlas for Current
Account No. 210-442-41 for use as I D and reference.
By mistake, she placed the old personal account
number of Arthur Canlas on the deposit slip for the
new joint checking account of the spouses so that the
initial deposit of P2,250 for the joint checking account
was miscredited to Arthur's personal account (p. 9,
Rollo). The spouses subsequently deposited other
amounts in their joint account.

However, when respondent Vivienne Canlas issued a
check for Pl,639.89 in April 1977 and another check for
P1,160.00 on June 1, 1977, one of the checks was
dishonored by the bank for insufficient funds and a
penalty of P20 was deducted from the account in both
instances. In view of the overdrawings, the bank tried
to call up the spouses at the telephone number which
they had given in their application form, but the bank
could not contact them because they actually reside in
Porac, Pampanga. The city address and telephone
number which they gave to the bank belonged to Mrs.
Canlas' parents.

On December 15, 1977, the private respondents filed
a complaint for damages against CBTC in the Court of
First Instance of Pampanga (p. 113, Rollo).

On February 27, 1978, the bank filed a motion to
dismiss the complaint for improper venue. The motion
was denied.

During the pendency of the case, the Bank of the
Philippine Islands (BPI) and CBTC were merged. As the
surviving corporation under the merger agreement
and under Section 80 (5) of the Corporation Code of
the Philippines, BPI took over the prosecution and
defense of any pending claims, actions or proceedings
by and against CBTC.

On May 5, 1981, the Regional Trial Court of Pampanga
rendered a decision against BPI, the dispositive
portion of which reads:

WHEREFORE, judgment is hereby rendered sentencing
defendant to pay the plaintiff the following:

1. P 5,000.00 as actual damages;

2. P 150,000.00 for plaintiff Arthur Canlas and
P150,000.00 for plaintiff Vivienne S. Canlas
representing moral damages;

3. P 150.000.00 as exemplary damages;

4. P 10,000.00 as attorney's fees; and

5. Costs. (p. 36, Rollo).

On appeal, the Intermediate Appellate Court deleted
the actual damages and reduced the other awards.
The dispositive portion of its decision reads:

WHEREFORE, the judgment appealed from is hereby
modified as follows:

1. The award of P50,000.00 in actual damages is
herewith deleted.

2. Moral damages of P50,000.00 is awarded to
plaintiffs-appellees Arthur Canlas and Vivienne S.
Canlas, not P50,000.00 each.

3. Exemplary damages is likewise reduced to the
sum of P50,000.00 and attorney's fees to P5,000.00.

Costs against the defendants appellant. (p. 40, Rollo.)

Petitioner filed this petition for review alleging that
the appellate court erred in holding that:

1. The venue of the case had been properly laid
at Pampanga in the light of private respondents'
earlier declaration that Quezon City is their true
residence.

2. The petitioner was guilty of gross negligence
in the handling of private respondents' bank account.

3. Private respondents are entitled to the moral
and exemplary damages and attorney's fees adjudged
by the respondent appellate court.

On the question of venue raised by petitioner, it is
evident that personal actions may be instituted in the
Court of First Instance (now Regional Trial Court) of
the province where the defendant or any of the
defendants resides or may be found, or where the
plaintiff or any of the plaintiffs resides, at the election
of the plaintiff (Section 2[b], Rule 4 of the Rules of
Court). In this case, there was ample proof that the
residence of the plaintiffs is B. Sacan, Porac,
Pampanga (p. 117, Rollo). The city address of Mrs.
Canlas' parents was placed by the private respondents
in their application for a joint checking account, at the
suggestion of the new accounts teller, presumably to
facilitate mailing of the bank statements and
communicating with the private respondents in case
any problems should arise involving the account. No
waiver of their provincial residence for purposes of
determining the venue of an action against the bank
may be inferred from the so-called
"misrepresentation" of their true residence.


The appellate court based its award of moral and
exemplary damages, and attorney's fees on its finding
that the mistake committed by the new accounts
teller of the petitioner constituted "serious"
negligence (p. 38, Rollo). Said court further stressed
that it cannot absolve the petitioner from liability for
damages to the private respondents, even on the
assumption of an honest mistake on its part, because
of the embarrassment that even an honest mistake
can cause its depositors (p. 31, Rollo).

There is no merit in petitioner's argument that it
should not be considered negligent, much less held
liable for damages on account of the inadvertence of
its bank employee for Article 1173 of the Civil Code
only requires it to exercise the diligence of a good
father of family.

In Simex International (Manila), Inc. vs. Court of
Appeals (183 SCRA 360, 367), this Court stressed the
fiduciary nature of the relationship between a bank
and its depositors and the extent of diligence
expected of it in handling the accounts entrusted to its
care.

In every case, the depositor expects the bank to treat
his account with the utmost fidelity, whether such
account consists only of a few hundred pesos or of
millions. The bank must record every single
transaction accurately, down to the last centavo, and
as promptly as possible. This has to be done if the
account is to reflect at any given time the amount of
money the depositor can dispose of as he sees fit,
confident that the bank will deliver it as and to
whomever he directs. A blunder on the part of the
bank, such as the dishonor of a check without good
reason, can cause the depositor not a little
embarrassment if not also financial loss and perhaps
even civil and criminal litigation.

The point is that as a business affected with public
interest and because of the nature of its functions, the
bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in
mind the fiduciary nature of their relationship. . . .

The bank is not expected to be infallible but, as
correctly observed by respondent Appellate Court, in
this instance, it must bear the blame for not
discovering the mistake of its teller despite the
established procedure requiring the papers and bank
books to pass through a battery of bank personnel
whose duty it is to check and countercheck them for
possible errors. Apparently, the officials and
employees tasked to do that did not perform their
duties with due care, as may be gathered from the
testimony of the bank's lone witness, Antonio Enciso,
who casually declared that "the approving officer does
not have to see the account numbers and all those
things. Those are very petty things for the approving
manager to look into" (p. 78, Record on Appeal).
Unfortunately, it was a "petty thing," like the incorrect
account number that the bank teller wrote on the
initial deposit slip for the newly-opened joint current
account of the Canlas spouses, that sparked this half-
a-million-peso damage suit against the bank.


While the bank's negligence may not have been
attended with malice and bad faith, nevertheless, it
caused serious anxiety, embarrassment and
humiliation to the private respondents for which they
are entitled to recover reasonable moral damages
(American Express International, Inc. vs. IAC, 167 SCRA
209). The award of reasonable attorney's fees is
proper for the private respondents were compelled to
litigate to protect their interest (Art. 2208, Civil Code).
However, the absence of malice and bad faith renders
the award of exemplary damages improper (Globe
Mackay Cable and Radio Corp. vs. Court of Appeals,
176 SCRA 778).

WHEREFORE, the petition for review is granted. The
appealed decision is MODIFIED by deleting the award
of exemplary damages to the private respondents. In
all other respects, the decision of the Intermediate
Appellate Court, now Court of Appeals, is AFFIRMED.
No costs.

SO ORDERED.

[G.R. No. 157049 : August 11, 2010]

CITYTRUST BANKING CORPORATION (NOW BANK OF
THE PHILIPPINE ISLANDS), PETITIONER, VS. CARLOS
ROMULO N. CRUZ, RESPONDENT.

R E S O L U T I O N

BERSAMIN, J.:

Under review is the decision promulgated on October
8, 2002 in C.A.- G.R. CV No. 48928,[1] whereby the
Court of Appeals (CA) affirmed the decision dated
January 13, 1995 of the Regional Trial Court (RTC),
Branch 91, in Quezon City,[2] finding the petitioner
liable to pay to the respondent moral damages of
P100,000.00, exemplary damages of P20,000.00, and
attorney's fees of P20,000.00.

In the time material to the case, the respondent, an
architect and businessman, maintained savings and
checking accounts at the petitioner's Loyola Heights
Branch. The savings account was considered closed
due to the oversight committed by one of the latter's
tellers. The closure resulted in the extreme
embarrassment of the respondent, for checks that he
had issued could not be honored although his savings
account was sufficiently funded and the accounts
were maintained under the petitioner's check-o-matic
arrangement (whereby the current account was
maintained at zero balance and the funds from the
savings account were automatically transferred to the
current account to cover checks issued by the
depositor like the respondent).

Unmoved by the petitioner's apologies and the
adjustment made on his accounts by its employees,
the respondent sued in the RTC to claim damages
from the petitioner.

After trial, the RTC ruled in the respondent's favor,
and ordered the petitioner to pay him P100,000.00 as
moral damages, P20,000.00 as exemplary damage,
and P20,0000.00 as attorney's fees. The RTC found
that the petitioner had failed to properly supervise its
teller; and that the petitioner's negligence had made
the respondent suffer serious anxiety, embarrassment
and humiliation, entitling him to damages.[3]

The petitioner appealed to the Court of Appeals (CA),
arguing that the RTC erred in ordering it to pay moral
and exemplary damages.

However, the CA affirmed the RTC, explaining that the
erroneous closure of the respondent's account would
not have been committed in the first place if the
petitioner had not been careless in supervising its
employees. According to the CA, "the fiduciary
relationship and the extent of diligence that is to be
expected from a banking institution, like herein
appellant Citytrust, in handling the accounts of its
depositors cannot be relaxed behind the shadow of an
employee whether or not he/she is new on the
job."[4] Moreover, the CA said that the negligence of
the petitioner's personnel was the proximate cause
that had set in motion the events leading to the
damage caused to the respondent; hence, the RTC
correctly opined that "while a bank is not expected to
be infallible, it must bear the blame for not
discovering the mistake of its teller for lack of proper
supervision."[5]

The petitioner sought reconsideration, but the CA
denied its motion for reconsideration for lack of merit.

Hence, this appeal, in which the petitioner maintains
that there were "decisive fact situations showing
excusable negligence and good faith"[6] that did not
justify the award of moral and exemplary damages
and attorney's fees.

The petition has no merit.

Firstly, the errors sought to be reviewed focused on
the correctness of the factual findings of the CA. Such
review will require the Court to again assess the facts.
Yet, the Court is not a trier of facts. Thus, the appeal is
not proper, for only questions of law can be elevated
to the Court via petition for review on certiorari.[7]

Secondly, nothing from the petitioner's arguments
persuasively showed that the RTC and the CA erred.
The findings of both lower courts were fully supported
by the evidence adduced.

Unquestionably, the petitioner, being a banking
institution, had the direct obligation to supervise very
closely the employees handling its depositors'
accounts, and should always be mindful of the
fiduciary nature of its relationship with the depositors.
Such relationship required it and its employees to
record accurately every single transaction, and as
promptly as possible, considering that the depositors'
accounts should always reflect the amounts of money
the depositors could dispose of as they saw fit,
confident that, as a bank, it would deliver the amounts
to whomever they directed.[8] If it fell short of that
obligation, it should bear the responsibility for the
consequences to the depositors, who, like the
respondent, suffered particular embarrassment and
disturbed peace of mind from the negligence in the
handling of the accounts.

Thirdly, in several decisions of the Court,[9] the banks,
defendants therein, were made liable for negligence,
even without sufficient proof of malice or bad faith on
their part, and the Court awarded moral damages of
P100,000.00 each time to the suing depositors in
proper consideration of their reputation and their
social standing. The respondent should be similarly
awarded for the damage to his reputation as an
architect and businessman.

Lastly, the CA properly affirmed the RTC's award of
exemplary damages and attorney's fees. It is never
overemphasized that the public always relies on a
bank's profession of diligence and meticulousness in
rendering irreproachable service.[10] Its failure to
exercise diligence and meticulousness warranted its
liability for exemplary damages and for reasonable
attorney's fees.

WHEREFORE, we deny the petition for review on
certiorari, and affirm the decision rendered on
October 8, 2002 by the Court of Appeals.

Costs of suit to be paid by the petitioner.