Professional Documents
Culture Documents
Fidelity Savings and Mortgage Bank vs. Cenzon, 184 SCRA 141 (1990) ................................................................................. 4
Simex International (Manila), Inc. vs. Court of Appeals, 183 SCRA 360 (1990).................................................................... 39
Bank of the Philippine Islands vs. Intermediate Appellate Court, 206 SCRA 408 (1992)...................................................... 46
Bank of the Philippine Islands vs. Court of Appeals, 326 SCRA 641 (2000) .......................................................................... 52
Consolidated Bank and Trust Corporation vs. Court of Appeals, 410 SCRA 562 (2003)....................................................... 64
Philippine Banking Corporation vs. Court of Appeals, 419 SCRA 487 (2004) ....................................................................... 79
Samsung Construction Company Philippines, Inc. vs. Far East Bank, 436 SCRA 402 (2004) ................................................ 85
Heirs of Eduardo Manlapat vs. Court of Appeals, 459 SCRA 412 (2005) ............................................................................ 101
Philippine National Bank vs. Pike, 470 SCRA 328 (2005) .................................................................................................... 118
Cadiz vs. Court of Appeals, 474 SCRA 232 (2005) ............................................................................................................... 141
Far East Bank and Trust Company vs. Pacilan, Jr., 465 SCRA 372 (2005)............................................................................ 153
Citibank, N.A. vs. Cabamongan, 488 SCRA 517 (2006) ....................................................................................................... 165
Demosthenes P. Agan, Jr., et al. vs. PIATCO, et al.,402 SCRA 612 (2003)........................................................................... 250
Consolidated Bank and Trust Corporation vs. Court of Appeals, 365 SCRA 671 (2001)..................................................... 356
Macalinao vs. Bank of the Philippine Islands, G.R. No. 175490, September 17, 2009 ....................................................... 365
China Banking Corporation vs. Court of Appeals, 461 SCRA 162 (2005) ............................................................................ 376
Development Bank of the Philippines vs. Arcilla, Jr., 462 SCRA 599 (2005) ....................................................................... 381
China Banking Corporation vs. Court of Appeals, 511 SCRA 110 (2006) ............................................................................ 412
Ana Rivera vs. People's Bank and Trust Company, 73 Phil. 546 (1942).............................................................................. 421
Vitug vs. Court of Appeals, 183 SCRA 755 (1990) ............................................................................................................... 426
Feati Bank and Trust Company vs. Court of Appeals, 196 SCRA 576 (1990) ...................................................................... 433
Transfield Philippines, Inc. vs. Luzon Hydro Corporation, 442 SCRA 307 (2004)................................................................ 453
Philippine National Bank vs. Pineda, 197 SCRA 1 (1991) .................................................................................................... 472
Insular Bank of Asia & America vs. IAC, 167 SCRA 450 (1988)............................................................................................ 480
Ong vs. Philippine Commercial International Bank, 448 SCRA 705 (2005)......................................................................... 491
International Finance Corporation vs. Imperial Textile Mills, Inc., 475 SCRA 149 (2005) .................................................. 495
JN Development Corporation vs. Philippine Export and Foreign Loan Guarantee Corporation, 468 SCRA 555 (2005)..... 507
People's Bank and Trust Co. vs. Odom, 64 Phil. 126 (1937) ............................................................................................... 515
Lopez vs. Court of Appeals, 114 SCRA 671 (1982) .............................................................................................................. 520
Integrated Realty Corp. vs Philippine National Bank,174 SCRA 295 (1989) ....................................................................... 546
Yau Chu vs. Court of Appeals, 177 SCRA 793 (1989) .......................................................................................................... 562
Caltex (Philippines), Inc. vs. Court of Appeals, 212 SCRA 448 (1992) ................................................................................. 565
Allied Banking Corp. vs. Ordofiez, 192 SCRA 246 (1990) .................................................................................................... 578
Development Bank of the Philippines vs. Prudential Bank, 475 SCRA 623 (2005) ............................................................. 598
Rosario Textile Mills vs. Home Bankers Savings and Trust Company, 462 SCRA 88 (2005) ............................................... 610
People's Bank and Trust Co. vs. Dahican Lumber Company, 20 SCRA 84 (1967) ............................................................... 636
Belgian Catholic Missionaries vs. Magallanes Press, 49 Phil. 647 (1926) ........................................................................... 650
Acme Shoe, Rubber and Plastic Corp. vs. Court of Appeals, 260 SCRA 714 (1996)............................................................ 658
Ong Liong Tiak vs. Luneta Motor Co., 66 Phil. 459 (1938) .................................................................................................. 664
Magna Financial Services Group, Inc. vs. Colarina, 477 SCRA 245(2005) ........................................................................... 693
Register of Deeds vs. China Banking Corporation, 4 SCRA 1145 (1962)............................................................................. 703
Bukidnon Doctors' Hospital, Inc. vs. Metropolitan Bank & Trust Co., 463 SCRA 222 (2005).............................................. 740
Tanchan vs. Allied Banking Corporation, 571 SCRA 512 (2008).......................................................................................... 754
Onapal Philippines Commodities, Inc. vs. Court of Appeals, 218 SCRA 281 (1993) ........................................................... 771
First Philippine International Bank vs. Court of Appeals, 252 SCRA 259 (1996)................................................................. 782
Fidelity Savings and Mortgage Bank vs. Cenzon, 184 SCRA 141
(1990)
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
REGALADO, J.:
The instant petition seeks the review, on pure questions of law, of the
decision rendered by the Court of First Instance of Manila (now Regional
Trial Court), Branch XL, on December 3, 1976 in Civil Case No. 84800, 1
ordering herein petitioner to pay private respondents the following amounts:
SO ORDERED.
Private respondents instituted this present action for a sum of money with
damages against Fidelity Savings and Mortgage Bank, Central Bank of the
Philippines, Eusebio Lopez, Jr., Arsenio M. Lopez, Sr., Arsenio S. Lopez,
Jr., Bibiana E. Lacuna, Jose C. Morales, Leon P. Cusi, Pilar Y. Pobre-Cusi
and Ernani A. Pacana. On motion of herein private respondents, as
plaintiffs, the amended complaint was dismissed without prejudice against
defendants Jose C. Morales, Leon P. Cusi, Pilar Y. Pobre-Cusi and Ernani
A. Pacana. 2 In its aforesaid decision of December 3, 1976, the court a quo
dismissed the complaint as against defendants Central Bank of the
Philippines, Eusebio Lopez, Jr., Arsenio S. Lopez, Jr., Arsenio M. Lopez, Sr.
and Bibiana S. Lacuna.
Back on August 10, 1973, the plaintiffs (herein private respondents) and the
defendants Fidelity Savings and Mortgage Bank (petitioner herein), Central
Bank of the Philippines and Bibiana E. Lacuna had filed in said case in the
lower court a partial stipulation of facts, as follows:
1. That herein plaintiffs are husband and wife, both of legal age,
and presently residing at No. 480 C. de la Paz Street, Sta. Elena,
Marikina, Rizal;
11. That the liquidation proceedings has not been terminated and
is still pending up to the present;
1. Whether or not an insolvent bank like the Fidelity Savings and Mortgage
Bank may be adjudged to pay interest on unpaid deposits even after its
closure by the Central Bank by reason of insolvency without violating the
provisions of the Civil Code on preference of credits; and
2. Whether or not an insolvent bank like the Fidelity Savings and Mortgage
Bank may be adjudged to pay moral and exemplary damages, attorney's
fees and costs when the insolvency is caused b the anomalous real estate
transactions without violating the provisions of the Civil Code on preference
of credits.
This was reiterated in the subsequent case of The Overseas Bank of Manila
vs. The Hon. Court of Appeals and Julian R. Cordero. 5 and in the recent
cases of Integrated Realty Corporation, et al. vs. Philippine National Bank,
et al. and the Overseas Bank of Manila vs. Court of appeals, et al. 6
The trial court found, and it is not disputed, that there was no fraud or bad
faith on the part of petitioner bank and the other defendants in accepting the
deposits of private respondents. Petitioner bank could not even be faulted in
not immediately returning the amount claimed by private respondents
considering that the demand to pay was made and Civil Case No. 84800
was filed in the trial court several months after the Central Bank had ordered
petitioner's closure. By that time, petitioner bank was no longer in a position
to comply with its obligations to its creditors, including herein private
respondents. Even the trial court had to admit that petitioner bank failed to
pay private respondents because it was already insolvent. 8 Further, this
case is not one of the specified or analogous cases wherein moral damages
may be recovered. 9
In the absence of fraud, bad faith, malice or wanton attitude, petitioner bank
may, therefore, not be held responsible for damages which may be
reasonably attributed to the non-performance of the obligation. 13
Consequently, we reiterate that under the premises and pursuant to the
aforementioned provisions of law, it is apparent that private respondents are
not justifiably entitled to the payment of moral and exemplary damages and
attorney's fees.
While we tend to agree with petitioner bank that private respondents' claims
should he been filed in the liquidation proceedings in Civil Case No. 86005,
entitled "In Re: Liquidation of the Fidelity Savings and Mortgage Bank,"
pending before Branch XIII of the then Court of First Instance of Manila, we
do not believe that the decision rendered in the instant case would be
violative of the legal provisions on preference and concurrence of credits.
As the trial court puts it:
SO ORDERED.
Melencio-Herrera, Paras, Padilla and Sarmiento, JJ., concur.
Cancio vs. Court of Appeals, 154 SCRA 731 (1987)
Republic of the Philippines
SUPREME COURT
Manila
MELENCIO-HERRERA, J.:
During the pendency of this case, or on April 23, 1986, petitioner had
passed away and her legal heirs were ordered substituted in her stead and
Jose Cancio, Jr., was appointed guardian ad-litem for the minors Ma. Irene
and Roberto, both surnamed Cancio, in this Court's Resolution of August
11, 1986.
Decision as follows:
The primordial issue for resolution is whether or not respondent Court had
committed reversible error in upholding the forfeiture of the foreign
currencies in question.
A second look at the facts and the equity of the case, the pertinent laws,
and the CB Circulars involved constrains us to rule in the affirmative and,
accordingly, to grant reconsideration of our Resolution of August 11, 1986
denying review.
The provisions of this Section shall not apply to tourists and non-
resident temporary visitors who are taking or sending out of the
Philippines their own foreign exchange brought in by them.
a. x x x x x x x x x
b. Subject only to the terms of the contract between the bank and
the depositor, the latter shall have a general license to withdraw
his deposit, notwithstanding any change in policy or regulations.
(Emphaisis supplied)
Respondent Court has taken the position that the foregoing provision its the
right of the depositor to that of withdrawal and withholds from him the right
of transferability abroad. That is not so. Circular-Letter, dated August 3,
1978, issued by the Central Bank reads in explicit terms:
___________________
Date
___________________________
(Signature of Authorized
_______________________
(Signature of Depositor)
(SGD.) R.D.RUIZ
Director
Indeed, given the underlying objective of the Foreign Currency Deposit Act,
as amended, which is to attract and invite the deposit of foreign currencies
which are acceptable as part of the international reserve in duly authorized
banks in order that they may be put into the stream of the banking system, it
would be to defeat the very purpose of the law to place undue restrictions
on the transferability of such funds. The countervailing effect would be to
discourage prospective foreign currency depositors to the detriment of the
banking system.
In fine, Central Bank Circulars Nos. 265 and 534 requiring prior Central
Bank authority for the taking out of the country of foreign currency should
not be made to encompass foreign currency depositors whose rights are
expressly defined and guaranteed in a special law, the Foreign Currency
Deposit Act (RA 6426, as amended). As a foreign currency depositor,
therefore, petitioner cannot be adjudged to have violated the aforestated
Central Bank Circulars. It follows that neither is there room for the
application of Section 2530(f) of the Tariff and Customs Code, as amended,
which provides for the forfeiture of any article and other objects, the
exportation of which is effected or attempted contrary to law.
This is not to condone petitioner's failure to declare the foreign currency she
was carrying out of the country but just to stress that the Foreign Currency
Deposit Act grants petitioner the right of transferability of her funds abroad
except that she was not advised by her bank to secure, and consequently
was unable to present, the necessary certificate of withdrawal from said
bank.
SO ORDERED.
Salvacion vs. Central Bank, 278 SCRA 27 (1997)
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
The petition is for declaratory relief. It prays for the following reliefs:
On February 28, 1989, the court granted the fiscal's Urgent Ex-Parte Motion
for the Issuance of Warrant of Arrest and Hold Departure Order. Pending
the arrest of the accused Greg Bartelli y Northcott, the criminal cases were
archived in an Order dated February 28, 1989.
Meanwhile, in Civil Case No. 89-3214, the Judge issued an Order dated
February 22, 1989 granting the application of herein petitioners, for the
issuance of the writ of preliminary attachment. After petitioners gave Bond
No. JCL (4) 1981 by FGU Insurance Corporation in the amount of
P100,000.00, a Writ of Preliminary Attachment was issued by the trial court
on February 28, 1989.
This prompted the counsel for petitioners to make an inquiry with the
Central Bank in a letter dated April 25, 1989 on whether Section 113 of CB
Circular No. 960 has any exception or whether said section has been
repealed or amended since said section has rendered nugatory the
substantive right of the plaintiff to have the claim sought to be enforced by
the civil action secured by way of the writ of preliminary attachment as
granted to the plaintiff under Rule 57 of the Revised Rules of Court. The
Central Bank responded as follows:
This is in reply to your letter dated April 25, 1989 regarding your
inquiry on Section 113, CB Circular No. 960 (1983).
Meanwhile, on April 10, 1989, the trial court granted petitioners' motion for
leave to serve summons by publication in the Civil Case No. 89-3214
entitled "Karen Salvacion, et al. vs. Greg Bartelli y Northcott." Summons
with the complaint was a published in the Manila Times once a week for
three consecutive weeks. Greg Bartelli failed to file his answer to the
complaint and was declared in default on August 7, 1989. After hearing the
case ex-parte, the court rendered judgment in favor of petitioners on March
29, 1990, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiffs
and against defendant, ordering the latter:
SO ORDERED.
The heinous acts of respondent Greg Bartelli which gave rise to the award
were related in graphic detail by the trial court in its decision as follows:
Karen took her first year high school in St. Mary's Academy in
Pasay City but has recently transferred to Arellano University for
her second year.
The American asked Karen what was her favorite subject and she
told him it's Pilipino. He then invited her to go with him to his
house where she could teach Pilipino to his niece. He even gave
her a stuffed toy to persuade her to teach his niece. (Id., pp. 5-6)
They walked from Plaza Fair along Pasong Tamo, turning right to
reach the defendant's house along Kalayaan Avenue. (Id., p. 6)
Karen did not see any firearm or any bladed weapon. The
defendant did not tie her hands and feet nor put a tape on her
mouth anymore but she did not cry for help for fear that she might
be killed; besides, all the windows and doors were closed. And
even if she shouted for help, nobody would hear her. She was so
afraid that if somebody would hear her and would be able to call
the police, it was still possible that as she was still inside the
house, defendant might kill her. Besides, the defendant did not
leave that Sunday, ruling out her chance to call for help. At
nighttime he slept with her again. (TSN, Aug. 15, 1989, pp. 12-14)
When she heard the voices of many people who were conversing
downstairs, she knocked repeatedly at the door as hard as she
could. She heard somebody going upstairs and when the door
was opened, she saw a policeman. The policeman asked her
name and the reason why she was there. She told him she was
kidnapped. Downstairs, he saw about five policemen in uniform
and the defendant was talking to them. "Nakikipag-areglo po sa
mga pulis," Karen added. "The policeman told him to just explain
at the precinct. (Id., p. 20)
They went out of the house and she saw some of her neighbors in
front of the house. They rode the car of a certain person she
called Kuya Boy together with defendant, the policeman, and two
of her neighbors whom she called Kuya Bong Lacson and one
Ate Nita. They were brought to Sub-Station I and there she was
investigated by a policeman. At about 2:00 a.m., her father
arrived, followed by her mother together with some of their
neighbors. Then they were brought to the second floor of the
police headquarters. (Id., p. 21)
She was studying at the St. Mary's Academy in Pasay City at the
time of the incident but she subsequently transferred to Apolinario
Mabini, Arellano University, situated along Taft Avenue, because
she was ashamed to be the subject of conversation in the school.
She first applied for transfer to Jose Abad Santos, Arellano
University along Taft Avenue near the Light Rail Transit Station
but she was denied admission after she told the school the true
reason for her transfer. The reason for their denial was that they
might be implicated in the case. (TSN, Aug. 15, 1989, p. 46)
After the incident, Karen has changed a lot. She does not play
with her brother and sister anymore, and she is always in a state
of shock; she has been absent-minded and is ashamed even to
go out of the house. (TSN, Sept. 12, 1989, p. 10) She appears to
be restless or sad, (Id., p. 11) The father prays for P500,000.00
moral damages for Karen for this shocking experience which
probably, she would always recall until she reaches old age, and
he is not sure if she could ever recover from this experience.
(TSN, Sept. 24, 1989, pp. 10-11)
The issues raised and the arguments articulated by the parties boil down to
two:
May this Court entertain the instant petition despite the fact that original
jurisdiction in petitions for declaratory relief rests with the lower court?
Should Section 113 of Central Bank Circular No. 960 and Section 8 of R.A.
6426, as amended by P.D. 1246, otherwise known as the Foreign Currency
Deposit Act be made applicable to a foreign transient?
On the other hand, respondent Central Bank, in its Comment alleges that
the Monetary Board in issuing Section 113 of CB Circular No. 960 did not
exceed its power or authority because the subject Section is copied
verbatim from a portion of R.A. No. 6426 as amended by P.D. 1246. Hence,
it was not the Monetary Board that grants exemption from attachment or
garnishment to foreign currency deposits, but the law (R.A. 6426 as
amended) itself; that it does not violate the substantive due process
guaranteed by the Constitution because a.) it was based on a law; b.) the
law seems to be reasonable; c.) it is enforced according to regular methods
of procedure; and d.) it applies to all members of a class.
Expanding, the Central Bank said; that one reason for exempting the foreign
currency deposits from attachment, garnishment or any other order or
process of any court, is to assure the development and speedy growth of
the Foreign Currency Deposit System and the Offshore Banking System in
the Philippines; that another reason is to encourage the inflow of foreign
currency deposits into the banking institutions thereby placing such
institutions more in a position to properly channel the same to loans and
investments in the Philippines, thus directly contributing to the economic
development of the country; that the subject section is being enforced
according to the regular methods of procedure; and that it applies to all
foreign currency deposits made by any person and therefore does not
violate the equal protection clause of the Constitution.
For its part, respondent China Banking Corporation, aside from giving
reasons similar to that of respondent Central Bank, also stated that
respondent China Bank is not unmindful of the inhuman sufferings
experienced by the minor Karen E. Salvacion from the beastly hands of
Greg Bartelli; that it is only too willing to release the dollar deposit of Bartelli
which may perhaps partly mitigate the sufferings petitioner has undergone;
but it is restrained from doing so in view of R.A. No. 6426 and Section 113
of Central Bank Circular No. 960; and that despite the harsh effect of these
laws on petitioners, CBC has no other alternative but to follow the same.
Petitioner deserves to receive the damages awarded to her by the court. But
this petition for declaratory relief can only be entertained and treated as a
petition for mandamus to require respondents to honor and comply with the
writ of execution in Civil Case No. 89-3214.
This Court has no original and exclusive jurisdiction over a petition for
declaratory relief. 2 However, exceptions to this rule have been recognized.
Thus, where the petition has far-reaching implications and raises questions
that should be resolved, it may be treated as one for mandamus. 3
Here is a child, a 12-year old girl, who in her belief that all Americans are
good and in her gesture of kindness by teaching his alleged niece the
Filipino language as requested by the American, trustingly went with said
stranger to his apartment, and there she was raped by said American tourist
Greg Bartelli. Not once, but ten times. She was detained therein for four (4)
days. This American tourist was able to escape from the jail and avoid
punishment. On the other hand, the child, having received a favorable
judgment in the Civil Case for damages in the amount of more than
P1,000,000.00, which amount could alleviate the humiliation, anxiety, and
besmirched reputation she had suffered and may continue to suffer for a
long, long time; and knowing that this person who had wronged her has the
money, could not, however get the award of damages because of this
unreasonable law. This questioned law, therefore makes futile the favorable
judgment and award of damages that she and her parents fully deserve. As
stated by the trial court in its decision,
If Karen's sad fate had happened to anybody's own kin, it would be difficult
for him to fathom how the incentive for foreign currency deposit could be
more important than his child's rights to said award of damages; in this
case, the victim's claim for damages from this alien who had the gall to
wrong a child of tender years of a country where he is a mere visitor. This
further illustrates the flaw in the questioned provisions.
It is worth mentioning that R.A. No. 6426 was enacted in 1983 or at a time
when the country's economy was in a shambles; when foreign investments
were minimal and presumably, this was the reason why said statute was
enacted. But the realities of the present times show that the country has
recovered economically; and even if not, the questioned law still denies
those entitled to due process of law for being unreasonable and oppressive.
The intention of the questioned law may be good when enacted. The law
failed to anticipate the iniquitous effects producing outright injustice and
inequality such as the case before us.
But I also know, 5 that laws and institutions must go hand in hand
with the progress of the human mind. As that becomes more
developed, more enlightened, as new discoveries are made, new
truths are disclosed and manners and opinions change with the
change of circumstances, institutions must advance also, and
keep pace with the times. . . We might as well require a man to
wear still the coat which fitted him when a boy, as civilized society
to remain ever under the regimen of their barbarous ancestors.
For the reasons stated above, the Solicitor General thus submits
that the dollar deposit of respondent Greg Bartelli is not entitled to
the protection of Section 113 of Central Bank Circular No. 960
and PD No. 1246 against attachment, garnishment or other court
processes. 6
In fine, the application of the law depends on the extent of its justice.
Eventually, if we rule that the questioned Section 113 of Central Bank
Circular No. 960 which exempts from attachment, garnishment, or any other
order or process of any court, legislative body, government agency or any
administrative body whatsoever, is applicable to a foreign transient, injustice
would result especially to a citizen aggrieved by a foreign guest like accused
Greg Bartelli. This would negate Article 10 of the New Civil Code which
provides that "in case of doubt in the interpretation or application of laws, it
is presumed that the lawmaking body intended right and justice to prevail.
"Ninguno non deue enriquecerse tortizeramente con dano de otro." Simply
stated, when the statute is silent or ambiguous, this is one of those
fundamental solutions that would respond to the vehement urge of
conscience. (Padilla vs. Padilla, 74 Phil. 377).
Call it what it may — but is there no conflict of legal policy here? Dollar
against Peso? Upholding the final and executory judgment of the lower
court against the Central Bank Circular protecting the foreign depositor?
Shielding or protecting the dollar deposit of a transient alien depositor
against injustice to a national and victim of a crime? This situation calls for
fairness against legal tyranny.
We definitely cannot have both ways and rest in the belief that we have
served the ends of justice.
SO ORDERED.
Simex International (Manila), Inc. vs. Court of Appeals, 183
SCRA 360 (1990)
FIRST DIVISION
San Juan, Gonzalez, San Agustin & Sinense for private respondent.
CRUZ, J.:
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.
2. Check No. 215426 dated May 28, 1981, in favor of the Bureau
of Internal Revenue in the amount of P3,386.73:
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:
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.
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.
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.
SO ORDERED.
Bank of the Philippine Islands vs. Intermediate Appellate
Court, 206 SCRA 408 (1992)
FIRST DIVISION
GRIÑO-AQUINO, J.:
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.
Petitioner filed this petition for review alleging that the appellate court erred
in holding that:
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).
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.
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).
FIRST DIVISION
YNARES-SANTIAGO, J.:
Petitioner filed a comment on the motion for leave of court to admit the third
party complaint, whenever it asserted that per paragraph 2 of the Rules and
Regulations governing BPI savings accounts, private respondent alone was
liable "for the value of the credit given on account of the draft or check
deposited." It contended that private respondent was estopped from
disclaiming liability because he himself authorized the withdrawal of the
amount by signing the withdrawal slip. Petitioner prayed for the denial of the
said motion so as not to unduly delay the disposition of the main case
asserting that private respondent's claim could be ventilated in another
case.
Private respondent replied that for the parties to obtain complete relief and
to avoid multiplicity of suits, the motion to admit third party complaint should
be granted. Meanwhile, the trial court issued orders on August 25, 1987 and
October 28, 1987 directing private respondent to actively participate in
locating Chan. After private respondent failed to comply, the trial court, on
May 18, 1988, dismissed the third party complaint without prejudice.
On appeal, the Court of Appeals affirmed the lower court's decision. The
appellate court held that petitioner committed "clears gross negligence" in
allowing Ruben Gayon, Jr. to withdraw the money without presenting private
respondent's passbook and, before the check was cleared and in crediting
the amount indicated therein in private respondent's account. It stressed
that the mere deposit of a check in private respondent's account did not
mean that the check was already private respondent's property. The check
still had to be cleared and its proceeds can only be withdrawn upon
presentation of a passbook in accordance with the bank's rules and
regulations. Furthermore, petitioner's contention that private respondent
warranted the check's genuineness by endorsing it is untenable for it would
render useless the clearance requirement. Likewise, the requirement of
presentation of a passbook to ascertain the propriety of the accounting
reflected would be a meaningless exercise. After all, these requirements are
designed to protect the bank from deception or fraud.
The Court of Appeals cited the case of Roman Catholic Bishop of Malolos,
Inc. v. IAC,14 where this Court stated that a personal check is not legal
tender or money, and held that the check deposited in this case must be
cleared before its value could be properly transferred to private
respondent's account.
Petitioner claims that private respondent, having affixed his signature at the
dorsal side of the check, should be liable for the amount stated therein in
accordance with the following provision of the Negotiable Instruments Law
(Act No. 2031):
(a) The matters and things mentioned in subdivisions (a), (b), and (c)
of the next preceding section; and
(b) That the instrument is at the time of his indorsement, valid and
subsisting.
Sec. 65, on the other hand, provides for the following warranties of a person
negotiating an instrument by delivery or by qualified indorsement: (a) that
the instrument is genuine and in all respects what it purports to be; (b) that
he has a good title to it, and (c) that all prior parties had capacity to
contract.15 In People v. Maniego,16 this Court described the liabilities of an
indorser as follows:
Under these rules, to be able to withdraw from the savings account deposit
under the Philippine foreign currency deposit system, two requisites must be
presented to petitioner bank by the person withdrawing an amount: (a) a
duly filled-up withdrawal slip, and (b) the depositor's passbook. Private
respondent admits he signed a blank withdrawal slip ostensibly in violation
of Rule No. 6 requiring that the request for withdrawal must name the
payee, the amount to be withdrawn and the place where such withdrawal
should be made. That the withdrawal slip was in fact a blank one with only
private respondent's two signatures affixed on the proper spaces is
buttressed by petitioner's allegation in the instant petition that had private
respondent indicated therein the person authorized to receive the money,
then Ruben Gayon, Jr. could not have withdrawn any amount. Petitioner
contends that "(I)n failing to do so (i.e., naming his authorized agent), he
practically authorized any possessor thereof to write any amount and to
collect the same."20
Such contention would have been valid if not for the fact that the withdrawal
slip itself indicates a special instruction that the amount is payable to
"Ramon A. de Guzman &/or Agnes C. de Guzman." Such being the case,
petitioner's personnel should have been duly warned that Gayon, who was
also employed in petitioner's Buendia Ave. Extension branch,21 was not the
proper payee of the proceeds of the check. Otherwise, either Ramon or
Agnes de Guzman should have issued another authority to Gayon for such
withdrawal. Of course, at the dorsal side of the withdrawal slip is an
"authority to withdraw" naming Gayon the person who can withdraw the
amount indicated in the check. Private respondent does not deny having
signed such authority. However, considering petitioner's clear admission
that the withdrawal slip was a blank one except for private respondent's
signature, the unavoidable conclusion is that the typewritten name of
"Ruben C. Gayon, Jr." was intercalated and thereafter it was signed by
Gayon or whoever was allowed by petitioner to withdraw the amount. Under
these facts, there could not have been a principal-agent relationship
between private respondent and Gayon so as to render the former liable for
the amount withdrawn.
Moreover, the withdrawal slip contains a boxed warning that states: "This
receipt must be signed and presented with the corresponding foreign
currency savings passbook by the depositor in person. For withdrawals thru
a representative, depositor should accomplish the authority at the back."
The requirement of presentation of the passbook when withdrawing an
amount cannot be given mere lip service even though the person making
the withdrawal is authorized by the depositor to do so. This is clear from
Rule No. 6 set out by petitioner so that, for the protection of the bank's
interest and as a reminder to the depositor, the withdrawal shall be entered
in the depositor's passbook. The fact that private respondent's passbook
was not presented during the withdrawal is evidenced by the entries therein
showing that the last transaction that he made with the bank was on
September 3, 1984, the date he deposited the controversial check in the
amount of $2,500.00.22
Said ruling brings to light the fact that the banking business is affected with
public interest. By the nature of its functions, a bank is under obligation to
treat the accounts of its depositors "with meticulous care, always having in
mind the fiduciary nature of their relationship."27 As such, in dealing with its
depositors, a bank should exercise its functions not only with the diligence
of a good father of a family but it should do so with the highest degree of
care.28
In the case at bar, petitioner, in allowing the withdrawal of private
respondent's deposit, failed to exercise the diligence of a good father of a
family. In total disregard of its own rules, petitioner's personnel negligently
handled private respondent's account to petitioner's detriment. As this Court
once said on this matter:
Petitioner violated its own rules by allowing the withdrawal of an amount that
is definitely over and above the aggregate amount of private respondent's
dollar deposits that had yet to be cleared. The bank's ledger on private
respondent's account shows that before he deposited $2,500.00, private
respondent had a balance of only $750.00.30 Upon private respondent's
deposit of $2,500.00 on September 3, 1984, that amount was credited in his
ledger as a deposit resulting in the corresponding total balance of
$3,250.00.31 On September 10, 1984, the amount of $600.00 and the
additional charges of $10.00 were indicated therein as withdrawn thereby
leaving a balance $2,640.00. On September 30, 1984, an interest of $11.59
was reflected in the ledger and on October 23, 1984, the amount of
$2,541.67 was entered as withdrawn with a balance of $109.92.32 On
November 19, 1984 the word "hold" was written beside the balance of
$109.92.33 That must have been the time when Reyes, petitioner's branch
manager, was informed unofficially of the fact that the check deposited was
a counterfeit, but petitioner's Buendia Ave. Extension Branch received a
copy of the communication thereon from Wells Fargo Bank International in
New York the following day, November 20, 1984.34 According to Reyes,
Wells Fargo Bank International handled the clearing of checks drawn
against U.S. banks that were deposited with petitioner.35
SO ORDERED.
Consolidated Bank and Trust Corporation vs. Court of
Appeals, 410 SCRA 562 (2003)
Republic of the Philipppines
SUPREME COURT
Manila
FIRST DIVISION
DECISION
CARPIO, J.:
The Case
The Facts
Calapre went to Solidbank and presented to Teller No. 6 the two deposit
slips and the passbook. The teller acknowledged receipt of the deposit by
returning to Calapre the duplicate copies of the two deposit slips. Teller No.
6 stamped the deposit slips with the words DUPLICATE and SAVING
TELLER 6 SOLIDBANK HEAD OFFICE. Since the transaction took time
and Calapre had to make another deposit for L.C. Diaz with Allied Bank, he
left the passbook with Solidbank. Calapre then went to Allied Bank. When
Calapre returned to Solidbank to retrieve the passbook, Teller No. 6
informed him that somebody got the passbook.[3] Calapre went back to L.C.
Diaz and reported the incident to Macaraya.
Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for
the deposit of a check for P90,000 drawn on Philippine Banking Corporation
(PBC). This PBC check of L.C. Diaz was a check that it had long closed.[4]
PBC subsequently dishonored the check because of insufficient funds and
because the signature in the check differed from PBCs specimen signature.
Failing to get back the passbook, Macaraya went back to her office and
reported the matter to the Personnel Manager of L.C. Diaz, Emmanuel
Alvarez.
The following day, 15 August 1991, L.C. Diaz through its Chief Executive
Officer, Luis C. Diaz (Diaz), called up Solidbank to stop any transaction
using the same passbook until L.C. Diaz could open a new account.[5] On
the same day, Diaz formally wrote Solidbank to make the same request. It
was also on the same day that L.C. Diaz learned of the unauthorized
withdrawal the day before, 14 August 1991, of P300,000 from its savings
account. The withdrawal slip for the P300,000 bore the signatures of the
authorized signatories of L.C. Diaz, namely Diaz and Rustico L. Murillo. The
signatories, however, denied signing the withdrawal slip. A certain Noel
Tamayo received the P300,000.
On 11 May 1999, the Court of Appeals issued its Resolution denying the
motion for reconsideration of Solidbank. The appellate court, however,
modified its decision by deleting the award of exemplary damages and
attorneys fees.
In absolving Solidbank, the trial court applied the rules on savings account
written on the passbook. The rules state that possession of this book shall
raise the presumption of ownership and any payment or payments made by
the bank upon the production of the said book and entry therein of the
withdrawal shall have the same effect as if made to the depositor
personally.[9]
At the time of the withdrawal, a certain Noel Tamayo was not only in
possession of the passbook, he also presented a withdrawal slip with the
signatures of the authorized signatories of L.C. Diaz. The specimen
signatures of these persons were in the signature cards. The teller stamped
the withdrawal slip with the words Saving Teller No. 5. The teller then
passed on the withdrawal slip to Genere Manuel (Manuel) for
authentication. Manuel verified the signatures on the withdrawal slip. The
withdrawal slip was then given to another officer who compared the
signatures on the withdrawal slip with the specimen on the signature cards.
The trial court concluded that Solidbank acted with care and observed the
rules on savings account when it allowed the withdrawal of P300,000 from
the savings account of L.C. Diaz.
The trial court pointed out that the burden of proof now shifted to L.C. Diaz
to prove that the signatures on the withdrawal slip were forged. The trial
court admonished L.C. Diaz for not offering in evidence the National Bureau
of Investigation (NBI) report on the authenticity of the signatures on the
withdrawal slip for P300,000. The trial court believed that L.C. Diaz did not
offer this evidence because it is derogatory to its action.
Another provision of the rules on savings account states that the depositor
must keep the passbook under lock and key.[10] When another person
presents the passbook for withdrawal prior to Solidbanks receipt of the
notice of loss of the passbook, that person is considered as the owner of the
passbook. The trial court ruled that the passbook presented during the
questioned transaction was now out of the lock and key and presumptively
ready for a business transaction.[11]
Solidbank did not have any participation in the custody and care of the
passbook. The trial court believed that Solidbanks act of allowing the
withdrawal of P300,000 was not the direct and proximate cause of the loss.
The trial court held that L.C. Diazs negligence caused the unauthorized
withdrawal. Three facts establish L.C. Diazs negligence: (1) the possession
of the passbook by a person other than the depositor L.C. Diaz; (2) the
presentation of a signed withdrawal receipt by an unauthorized person; and
(3) the possession by an unauthorized person of a PBC check long closed
by L.C. Diaz, which check was deposited on the day of the fraudulent
withdrawal.
The trial court debunked L.C. Diazs contention that Solidbank did not follow
the precautionary procedures observed by the two parties whenever L.C.
Diaz withdrew significant amounts from its account. L.C. Diaz claimed that a
letter must accompany withdrawals of more than P20,000. The letter must
request Solidbank to allow the withdrawal and convert the amount to a
managers check. The bearer must also have a letter authorizing him to
withdraw the same amount. Another person driving a car must accompany
the bearer so that he would not walk from Solidbank to the office in making
the withdrawal. The trial court pointed out that L.C. Diaz disregarded these
precautions in its past withdrawal. On 16 July 1991, L.C. Diaz withdrew
P82,554 without any separate letter of authorization or any communication
with Solidbank that the money be converted into a managers check.
The trial court further justified the dismissal of the complaint by holding that
the case was a last ditch effort of L.C. Diaz to recover P300,000 after the
dismissal of the criminal case against Ilagan.
SO ORDERED.[12]
The Court of Appeals ruled that Solidbanks negligence was the proximate
cause of the unauthorized withdrawal of P300,000 from the savings account
of L.C. Diaz. The appellate court reached this conclusion after applying the
provision of the Civil Code on quasi-delict, to wit:
The appellate court held that the three elements of a quasi-delict are
present in this case, namely: (a) damages suffered by the plaintiff; (b) fault
or negligence of the defendant, or some other person for whose acts he
must respond; and (c) the connection of cause and effect between the fault
or negligence of the defendant and the damage incurred by the plaintiff.
The Court of Appeals pointed out that the teller of Solidbank who received
the withdrawal slip for P300,000 allowed the withdrawal without making the
necessary inquiry. The appellate court stated that the teller, who was not
presented by Solidbank during trial, should have called up the depositor
because the money to be withdrawn was a significant amount. Had the teller
called up L.C. Diaz, Solidbank would have known that the withdrawal was
unauthorized. The teller did not even verify the identity of the impostor who
made the withdrawal. Thus, the appellate court found Solidbank liable for its
negligence in the selection and supervision of its employees.
The appellate court ruled that while L.C. Diaz was also negligent in
entrusting its deposits to its messenger and its messenger in leaving the
passbook with the teller, Solidbank could not escape liability because of the
doctrine of last clear chance. Solidbank could have averted the injury
suffered by L.C. Diaz had it called up L.C. Diaz to verify the withdrawal.
The appellate court ruled that the degree of diligence required from
Solidbank is more than that of a good father of a family. The business and
functions of banks are affected with public interest. Banks are obligated to
treat the accounts of their depositors with meticulous care, always having in
mind the fiduciary nature of their relationship with their clients. The Court of
Appeals found Solidbank remiss in its duty, violating its fiduciary relationship
with L.C. Diaz.
SO ORDERED.[13]
SO ORDERED.[15]
The Issues
Solidbank seeks the review of the decision and resolution of the Court of
Appeals on these grounds:
The rulings of the trial court and the Court of Appeals conflict on the
application of the law. The trial court pinned the liability on L.C. Diaz based
on the provisions of the rules on savings account, a recognition of the
contractual relationship between Solidbank and L.C. Diaz, the latter being a
depositor of the former. On the other hand, the Court of Appeals applied the
law on quasi-delict to determine who between the two parties was ultimately
negligent. The law on quasi-delict or culpa aquiliana is generally applicable
when there is no pre-existing contractual relationship between the parties.
We hold that Solidbank is liable for breach of contract due to negligence, or
culpa contractual.
The contract between the bank and its depositor is governed by the
provisions of the Civil Code on simple loan.[17] Article 1980 of the Civil
Code expressly provides that x x x savings x x x deposits of money in banks
and similar institutions shall be governed by the provisions concerning
simple loan. There is a debtor-creditor relationship between the bank and its
depositor. The bank is the debtor and the depositor is the creditor. The
depositor lends the bank money and the bank agrees to pay the depositor
on demand. The savings deposit agreement between the bank and the
depositor is the contract that determines the rights and obligations of the
parties.
The law imposes on banks high standards in view of the fiduciary nature of
banking. Section 2 of Republic Act No. 8791 (RA 8791),[18] which took
effect on 13 June 2000, declares that the State recognizes the fiduciary
nature of banking that requires high standards of integrity and
performance.[19] This new provision in the general banking law, introduced
in 2000, is a statutory affirmation of Supreme Court decisions, starting with
the 1990 case of Simex International v. Court of Appeals,[20] holding that
the bank is under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of their
relationship.[21]
This fiduciary relationship means that the banks obligation to observe high
standards of integrity and performance is deemed written into every deposit
agreement between a bank and its depositor. The fiduciary nature of
banking requires banks to assume a degree of diligence higher than that of
a good father of a family. Article 1172 of the Civil Code states that the
degree of diligence required of an obligor is that prescribed by law or
contract, and absent such stipulation then the diligence of a good father of a
family.[22] Section 2 of RA 8791 prescribes the statutory diligence required
from banks that banks must observe high standards of integrity and
performance in servicing their depositors. Although RA 8791 took effect
almost nine years after the unauthorized withdrawal of the P300,000 from
L.C. Diazs savings account, jurisprudence[23] at the time of the withdrawal
already imposed on banks the same high standard of diligence required
under RA No. 8791.
However, the fiduciary nature of a bank-depositor relationship does not
convert the contract between the bank and its depositors from a simple loan
to a trust agreement, whether express or implied. Failure by the bank to pay
the depositor is failure to pay a simple loan, and not a breach of trust.[24]
The law simply imposes on the bank a higher standard of integrity and
performance in complying with its obligations under the contract of simple
loan, beyond those required of non-bank debtors under a similar contract of
simple loan.
The fiduciary nature of banking does not convert a simple loan into a trust
agreement because banks do not accept deposits to enrich depositors but
to earn money for themselves. The law allows banks to offer the lowest
possible interest rate to depositors while charging the highest possible
interest rate on their own borrowers. The interest spread or differential
belongs to the bank and not to the depositors who are not cestui que trust of
banks. If depositors are cestui que trust of banks, then the interest spread or
income belongs to the depositors, a situation that Congress certainly did not
intend in enacting Section 2 of RA 8791.
Article 1172 of the Civil Code provides that responsibility arising from
negligence in the performance of every kind of obligation is demandable.
For breach of the savings deposit agreement due to negligence, or culpa
contractual, the bank is liable to its depositor.
Calapre left the passbook with Solidbank because the transaction took time
and he had to go to Allied Bank for another transaction. The passbook was
still in the hands of the employees of Solidbank for the processing of the
deposit when Calapre left Solidbank. Solidbanks rules on savings account
require that the deposit book should be carefully guarded by the depositor
and kept under lock and key, if possible. When the passbook is in the
possession of Solidbanks tellers during withdrawals, the law imposes on
Solidbank and its tellers an even higher degree of diligence in safeguarding
the passbook.
Solidbank failed to discharge its burden. Solidbank did not present to the
trial court Teller No. 6, the teller with whom Calapre left the passbook and
who was supposed to return the passbook to him. The record does not
indicate that Teller No. 6 verified the identity of the person who retrieved the
passbook. Solidbank also failed to adduce in evidence its standard
procedure in verifying the identity of the person retrieving the passbook, if
there is such a procedure, and that Teller No. 6 implemented this procedure
in the present case.
The bank must not only exercise high standards of integrity and
performance, it must also insure that its employees do likewise because this
is the only way to insure that the bank will comply with its fiduciary duty.
Solidbank failed to present the teller who had the duty to return to Calapre
the passbook, and thus failed to prove that this teller exercised the high
standards of integrity and performance required of Solidbanks employees.
Proximate Cause of the Unauthorized Withdrawal
Another point of disagreement between the trial and appellate courts is the
proximate cause of the unauthorized withdrawal. The trial court believed
that L.C. Diazs negligence in not securing its passbook under lock and key
was the proximate cause that allowed the impostor to withdraw the
P300,000. For the appellate court, the proximate cause was the tellers
negligence in processing the withdrawal without first verifying with L.C. Diaz.
We do not agree with either court.
L.C. Diaz was not at fault that the passbook landed in the hands of the
impostor. Solidbank was in possession of the passbook while it was
processing the deposit. After completion of the transaction, Solidbank had
the contractual obligation to return the passbook only to Calapre, the
authorized representative of L.C. Diaz. Solidbank failed to fulfill its
contractual obligation because it gave the passbook to another person.
We do not subscribe to the appellate courts theory that the proximate cause
of the unauthorized withdrawal was the tellers failure to call up L.C. Diaz to
verify the withdrawal. Solidbank did not have the duty to call up L.C. Diaz to
confirm the withdrawal. There is no arrangement between Solidbank and
L.C. Diaz to this effect. Even the agreement between Solidbank and L.C.
Diaz pertaining to measures that the parties must observe whenever
withdrawals of large amounts are made does not direct Solidbank to call up
L.C. Diaz.
Teller No. 5 who processed the withdrawal could not have been put on
guard to verify the withdrawal. Prior to the withdrawal of P300,000, the
impostor deposited with Teller No. 6 the P90,000 PBC check, which later
bounced. The impostor apparently deposited a large amount of money to
deflect suspicion from the withdrawal of a much bigger amount of money.
The appellate court thus erred when it imposed on Solidbank the duty to call
up L.C. Diaz to confirm the withdrawal when no law requires this from banks
and when the teller had no reason to be suspicious of the transaction.
Solidbank continues to foist the defense that Ilagan made the withdrawal.
Solidbank claims that since Ilagan was also a messenger of L.C. Diaz, he
was familiar with its teller so that there was no more need for the teller to
verify the withdrawal. Solidbank relies on the following statements in the
Booking and Information Sheet of Emerano Ilagan:
xxx Ilagan also had with him (before the withdrawal) a forged check of PBC
and indicated the amount of P90,000 which he deposited in favor of L.C.
Diaz and Company. After successfully withdrawing this large sum of money,
accused Ilagan gave alias Rey (Noel Tamayo) his share of the loot. Ilagan
then hired a taxicab in the amount of P1,000 to transport him (Ilagan) to his
home province at Bauan, Batangas. Ilagan extravagantly and lavishly spent
his money but a big part of his loot was wasted in cockfight and horse
racing. Ilagan was apprehended and meekly admitted his guilt.[28]
(Emphasis supplied.)
L.C. Diaz refutes Solidbanks contention by pointing out that the person who
withdrew the P300,000 was a certain Noel Tamayo. Both the trial and
appellate courts stated that this Noel Tamayo presented the passbook with
the withdrawal slip.
We uphold the finding of the trial and appellate courts that a certain Noel
Tamayo withdrew the P300,000. The Court is not a trier of facts. We find no
justifiable reason to reverse the factual finding of the trial court and the
Court of Appeals. The tellers who processed the deposit of the P90,000
check and the withdrawal of the P300,000 were not presented during trial to
substantiate Solidbanks claim that Ilagan deposited the check and made the
questioned withdrawal. Moreover, the entry quoted by Solidbank does not
categorically state that Ilagan presented the withdrawal slip and the
passbook.
The doctrine of last clear chance states that where both parties are
negligent but the negligent act of one is appreciably later than that of the
other, or where it is impossible to determine whose fault or negligence
caused the loss, the one who had the last clear opportunity to avoid the loss
but failed to do so, is chargeable with the loss.[29] Stated differently, the
antecedent negligence of the plaintiff does not preclude him from recovering
damages caused by the supervening negligence of the defendant, who had
the last fair chance to prevent the impending harm by the exercise of due
diligence.[30]
We do not apply the doctrine of last clear chance to the present case.
Solidbank is liable for breach of contract due to negligence in the
performance of its contractual obligation to L.C. Diaz. This is a case of culpa
contractual, where neither the contributory negligence of the plaintiff nor his
last clear chance to avoid the loss, would exonerate the defendant from
liability.[31] Such contributory negligence or last clear chance by the plaintiff
merely serves to reduce the recovery of damages by the plaintiff but does
not exculpate the defendant from his breach of contract.[32]
Mitigated Damages
Under Article 1172, liability (for culpa contractual) may be regulated by the
courts, according to the circumstances. This means that if the defendant
exercised the proper diligence in the selection and supervision of its
employee, or if the plaintiff was guilty of contributory negligence, then the
courts may reduce the award of damages. In this case, L.C. Diaz was guilty
of contributory negligence in allowing a withdrawal slip signed by its
authorized signatories to fall into the hands of an impostor. Thus, the liability
of Solidbank should be reduced.
SO ORDERED.
Philippine Banking Corporation vs. Court of Appeals, 419
SCRA 487 (2004)
THIRD DIVISION
DECISION
CORONA, J.:
Before us is a petition for review seeking the reversal of the decision of the
Court of Appeals1 dated October 22, 1997, which affirmed with modification
the decision of the Regional Trial Court, Branch 20, Makati City, dismissing
the complaint filed by petitioner Philippine Banking Corporation against
private respondent Amalio L. Sarmiento, as well as the resolution of the
Court of the Appeals dated May 14, 1998 denying petitioner’s motion for
reconsideration.
On August 26, 1991, the trial court rendered its decision, thus:
On August 3, 1992, after the reception of evidence, the trial court rendered
a decision finding the evidence adduced by the bank to be insufficient to
substantiate its claim. The trial court reinstated its earlier dismissal of the
case against Sarmiento and denied Philippine Banking Corporation’s
subsequent motion for reconsideration.
On October 22, 1997, the Court of Appeals affirmed with modification the
trial court’s decision:
Hence, the instant petition anchoring its plea for reversal on the following
errors allegedly committed by the Court of Appeals:
We disagree.
The trial court did in fact make a finding that the documentary evidence of
petitioner failed to prove anything showing that respondent indeed received
the proceeds of the loan. The Court of Appeals affirmed the conclusions of
the trial court and declared:
Be that as it may, the general rule is that only questions of law may be
raised in a petition for review on certiorari. The appellate jurisdiction of this
Court in cases brought to it from the Court of Appeals is limited to reviewing
and correcting the errors of law committed by the latter, the findings of fact
of the Court of Appeals being final and conclusive. In other words, the
power of this Court is limited to determining whether the legal conclusions
drawn from the findings of fact are correct. Barring a showing that the
findings of fact complained of are totally devoid of support in the records,
such determination must stand for the Court is neither expected nor
required to examine or refute the oral and documentary evidence submitted
by the parties.7
SECOND DIVISION
DECISION
TINGA, J.:
At the same time, Justiani forwarded the check to the branch Senior
Assistant Cashier Gemma Velez, as it was bank policy that two bank branch
officers approve checks exceeding One Hundred Thousand Pesos, for
payment or encashment. Velez likewise counterchecked the signature on
the check as against that on the signature card. He too concluded that the
check was indeed signed by Jong. Velez then forwarded the check and
signature card to Shirley Syfu, another bank officer, for approval. Syfu then
noticed that Jose Sempio III ("Sempio"), the assistant accountant of
Samsung Construction, was also in the bank. Sempio was well-known to
Syfu and the other bank officers, he being the assistant accountant of
Samsung Construction. Syfu showed the check to Sempio, who vouched for
the genuineness of Jong’s signature. Confirming the identity of Gonzaga,
Sempio said that the check was for the purchase of equipment for Samsung
Construction. Satisfied with the genuineness of the signature of Jong, Syfu
authorized the bank’s encashment of the check to Gonzaga.
During the trial, both sides presented their respective expert witnesses to
testify on the claim that Jong’s signature was forged. Samsung Corporation,
which had referred the check for investigation to the NBI, presented Senior
NBI Document Examiner Roda B. Flores. She testified that based on her
examination, she concluded that Jong’s signature had been forged on the
check. On the other hand, FEBTC, which had sought the assistance of the
Philippine National Police (PNP),14 presented Rosario C. Perez, a document
examiner from the PNP Crime Laboratory. She testified that her findings
showed that Jong’s signature on the check was genuine.15
Confronted with conflicting expert testimony, the RTC chose to believe the
findings of the NBI expert. In a Decision dated 25 April 1994, the RTC held
that Jong’s signature on the check was forged and accordingly directed the
bank to pay or credit back to Samsung Construction’s account the amount
of Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P999,500.00),
together with interest tolled from the time the complaint was filed, and
attorney’s fees in the amount of Fifteen Thousand Pesos (P15,000.00).
Samsung Construction now argues that the Court of Appeals had seriously
misapprehended the facts when it overturned the RTC’s finding of forgery. It
also contends that the appellate court erred in finding that it had been
negligent in safekeeping the check, and in applying the equity principle
enunciated in PNB v. National City Bank of New York.
Since the trial court and the Court of Appeals arrived at contrary findings on
questions of fact, the Court is obliged to examine the record to draw out the
correct conclusions. Upon examination of the record, and based on the
applicable laws and jurisprudence, we reverse the Court of Appeals.
Brady, in his treatise The Law of Forged and Altered Checks, elucidates:
When a person deposits money in a general account in a bank, against
which he has the privilege of drawing checks in the ordinary course of
business, the relationship between the bank and the depositor is that
of debtor and creditor. So far as the legal relationship between the two
is concerned, the situation is the same as though the bank had
borrowed money from the depositor, agreeing to repay it on demand,
or had bought goods from the depositor, agreeing to pay for them on
demand. The bank owes the depositor money in the same sense that
any debtor owes money to his creditor. Added to this, in the case of
bank and depositor, there is, of course, the bank’s obligation to pay
checks drawn by the depositor in proper form and presented in due
course. When the bank receives the deposit, it impliedly agrees to pay
only upon the depositor’s order. When the bank pays a check, on
which the depositor’s signature is a forgery, it has failed to comply with
its contract in this respect. Therefore, the bank is held liable.
The fact that the forgery is a clever one is immaterial. The forged
signature may so closely resemble the genuine as to defy detection by
the depositor himself. And yet, if a bank pays the check, it is paying out
its own money and not the depositor’s.
xxx
It was held that the bank was liable. It was further held that the fact that
the plaintiff waited eight or nine months after discovering the forgery,
before notifying the bank, did not, as a matter of law, constitute a
ratification of the payment, so as to preclude the plaintiff from holding
the bank liable. xxx
This rule of liability can be stated briefly in these words: "A bank is
bound to know its depositors’ signature." The rule is variously
expressed in the many decisions in which the question has been
considered. But they all sum up to the proposition that a bank must
know the signatures of those whose general deposits it carries.24
Thus, the first matter of inquiry is into whether the check was indeed forged.
A document formally presented is presumed to be genuine until it is proved
to be fraudulent. In a forgery trial, this presumption must be overcome but
this can only be done by convincing testimony and effective illustrations.29
In ruling that forgery was not duly proven, the Court of Appeals held:
[There] is ground to doubt the findings of the trial court sustaining the
alleged forgery in view of the conflicting conclusions made by
handwriting experts from the NBI and the PNP, both agencies of the
government.
xxx
This reasoning is pure sophistry. Any litigator worth his or her salt would
never allow an opponent’s expert witness to stand uncontradicted, thus the
spectacle of competing expert witnesses is not unusual. The trier of fact will
have to decide which version to believe, and explain why or why not such
version is more credible than the other. Reliance therefore cannot be placed
merely on the fact that there are colliding opinions of two experts, both
clothed with the presumption of official duty, in order to draw a conclusion,
especially one which is extremely crucial. Doing so is tantamount to a
jurisprudential cop-out.
On the other hand, the RTC did adjudge the testimony of the NBI expert as
more credible than that of the PNP, and explained its reason behind the
conclusion:
During the testimony of PNP expert Rosario Perez, the RTC bluntly noted
that "apparently, there [are] differences on that questioned signature and
the standard signatures."31 This Court, in examining the signatures, makes
a similar finding. The PNP expert excused the noted "differences" by
asserting that they were mere "variations," which are normal deviations
found in writing.32 Yet the RTC, which had the opportunity to examine the
relevant documents and to personally observe the expert witness, clearly
disbelieved the PNP expert. The Court similarly finds the testimony of the
PNP expert as unconvincing. During the trial, she was confronted several
times with apparent differences between strokes in the questioned signature
and the genuine samples. Each time, she would just blandly assert that
these differences were just "variations,"33 as if the mere conjuration of the
word would sufficiently disquiet whatever doubts about the deviations. Such
conclusion, standing alone, would be of little or no value unless supported
by sufficiently cogent reasons which might amount almost to a
demonstration.34
The most telling difference between the questioned and genuine signatures
examined by the PNP is in the final upward stroke in the signature, or "the
point to the short stroke of the terminal in the capital letter ‘L,’" as referred to
by the PNP examiner who had marked it in her comparison chart as "point
no. 6." To the plain eye, such upward final stroke consists of a vertical line
which forms a ninety degree (90º) angle with the previous stroke. Of the
twenty one (21) other genuine samples examined by the PNP, at least nine
(9) ended with an upward stroke.35 However, unlike the questioned
signature, the upward strokes of eight (8) of these signatures are looped,
while the upward stroke of the seventh36 forms a severe forty-five degree
(45º) with the previous stroke. The difference is glaring, and indeed, the
PNP examiner was confronted with the inconsistency in point no. 6.
A: Yes, sir.
Q: Now, can you look at all these standard signature (sic) were (sic)
point 6 is repeated or the last stroke "s" is pointing directly upwards?
Again, the PNP examiner downplayed the uniqueness of the final stroke in
the questioned signature as a mere variation,38 the same excuse she
proffered for the other marked differences noted by the Court and the
counsel for petitioner.39
There is no reason to doubt why the RTC gave credence to the testimony of
the NBI examiner, and not the PNP expert’s. The NBI expert, Rhoda Flores,
clearly qualifies as an expert witness. A document examiner for fifteen
years, she had been promoted to the rank of Senior Document Examiner
with the NBI, and had held that rank for twelve years prior to her testimony.
She had placed among the top five examinees in the Competitive Seminar
in Question Document Examination, conducted by the NBI Academy, which
qualified her as a document examiner.40 She had trained with the Royal
Hongkong Police Laboratory and is a member of the International
Association for Identification.41 As of the time she testified, she had
examined more than fifty to fifty-five thousand questioned documents, on an
average of fifteen to twenty documents a day.42 In comparison, PNP
document examiner Perez admitted to having examined only around five
hundred documents as of her testimony.43
The RTC was sufficiently convinced by the NBI examiner’s testimony, and
explained her reasons in its Decisions. While the Court of Appeals
disagreed and upheld the findings of the PNP, it failed to convincingly
demonstrate why such findings were more credible than those of the NBI
expert. As a throwaway, the assailed Decision noted that the PNP, not the
NBI, had the opportunity to examine the specimen signature card signed by
Jong, which was relied upon by the employees of FEBTC in authenticating
Jong’s signature. The distinction is irrelevant in establishing forgery. Forgery
can be established comparing the contested signatures as against those of
any sample signature duly established as that of the persons whose
signature was forged.
FEBTC lays undue emphasis on the fact that the PNP examiner did
compare the questioned signature against the bank signature cards. The
crucial fact in question is whether or not the check was forged, not whether
the bank could have detected the forgery. The latter issue becomes relevant
only if there is need to weigh the comparative negligence between the bank
and the party whose signature was forged.
At the same time, the Court of Appeals failed to assess the effect of Jong’s
testimony that the signature on the check was not his.47 The assertion may
seem self-serving at first blush, yet it cannot be ignored that Jong was in the
best position to know whether or not the signature on the check was his.
While his claim should not be taken at face value, any averments he would
have on the matter, if adjudged as truthful, deserve primacy in
consideration. Jong’s testimony is supported by the findings of the NBI
examiner. They are also backed by factual circumstances that support the
conclusion that the assailed check was indeed forged. Judicial notice can be
taken that is highly unusual in practice for a business establishment to draw
a check for close to a million pesos and make it payable to cash or bearer,
and not to order. Jong immediately reported the forgery upon its discovery.
He filed the appropriate criminal charges against Sempio, the putative
forger.48
In the case at bar, the forgery appears to have been made possible
through the acts of one Jose Sempio III, an assistant accountant
employed by the plaintiff Samsung [Construction] Co. Philippines, Inc.
who supposedly stole the blank check and who presumably is
responsible for its encashment through a forged signature of Jong Kyu
Lee. Sempio was assistant to the Korean accountant who was in
possession of the blank checks and who through negligence, enabled
Sempio to have access to the same. Had the Korean accountant been
more careful and prudent in keeping the blank checks Sempio would
not have had the chance to steal a page thereof and to effect the
forgery. Besides, Sempio was an employee who appears to have had
dealings with the defendant Bank in behalf of the plaintiff corporation
and on the date the check was encashed, he was there to certify that it
was a genuine check issued to purchase equipment for the company.51
The bare fact that the forgery was committed by an employee of the party
whose signature was forged cannot necessarily imply that such party’s
negligence was the cause for the forgery. Employers do not possess the
preternatural gift of cognition as to the evil that may lurk within the hearts
and minds of their employees. The Court’s pronouncement in PCI Bank v.
Court of Appeals53 applies in this case, to wit:
Admittedly, the record does not clearly establish what measures Samsung
Construction employed to safeguard its blank checks. Jong did testify that
his accountant, Kyu, kept the checks inside a "safety box,"55 and no contrary
version was presented by FEBTC. However, such testimony cannot prove
that the checks were indeed kept in a safety box, as Jong’s testimony on
that point is hearsay, since Kyu, and not Jong, would have the personal
knowledge as to how the checks were kept.
Still, in the absence of evidence to the contrary, we can conclude that there
was no negligence on Samsung Construction’s part. The presumption
remains that every person takes ordinary care of his concerns,56 and that
the ordinary course of business has been followed.57 Negligence is not
presumed, but must be proven by him who alleges it.58 While the complaint
was lodged at the instance of Samsung Construction, the matter it had to
prove was the claim it had alleged - whether the check was forged. It cannot
be required as well to prove that it was not negligent, because the legal
presumption remains that ordinary care was employed.
Thus, it was incumbent upon FEBTC, in defense, to prove the negative fact
that Samsung Construction was negligent. While the payee, as in this case,
may not have the personal knowledge as to the standard procedures
observed by the drawer, it well has the means of disputing the presumption
of regularity. Proving a negative fact may be "a difficult office,"59 but
necessarily so, as it seeks to overcome a presumption in law. FEBTC was
unable to dispute the presumption of ordinary care exercised by Samsung
Construction, hence we cannot agree with the Court of Appeals’ finding of
negligence.
The assailed Decision replicated the extensive efforts which FEBTC
devoted to establish that there was no negligence on the part of the bank in
its acceptance and payment of the forged check. However, the degree of
diligence exercised by the bank would be irrelevant if the drawer is not
precluded from setting up the defense of forgery under Section 23 by his
own negligence. The rule of equity enunciated in PNB v. National City Bank
of New York, 60 as relied upon by the Court of Appeals, deserves careful
examination.
Quite palpably, the general rule remains that the drawee who has paid upon
the forged signature bears the loss. The exception to this rule arises only
when negligence can be traced on the part of the drawer whose signature
was forged, and the need arises to weigh the comparative negligence
between the drawer and the drawee to determine who should bear the
burden of loss. The Court finds no basis to conclude that Samsung
Construction was negligent in the safekeeping of its checks. For one, the
settled rule is that the mere fact that the depositor leaves his check book
lying around does not constitute such negligence as will free the bank from
liability to him, where a clerk of the depositor or other persons, taking
advantage of the opportunity, abstract some of the check blanks, forges the
depositor’s signature and collect on the checks from the bank.62 And for
another, in point of fact Samsung Construction was not negligent at all since
it reported the forgery almost immediately upon discovery.63
It is also worth noting that the forged signatures in PNB v. National City
Bank of New York were not of the drawer, but of indorsers. The same
circumstance attends PNB v. Court of Appeals,64 which was also cited by
the Court of Appeals. It is accepted that a forged signature of the drawer
differs in treatment than a forged signature of the indorser.
The justification for the distinction between forgery of the signature of
the drawer and forgery of an indorsement is that the drawee is in a
position to verify the drawer’s signature by comparison with one in his
hands, but has ordinarily no opportunity to verify an indorsement.65
The general rule imputing liability on the drawee who paid out on the forgery
holds in this case.
Since FEBTC puts into issue the degree of care it exercised before paying
out on the forged check, we might as well comment on the bank’s
performance of its duty. It might be so that the bank complied with its own
internal rules prior to paying out on the questionable check. Yet, there are
several troubling circumstances that lead us to believe that the bank itself
was remiss in its duty.
The fact that the check was made out in the amount of nearly one million
pesos is unusual enough to require a higher degree of caution on the part of
the bank. Indeed, FEBTC confirms this through its own internal procedures.
Checks below twenty-five thousand pesos require only the approval of the
teller; those between twenty-five thousand to one hundred thousand pesos
necessitate the approval of one bank officer; and should the amount exceed
one hundred thousand pesos, the concurrence of two bank officers is
required.67
In this case, not only did the amount in the check nearly total one million
pesos, it was also payable to cash. That latter circumstance should have
aroused the suspicion of the bank, as it is not ordinary business practice for
a check for such large amount to be made payable to cash or to bearer,
instead of to the order of a specified person.68 Moreover, the check was
presented for payment by one Roberto Gonzaga, who was not designated
as the payee of the check, and who did not carry with him any written proof
that he was authorized by Samsung Construction to encash the check.
Gonzaga, a stranger to FEBTC, was not even an employee of Samsung
Construction.69 These circumstances are already suspicious if taken
independently, much more so if they are evaluated in concurrence. Given
the shadiness attending Gonzaga’s presentment of the check, it was not
sufficient for FEBTC to have merely complied with its internal procedures,
but mandatory that all earnest efforts be undertaken to ensure the validity of
the check, and of the authority of Gonzaga to collect payment therefor.
FEBTC alleges that Sempio was well-known to the bank officers, as he had
regularly transacted with the bank in behalf of Samsung Construction. It was
even claimed that everytime FEBTC would contact Jong about problems
with his account, Jong would hand the phone over to Sempio.72 However,
the only proof of such allegations is the testimony of Gemma Velez, who
also testified that she did not know Sempio personally,73 and had met
Sempio for the first time only on the day the check was encashed.74 In fact,
Velez had to inquire with the other officers of the bank as to whether
Sempio was actually known to the employees of the bank.75 Obviously,
Velez had no personal knowledge as to the past relationship between
FEBTC and Sempio, and any averments of her to that effect should be
deemed hearsay evidence. Interestingly, FEBTC did not present as a
witness any other employee of their Bel-Air branch, including those who
supposedly had transacted with Sempio before.
Even assuming that FEBTC had a standing habit of dealing with Sempio,
acting in behalf of Samsung Construction, the irregular circumstances
attending the presentment of the forged check should have put the bank on
the highest degree of alert. The Court recently emphasized that the highest
degree of care and diligence is required of banks.
Still, even if the bank performed with utmost diligence, the drawer whose
signature was forged may still recover from the bank as long as he or she is
not precluded from setting up the defense of forgery. After all, Section 23 of
the Negotiable Instruments Law plainly states that no right to enforce the
payment of a check can arise out of a forged signature. Since the drawer,
Samsung Construction, is not precluded by negligence from setting up the
forgery, the general rule should apply. Consequently, if a bank pays a
forged check, it must be considered as paying out of its funds and cannot
charge the amount so paid to the account of the depositor.77 A bank is
liable, irrespective of its good faith, in paying a forged check.78
SO ORDERED.
Heirs of Eduardo Manlapat vs. Court of Appeals, 459 SCRA 412
(2005)
SECOND DIVISION
DECISION
Tinga, J.:
The controversy involves Lot No. 2204, a parcel of land with an area of
1,058 square meters, located at Panghulo, Obando, Bulacan. The property
had been originally in the possession of Jose Alvarez, Eduardo’s
grandfather, until his demise in 1916. It remained unregistered until 8
October 1976 when OCT No. P-153(M) was issued in the name of Eduardo
pursuant to a free patent issued in Eduardo’s name3 that was entered in the
Registry of Deeds of Meycauayan, Bulacan.4 The subject lot is adjacent to a
fishpond owned by one
Ricardo Cruz (Ricardo), predecessor-in-interest of respondents Consuelo
Cruz and Rosalina Cruz-Bautista (Cruzes).5
On 19 December 1954, before the subject lot was titled, Eduardo sold a
portion thereof with an area of 553 square meters to Ricardo. The sale is
evidenced by a deed of sale entitled "Kasulatan ng Bilihang Tuluyan ng
Lupang Walang Titulo (Kasulatan)"6 which was signed by Eduardo himself
as vendor and his wife Engracia Aniceto with a certain Santiago Enriquez
signing as witness. The deed was notarized by Notary Public Manolo Cruz.7
On 4 April 1963, the Kasulatan was registered with the Register of Deeds of
Bulacan.8
Having failed to physically obtain the title from petitioners, in July 1989, the
Cruzes instead went to RBSP which had custody of the owner’s duplicate
certificate of the OCT, earlier surrendered as a consequence of the
mortgage. Transacting with RBSP’s manager, Jose Salazar (Salazar), the
Cruzes sought to borrow the owner’s duplicate certificate for the purpose of
photocopying the same and thereafter showing a copy thereof to the
Register of Deeds. Salazar allowed the Cruzes to bring the owner’s
duplicate certificate outside the bank premises when the latter showed the
Kasulatan.15 The Cruzes returned the owner’s duplicate certificate on the
same day after having copied the same. They then brought the copy of the
OCT to Register of Deeds Jose Flores (Flores) of Meycauayan and showed
the same to him to secure his legal opinion as to how the Cruzes could
legally protect their interest in the property and register the same.16 Flores
suggested the preparation of a subdivision plan to be able to segregate the
area purchased by Ricardo from Eduardo and have the same covered by a
separate title.17
After securing the approval of the subdivision plan, the Cruzes went back to
RBSP and again asked for the owner’s duplicate certificate from Salazar.
The Cruzes informed him that the presentation of the owner’s duplicate
certificate was necessary, per advise of the Register of Deeds, for the
cancellation of the OCT and the issuance in lieu thereof of two separate
titles in the names of Ricardo and Eduardo in accordance with the approved
subdivision plan.19 Before giving the owner’s duplicate certificate, Salazar
required the Cruzes to see Atty. Renato Santiago (Atty. Santiago), legal
counsel of RBSP, to secure from the latter a clearance to borrow the title.
Atty. Santiago would give the clearance on the condition that only Cruzes
put up a substitute collateral, which they did.20 As a result, the Cruzes got
hold again of the owner’s duplicate certificate.
After the Cruzes presented the owner’s duplicate certificate, along with the
deeds of sale and the subdivision plan, the Register of Deeds cancelled the
OCT and issued in lieu thereof TCT No. T-9326-P(M) covering 603 square
meters of Lot No. 2204 in the name of Ricardo and TCT No. T-9327-P(M)
covering the remaining 455 square meters in the name of Eduardo.21
On 9 August 1989, the Cruzes went back to the bank and surrendered to
Salazar TCT No. 9327-P(M) in the name of Eduardo and retrieved the title
they had earlier given as substitute collateral. After securing the new
separate titles, the Cruzes furnished petitioners with a copy of TCT No.
9327-P(M) through the barangay captain and paid the real property tax for
1989.22
The Cruzes also sent a formal letter to Guillermo Reyes, Jr., Director,
Supervision Sector, Department III of the Central Bank of the Philippines,
inquiring whether they committed any violation of existing bank laws under
the circumstances. A certain Zosimo Topacio, Jr. of the Supervision Sector
sent a reply letter advising the Cruzes, since the matter is between them
and the bank, to get in touch with the bank for the final settlement of the
case.23
As a result, three (3) cases were lodged, later consolidated, with the trial
court, all involving the issuance of the TCTs, to wit:
(1) Civil Case No. 650-M-89, for reconveyance with damages filed by
the heirs of Eduardo Manlapat against Consuelo Cruz, Rosalina Cruz-
Bautista, Rural Bank of San Pascual, Jose Salazar and Jose Flores, in
his capacity as Deputy Registrar, Meycauayan Branch of the Registry
of Deeds of Bulacan;
(2) Civil Case No. 141-M-90 for damages filed by Jose Salazar against
Consuelo Cruz, et. [sic] al.; and
(3) Civil Case No. 644-M-89, for declaration of nullity of title with
damages filed by Rural Bank of San Pascual, Inc. against the spouses
Ricardo Cruz and Consuelo Cruz, et al.25
After trial of the consolidated cases, the RTC of Malolos rendered a decision
in favor of the heirs of Eduardo, the dispositive portion of which reads:
SO ORDERED."26
The trial court found that petitioners were entitled to the reliefs of
reconveyance and damages. On this matter, it ruled that petitioners were
bona fide mortgagors of an unclouded title bearing no annotation of any lien
and/or encumbrance. This fact, according to the trial court, was confirmed
by the bank when it accepted the mortgage unconditionally on 25 November
1981. It found that petitioners were complacent and unperturbed, believing
that the title to their property, while serving as security for a loan, was safely
vaulted in the impermeable confines of RBSP. To their surprise and
prejudice, said title was subdivided into two portions, leaving them a portion
of 455 square meters from the original total area of 1,058 square meters, all
because of the fraudulent and negligent acts of respondents and RBSP.
The trial court ratiocinated that even assuming that a portion of the subject
lot was sold by Eduardo to Ricardo, petitioners were still not privy to the
transaction between the bank and the Cruzes which eventually led to the
subdivision of the OCT into TCTs No. T-9326-P(M) and No. T-9327-P(M),
clearly to the damage and prejudice of petitioners.27
Concerning the claims for damages, the trial court found the same to be
bereft of merit. It ruled that although the act of the Cruzes could be deemed
fraudulent, still it would not constitute intrinsic fraud. Salazar, nonetheless,
was clearly guilty of negligence in letting the Cruzes borrow the owner’s
duplicate certificate of the OCT. Neither the bank nor its manager had
business entrusting to strangers titles mortgaged to it by other persons for
whatever reason. It was a clear violation of the mortgage and banking laws,
the trial court concluded.
The trial court also ruled that although Salazar was personally responsible
for allowing the title to be borrowed, the bank could not escape liability for it
was guilty of contributory negligence. The evidence showed that RBSP’s
legal counsel was sought for advice regarding respondents’ request. This
could only mean that RBSP through its lawyer if not through its manager
had known in advance of the Cruzes’ intention and still it did nothing to
prevent the eventuality. Salazar was not even summarily dismissed by the
bank if he was indeed the sole person to blame. Hence, the bank’s claim for
damages must necessarily fail.28
The trial court granted the prayer for the annulment of the TCTs as a
necessary consequence of its declaration that reconveyance was in order.
As to Flores, his work being ministerial as Deputy Register of the Bulacan
Registry of Deeds, the trial court absolved him of any liability with a stern
warning that he should deal with his future transactions more carefully and
in the strictest sense as a responsible government official.29
Aggrieved by the decision of the trial court, RBSP, Salazar and the Cruzes
appealed to the Court of Appeals. The appellate court, however, reversed
the decision of the RTC. The decretal text of the decision reads:
SO ORDERED.30
The appellate court ruled that petitioners were not bona fide mortgagors
since as early as 1954 or before the 1981 mortgage, Eduardo already sold
to Ricardo a portion of the subject lot with an area of 553 square meters.
This fact, the Court of Appeals noted, is even supported by a document of
sale signed by Eduardo Jr. and Engracia Aniceto, the surviving spouse of
Eduardo, and registered with the Register of Deeds of Bulacan. The
appellate court also found that on 18 March 1981, for the second time,
Eduardo sold to Ricardo a separate area containing 50 square meters, as a
road right-of-way.31 Clearly, the OCT was issued only after the first sale. It
also noted that the title was given to the Cruzes by RBSP voluntarily, with
knowledge even of the bank’s counsel.32 Hence, the imposition of damages
cannot be justified, the Cruzes themselves being the owners of the property.
Certainly, Eduardo misled the bank into accepting the entire area as a
collateral since the 603-square meter portion did not anymore belong to
him. The appellate court, however, concluded that there was no conspiracy
between the bank and Salazar.33
The kernel of the controversy boils down to the issue of whether the
cancellation of the OCT in the name of the petitioners’ predecessor-in-
interest and its splitting into two separate titles, one for the petitioners and
the other for the Cruzes, may be accorded legal recognition given the
peculiar factual backdrop of the case. We rule in the affirmative.
Consonant with law and justice, the ultimate denouement of the property
dispute lies in the determination of the respective bases of the warring
claims. Here, as in other legal disputes, what is written generally deserves
credence.
A careful perusal of the evidence on record reveals that the Cruzes have
sufficiently proven their claim of ownership over the portion of Lot No. 2204
with an area of 553 square meters. The duly notarized instrument of
conveyance was executed in 1954 to which no less than Eduardo was a
signatory. The execution of the deed of sale was rendered beyond doubt by
Eduardo’s admission in his Sinumpaang Salaysay dated 24 April 1963.35
These documents make the affirmance of the right of the Cruzes
ineluctable. The apparent irregularity, however, in the obtention of the
owner’s duplicate certificate from the bank, later to be presented to the
Register of Deeds to secure the issuance of two new TCTs in place of the
OCT, is another matter.
Petitioners argue that the 1954 deed of sale was not annotated on the OCT
which was issued in 1976 in favor of Eduardo; thus, the Cruzes’ claim of
ownership based on the sale would not hold water. The Court is not
persuaded.
The requirements of a valid mortgage are clearly laid down in Article 2085 of
the New Civil Code, viz:
ART. 2085. The following requisites are essential to the contracts of pledge
and mortgage:
(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. (emphasis supplied)
It is a glaring fact that OCT No. P-153(M) covering the property mortgaged
was in the name of Eduardo, without any annotation of any prior disposition
or encumbrance. However, the property was sufficiently shown to be not
entirely owned by Eduardo as evidenced by the Kasulatan. Readily
apparent upon perusal of the records is that the OCT was issued in 1976,
long after the Kasulatan was executed way back in 1954. Thus, a portion of
the property registered in Eduardo’s name arising from the grant of free
patent did not actually belong to him. The utilization of the Torrens system
to perpetrate fraud cannot be accorded judicial sanction.
Time and again, this Court has ruled that the principle of indefeasibility of a
Torrens title does not apply where fraud attended the issuance of the title,
as was conclusively established in this case. The Torrens title does not
furnish a shied for fraud.47 Registration does not vest title. It is not a mode of
acquiring ownership but is merely evidence of such title over a particular
property. It does not give the holder any better right than what he actually
has, especially if the registration was done in bad faith. The effect is that it is
as if no registration was made at all.48 In fact, this Court has ruled that a
decree of registration cut off or extinguished a right acquired by a person
when such right refers to a lien or encumbrance on the land¾not to the right
of ownership thereof¾which was not annotated on the certificate of title
issued thereon.49
The validity of the issuance of two TCTs, one for the portion sold to the
predecessor-in-interest of the Cruzes and the other for the portion retained
by petitioners, is readily apparent from Section 53 of the Presidential Decree
(P.D.) No. 1529 or the Property Registration Decree. It provides:
In all cases of registration procured by fraud, the owner may pursue all his
legal and equitable remedies against the parties to such fraud without
prejudice, however, to the rights of any innocent holder of the decree of
registration on the original petition or application, any subsequent
registration procured by the presentation of a forged duplicate certificate of
title, or a forged deed or instrument, shall be null and void. (emphasis
supplied)
Petitioners argue that the issuance of the TCTs violated the third paragraph
of Section 53 of P.D. No. 1529. The argument is baseless. It must be noted
that the provision speaks of forged duplicate certificate of title and forged
deed or instrument. Neither instance obtains in this case. What the Cruzes
presented before the Register of Deeds was the very genuine owner’s
duplicate certificate earlier deposited by Banaag, Eduardo’s attorney-in-fact,
with RBSP. Likewise, the instruments of conveyance are authentic, not
forged. Section 53 has never been clearer on the point that as long as the
owner’s duplicate certificate is presented to the Register of Deeds together
with the instrument of conveyance, such presentation serves as conclusive
authority to the Register of Deeds to issue a transfer certificate or make a
memorandum of registration in accordance with the instrument.
The records of the case show that despite the efforts made by the Cruzes in
persuading the heirs of Eduardo to allow them to secure a separate TCT on
the claimed portion, their ownership being amply evidenced by the
Kasulatan and Sinumpaang Salaysay where Eduardo himself
acknowledged the sales in favor of Ricardo, the heirs adamantly rejected
the notion of separate titling. This prompted the Cruzes to approach the
bank manager of RBSP for the purpose of protecting their property right.
They succeeded in persuading the latter to lend the owner’s duplicate
certificate. Despite the apparent irregularity in allowing the Cruzes to get
hold of the owner’s duplicate certificate, the bank officers consented to the
Cruzes’ plan to register the deeds of sale and secure two new separate
titles, without notifying the heirs of Eduardo about it.
Further, the law on the matter, specifically P.D. No. 1529, has no explicit
requirement as to the manner of acquiring the owner’s duplicate for
purposes of issuing a TCT. This led the Register of Deeds of Meycauayan
as well as the Central Bank officer, in rendering an opinion on the legal
feasibility of the process resorted to by the Cruzes. Section 53 of P.D. No.
1529 simply requires the production of the owner’s duplicate certificate,
whenever any voluntary instrument is presented for registration, and the
same shall be conclusive authority from the registered owner to the Register
of Deeds to enter a new certificate or to make a memorandum of
registration in accordance with such instrument, and the new certificate or
memorandum shall be binding upon the registered owner and upon all
persons claiming under him, in favor of every purchaser for value and in
good faith.
Quite interesting, however, is the contention of the heirs of Eduardo that the
surreptitious lending of the owner’s duplicate certificate constitutes fraud
within the ambit of the third paragraph of Section 53 which could nullify the
eventual issuance of the TCTs. Yet we cannot subscribe to their position.
Impelled by the inaction of the heirs of Eduardo as to their claim, the Cruzes
went to the bank where the property was mortgaged. Through its manager
and legal officer, they were assured of recovery of the claimed parcel of
land since they are the successors-in-interest of the real owner thereof.
Relying on the bank officers’ opinion as to the legality of the means sought
to be employed by them and the suggestion of the Central Bank officer that
the matter could be best settled between them and the bank, the Cruzes
pursued the titling of the claimed portion in the name of Ricardo. The
Register of Deeds eventually issued the disputed TCTs.
The Cruzes resorted to such means to protect their interest in the property
that rightfully belongs to them only because of the bank officers’
acquiescence thereto. The Cruzes could not have secured a separate TCT
in the name of Ricardo without the bank’s approval. Banks, their business
being impressed with public interest, are expected to exercise more care
and prudence than private individuals in their dealings, even those involving
registered lands.50 The highest degree of diligence is expected, and high
standards of integrity and performance are even required of it.51
Indeed, petitioners contend that the mortgagee cannot question the veracity
of the registered title of the mortgagor as noted in the owner’s duplicate
certificate, and, thus, he cannot deliver the certificate to such third persons
invoking an adverse, prior, and unregistered claim against the registered
title of the mortgagor. The strength of this argument is diluted by the
peculiar factual milieu of the case.
Banks, indeed, should exercise more care and prudence in dealing even
with registered lands, than private individuals, as their business is one
affected with public interest. Banks keep in trust money belonging to their
depositors, which they should guard against loss by not committing any act
of negligence that amounts to lack of good faith. Absent good faith, banks
would be denied the protective mantle of the land registration statute, Act
496, which extends only to purchasers for value and good faith, as well as
to mortgagees of the same character and description.53 Thus, this Court
clarified that the rule that persons dealing with registered lands can rely
solely on the certificate of title does not apply to banks.54
Of deep concern to this Court, however, is the fact that the bank lent the
owner’s duplicate of the OCT to the Cruzes when the latter presented the
instruments of conveyance as basis of their claim of ownership over a
portion of land covered by the title. Simple rationalization would dictate that
a mortgagee-bank has no right to deliver to any stranger any property
entrusted to it other than to those contractually and legally entitled to its
possession. Although we cannot dismiss the bank’s acknowledgment of the
Cruzes’ claim as legitimized by instruments of conveyance in their
possession, we nonetheless cannot sanction how the bank was inveigled to
do the bidding of virtual strangers. Undoubtedly, the bank’s cooperative
stance facilitated the issuance of the TCTs. To make matters worse, the
bank did not even notify the heirs of Eduardo. The conduct of the bank is as
dangerous as it is unthinkably negligent. However, the aspect does not
impair the right of the Cruzes to be recognized as legitimate owners of their
portion of the property.
The bank should not have allowed complete strangers to take possession of
the owner’s duplicate certificate even if the purpose is merely for
photocopying for a danger of losing the same is more than imminent. They
should be aware of the conclusive presumption in Section 53. Such act
constitutes manifest negligence on the part of the bank which would
necessarily hold it liable for damages under Article 1170 and other relevant
provisions of the Civil Code.56
One vital point. Apparently glossed over by the courts below and the parties
is an aspect which is essential, spread as it is all over the record and
intertwined with the crux of the controversy, relating as it does to the validity
of the dispositions of the subject property and the mortgage thereon.
Eduardo was issued a title in 1976 on the basis of his free patent
application. Such application implies the recognition of the public dominion
character of the land and, hence, the five (5)-year prohibition imposed by
the Public Land Act against alienation or encumbrance of the land covered
by a free patent or homestead58 should have been considered.
The deed of sale covering the fifty (50)-square meter right of way executed
by Eduardo on 18 March 1981 is obviously covered by the proscription, the
free patent having been issued on 8 October 1976. However, petitioners
may recover the portion sold since the prohibition was imposed in favor of
the free patent holder. In Philippine National Bank v. De los Reyes,59 this
Court ruled squarely on the point, thus:
While the law bars recovery in a case where the object of the contract is
contrary to law and one or both parties acted in bad faith, we cannot here
apply the doctrine of in pari delicto which admits of an exception, namely,
that when the contract is merely prohibited by law, not illegal per se, and the
prohibition is designed for the protection of the party seeking to recover, he
is entitled to the relief prayed for whenever public policy is enhanced
thereby. Under the Public Land Act, the prohibition to alienate is predicated
on the fundamental policy of the State to preserve and keep in the family of
the homesteader that portion of public land which the State has gratuitously
given to him, and recovery is allowed even where the land acquired under
the Public Land Act was sold and not merely encumbered, within the
prohibited period.60
The sale of the 553 square meter portion is a different story. It was executed
in 1954, twenty-two (22) years before the issuance of the patent in 1976.
Apparently, Eduardo disposed of the portion even before he thought of
applying for a free patent. Where the sale or transfer took place before the
filing of the free patent application, whether by the vendor or the vendee, the
prohibition should not be applied. In such situation, neither the prohibition
nor the rationale therefor which is to keep in the family of the patentee that
portion of the public land which the government has gratuitously given him,
by shielding him from the temptation to dispose of his landholding, could be
relevant. Precisely, he had disposed of his rights to the lot even before the
government could give the title to him.
The mortgage executed in favor of RBSP is also beyond the pale of the
prohibition, as it was forged in December 1981 a few months past the period
of prohibition.
SO ORDERED.
Philippine National Bank vs. Pike, 470 SCRA 328 (2005)
PHILIPPINE NATIONAL BANK, P e t i t i o n e r, vs.. NORMAN Y.
PIKE R e s p o n d e n t.
DE C I S I O N
CHICO-NAZARIO, J.:
This petition for review on certiorari under Rule 45 of the 1997 Rules of
Civil Procedure, as amended, seeks to reverse the Decision[1] dated 19
December 2002, and the Resolution[2] dated 02 April 2003, both of the
Court of Appeals, in CA-G.R. CV No. 59389, which affirmed with
modification the Decision[3] rendered by the Regional Trial Court (RTC),
Branch 07 of Manila, dated 10 January 1997, in Civil Case No. 94-68821 in
favor of herein respondent Norman Pike (Pike).
DATE AMOUNT
31 March 1993 $3,500.00
05 April 1993 4,000.00
TOTAL $7,500.00
The Manager
Philippine National Bank
Buendia Branch
Paseo de Roxas cor. Gil Puyat Street
Makati, Metro Manila
Sir:
The trial court, in its decision dated 10 January 1997, made the
following findings of fact:
...
I.
II.
III.
WHETHER OR NOT MORAL AND EXEMPLARY
DAMAGES CAN BE AWARDED AGAINST A PARTY IN
GOOD FAITH.
A: Yes, sir.
A: Received.
A: Yes, sir.
A: Yes, sir.
A: Yes, sir.
A: Yes, sir.
A: Yes, sir.
A: Yes, sir.
A: Yes, sir.
Q: That was the first time. What I mean is, that he was
transacting with the PNB, Buendia Branch long
before you met him?
A: Maybe.
Q: Yes or no?
A: No, sir.
A: Yes, sir.
A: Yes, sir.
Q: His appearance?
A: Yes, sir.
. . .
Q: Why did you not require then that Mr. Pike instead
sign the authorization portion and that the name of
Joy Manuel Dabasol appear thereon with his
signature?
. . .
. . .
. . .
A: Yes, on April 5.
Q: Did you require him to produce any Identification
Card, yes or no?
A: No.
Q: And how did you know then that it was Joy Dabasol
who was making the withdrawal on April 5?
. . .
A: Yes.
. . .
Though passed long after the unauthorized withdrawals in this case, the
aforequoted provision is a statutory affirmation of Supreme Court decisions
already in esse at the time of such withdrawals. We elucidated in the 1990
case of Simex International, Inc. v. Court of Appeals,[27] 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.”[28]
SO ORDERED.
Cadiz vs. Court of Appeals, 474 SCRA 232 (2005)
SECOND DIVISION
GLORIA IV,
Petitioners, Present:
PUNO, J.,
- versus- Chairman,
AUSTRIA-MARTINEZ,
CALLEJO, SR.
COURT OF APPEALS, and TINGA, and
PHILIPPINE COMMERCIAL CHICO-NAZARIO, JJ.
INTERNATIONAL BANK
(Now EQUITABLE PCIBANK),
Respondents. Promulgated:
x -------------------------------------------------------------x
DECISION
TINGA, J.:
Employees who abuse their position for fiduciary gain cannot be shielded
from the consequences of their wrongdoing even on account of the bank's
operational laxities that may have provided the gateway for their
shenanigans. Their misconduct provides the bank with cause for the
termination of their employment.
Petitioners lodged a complaint before the labor arbiter for illegal dismissal
on 18 September 1989. Labor Arbiter Ernesto S. Dinopol adjudged that
petitioners were illegally dismissed and ordered their reinstatement and
payment of backwages. This conclusion was based on the notices of
dismissal, which, to the mind of the labor arbiter, was couched in general
terms and without explaining how the rules were violated. The labor arbiter
also attributed petitioners' acts in fraudulently coding several deposit slips
as '1511 (immediately withdrawable) as mere procedural inadequacies, with
the fault attributable to respondent bank for its laxity.[5]
The labor arbiter's Decision was reversed on appeal before the Second
Division of the National Labor Relations Commission (NLRC), which, in a
Decision[6] dated 30 June 1994, ordered the dismissal of the petition. In
doing so, the NLRC departed from the labor arbiter's finding of facts and
concluded that petitioners were dismissed for just cause. Dismissing
petitioners' appeal, the Court of Appeals Ninth Division similarly determined
on the basis of substantial evidence that petitioners were validly terminated
in its own Decision[7] dated 13 July 2001.
After the appellate court denied petitioner's motion for reconsideration, the
matter was brought before this Court in a Petition for Review on
Certiorari.[8]
The issues to be resolved are whether the Court of Appeals erred in not
sustaining the findings of the labor arbiter and upholding those of the NLRC
and whether the Court of Appeals erred in dismissing the petition by
ignoring petitioners' claims that they were dismissed without just cause and
due process.[9]
The labor arbiter also evaluated the bank's claim that Cadiz had reimbursed
the amount of $600 to the aggrieved depositor Alqueza while making it
appear that it was Alfiscar who had actually made the refund. In disbelieving
this claim, the Labor Arbiter concluded that 'it is unthinkable for a lowly bank
employee to impose his will upon his high and mighty employer.[14]
This pronouncement is revelatory of absurd logic. The notion that a lowly
employee will never countermand the will or interests of the employer is
sufficiently rebutted by any labor law casebook, any omnibus of our labor
jurisprudence, and the evolution of the human experience that disquiets
persons from unhesitatingly acceding to the presumptive good faith of
others. It is an accepted premise of life and jurisprudence that persons are
capable, upon impure motivations, of taking advantage of others, whether
their social lessers, equals, or betters. The necessity of punishment arises
from this flaw of human nature. This philosophic stance of the labor arbiter
actually obviates the nature of sin.
The labor arbiter ruled that the notices of dismissal served on petitioners
was insufficient as it failed to specifically delineate how petitioners had
violated the internal rules of the bank. However, the notices do cite the rules
which petitioners had violated and refer to the fact that such violations
occurred relating to S/A No. 1083-4 account of Sonia Alfiscar and/or
Rosalinda Alqueza.
In the instant case, records show that respondent bank complied with the
two-notice rule prescribed in Article 277(b) of the Labor Code.[16]
Petitioners were given all avenues to present their side and disprove the
allegations of respondent bank. An informal meeting was held between the
branch manager of MOB, the three petitioners and Mr. Gener, the Vice-
President of the PCIB Employees Union. As per report, petitioners admitted
having used Alfiscar's account to divert funds intended for other accounts. A
special audit investigation was conducted to determine the extent of the
fraudulent transactions. Based on the results of the investigation,
respondent bank sent show-cause memoranda to petitioners, asking them
to explain their lapses, under pain of disciplinary action. The memoranda,
which constitute the first notice, specified the various questionable acts
committed by petitioners.
All told, we hold that the factual appreciation and conclusions rendered by
the labor arbiter are not worthy of adoption by this Court. In contrast, from
the factual determinations made by the NLRC and the Court of Appeals, we
accept the following facts as proven:
3. The various deposit slips, covering the said checks, did not
bear the machine validation of any of the tellers-in-charge.
Still, petitioners insist that respondent bank never lost trust and confidence
in them as it did not place them under preventive suspension, and more
tellingly, it even promoted them after the labor arbiter had ordered their
reinstatement. Preventive suspension, which is never obligatory on the part
of the employer, may be resorted to only when the continued employment of
the employee poses 'a serious and imminent threat to the life or property of
the employer or of his co-workers.[20] The bank points out that the Alfiscar
account, through which the anomalous transactions were coursed, was no
longer active at the time the fraud was discovered.[21] Clearly, the bank had
reason to conclude that the imminence of the threat posed by the
employees was not as vital as it would have been had the dubious account
still been open.
All given, we affirm the conclusion that petitioners were dismissed for just
cause. Loss of trust and confidence is one of the just causes for termination
by employer under Article 282 of the Labor Code. The breach of trust must
be willful, meaning it must be done intentionally, knowingly, and purposely,
without justifiable excuse.[25] Ideally, loss of confidence applies only to
cases involving employees occupying positions of trust and confidence or to
those situations where the employee is routinely charged with the care and
custody of the employer's money or property.[26] Utmost trust and
confidence are deemed to have been reposed on petitioners by virtue of the
nature of their work.
The facts as established, as well as the need to assert the public interest in
safeguarding against bank fraud, militate against the present petition.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision of
the Court of Appeals AFFIRMED. Costs against petitioners.
SO ORDERED.
Far East Bank and Trust Company vs. Pacilan, Jr., 465 SCRA
372 (2005)
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
- versus -TINGA, and
CHICO-NAZARIO, JJ.
Promulgated:
THEMISTOCLES PACILAN, JR.,
Respondent. July 29, 2005
x--------------------------------------------------x
DECISION
Before the Court is the petition for review on certiorari filed by Far East Bank
and Trust Company (now Bank of the Philippines Islands) seeking the
reversal of the Decision[1] dated August 30, 2002 of the Court of Appeals
(CA) in CA-G.R. CV No. 36627 which ordered it, together with its branch
accountant, Roger Villadelgado, to pay respondent Themistocles Pacilan,
Jr.[2] the total sum of P100,000.00 as moral and exemplary damages. The
assailed decision affirmed with modification that of the Regional Trial Court
(RTC) of Negros Occidental, Bacolod City, Branch 54, in Civil Case No.
4908. Likewise sought to be reversed and set aside is the Resolution dated
January 17, 2003 of the appellate court, denying petitioner bank's motion for
reconsideration.
Upon its presentment on the said date, Check No. 2434886 was dishonored
by petitioner bank. The next day, or on April 5, 1988, the respondent
deposited to his current account the amount of P800.00. The said amount
was accepted by petitioner bank; hence, increasing the balance of the
respondent's deposit to P1,051.43.
Subsequently, when the respondent verified with petitioner bank about the
dishonor of Check No. 2434866, he discovered that his current account was
closed on the ground that it was 'improperly handled. The records of
petitioner bank disclosed that between the period of March 30, 1988 and
April 5, 1988, the respondent issued four checks, to wit: Check No. 2480416
for P6,000.00; Check No. 2480419 for P50.00; Check No. 2434880 for
P680.00 and; Check No. 2434886 for P680.00, or a total amount of
P7,410.00. At the time, however, the respondent's current account with
petitioner bank only had a deposit of P6,981.43. Thus, the total amount of
the checks presented for payment on April 4, 1988 exceeded the balance of
the respondent's deposit in his account. For this reason, petitioner bank,
through its branch accountant, Villadelgado, closed the respondent's current
account effective the evening of April 4, 1988 as it then had an overdraft of
P428.57. As a consequence of the overdraft, Check No. 2434886 was
dishonored.
On April 18, 1988, the respondent wrote to petitioner bank complaining that
the closure of his account was unjustified. When he did not receive a reply
from petitioner bank, the respondent filed with the RTC of Negros
Occidental, Bacolod City, Branch 54, a complaint for damages against
petitioner bank and Villadelgado. The case was docketed as Civil Case No.
4908. The respondent, as complainant therein, alleged that the closure of
his current account by petitioner bank was unjustified because on the first
banking hour of April 5, 1988, he already deposited an amount sufficient to
fund his checks. The respondent pointed out that Check No. 2434886, in
particular, was delivered to petitioner bank at the close of banking hours on
April 4, 1988 and, following normal banking procedure, it (petitioner bank)
had until the last clearing hour of the following day, or on April 5, 1988, to
honor the check or return it, if not funded. In disregard of this banking
procedure and practice, however, petitioner bank hastily closed the
respondent's current account and dishonored his Check No. 2434886.
The respondent further alleged that prior to the closure of his current
account, he had issued several other postdated checks. The petitioner
bank's act of closing his current account allegedly preempted the deposits
that he intended to make to fund those checks. Further, the petitioner bank's
act exposed him to criminal prosecution for violation of Batas Pambansa
Blg. 22.
According to the respondent, the indecent haste that attended the closure of
his account was patently malicious and intended to embarrass him. He
claimed that he is a Cashier of Prudential Bank and Trust Company, whose
branch office is located just across that of petitioner bank, and a prominent
and respected leader both in the civic and banking communities. The
alleged malicious acts of petitioner bank besmirched the respondent's
reputation and caused him 'social humiliation, wounded feelings,
insurmountable worries and sleepless nights' entitling him to an award of
damages.
They showed that the respondent had improperly and irregularly handled his
current account. For example, in 1986, the respondent's account was
overdrawn 156 times, in 1987, 117 times and in 1988, 26 times. In all these
instances, the account was overdrawn due to the issuance of checks
against insufficient funds. The respondent had also signed several checks
with a different signature from the specimen on file for dubious reasons.
When the respondent made the deposit on April 5, 1988, it was obviously to
cover for issuances made the previous day against an insufficiently funded
account. When his Check No. 2434886 was presented for payment on April
4, 1988, he had already incurred an overdraft; hence, petitioner bank
rightfully dishonored the same for insufficiency of funds.
After due proceedings, the court a quo rendered judgment in favor of the
respondent as it ordered the petitioner bank and Villadelgado, jointly and
severally, to pay the respondent the amounts of P100,000.00 as moral
damages and P50,000.00 as exemplary damages and costs of suit. In so
ruling, the court a quo also cited petitioner bank's rules and regulations
which state that 'a charge of P10.00 shall be levied against the depositor for
any check that is taken up as a returned item due to insufficiency of funds'
on the date of receipt from the clearing office even if said check is honored
and/or covered by sufficient deposit the following banking day. The same
rules and regulations also provide that 'a check returned for insufficiency of
funds for any reason of similar import may be subsequently recleared for
one more time only, subject to the same charges.
According to the court a quo, following these rules and regulations, the
respondent, as depositor, had the right to put up sufficient funds for a check
that was taken as a returned item for insufficient funds the day following the
receipt of said check from the clearing office. In fact, the said check could
still be recleared for one more time. In previous instances, petitioner bank
notified the respondent when he incurred an overdraft and he would then
deposit sufficient funds the following day to cover the overdraft. Petitioner
bank thus acted unjustifiably when it immediately closed the respondent's
account on April 4, 1988 and deprived him of the opportunity to reclear his
check or deposit sufficient funds therefor the following day.
SO ORDERED.[4]
On appeal, the CA rendered the Decision dated August 30, 2002, affirming
with modification the decision of the court a quo.
The appellate court substantially affirmed the factual findings of the court a
quo as it held that petitioner bank unjustifiably closed the respondents'
account notwithstanding that its' own rules' and regulations
allow that a check returned for insufficiency of funds or any reason of similar
import, may be subsequently recleared for one more time, subject to
standard charges. Like the court a quo, the appellate court observed that in
several instances in previous years, petitioner bank would inform the
respondent when he incurred an overdraft and allowed him to make a timely
deposit to fund the checks that were initially dishonored for insufficiency of
funds. However, on April 4, 1988, petitioner bank immediately closed the
respondent's account without even notifying him that he had incurred an
overdraft. Even when they had already closed his account on April 4, 1988,
petitioner bank still accepted the deposit that the respondent made on April
5, 1988, supposedly to cover his checks.
Echoing the reasoning of the court a quo, the CA declared that even as it
may be conceded that petitioner bank had reserved the right to close an
account for repeated overdrafts by the respondent, the exercise of that right
must never be despotic or arbitrary. That petitioner bank chose to close the
account outright and return the check, even after accepting a deposit
sufficient to cover the said check, is contrary to its duty to handle the
respondent's account with utmost fidelity. The exercise of the right is not
absolute and good faith, at least, is required. The manner by which
petitioner bank closed the account of the respondent runs afoul of Article 19
of the Civil Code which enjoins every person, in the exercise of his rights, 'to
give every one his due, and observe honesty and good faith.
The CA concluded that petitioner bank's precipitate and imprudent closure
of the respondent's account had caused him, a respected officer of several
civic and banking associations, serious anxiety and humiliation. It had,
likewise, tainted his credit standing. Consequently, the award of damages is
warranted. The CA, however, reduced the amount of damages awarded by
the court a quo as it found the same to be excessive:
SO ORDERED.[6]
Petitioner bank sought the reconsideration of the said decision but in the
assailed Resolution dated January 17, 2003, the appellate court denied its
motion. Hence, the recourse to this Court.
Petitioner bank maintains that, in closing the account of the respondent in
the evening of April 4, 1988, it acted in good faith and in accordance with
the rules' and regulations' governing the operation of a
regular demand deposit which reserves to the bank 'the right to close an
account if the depositor frequently draws checks against insufficient funds
and/or uncollected deposits. The same rules and regulations also provide
that 'the depositor is not entitled, as a matter of right, to overdraw on this
deposit and the bank reserves the right at any time to return checks of the
depositor which are drawn against insufficient funds or for any reason.
It cites the numerous instances that the respondent had overdrawn his
account and those instances where he deliberately signed checks using a
signature different from the specimen on file. Based on these facts,
petitioner bank was constrained to close the respondent's account for
improper and irregular handling and returned his Check No. 2434886 which
was presented to the bank for payment on April 4, 1988.
'Petitioner bank further posits that there is no law or rule which gives the
respondent a legal right to make good his check or to deposit the
corresponding amount to cover said check within 24 hours after the same is
dishonored or returned by the bank for having been drawn against
insufficient funds. It vigorously denies having violated Article 19 of the Civil
Code as it insists that it acted in good faith and in accordance with the
pertinent banking rules and regulations.
Art. 19. Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due,
and observe honesty and good faith.
The elements of abuse of rights are the following: (a) the existence of a
legal right or duty; (b) which is exercised in bad faith; and (c) for the sole
intent of prejudicing or injuring another.[7] Malice or bad faith is at the core
of the said provision.[8] The law always presumes good faith and any
person who seeks to be awarded damages due to acts of another has the
burden of proving that the latter acted in bad faith or with ill-motive.[9] Good
faith refers to the state of the mind which is manifested by the acts of the
individual concerned. It consists of the intention to abstain from taking an
unconscionable and unscrupulous advantage of another.[10] Bad faith does
not simply connote bad judgment or simple negligence, dishonest purpose
or some moral obliquity and conscious doing of a wrong, a breach of known
duty due to some motives or interest or ill-will that partakes of the nature of
fraud.[11] Malice connotes ill-will or spite and speaks not in response to
duty. It implies an intention to do ulterior and unjustifiable harm. Malice is
bad faith or bad motive.[12]
Undoubtedly, petitioner bank has the right to close the account of the
respondent based on the following provisions of its Rules and Regulations
Governing the Establishment and Operation of Regular Demand Deposits:
The facts, as found by the court a quo and the appellate court, do not
establish that, in the exercise of this right, petitioner bank committed an
abuse thereof. Specifically, the second and third elements for abuse of
rights are not attendant in the present case. The evidence presented by
petitioner bank negates the existence of bad faith or malice on its part in
closing the respondent's account on April 4, 1988 because on the said date
the same was already overdrawn. The respondent issued four checks, all
due on April 4, 1988, amounting to P7,410.00 when the balance of his
current account deposit was only P6,981.43. Thus, he incurred an overdraft
of P428.57 which resulted in the dishonor of his Check No. 2434886.
Further, petitioner bank showed that in 1986, the current account of the
respondent was overdrawn 156 times due to his issuance of checks against
insufficient funds.[13] In 1987, the said account was overdrawn 117 times
for the same
It is observed that nowhere under its rules and regulations is petitioner bank
required to notify the respondent, or any depositor for that matter, of the
closure of the account for frequently drawing checks against insufficient
funds. No malice or bad faith could be imputed on petitioner bank for so
acting since the records bear out that the respondent had indeed been
improperly and irregularly handling his account not just a few times but
hundreds of times. Under the circumstances, petitioner bank could not be
faulted for exercising its right in accordance with the express rules and
regulations governing the current accounts of its depositors. Upon the
opening of his account, the respondent had agreed to be bound by these
terms and conditions.
Neither the fact that petitioner bank accepted the deposit made by the
respondent the day following the closure of his account constitutes bad faith
or malice on the part of petitioner bank. The same could be characterized as
simple negligence by its personnel. Said act, by itself, is not constitutive of
bad faith.
The respondent had thus failed to discharge his burden of proving bad faith
on the part of petitioner bank or that it was motivated by ill-will or spite in
closing his account on April 4, 1988 and in inadvertently accepting his
deposit on April 5, 1988.
Further, it has not been shown that these acts were done by petitioner bank
with the sole intention of prejudicing and injuring the respondent. It is
conceded that the respondent may have suffered damages as a result of
the closure of his current account. However, there is a material distinction
between damages and injury. The Court had the occasion to explain the
distinction between damages and injury in this wise:
2002 and Resolution dated January 17, 2003 of the Court of Appeals in CA-
SO ORDERED.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a petition for review on certiorari of the Decision1 dated
January 26, 2001 and the Resolution2 dated July 30, 2001 of the Court of
Appeals (CA) in CA-G.R. CV No. 59033.
After said person left, San Pedro realized that she left behind an
identification card.10 Thus, San Pedro called up Carmelita's 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 Pedro's 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 couple's residence at No. 3268 Baldwin Park
Boulevard, Baldwin Park, California. Initially, they reported that only
Carmelita's 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
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
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
4) Cost of suit.
SO ORDERED.24
From the foregoing, and considering all the evidence laid down by the
parties, the dispositive portion of the court's decision dated July 1, 1997 is
hereby amended and/or modified to read as follows:
6) cost of suit.
SO ORDERED.28
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.
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.
SO ORDERED.31
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, Citibank's 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
Anent the first ground, Citibank contends that the CA erred in affirming the
RTC's 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.
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.
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
diligence40 is expected,41 and high standards of integrity and performance
are even required, of it.42 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."44
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 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 Appeals49 to wit:
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. Attorney's 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
attorney's 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 attorney's 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 attorney's fees should
be deleted.
No pronouncement as to costs.
SO ORDERED.
Citibank, N.A. vs. Sabeniano, 504 SCRA 378 (2006)
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari,1 under Rule 45 of the
Revised Rules of Court, of the Decision2 of the Court of Appeals in CA-G.R.
CV No. 51930, dated 26 March 2002, and the Resolution,3 dated 20
November 2002, of the same court which, although modifying its earlier
Decision, still denied for the most part the Motion for Reconsideration of
herein petitioners.
Petitioner Citibank, N.A. (formerly known as the First National City Bank) is
a banking corporation duly authorized and existing under the laws of the
United States of America and licensed to do commercial banking activities
and perform trust functions in the Philippines.
When the parties failed to reach a compromise during the pre-trial hearing,9
trial proper ensued and the parties proceeded with the presentation of their
respective evidence. Ten years after the filing of the Complaint on 8 August
1985, a Decision10 was finally rendered in Civil Case No. 11336 on 24
August 1995 by the fourth Judge11 who handled the said case, Judge
Manuel D. Victorio, the dispositive portion of which reads –
(1) Declaring as illegal, null and void the setoff effected by the
defendant Bank [petitioner Citibank] of plaintiff's [respondent
Sabeniano] dollar deposit with Citibank, Switzerland, in the amount of
US$149,632.99, and ordering the said defendant [petitioner Citibank]
to refund the said amount to the plaintiff with legal interest at the rate of
twelve percent (12%) per annum, compounded yearly, from 31
October 1979 until fully paid, or its peso equivalent at the time of
payment;
All the parties appealed the foregoing Decision of the RTC to the Court of
Appeals, docketed as CA-G.R. CV No. 51930. Respondent questioned the
findings of the RTC that she was still indebted to petitioner Citibank, as well
as the failure of the RTC to order petitioners to render an accounting of
respondent's deposits and money market placements with them. On the
other hand, petitioners argued that petitioner Citibank validly compensated
respondent's outstanding loans with her dollar accounts with Citibank-
Geneva, in accordance with the Declaration of Pledge she executed in its
favor. Petitioners also alleged that the RTC erred in not declaring
respondent liable for damages and interest.
Apparently, the parties to the case, namely, the respondent, on one hand,
and the petitioners, on the other, made separate attempts to bring the
aforementioned Decision of the Court of Appeals, dated 26 March 2002,
before this Court for review.
Since this Court did not act upon respondent's Motion for Extension of Time
to file her Petition for Review, then the period for appeal continued to run
and still expired on 3 May 2002.14 Respondent failed to file any Petition for
Review within the prescribed period for appeal and, hence, this Court issued
a Resolution,15 dated 13 November 2002, in which it pronounced that –
The said Resolution was duly recorded in the Book of Entries of Judgments
on 3 January 2003.
The Resolution of this Court, dated 13 November 2002, in G.R. No. 152985,
declaring the Decision of the Court of Appeals, dated 26 March 2002, final
and executory, pertains to respondent Sabeniano alone.
G.R. No. 152985 was the docket number assigned by this Court to
respondent's Motion for Extension of Time to File a Petition for Review.
Respondent, though, did not file her supposed Petition. Thus, after the lapse
of the prescribed period for the filing of the Petition, this Court issued the
Resolution, dated 13 November 2002, declaring the Decision of the Court of
Appeals, dated 26 March 2002, final and executory. It should be pointed
out, however, that the Resolution, dated 13 November 2002, referred only to
G.R. No. 152985, respondent's appeal, which she failed to perfect through
the filing of a Petition for Review within the prescribed period. The
declaration of this Court in the same Resolution would bind respondent
solely, and not petitioners which filed their own separate appeal before this
Court, docketed as G.R. No. 156132, the Petition at bar. This would mean
that respondent, on her part, should be bound by the findings of fact and law
of the Court of Appeals, including the monetary amounts consequently
awarded to her by the appellate court in its Decision, dated 26 March 2002;
and she can no longer refute or assail any part thereof. 19
This Court already explained the matter to respondent when it issued a
Resolution20 in G.R. No. 156132, dated 2 February 2004, which addressed
her Urgent Motion for the Release of the Decision with the Implementation
of the Entry of Judgment in the following manner –
From the foregoing, it is clear that Sabeniano had knowledge of, and in
fact participated in, the proceedings in G.R. No. 156132. She cannot
feign ignorance of the proceedings therein and claim that the Decision
of the Court of Appeals has become final and executory. More
precisely, the Decision became final and executory only with regard to
Sabeniano in view of her failure to file a petition for review within the
extended period granted by the Court, and not to Citibank and FNCB
Finance whose Petition for Review was duly reinstated and is now
submitted for decision.
Another issue that does not directly involve the merits of the present
Petition, but raised by petitioners, is whether respondent should be held
liable for forum shopping.
This Court, however, finds no sufficient basis to hold respondent liable for
forum shopping.
Forum shopping has been defined as the filing of two or more suits involving
the same parties for the same cause of action, either simultaneously or
successively, for the purpose of obtaining a favorable judgment.22 The test
for determining forum shopping is whether in the two (or more) cases
pending, there is an identity of parties, rights or causes of action, and relief
sought.23 To guard against this deplorable practice, Rule 7, Section 5 of the
revised Rules of Court imposes the following requirement –
It should be recalled that respondent did nothing more in G.R. No. 152985
than to file with this Court a Motion for Extension of Time within which to file
her Petition for Review. For unexplained reasons, respondent failed to
submit to this Court her intended Petition within the reglementary period.
Consequently, this Court was prompted to issue a Resolution, dated 13
November 2002, declaring G.R. No. 152985 terminated, and the therein
assailed Court of Appeals Decision final and executory. G.R. No. 152985,
therefore, did not progress and respondent's appeal was unperfected.
The Petition for Review would constitute the initiatory pleading before this
Court, upon the timely filing of which, the case before this Court
commences; much in the same way a case is initiated by the filing of a
Complaint before the trial court. The Petition for Review establishes the
identity of parties, rights or causes of action, and relief sought from this
Court, and without such a Petition, there is technically no case before this
Court. The Motion filed by respondent seeking extension of time within
which to file her Petition for Review does not serve the same purpose as the
Petition for Review itself. Such a Motion merely presents the important
dates and the justification for the additional time requested for, but it does
not go into the details of the appealed case.
Lastly, the fact alone that the Decision of the Court of Appeals, dated 26
March 2002, essentially ruled in favor of respondent, does not necessarily
preclude her from appealing the same. Granted that such a move is
ostensibly irrational, nonetheless, it does not amount to malice, bad faith or
abuse of the court processes in the absence of further proof. Again, it
should be noted that the respondent did not file her intended Petition for
Review. The Petition for Review would have presented before this Court the
grounds for respondent's appeal and her arguments in support thereof.
Without said Petition, any reason attributed to the respondent for appealing
the 26 March 2002 Decision would be grounded on mere speculations, to
which this Court cannot give credence.
II
It is indubitable that the Court of Appeals made factual findings that are
contrary to those of the RTC,25 thus, resulting in its substantial modification
of the trial court's Decision, and a ruling entirely in favor of the respondent.
In addition, petitioners invoked in the instant Petition for Review several
exceptions that would justify this Court's review of the factual findings of the
Court of Appeals, i.e., the Court of Appeals made conflicting findings of fact;
findings of fact which went beyond the issues raised on appeal before it; as
well as findings of fact premised on the supposed absence of evidence and
contradicted by the evidence on record.
On the basis of the foregoing, this Court shall proceed to reviewing and re-
evaluating the evidence on record in order to settle questions of fact raised
in the Petition at bar.
The fact that the trial judge who rendered the RTC Decision in Civil Case
No. 11336, dated 24 August 1995, was not the same judge who heard and
tried the case, does not, by itself, render the said Decision erroneous.
The Decision in Civil Case No. 11336 was rendered more than 10 years
from the institution of the said case. In the course of its trial, the case was
presided over by four (4) different RTC judges.26 It was Judge Victorio, the
fourth judge assigned to the case, who wrote the RTC Decision, dated 24
August 1995. In his Decision,27 Judge Victorio made the following findings –
In fine, this Court hereby finds that the defendants had established the
genuineness and due execution of the various promissory notes
heretofore identified as well as the two deeds of assignments of the
plaintiff's money market placements with defendant FNCB Finance, on
the strength of which the said money market placements were applied
to partially pay the plaintiff's past due obligation with the defendant
Bank. Thus, the total sum of P1,053,995.80 of the plaintiff's past due
obligation was partially offset by the said money market placement
leaving a balance of P1,069,847.40 as of 5 September 1979 (Exhibit
"34").
It is true that the judge who ultimately decided the case had not heard
the controversy at all, the trial having been conducted by then Judge
Emilio L. Polig, who was indefinitely suspended by this Court.
Nonetheless, the transcripts of stenographic notes taken during the
trial were complete and were presumably examined and studied by
Judge Baguilat before he rendered his decision. It is not unusual for a
judge who did not try a case to decide it on the basis of the record. The
fact that he did not have the opportunity to observe the demeanor of
the witnesses during the trial but merely relied on the transcript of their
testimonies does not for that reason alone render the judgment
erroneous.
Although it is true that the judge who heard the witnesses testify is in a
better position to observe the witnesses on the stand and determine by
their demeanor whether they are telling the truth or mouthing
falsehood, it does not necessarily follow that a judge who was not
present during the trial cannot render a valid decision since he can rely
on the transcript of stenographic notes taken during the trial as basis of
his decision.
Accused-appellant's contention that the trial judge did not have the
opportunity to observe the conduct and demeanor of the witnesses
since he was not the same judge who conducted the hearing is also
untenable. While it is true that the trial judge who conducted the
hearing would be in a better position to ascertain the truth and falsity of
the testimonies of the witnesses, it does not necessarily follow that a
judge who was not present during the trial cannot render a valid and
just decision since the latter can also rely on the transcribed
stenographic notes taken during the trial as the basis of his decision.
At any rate, the test to determine the value of the testimony of the
witness is whether or not such is in conformity with knowledge and
consistent with the experience of mankind (People vs. Morre, 217
SCRA 219 [1993]). Further, the credibility of witnesses can also be
assessed on the basis of the substance of their testimony and the
surrounding circumstances (People v. Gonzales, 210 SCRA 44
[1992]). A critical evaluation of the testimony of the prosecution
witnesses reveals that their testimony accords with the aforementioned
tests, and carries with it the ring of truth end perforce, must be given
full weight and credit.
Irrefragably, by reason alone that the judge who penned the RTC Decision
was not the same judge who heard the case and received the evidence
therein would not render the findings in the said Decision erroneous and
unreliable. While the conduct and demeanor of witnesses may sway a trial
court judge in deciding a case, it is not, and should not be, his only
consideration. Even more vital for the trial court judge's decision are the
contents and substance of the witnesses' testimonies, as borne out by the
TSNs, as well as the object and documentary evidence submitted and made
part of the records of the case.
Respondent alleged that she had several deposits and money market
placements with petitioners. These deposits and money market placements,
as determined by the Court of Appeals in its Decision, dated 26 March
2002, and as modified by its Resolution, dated 20 November 2002, are as
follows –
Deposit/Placement Amount
Dollar deposit with Citibank-Geneva $
149,632.99
Money market placement with Citibank, P
evidenced by Promissory Note (PN) No. 318,897.34
23356 (which cancels and supersedes PN
No. 22526), earning 14.5% interest per
annum (p.a.)
Money market placement with Citibank, P
evidenced by PN No. 23357 (which cancels 203,150.00
and supersedes PN No. 22528), earning
14.5% interest p.a.
Money market placement with FNCB P
Finance, evidenced by PN No. 5757 (which 500,000.00
cancels and supersedes PN No. 4952),
earning 17% interest p.a.
Money market placement with FNCB P
Finance, evidenced by PN No. 5758 (which 500,000.00
cancels and supersedes PN No. 2962),
earning 17% interest p.a.
Petitioner Citibank did not deny the existence nor questioned the
authenticity of PNs No. 23356 and 23357 it issued in favor of respondent for
her money market placements. In fact, it admitted the genuineness and due
execution of the said PNs, but qualified that they were no longer
outstanding.31 In Hibberd v. Rohde and McMillian,32 this Court delineated
the consequences of such an admission –
Since the genuineness and due execution of PNs No. 23356 and 23357 are
uncontested, respondent was able to establish prima facie that petitioner
Citibank is liable to her for the amounts stated therein. The assertion of
petitioner Citibank of payment of the said PNs is an affirmative allegation of
a new matter, the burden of proof as to such resting on petitioner Citibank.
Respondent having proved the existence of the obligation, the burden of
proof was upon petitioner Citibank to show that it had been discharged.33 It
has already been established by this Court that –
As a general rule, one who pleads payment has the burden of proving
it. Even where the plaintiff must allege non-payment, the general rule is
that the burden rests on the defendant to prove payment, rather than
on the plaintiff to prove non-payment. The debtor has the burden of
showing with legal certainty that the obligation has been discharged by
payment.
Reviewing the evidence on record, this Court finds that petitioner Citibank
failed to satisfactorily prove that PNs No. 23356 and 23357 had already
been paid, and that the amount so paid was actually used to open one of
respondent's TD accounts with petitioner Citibank.
The relevant portion37 of Mr. Pujeda's testimony as to PNs No. 23356 and
23357 (referred to therein as Exhibits No. "47" and "48," respectively) is
reproduced below –
Atty. Mabasa:
Okey [sic]. Now Mr. Witness, you were asked to testify in this
case and this case is [sic] consist [sic] of several documents
involving transactions between the plaintiff and the defendant.
Now, were you able to make your own memorandum regarding all
these transactions?
Court:
A Yes, your Honor, I was the officer-in charge of the unit that was
processing these transactions. Some of the documents bear my
signature.
Court:
Court:
Atty. Mabasa:
Atty. Mabasa:
Q Now, basing on the notes that you prepared, Mr. Witness, and
according to you basing also on your personal recollection about all the
transactions involved between Modesta Sabeniano and defendant City
Bank [sic] in this case. Now, would you tell us what happened to the
money market placements of Modesta Sabeniano that you have earlier
identified in Exhs. "47" and "48"?
A Yes, sir.
Q And how much was the amount booked as time deposit with
defendant Citibank?
Q And outside this P500,000.00 which you said was booked out of the
proceeds of Exhs. "47" and "48", were there other time deposits
opened by Mrs. Modesta Sabeniano at that time.
A Yes, sir.
Q And would you know where did the other P600,000 placed by Mrs.
Sabeneano [sic] in a time deposit with Citibank, N.A. came [sic] from?
Q What are you saying Mr. Witness is that the P600,000 is a [sic] fresh
money coming from Mrs. Modesta Sabeneano [sic]?
A That is right.
In his deposition in Hong Kong, Mr. Tan recounted what happened to PNs
No. 23356 and 23357 (referred to therein as Exhibits "E" and "F,"
respectively), as follows –
Atty. Mabasa : Now from the Exhibits that you have identified Mr. Tan
from Exhibits "A" to "F", which are Exhibits of the plaintiff. Now, do I
understand from you that the original amount is Five Hundred
Thousand and thereafter renewed in the succeeding exhibits?
Atty. Mabasa : Alright, after these Exhibits "E" and "F" matured, what
happened thereafter?
Before anything else, it should be noted that when Mr. Pujeda's testimony
before the RTC was made on 12 March 1990 and Mr. Tan's deposition in
Hong Kong was conducted on 3 September 1990, more than a decade had
passed from the time the transactions they were testifying on took place.
This Court had previously recognized the frailty and unreliability of human
memory with regards to figures after the lapse of five years.38 Taking into
consideration the substantial length of time between the transactions and
the witnesses' testimonies, as well as the undeniable fact that bank officers
deal with multiple clients and process numerous transactions during their
tenure, this Court is reluctant to give much weight to the testimonies of Mr.
Pujeda and Mr. Tan regarding the payment of PNs No. 23356 and 23357
and the use by respondent of the proceeds thereof for opening TD
accounts. This Court finds it implausible that they should remember, after all
these years, this particular transaction with respondent involving her PNs
No. 23356 and 23357 and TD accounts. Both witnesses did not give any
reason as to why, from among all the clients they had dealt with and all the
transactions they had processed as officers of petitioner Citibank, they
specially remembered respondent and her PNs No. 23356 and 23357. Their
testimonies likewise lacked details on the circumstances surrounding the
payment of the two PNs and the opening of the time deposit accounts by
respondent, such as the date of payment of the two PNs, mode of payment,
and the manner and context by which respondent relayed her instructions to
the officers of petitioner Citibank to use the proceeds of her two PNs in
opening the TD accounts.
When Mr. Pujeda testified before the RTC on 6 February 1990,39 petitioners'
counsel attempted to present in evidence a document that would
supposedly support the claim of petitioner Citibank that the proceeds of PNs
No. 23356 and 23357 were used by respondent to open one of her two TD
accounts in the amount of P500,000.00. Respondent's counsel objected to
the presentation of the document since it was a mere "xerox" copy, and was
blurred and hardly readable. Petitioners' counsel then asked for a
continuance of the hearing so that they can have time to produce a better
document, which was granted by the court. However, during the next
hearing and continuance of Mr. Pujeda's testimony on 12 March 1990,
petitioners' counsel no longer referred to the said document.
The significance of this Court's declaration that PNs No. 23356 and 23357
are still outstanding becomes apparent in the light of petitioners' next
contentions – that respondent used the proceeds of PNs No. 23356 and
23357, together with additional money, to open TD Accounts No. 17783 and
17784 with petitioner Citibank; and, subsequently, respondent pre-
terminated these TD accounts and transferred the proceeds thereof,
amounting to P1,100,000.00, to petitioner FNCB Finance for money market
placements. While respondent's money market placements with petitioner
FNCB Finance may be traced back with definiteness to TD Accounts No.
17783 and 17784, there is only flimsy and unsubstantiated connection
between the said TD accounts and the supposed proceeds paid from PNs
No. 23356 and 23357. With PNs No. 23356 and 23357 still unpaid, then
they represent an obligation of petitioner Citibank separate and distinct from
the obligation of petitioner FNCB Finance arising from respondent's money
market placements with the latter.
Respondent presented and submitted before the RTC deposit slips and
bank statements to prove deposits made to several of her accounts with
petitioner Citibank, particularly, Accounts No. 00484202, 59091, and 472-
751, which would have amounted to a total of P3,812,712.32, had there
been no withdrawals or debits from the said accounts from the time the said
deposits were made.
Although the RTC and the Court of Appeals did not make any definitive
findings as to the status of respondent's savings and current accounts with
petitioner Citibank, the Decisions of both the trial and appellate courts
effectively recognized only the P31,079.14 coming from respondent's
savings account which was used to off-set her alleged outstanding loans
with petitioner Citibank.50
Since both the RTC and the Court of Appeals had consistently recognized
only the P31,079.14 of respondent's savings account with petitioner
Citibank, and that respondent failed to move for reconsideration or to appeal
this particular finding of fact by the trial and appellate courts, it is already
binding upon this Court. Respondent is already precluded from claiming any
greater amount in her savings and current accounts with petitioner Citibank.
Thus, this Court shall limit itself to determining whether or not respondent is
entitled to the return of the amount of P31,079.14 should the off-set thereof
by petitioner Citibank against her supposed loans be found invalid.
Respondent made an effort of preparing and presenting before the RTC her
own computations of her money market placements and dollar accounts
with Citibank-Geneva, purportedly amounting to a total of United States
(US) $343,220.98, as of 23 June 1985.51 In her Memorandum filed with the
RTC, she claimed a much bigger amount of deposits and money market
placements with Citibank-Geneva, totaling US$1,336,638.65.52 However,
respondent herself also submitted as part of her formal offer of evidence the
computation of her money market placements and dollar accounts with
Citibank-Geneva as determined by the latter.53 Citibank-Geneva accounted
for respondent's money market placements and dollar accounts as follows –
III
Description Amount
Principal and interests of PNs
No. 20138 and 20139
(money market placements with P
petitioner FNCB Finance) 1,022,916.66
Savings account with petitioner
Citibank 31,079.14
Dollar remittance from Citibank-
Geneva (peso equivalent of
US$149,632.99) 1,102,944.78
P
Total 2,156,940.58
When respondent was unable to pay the first set of PNs upon their maturity,
these were rolled-over or renewed several times, necessitating the
execution by respondent of new PNs in favor of petitioner Citibank. As of 5
April 1979, respondent had the following outstanding PNs (second set),56
the principal amount of which remained at P1,920,000.00 –
(mm/dd/yyyy) (mm/dd/yyyy)
34510 01/01/1979 03/02/1979 P
400,000.00
34509 01/02/1979 03/02/1979 100,000.00
34534 01/09/1979 03/09/1979 150,000.00
34612 01/19/1979 03/16/1979 150,000.00
34741 01/26/1979 03/12/1979 100,000.00
35689 02/23/1979 05/29/1979 300,000.00
35694 03/19/1979 05/29/1979 150,000.00
35695 03/19/1979 05/29/1979 100,000.00
356946 03/20/1979 05/29/1979 250,000.00
35697 03/30/1979 05/29/1979 220,000.00
Total P
1,920,000.00
All the PNs stated that the purpose of the loans covered thereby is "To
liquidate existing obligation," except for PN No. 34534, which stated for its
purpose "personal investment."
When respondent failed to pay the second set of PNs upon their maturity,
an exchange of letters ensued between respondent and/or her
representatives, on one hand, and the representatives of petitioners, on the
other.
The first letter62 was dated 5 April 1979, addressed to respondent and
signed by Mr. Tan, as the manager of petitioner Citibank, which stated, in
part, that –
Despite our repeated requests and follow-up, we regret you have not
granted us with any response or payment.
Please bear with us for a little while, at most ninety days. As you know,
we have a pending loan with the Development Bank of the Philippines
in the amount of P11-M. This loan has already been recommended for
approval and would be submitted to the Board of Governors. In fact, to
further facilitate the early release of this loan, we have presented and
furnished Gov. J. Tengco a xerox copy of your letter.
You will be doing our corporation a very viable service, should you
grant us our request for a little more time.
The next letter,66 dated 21 June 1979, was signed by respondent herself
and addressed to Mr. Bobby Mendoza, a Manager of petitioner FNCB
Finance. Respondent wrote therein –
Re: PN No. 20138 for P500,000.00 & PN No. 20139 for
P500,000.00 totalling P1 Million, both PNs will mature on
9/3/1979.
Unlike respondent's earlier letters, both letters, dated 21 June 1979, are
printed on plain paper, without the letterhead of her company, MC Adore
International Palace.
Respondent's outstanding P
obligation (principal and interest) 2,123,843.20
Less: Proceeds from respondent's
money market placements
with petitioner FNCB Finance (1,022,916.66)
(principal and interest)
Deposits in respondent's bank
accounts with petitioner
Citibank (31,079.14)
Balance of respondent's obligation P
1,069,847.40
Respondent denied outright executing the first set of PNs, except for one
(PN No. 34534 in particular). Although she admitted that she obtained
several loans from petitioner Citibank, these only amounted to
P1,150,000.00, and she had already paid them. She secured from petitioner
Citibank two loans of P500,000.00 each. She executed in favor of petitioner
Citibank the corresponding PNs for the loans and the Deeds of Assignment
of her money market placements with petitioner FNCB Finance as
security.72 To prove payment of these loans, respondent presented two
provisional receipts of petitioner Citibank – No. 19471,73 dated 11 August
1978, and No. 12723,74 dated 10 November 1978 – both signed by Mr. Tan,
and acknowledging receipt from respondent of several checks in the total
amount of P500,744.00 and P500,000.00, respectively, for "liquidation of
loan."
She borrowed another P150,000.00 from petitioner Citibank for personal
investment, and for which she executed PN No. 34534, on 9 January 1979.
Thus, she admitted to receiving the proceeds of this loan via MC No.
228270. She invested the loan amount in another money market placement
with petitioner FNCB Finance. In turn, she used the very same money
market placement with petitioner FNCB Finance as security for her
P150,000.00 loan from petitioner Citibank. When she failed to pay the loan
when it became due, petitioner Citibank allegedly forfeited her money
market placement with petitioner FNCB Finance and, thus, the loan was
already paid.75
The second set of PNs is a mere renewal of the prior loans originally
covered by the first set of PNs, except for PN No. 34534. The first set of
PNs is supported, in turn, by the existence of the MCs that represent the
proceeds thereof received by the respondent.
This Court finds applicable herein the presumptions that private transactions
have been fair and regular,83 and that the ordinary course of business has
been followed.84 There is no question that the loan transaction between
petitioner Citibank and the respondent is a private transaction. The
transactions revolving around the crossed MCs – from their issuance by
petitioner Citibank to respondent as payment of the proceeds of her loans;
to its deposit in respondent's accounts with several different banks; to the
clearing of the MCs by an independent clearing house; and finally, to the
payment of the MCs by petitioner Citibank as the drawee bank of the said
checks – are all private transactions which shall be presumed to have been
fair and regular to all the parties concerned. In addition, the banks involved
in the foregoing transactions are also presumed to have followed the
ordinary course of business in the acceptance of the crossed MCs for
deposit in respondent's accounts, submitting them for clearing, and their
eventual payment and cancellation.
Respondent denied ever receiving MCs No. 220701 and 226467. However,
considering that the said checks were crossed for payee's account only, and
that they were actually deposited, cleared, and paid, then the presumption
would be that the said checks were properly deposited to the account of
respondent, who was clearly named the payee in the checks. Respondent's
bare allegations that she did not receive the two checks fail to convince this
Court, for to sustain her, would be for this Court to conclude that an
irregularity had occurred somewhere from the time of the issuance of the
said checks, to their deposit, clearance, and payment, and which would
have involved not only petitioner Citibank, but also BPI, which accepted the
checks for deposit, and the Central Bank of the Philippines, which cleared
the checks. It falls upon the respondent to overcome or dispute the
presumption that the crossed checks were issued, accepted for deposit,
cleared, and paid for by the banks involved following the ordinary course of
their business.
The mere fact that MCs No. 220701 and 226467 do not bear respondent's
signature at the back does not negate deposit thereof in her account. The
liability for the lack of indorsement on the MCs no longer fall on petitioner
Citibank, but on the bank who received the same for deposit, in this case,
BPI Cubao Branch. Once again, it must be noted that the MCs were
crossed, for payee's account only, and the payee named in both checks
was none other than respondent. The crossing of the MCs was already a
warning to BPI to receive said checks for deposit only in respondent's
account. It was up to BPI to verify whether it was receiving the crossed MCs
in accordance with the instructions on the face thereof. If, indeed, the MCs
were deposited in accounts other than respondent's, then the respondent
would have a cause of action against BPI.90
BPI further stamped its guarantee on the back of the checks to the effect
that, "All prior endorsement and/or Lack of endorsement guaranteed." Thus,
BPI became the indorser of the MCs, and assumed all the warranties of an
indorser,91 specifically, that the checks were genuine and in all respects
what they purported to be; that it had a good title to the checks; that all prior
parties had capacity to contract; and that the checks were, at the time of
their indorsement, valid and subsisting.92 So even if the MCs deposited by
BPI's client, whether it be by respondent herself or some other person,
lacked the necessary indorsement, BPI, as the collecting bank, is bound by
its warranties as an indorser and cannot set up the defense of lack of
indorsement as against petitioner Citibank, the drawee bank.93
Neither can this Court give credence to respondent's contention that the
notations on the MCs, stating that they were the proceeds of particular PNs,
were not there when she received the checks and that the notations
appeared to be written by a typewriter different from that used to write the
other information on the checks. Once more, respondent's allegations were
uncorroborated by any other evidence. Her and her counsel's observation
that the notations on the MCs appear to be written by a typewriter different
from that used to write the other information on the checks hardly convinces
this Court considering that it constitutes a mere opinion on the appearance
of the notation by a witness who does not possess the necessary expertise
on the matter. In addition, the notations on the MCs were written using both
capital and small letters, while the other information on the checks were
written using capital letters only, such difference could easily confuse an
untrained eye and lead to a hasty conclusion that they were written by
different typewriters.
Exhibits "III" and "III-1," the front and bank pages of a handwritten note of
Mr. Bobby Mendoza of petitioner FNCB Finance,98 also did not deserve
much evidentiary weight, and this Court cannot rely on the truth and
accuracy of the computations presented therein. Mr. Mendoza was not
presented as a witness during the trial before the RTC, so that the
document was not properly authenticated nor its contents sufficiently
explained. No one was able to competently identify whether the initials as
appearing on the note were actually Mr. Mendoza's.
Also, going by the information on the front page of the note, this Court
observes that payment of respondent's alleged money market placements
with petitioner FNCB Finance were made using Citytrust Checks; the MCs
in question, including MC No. 228057, were issued by petitioner Citibank.
Although Citytrust (formerly Feati Bank & Trust Co.), petitioner FNCB
Finance, and petitioner Citibank may be affiliates of one another, they each
remained separate and distinct corporations, each having its own financial
system and records. Thus, this Court cannot simply assume that one
corporation, such as petitioner Citibank or Citytrust, can issue a check to
discharge an obligation of petitioner FNCB Finance. It should be recalled
that when petitioner FNCB Finance paid for respondent's money market
placements, covered by its PNs No. 8167 and 8169, as well as PNs No.
20138 and 20139, petitioner FNCB Finance issued its own checks.
Mr. Tan, in his deposition, further explained that provisional receipts were
issued when payment to the bank was made using checks, since the checks
would still be subject to clearing. The purpose for the provisional receipts
was merely to acknowledge the delivery of the checks to the possession of
the bank, but not yet of payment.99 This bank practice finds legitimacy in the
pronouncement of this Court that a check, whether an MC or an ordinary
check, is not legal tender and, therefore, cannot constitute valid tender of
payment. In Philippine Airlines, Inc. v. Court of Appeals, 100 this Court
elucidated that:
According to petitioner Citibank, the PNs in the second set, except for PN
No. 34534, were mere renewals of the unpaid PNs in the first set, which
was why the PNs stated that they were for the purpose of liquidating
existing obligations. PN No. 34534, however, which was part of the first set,
was still valid and subsisting and so it was included in the second set
without need for its renewal, and it still being the original PN for that
particular loan, its stated purpose was for personal investment.104
Respondent essentially admitted executing the second set of PNs, but they
were only meant to cover simulated loans. Mr. Tan supposedly convinced
her that her pending loan application with DBP would have a greater chance
of being approved if they made it appear that respondent urgently needed
the money because petitioner Citibank was already demanding payment for
her simulated loans.
Respondent's defense of simulated loans to escape liability for the second
set of PNs is truly a novel one. It is regrettable, however, that she was
unable to substantiate the same. Yet again, respondent's version of events
is totally based on her own uncorroborated testimony. The notations on the
second set of PNs, that they were non-negotiable simulated notes, were
admittedly made by respondent herself and were, thus, self-serving. Equally
self-serving was respondent's letter, written on 7 October 1985, or more
than six years after the execution of the second set of PNs, in which she
demanded return of the simulated or fictitious PNs, together with the letters
relating thereto, which Mr. Tan purportedly asked her to execute.
Respondent further failed to present any proof of her alleged loan
application with the DBP, and of any circumstance or correspondence
wherein the simulated or fictitious PNs were indeed used for their supposed
purpose.
Mr. Tan, then an account officer with the Marketing Department of petitioner
Citibank, testified that he dealt directly with respondent; he facilitated the
loans; and the PNs, at least in the second set, were signed by respondent in
his presence.105
Mr. Pujeda, the officer who was previously in charge of loans and
placements, confirmed that the signatures on the PNs were verified against
respondent's specimen signature with the bank.106
Ms. Renee Rubio worked for petitioner Citibank for 20 years. She rose from
the ranks, initially working as a secretary in the Personnel Group; then as a
secretary to the Personnel Group Head; a Service Assistant with the
Marketing Group, in 1972 to 1974, dealing directly with corporate and
individual clients who, among other things, secured loans from petitioner
Citibank; the Head of the Collection Group of the Foreign Department in
1974 to 1976; the Head of the Money Transfer Unit in 1976 to 1978; the
Head of the Loans and Placements Unit up to the early 1980s; and,
thereafter, she established operations training for petitioner Citibank in the
Asia-Pacific Region responsible for the training of the officers of the bank.
She testified on the standard loan application process at petitioner Citibank.
According to Ms. Rubio, the account officer or marketing person submits a
proposal to grant a loan to an individual or corporation. Petitioner Citibank
has a worldwide policy that requires a credit committee, composed of a
minimum of three people, which would approve the loan and amount
thereof. There can be no instance when only one officer has the power to
approve the loan application. When the loan is approved, the account officer
in charge will obtain the corresponding PNs from the client. The PNs are
sent to the signature verifier who would validate the signatures therein
against those appearing in the signature cards previously submitted by the
client to the bank. The Operations Unit will check and review the
documents, including the PNs, if it is a clean loan, and securities and
deposits, if it is collateralized. The loan is then recorded in the General
Ledger. The Loans and Placements Department will not book the loans
without the PNs. When the PNs are liquidated, whether they are paid or
rolled-over, they are returned to the client.109 Ms. Rubio further explained
that she was familiar with respondent's accounts since, while she was still
the Head of the Loan and Placements Unit, she was asked by Mr. Tan to
prepare a list of respondent's outstanding obligations.110 She thus
calculated respondent's outstanding loans, which was sent as an
attachment to Mr. Tan's letter to respondent, dated 28 September 1979, and
presented before the RTC as Exhibits "34-B" and "34-C."111
In general, the best evidence rule requires that the highest available degree
of proof must be produced. Accordingly, for documentary evidence, the
contents of a document are best proved by the production of the document
itself,113 to the exclusion of any secondary or substitutionary evidence.114
The best evidence rule has been made part of the revised Rules of Court,
Rule 130, Section 3, which reads –
(b) When the original is in the custody or under the control of the party
against whom the evidence is offered, and the latter fails to produce it
after reasonable notice;
(d) When the original is a public record in the custody of a public officer
or is recorded in a public office.
As the afore-quoted provision states, the best evidence rule applies only
when the subject of the inquiry is the contents of the document. The scope
of the rule is more extensively explained thus –
But even with respect to documentary evidence, the best evidence rule
applies only when the content of such document is the subject of the
inquiry. Where the issue is only as to whether such document was
actually executed, or exists, or on the circumstances relevant to or
surrounding its execution, the best evidence rule does not apply and
testimonial evidence is admissible (5 Moran, op. cit., pp. 76-66; 4
Martin, op. cit., p. 78). Any other substitutionary evidence is likewise
admissible without need for accounting for the original.
It is true that the Court relied not upon the original but only copy of the
Angara Diary as published in the Philippine Daily Inquirer on February
4-6, 2001. In doing so, the Court, did not, however, violate the best
evidence rule. Wigmore, in his book on evidence, states that:
"x x x x
This Court did not violate the best evidence rule when it considered and
weighed in evidence the photocopies and microfilm copies of the PNs, MCs,
and letters submitted by the petitioners to establish the existence of
respondent's loans. The terms or contents of these documents were never
the point of contention in the Petition at bar. It was respondent's position
that the PNs in the first set (with the exception of PN No. 34534) never
existed, while the PNs in the second set (again, excluding PN No. 34534)
were merely executed to cover simulated loan transactions. As for the MCs
representing the proceeds of the loans, the respondent either denied receipt
of certain MCs or admitted receipt of the other MCs but for another purpose.
Respondent further admitted the letters she wrote personally or through her
representatives to Mr. Tan of petitioner Citibank acknowledging the loans,
except that she claimed that these letters were just meant to keep up the
ruse of the simulated loans. Thus, respondent questioned the documents as
to their existence or execution, or when the former is admitted, as to the
purpose for which the documents were executed, matters which are,
undoubtedly, external to the documents, and which had nothing to do with
the contents thereof.
Alternatively, even if it is granted that the best evidence rule should apply to
the evidence presented by petitioners regarding the existence of
respondent's loans, it should be borne in mind that the rule admits of the
following exceptions under Rule 130, Section 5 of the revised Rules of Court
–
It was only petitioner FNCB Finance who claimed that they lost the original
copies of the PNs when it moved to a new office. Citibank did not make a
similar contention; instead, it explained that the original copies of the PNs
were returned to the borrower upon liquidation of the loan, either through
payment or roll-over. Petitioner Citibank proffered the excuse that they were
still looking for the documents in their storage or warehouse to explain the
delay and difficulty in the retrieval thereof, but not their absence or loss. The
original documents in this case, such as the MCs and letters, were
destroyed and, thus, unavailable for presentation before the RTC only on 7
October 1987, when a fire broke out on the 7th floor of the office building of
petitioner Citibank. There is no showing that the fire was intentionally set.
The fire destroyed relevant documents, not just of the present case, but also
of other cases, since the 7th floor housed the Control and Investigation
Division, in charge of keeping the necessary documents for cases in which
petitioner Citibank was involved.
What this Court truly finds disturbing is the significance given by the Court of
Appeals in its assailed Decision to the Decision119 of its Third Division in
CA-G.R. CV No. 15934 (or the Dy case), when there is an absolute lack of
legal basis for doing such.
Although petitioner Citibank and its officer, Mr. Tan, were also involved in
the Dy case, that is about the only connection between the Dy case and the
one at bar. Not only did the Dy case tackle transactions between parties
other than the parties presently before this Court, but the transactions are
absolutely independent and unrelated to those in the instant Petition.
In the Dy case, Severino Chua Caedo managed to obtain loans from herein
petitioner Citibank amounting to P7,000,000.00, secured to the extent of
P5,000,000.00 by a Third Party Real Estate Mortgage of the properties of
Caedo's aunt, Rosalind Dy. It turned out that Rosalind Dy and her husband
were unaware of the said loans and the mortgage of their properties. The
transactions were carried out exclusively between Caedo and Mr. Tan of
petitioner Citibank. The RTC found Mr. Tan guilty of fraud for his
participation in the questionable transactions, essentially because he
allowed Caedo to take out the signature cards, when these should have
been signed by the Dy spouses personally before him. Although the Dy
spouses' signatures in the PNs and Third Party Real Estate Mortgage were
forged, they were approved by the signature verifier since the signature
cards against which they were compared to were also forged. Neither the
RTC nor the Court of Appeals, however, categorically declared Mr. Tan
personally responsible for the forgeries, which, in the narration of the facts,
were more likely committed by Caedo.
In the Petition at bar, respondent dealt with Mr. Tan directly, there was no
third party involved who could have perpetrated any fraud or forgery in her
loan transactions. Although respondent attempted to raise suspicion as to
the authenticity of her signatures on certain documents, these were nothing
more than naked allegations with no corroborating evidence; worse, even
her own allegations were replete with inconsistencies. She could not even
establish in what manner or under what circumstances the fraud or forgery
was committed, or how Mr. Tan could have been directly responsible for the
same.
While the Court of Appeals can take judicial notice of the Decision of its
Third Division in the Dy case, it should not have given the said case much
weight when it rendered the assailed Decision, since the former does not
constitute a precedent. The Court of Appeals, in the challenged Decision,
did not apply any legal argument or principle established in the Dy case but,
rather, adopted the findings therein of wrongdoing or misconduct on the part
of herein petitioner Citibank and Mr. Tan. Any finding of wrongdoing or
misconduct as against herein petitioners should be made based on the
factual background and pieces of evidence submitted in this case, not those
in another case.
It is apparent that the Court of Appeals took judicial notice of the Dy case
not as a legal precedent for the present case, but rather as evidence of
similar acts committed by petitioner Citibank and Mr. Tan. A basic rule of
evidence, however, states that, "Evidence that one did or did not do a
certain thing at one time is not admissible to prove that he did or did not do
the same or similar thing at another time; but it may be received to prove a
specific intent or knowledge, identity, plan, system, scheme, habit, custom
or usage, and the like."120 The rationale for the rule is explained thus –
The rule is founded upon reason, public policy, justice and judicial
convenience. The fact that a person has committed the same or similar
acts at some prior time affords, as a general rule, no logical guaranty
that he committed the act in question. This is so because, subjectively,
a man's mind and even his modes of life may change; and, objectively,
the conditions under which he may find himself at a given time may
likewise change and thus induce him to act in a different way. Besides,
if evidence of similar acts are to be invariably admitted, they will give
rise to a multiplicity of collateral issues and will subject the defendant
to surprise as well as confuse the court and prolong the trial.121
The factual backgrounds of the two cases are so different and unrelated that
the Dy case cannot be used to prove specific intent, knowledge, identity,
plan, system, scheme, habit, custom or usage on the part of petitioner
Citibank or its officer, Mr. Tan, to defraud respondent in the present case.
IV
Art. 1278. Compensation shall take place when two persons, in their
own right, are creditors and debtors of each other.
(1) That each one of the obligors be bound principally, and that he be
at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if
the latter has been stated;
What petitioner Citibank actually did was to exercise its rights to the
proceeds of respondent's money market placements with petitioner FNCB
Finance by virtue of the Deeds of Assignment executed by respondent in its
favor.
The Court of Appeals did not consider these Deeds of Assignment because
of petitioners' failure to produce the original copies thereof in violation of the
best evidence rule. This Court again finds itself in disagreement in the
application of the best evidence rule by the appellate court.
Petitioners not only presented the notarized Deeds of Assignment, but even
secured certified literal copies thereof from the National Archives.127 Mr.
Renato Medua, an archivist, working at the Records Management and
Archives Office of the National Library, testified that the copies of the Deeds
presented before the RTC were certified literal copies of those contained in
the Notarial Registries of the notary publics concerned, which were already
in the possession of the National Archives. He also explained that he could
not bring to the RTC the Notarial Registries containing the original copies of
the Deeds of Assignment, because the Department of Justice (DOJ)
Circular No. 97, dated 8 November 1968, prohibits the bringing of original
documents to the courts to prevent the loss of irreplaceable and priceless
documents.128
Accordingly, this Court gives the Deeds of Assignment grave importance in
establishing the authority given by the respondent to petitioner Citibank to
use as security for her loans her money her market placements with
petitioner FNCB Finance, represented by PNs No. 8167 and 8169, later to
be rolled-over as PNs No. 20138 and 20139. These Deeds of Assignment
constitute the law between the parties, and the obligations arising therefrom
shall have the force of law between the parties and should be complied with
in good faith.129 Standard clauses in all of the Deeds provide that –
xxxx
xxxx
Petitioner Citibank was only acting upon the authority granted to it under the
foregoing Deeds when it finally used the proceeds of PNs No. 20138 and
20139, paid by petitioner FNCB Finance, to partly pay for respondent's
outstanding loans. Strictly speaking, it did not effect a legal compensation or
off-set under Article 1278 of the Civil Code, but rather, it partly extinguished
respondent's obligations through the application of the security given by the
respondent for her loans. Although the pertinent documents were entitled
Deeds of Assignment, they were, in reality, more of a pledge by respondent
to petitioner Citibank of her credit due from petitioner FNCB Finance by
virtue of her money market placements with the latter. According to Article
2118 of the Civil Code –
PNs No. 20138 and 20139 matured on 3 September 1979, without them
being redeemed by respondent, so that petitioner Citibank collected from
petitioner FNCB Finance the proceeds thereof, which included the principal
amounts and interests earned by the money market placements, amounting
to P1,022,916.66, and applied the same against respondent's outstanding
loans, leaving no surplus to be delivered to respondent.
Upon closer scrutiny of the Declaration of Pledge, this Court finds the same
exceedingly suspicious and irregular.
First of all, it escapes this Court why petitioner Citibank took care to have
the Deeds of Assignment of the PNs notarized, yet left the Declaration of
Pledge unnotarized. This Court would think that petitioner Citibank would
take greater cautionary measures with the preparation and execution of the
Declaration of Pledge because it involved respondent's "all present and
future fiduciary placements" with a Citibank branch in another country,
specifically, in Geneva, Switzerland. While there is no express legal
requirement that the Declaration of Pledge had to be notarized to be
effective, even so, it could not enjoy the same prima facie presumption of
due execution that is extended to notarized documents, and petitioner
Citibank must discharge the burden of proving due execution and
authenticity of the Declaration of Pledge.
Second, petitioner Citibank was unable to establish the date when the
Declaration of Pledge was actually executed. The photocopy of the
Declaration of Pledge submitted by petitioner Citibank before the RTC was
undated.132 It presented only a photocopy of the pledge because it already
forwarded the original copy thereof to Citibank-Geneva when it requested
for the remittance of respondent's dollar accounts pursuant thereto.
Respondent, on the other hand, was able to secure a copy of the
Declaration of Pledge, certified by an officer of Citibank-Geneva, which bore
the date 24 September 1979.133 Respondent, however, presented her
passport and plane tickets to prove that she was out of the country on the
said date and could not have signed the pledge. Petitioner Citibank insisted
that the pledge was signed before 24 September 1979, but could not
provide an explanation as to how and why the said date was written on the
pledge. Although Mr. Tan testified that the Declaration of Pledge was signed
by respondent personally before him, he could not give the exact date when
the said signing took place. It is important to note that the copy of the
Declaration of Pledge submitted by the respondent to the RTC was certified
by an officer of Citibank-Geneva, which had possession of the original copy
of the pledge. It is dated 24 September 1979, and this Court shall abide by
the presumption that the written document is truly dated.134 Since it is
undeniable that respondent was out of the country on 24 September 1979,
then she could not have executed the pledge on the said date.
Third, the Declaration of Pledge was irregularly filled-out. The pledge was in
a standard printed form. It was constituted in favor of Citibank, N.A.,
otherwise referred to therein as the Bank. It should be noted, however, that
in the space which should have named the pledgor, the name of petitioner
Citibank was typewritten, to wit –
The pledge right herewith constituted shall secure all claims which the
Bank now has or in the future acquires against Citibank, N.A., Manila
(full name and address of the Debtor), regardless of the legal cause or
the transaction (for example current account, securities transactions,
collections, credits, payments, documentary credits and collections)
which gives rise thereto, and including principal, all contractual and
penalty interest, commissions, charges, and costs.
The pledge, therefore, made no sense, the pledgor and pledgee being the
same entity. Was a mistake made by whoever filled-out the form? Yes, it
could be a possibility. Nonetheless, considering the value of such a
document, the mistake as to a significant detail in the pledge could only be
committed with gross carelessness on the part of petitioner Citibank, and
raised serious doubts as to the authenticity and due execution of the same.
The Declaration of Pledge had passed through the hands of several bank
officers in the country and abroad, yet, surprisingly and implausibly, no one
noticed such a glaring mistake.
Basic is the rule of evidence that when the subject of inquiry is the
contents of a document, no evidence is admissible other than the
original document itself except in the instances mentioned in Section 3,
Rule 130 of the Revised Rules of Court. Mere photocopies of
documents are inadmissible pursuant to the best evidence rule. This is
especially true when the issue is that of forgery.
Respondent made several attempts to have the original copy of the pledge
produced before the RTC so as to have it examined by experts. Yet, despite
several Orders by the RTC,136 petitioner Citibank failed to comply with the
production of the original Declaration of Pledge. It is admitted that Citibank-
Geneva had possession of the original copy of the pledge. While petitioner
Citibank in Manila and its branch in Geneva may be separate and distinct
entities, they are still incontestably related, and between petitioner Citibank
and respondent, the former had more influence and resources to convince
Citibank-Geneva to return, albeit temporarily, the original Declaration of
Pledge. Petitioner Citibank did not present any evidence to convince this
Court that it had exerted diligent efforts to secure the original copy of the
pledge, nor did it proffer the reason why Citibank-Geneva obstinately
refused to give it back, when such document would have been very vital to
the case of petitioner Citibank. There is thus no justification to allow the
presentation of a mere photocopy of the Declaration of Pledge in lieu of the
original, and the photocopy of the pledge presented by petitioner Citibank
has nil probative value.137 In addition, even if this Court cannot make a
categorical finding that respondent's signature on the original copy of the
pledge was forged, it is persuaded that petitioner Citibank willfully
suppressed the presentation of the original document, and takes into
consideration the presumption that the evidence willfully suppressed would
be adverse to petitioner Citibank if produced.138
The parties shall be liable for interests on their monetary obligations to each
other, as determined herein.
VI
While it is true that the general rule is that only errors which have been
stated in the assignment of errors and properly argued in the brief shall be
considered, this Court has also recognized exceptions to the general rule,
wherein it authorized the review of matters, even those not assigned as
errors in the appeal, if the consideration thereof is necessary in arriving at a
just decision of the case, and there is a close inter-relation between the
omitted assignment of error and those actually assigned and discussed by
the appellant.140 Thus, the Court of Appeals did not err in awarding the
damages when it already made findings that would justify and support the
said award.
Although this Court appreciates the right of petitioner Citibank to effect legal
compensation of respondent's local deposits, as well as its right to the
proceeds of PNs No. 20138 and 20139 by virtue of the notarized Deeds of
Assignment, to partly extinguish respondent's outstanding loans, it finds that
petitioner Citibank did commit wrong when it failed to pay and properly
account for the proceeds of respondent's money market placements,
evidenced by PNs No. 23356 and 23357, and when it sought the remittance
of respondent's dollar accounts from Citibank-Geneva by virtue of a highly-
suspect Declaration of Pledge to be applied to the remaining balance of
respondent's outstanding loans. It bears to emphasize that banking is
impressed with public interest and its fiduciary character requires high
standards of integrity and performance.141 A bank is under the obligation to
treat the accounts of its depositors with meticulous care whether such
accounts consist only of a few hundred pesos or of millions of pesos.142 The
bank must record every single transaction accurately, down to the last
centavo, and as promptly as possible.143 Petitioner Citibank evidently failed
to exercise the required degree of care and transparency in its transactions
with respondent, thus, resulting in the wrongful deprivation of her property.
A Yes sir.
Q Where?
Q What else?
A I also ran as an Assemblywoman last May, 1984, Independent party
in Regional I, Pangasinan.
A They are not all operating, in short, I was hampered to push through
the businesses that I have.
A [sic] Of all the businesses and enterprises that you mentioned what
are those that are paralyzed and what remain inactive?
A Of all the company [sic] that I have, only the Disto Company that is
now operating in California.
Q How about your candidacy as Mayor of Dagupan, [sic] City, and later
as Assemblywoman of Region I, what happened to this?
A I won by voting but when election comes on [sic] the counting I lost
and I protested this, it is still pending and because I don't have financial
resources I was not able to push through the case. I just have it
pending in the Comelec.
Q Now, do these things also affect your social and civic activities?
Q How?
Having failed to exercise more care and prudence than a private individual
in its dealings with respondent, petitioner Citibank should be liable for
exemplary damages, in the amount of P250,000.00, in accordance with
Article 2229146 and 2234147 of the Civil Code.
1. PNs No. 23356 and 23357 are DECLARED subsisting and outstanding.
Petitioner Citibank is ORDERED to return to respondent the principal
amounts of the said PNs, amounting to Three Hundred Eighteen Thousand
Eight Hundred Ninety-Seven Pesos and Thirty-Four Centavos
(P318,897.34) and Two Hundred Three Thousand One Hundred Fifty Pesos
(P203,150.00), respectively, plus the stipulated interest of Fourteen and a
half percent (14.5%) per annum, beginning 17 March 1977;
SO ORDERED.
Demosthenes P. Agan, Jr., et al. vs. PIATCO, et al.,402 SCRA
612 (2003)
EN BANC
x---------------------------------------------------------x
x---------------------------------------------------------x
PUNO, J.:
On March 27, 1995, then DOTC Secretary Jose Garcia endorsed the
proposal of AEDC to the National Economic and Development Authority
(NEDA). A revised proposal, however, was forwarded by the DOTC to
NEDA on December 13, 1995. On January 5, 1996, the NEDA Investment
Coordinating Council (NEDA ICC) – Technical Board favorably endorsed
the project to the ICC – Cabinet Committee which approved the same,
subject to certain conditions, on January 19, 1996. On February 13, 1996,
the NEDA passed Board Resolution No. 2 which approved the NAIA IPT III
project.
On June 7, 14, and 21, 1996, DOTC/MIAA caused the publication in two
daily newspapers of an invitation for competitive or comparative proposals
on AEDC's unsolicited proposal, in accordance with Sec. 4-A of RA 6957,
as amended. The alternative bidders were required to submit three (3)
sealed envelopes on or before 5:00 p.m. of September 20, 1996. The first
envelope should contain the Prequalification Documents, the second
envelope the Technical Proposal, and the third envelope the Financial
Proposal of the proponent.
On June 20, 1996, PBAC Bulletin No. 1 was issued, postponing the
availment of the Bid Documents and the submission of the comparative bid
proposals. Interested firms were permitted to obtain the Request for
Proposal Documents beginning June 28, 1996, upon submission of a written
application and payment of a non-refundable fee of P50,000.00 (US$2,000).
The Bid Documents issued by the PBAC provided among others that the
proponent must have adequate capability to sustain the financing
requirement for the detailed engineering, design, construction, operation,
and maintenance phases of the project. The proponent would be evaluated
based on its ability to provide a minimum amount of equity to the project,
and its capacity to secure external financing for the project.
On July 23, 1996, the PBAC issued PBAC Bulletin No. 2 inviting all bidders
to a pre-bid conference on July 29, 1996.
On August 16, 1996, the PBAC issued PBAC Bulletin No. 3 amending the
Bid Documents. The following amendments were made on the Bid
Documents:
On August 29, 1996, the Second Pre-Bid Conference was held where
certain clarifications were made. Upon the request of prospective bidder
People's Air Cargo & Warehousing Co., Inc (Paircargo), the PBAC
warranted that based on Sec. 11.6, Rule 11 of the Implementing Rules and
Regulations of the BOT Law, only the proposed Annual Guaranteed
Payment submitted by the challengers would be revealed to AEDC, and that
the challengers' technical and financial proposals would remain confidential.
The PBAC also clarified that the list of revenue sources contained in Annex
4.2a of the Bid Documents was merely indicative and that other revenue
sources may be included by the proponent, subject to approval by
DOTC/MIAA. Furthermore, the PBAC clarified that only those fees and
charges denominated as Public Utility Fees would be subject to regulation,
and those charges which would be actually deemed Public Utility Fees
could still be revised, depending on the outcome of PBAC's query on the
matter with the Department of Justice.
In September 1996, the PBAC issued Bid Bulletin No. 5, entitled "Answers
to the Queries of PAIRCARGO as Per Letter Dated September 3 and 10,
1996." Paircargo's queries and the PBAC's responses were as follows:
The PBAC also stated that it would require AEDC to sign Supplement C of
the Bid Documents (Acceptance of Criteria and Waiver of Rights to Enjoin
Project) and to submit the same with the required Bid Security.
The PBAC gave its reply on October 2, 1996, informing AEDC that it had
considered the issues raised by the latter, and that based on the documents
submitted by Paircargo and the established prequalification criteria, the
PBAC had found that the challenger, Paircargo, had prequalified to
undertake the project. The Secretary of the DOTC approved the finding of
the PBAC.
The PBAC then proceeded with the opening of the second envelope of the
Paircargo Consortium which contained its Technical Proposal.
On October 16, 1996, the PBAC opened the third envelope submitted by
AEDC and the Paircargo Consortium containing their respective financial
proposals. Both proponents offered to build the NAIA Passenger Terminal III
for at least $350 million at no cost to the government and to pay the
government: 5% share in gross revenues for the first five years of operation,
7.5% share in gross revenues for the next ten years of operation, and 10%
share in gross revenues for the last ten years of operation, in accordance
with the Bid Documents. However, in addition to the foregoing, AEDC
offered to pay the government a total of P135 million as guaranteed
payment for 27 years while Paircargo Consortium offered to pay the
government a total of P17.75 billion for the same period.
Thus, the PBAC formally informed AEDC that it had accepted the price
proposal submitted by the Paircargo Consortium, and gave AEDC 30
working days or until November 28, 1996 within which to match the said bid,
otherwise, the project would be awarded to Paircargo.
As AEDC failed to match the proposal within the 30-day period, then DOTC
Secretary Amado Lagdameo, on December 11, 1996, issued a notice to
Paircargo Consortium regarding AEDC's failure to match the proposal.
On April 16, 1997, AEDC filed with the Regional Trial Court of Pasig a
Petition for Declaration of Nullity of the Proceedings, Mandamus and
Injunction against the Secretary of the DOTC, the Chairman of the PBAC,
the voting members of the PBAC and Pantaleon D. Alvarez, in his capacity
as Chairman of the PBAC Technical Committee.
On July 9, 1997, the DOTC issued the notice of award for the project to
PIATCO.
On July 12, 1997, the Government, through then DOTC Secretary Arturo T.
Enrile, and PIATCO, through its President, Henry T. Go, signed the
"Concession Agreement for the Build-Operate-and-Transfer Arrangement of
the Ninoy Aquino International Airport Passenger Terminal III" (1997
Concession Agreement). The Government granted PIATCO the franchise to
operate and maintain the said terminal during the concession period and to
collect the fees, rentals and other charges in accordance with the rates or
schedules stipulated in the 1997 Concession Agreement. The Agreement
provided that the concession period shall be for twenty-five (25) years
commencing from the in-service date, and may be renewed at the option of
the Government for a period not exceeding twenty-five (25) years. At the
end of the concession period, PIATCO shall transfer the development
facility to MIAA.
The First Supplement to the ARCA amended Sec. 1.36 of the ARCA
defining "Revenues" or "Gross Revenues"; Sec. 2.05 (d) of the ARCA
referring to the obligation of MIAA to provide sufficient funds for the upkeep,
maintenance, repair and/or replacement of all airport facilities and
equipment which are owned or operated by MIAA; and further providing
additional special obligations on the part of GRP aside from those already
enumerated in Sec. 2.05 of the ARCA. The First Supplement also provided
a stipulation as regards the construction of a surface road to connect NAIA
Terminal II and Terminal III in lieu of the proposed access tunnel crossing
Runway 13/31; the swapping of obligations between GRP and PIATCO
regarding the improvement of Sales Road; and the changes in the
timetable. It also amended Sec. 6.01 (c) of the ARCA pertaining to the
Disposition of Terminal Fees; Sec. 6.02 of the ARCA by inserting an
introductory paragraph; and Sec. 6.02 (a) (iii) of the ARCA referring to the
Payments of Percentage Share in Gross Revenues.
Meanwhile, the MIAA which is charged with the maintenance and operation
of the NAIA Terminals I and II, had existing concession contracts with
various service providers to offer international airline airport services, such
as in-flight catering, passenger handling, ramp and ground support, aircraft
maintenance and provisions, cargo handling and warehousing, and other
services, to several international airlines at the NAIA. Some of these service
providers are the Miascor Group, DNATA-Wings Aviation Systems Corp.,
and the MacroAsia Group. Miascor, DNATA and MacroAsia, together with
Philippine Airlines (PAL), are the dominant players in the industry with an
aggregate market share of 70%.
On October 15, 2002, the service providers, joining the cause of the
petitioning workers, filed a motion for intervention and a petition-in-
intervention.
During the pendency of the case before this Court, President Gloria
Macapagal Arroyo, on November 29, 2002, in her speech at the 2002
Golden Shell Export Awards at Malacañang Palace, stated that she will not
"honor (PIATCO) contracts which the Executive Branch's legal offices have
concluded (as) null and void."5
On December 10, 2002, the Court heard the case on oral argument. After
the oral argument, the Court then resolved in open court to require the
parties to file simultaneously their respective Memoranda in amplification of
the issues heard in the oral arguments within 30 days and to explore the
possibility of arbitration or mediation as provided in the challenged
contracts.
In the present cases, the Court is again faced with the task of resolving
complicated issues made difficult by their intersecting legal and economic
implications. The Court is aware of the far reaching fall out effects of the
ruling which it makes today. For more than a century and whenever the
exigencies of the times demand it, this Court has never shirked from its
solemn duty to dispense justice and resolve "actual controversies involving
rights which are legally demandable and enforceable, and to determine
whether or not there has been grave abuse of discretion amounting to lack
or excess of jurisdiction."6 To be sure, this Court will not begin to do
otherwise today.
We shall first dispose of the procedural issues raised by respondent
PIATCO which they allege will bar the resolution of the instant controversy.
With respect to the petitioning service providers and their employees, upon
the commencement of operations of the NAIA IPT III, they allege that they
will be effectively barred from providing international airline airport services
at the NAIA Terminals I and II as all international airlines and passengers
will be diverted to the NAIA IPT III. The petitioning service providers will thus
be compelled to contract with PIATCO alone for such services, with no
assurance that subsisting contracts with MIAA and other international
airlines will be respected. Petitioning service providers stress that despite
the very competitive market, the substantial capital investments required
and the high rate of fees, they entered into their respective contracts with
the MIAA with the understanding that the said contracts will be in force for
the stipulated period, and thereafter, renewed so as to allow each of the
petitioning service providers to recoup their investments and obtain a
reasonable return thereon.
Petitioning employees of various service providers at the NAIA Terminals I
and II and of MIAA on the other hand allege that with the closure of the
NAIA Terminals I and II as international passenger terminals under the
PIATCO Contracts, they stand to lose employment.
The question on legal standing is whether such parties have "alleged such a
personal stake in the outcome of the controversy as to assure that concrete
adverseness which sharpens the presentation of issues upon which the
court so largely depends for illumination of difficult constitutional
questions."9 Accordingly, it has been held that the interest of a person
assailing the constitutionality of a statute must be direct and personal. He
must be able to show, not only that the law or any government act is invalid,
but also that he sustained or is in imminent danger of sustaining some direct
injury as a result of its enforcement, and not merely that he suffers thereby
in some indefinite way. It must appear that the person complaining has been
or is about to be denied some right or privilege to which he is lawfully
entitled or that he is about to be subjected to some burdens or penalties by
reason of the statute or act complained of.10
In G.R. No. 155547, petitioners filed the petition for prohibition as members
of the House of Representatives, citizens and taxpayers. They allege that as
members of the House of Representatives, they are especially interested in
the PIATCO Contracts, because the contracts compel the Government
and/or the House of Representatives to appropriate funds necessary to
comply with the provisions therein.11 They cite provisions of the PIATCO
Contracts which require disbursement of unappropriated amounts in
compliance with the contractual obligations of the Government. They allege
that the Government obligations in the PIATCO Contracts which compel
government expenditure without appropriation is a curtailment of their
prerogatives as legislators, contrary to the mandate of the Constitution that
"[n]o money shall be paid out of the treasury except in pursuance of an
appropriation made by law."12
After a thorough study and careful evaluation of the issues involved, this
Court is of the view that the crux of the instant controversy involves
significant legal questions. The facts necessary to resolve these legal
questions are well established and, hence, need not be determined by a trial
court.
The rule on hierarchy of courts will not also prevent this Court from
assuming jurisdiction over the cases at bar. The said rule may be relaxed
when the redress desired cannot be obtained in the appropriate courts or
where exceptional and compelling circumstances justify availment of a
remedy within and calling for the exercise of this Court's primary
jurisdiction.19
of Arbitration Proceedings by
PIATCO
There is one more procedural obstacle which must be overcome. The Court
is aware that arbitration proceedings pursuant to Section 10.02 of the ARCA
have been filed at the instance of respondent PIATCO. Again, we hold that
the arbitration step taken by PIATCO will not oust this Court of its
jurisdiction over the cases at bar.
In Del Monte Corporation-USA v. Court of Appeals,20 even after finding that
the arbitration clause in the Distributorship Agreement in question is valid
and the dispute between the parties is arbitrable, this Court affirmed the trial
court's decision denying petitioner's Motion to Suspend Proceedings
pursuant to the arbitration clause under the contract. In so ruling, this Court
held that as contracts produce legal effect between the parties, their assigns
and heirs, only the parties to the Distributorship Agreement are bound by its
terms, including the arbitration clause stipulated therein. This Court ruled
that arbitration proceedings could be called for but only with respect to the
parties to the contract in question. Considering that there are parties to the
case who are neither parties to the Distributorship Agreement nor heirs or
assigns of the parties thereto, this Court, citing its previous ruling in Salas,
Jr. v. Laperal Realty Corporation,21 held that to tolerate the splitting of
proceedings by allowing arbitration as to some of the parties on the one
hand and trial for the others on the other hand would, in effect, result in
multiplicity of suits, duplicitous procedure and unnecessary delay.22 Thus,
we ruled that the interest of justice would best be served if the trial court
hears and adjudicates the case in a single and complete proceeding.
The financial statement or the net worth is not the sole basis in
establishing financial capability. As stated in Bid Bulletin No. 3,
financial capability may also be established by testimonial letters
issued by reputable banks. The Challenger has complied with this
requirement.
Pursuant to this provision, the PBAC issued PBAC Bulletin No. 3 dated
August 16, 1996 amending the financial capability requirements for pre-
qualification of the project proponent as follows:
6. Basis of Pre-qualification
We agree with public respondents that with respect to Security Bank, the
entire amount of its net worth could not be invested in a single undertaking
or enterprise, whether allied or non-allied in accordance with the provisions
of R.A. No. 337, as amended or the General Banking Act:
Sec. 21-B. The provisions in this or in any other Act to the contrary
notwithstanding, the Monetary Board, whenever it shall deem
appropriate and necessary to further national development objectives
or support national priority projects, may authorize a commercial bank,
a bank authorized to provide commercial banking services, as well as
a government-owned and controlled bank, to operate under an
expanded commercial banking authority and by virtue thereof exercise,
in addition to powers authorized for commercial banks, the powers of
an Investment House as provided in Presidential Decree No. 129,
invest in the equity of a non-allied undertaking, or own a majority or all
of the equity in a financial intermediary other than a commercial bank
or a bank authorized to provide commercial banking services:
Provided, That (a) the total investment in equities shall not exceed fifty
percent (50%) of the net worth of the bank; (b) the equity investment in
any one enterprise whether allied or non-allied shall not exceed fifteen
percent (15%) of the net worth of the bank; (c) the equity investment of
the bank, or of its wholly or majority-owned subsidiary, in a single non-
allied undertaking shall not exceed thirty-five percent (35%) of the total
equity in the enterprise nor shall it exceed thirty-five percent (35%) of
the voting stock in that enterprise; and (d) the equity investment in
other banks shall be deducted from the investing bank's net worth for
purposes of computing the prescribed ratio of net worth to risk assets.
Thus, the maximum amount that Security Bank could validly invest in the
Paircargo Consortium is only P528,525,656.55, representing 15% of its
entire net worth. The total net worth therefore of the Paircargo Consortium,
after considering the maximum amounts that may be validly invested by
each of its members is P558,384,871.55 or only 6.08% of the project cost,29
an amount substantially less than the prescribed minimum equity
investment required for the project in the amount of P2,755,095,000.00 or
30% of the project cost.
The PBAC has determined that any prospective bidder for the construction,
operation and maintenance of the NAIA IPT III project should prove that it
has the ability to provide equity in the minimum amount of 30% of the
project cost, in accordance with the 70:30 debt-to-equity ratio prescribed in
the Bid Documents. Thus, in the case of Paircargo Consortium, the PBAC
should determine the maximum amounts that each member of the
consortium may commit for the construction, operation and maintenance of
the NAIA IPT III project at the time of pre-qualification. With respect to
Security Bank, the maximum amount which may be invested by it would
only be 15% of its net worth in view of the restrictions imposed by the
General Banking Act. Disregarding the investment ceilings provided by
applicable law would not result in a proper evaluation of whether or not a
bidder is pre-qualified to undertake the project as for all intents and
purposes, such ceiling or legal restriction determines the true maximum
amount which a bidder may invest in the project.
Thus, if the maximum amount of equity that a bidder may invest in the
project at the time the bids are submitted falls short of the minimum
amounts required to be put up by the bidder, said bidder should be properly
disqualified. Considering that at the pre-qualification stage, the maximum
amounts which the Paircargo Consortium may invest in the project fell short
of the minimum amounts prescribed by the PBAC, we hold that Paircargo
Consortium was not a qualified bidder. Thus the award of the contract by
the PBAC to the Paircargo Consortium, a disqualified bidder, is null and
void.
While it would be proper at this juncture to end the resolution of the instant
controversy, as the legal effects of the disqualification of respondent
PIATCO's predecessor would come into play and necessarily result in the
nullity of all the subsequent contracts entered by it in pursuance of the
project, the Court feels that it is necessary to discuss in full the pressing
issues of the present controversy for a complete resolution thereof.
II
By its very nature, public bidding aims to protect the public interest by giving
the public the best possible advantages through open competition. Thus:
The same rule was restated by Chief Justice Stuart of the Supreme Court of
Minnesota:
The law is well settled that where, as in this case, municipal authorities
can only let a contract for public work to the lowest responsible bidder,
the proposals and specifications therefore must be so framed as to
permit free and full competition. Nor can they enter into a contract with
the best bidder containing substantial provisions beneficial to him, not
included or contemplated in the terms and specifications upon which
the bids were invited.33
In fact, in the PBAC Bid Bulletin No. 3 cited by PIATCO to support its
argument that the draft concession agreement is subject to amendment, the
pertinent portion of which was quoted above, the PBAC also clarified that
"[s]aid amendments shall only cover items that would not materially affect
the preparation of the proponent's proposal."
The Court agrees with the contention of counsel for the plaintiffs that
the due execution of a contract after public bidding is a limitation upon
the right of the contracting parties to alter or amend it without another
public bidding, for otherwise what would a public bidding be good for if
after the execution of a contract after public bidding, the contracting
parties may alter or amend the contract, or even cancel it, at their will?
Public biddings are held for the protection of the public, and to give the
public the best possible advantages by means of open competition
between the bidders. He who bids or offers the best terms is awarded
the contract subject of the bid, and it is obvious that such protection
and best possible advantages to the public will disappear if the parties
to a contract executed after public bidding may alter or amend it
without another previous public bidding.35
Hence, the question that comes to fore is this: is the 1997 Concession
Agreement the same agreement that was offered for public bidding, i.e., the
draft Concession Agreement attached to the Bid Documents? A close
comparison of the draft Concession Agreement attached to the Bid
Documents and the 1997 Concession Agreement reveals that the
documents differ in at least two material respects:
collected by PIATCO
The fees that may be imposed and collected by PIATCO under the draft
Concession Agreement and the 1997 Concession Agreement may be
classified into three distinct categories: (1) fees which are subject to periodic
adjustment of once every two years in accordance with a prescribed
parametric formula and adjustments are made effective only upon written
approval by MIAA; (2) fees other than those included in the first category
which maybe adjusted by PIATCO whenever it deems necessary without
need for consent of DOTC/MIAA; and (3) new fees and charges that may be
imposed by PIATCO which have not been previously imposed or collected
at the Ninoy Aquino International Airport Passenger Terminal I, pursuant to
Administrative Order No. 1, Series of 1993, as amended. The glaring
distinctions between the draft Concession Agreement and the 1997
Concession Agreement lie in the types of fees included in each category
and the extent of the supervision and regulation which MIAA is allowed to
exercise in relation thereto.
For fees under the first category, i.e., those which are subject to periodic
adjustment in accordance with a prescribed parametric formula and
effective only upon written approval by MIAA, the draft Concession
Agreement includes the following:36
The implication of the reduced number of fees that are subject to MIAA
approval is best appreciated in relation to fees included in the second
category identified above. Under the 1997 Concession Agreement, fees
which PIATCO may adjust whenever it deems necessary without need for
consent of DOTC/MIAA are "Non-Public Utility Revenues" and is defined as
"all other income not classified as Public Utility Revenues derived from
operations of the Terminal and the Terminal Complex."38 Thus, under the
1997 Concession Agreement, ground handling fees, rentals from airline
offices and porterage fees are no longer subject to MIAA regulation.
The MIAA reserves the right to regulate under the foregoing terms and
conditions the lobby and vehicular parking fees and other new fees
and charges as contemplated in paragraph 2 of Section 6.01 if in its
judgment the users of the airport shall be deprived of a free option for
the services they cover.39
On the other hand, the equivalent provision under the 1997 Concession
Agreement reads:
Thus, under the 1997 Concession Agreement, with respect to (1) vehicular
parking fee, (2) porterage fee and (3) greeter/well wisher fee, all that MIAA
can do is to require PIATCO to explain and justify the fees set by PIATCO.
In the draft Concession Agreement, vehicular parking fee is subject to MIAA
regulation and approval under the second paragraph of Section 6.03 thereof
while porterage fee is covered by the first paragraph of the same provision.
There is an obvious relaxation of the extent of control and regulation by
MIAA with respect to the particular fees that may be charged by PIATCO.
Moreover, with respect to the third category of fees that may be imposed
and collected by PIATCO, i.e., new fees and charges that may be imposed
by PIATCO which have not been previously imposed or collected at the
Ninoy Aquino International Airport Passenger Terminal I, under Section 6.03
of the draft Concession Agreement MIAA has reserved the right to regulate
the same under the same conditions that MIAA may regulate fees under the
first category, i.e., periodic adjustment of once every two years in
accordance with a prescribed parametric formula and effective only upon
written approval by MIAA. However, under the 1997 Concession
Agreement, adjustment of fees under the third category is not subject to
MIAA regulation.
b. Assumption by the
default thereof
Attendant Liabilities refer to all amounts recorded and from time to time
outstanding in the books of the Concessionaire as owing to Unpaid
Creditors who have provided, loaned or advanced funds actually used
for the Project, including all interests, penalties, associated fees,
charges, surcharges, indemnities, reimbursements and other related
expenses, and further including amounts owed by Concessionaire to
its suppliers, contractors and sub-contractors.
Under the above quoted portions of Section 4.04 in relation to the definition
of "Attendant Liabilities," default by PIATCO of its loans used to finance the
NAIA IPT III project triggers the occurrence of certain events that leads to
the assumption by the Government of the liability for the loans. Only in one
instance may the Government escape the assumption of PIATCO's
liabilities, i.e., when the Government so elects and allows a qualified
operator to take over as Concessionaire. However, this circumstance is
dependent on the existence and availability of a qualified operator who is
willing to take over the rights and obligations of PIATCO under the contract,
a circumstance that is not entirely within the control of the Government.
Without going into the validity of this provision at this juncture, suffice it to
state that Section 4.04 of the 1997 Concession Agreement may be
considered a form of security for the loans PIATCO has obtained to finance
the project, an option that was not made available in the draft Concession
Agreement. Section 4.04 is an important amendment to the 1997
Concession Agreement because it grants PIATCO a financial advantage or
benefit which was not previously made available during the bidding process.
This financial advantage is a significant modification that translates to better
terms and conditions for PIATCO.
We agree that it is not inconsistent with the rationale and purpose of the
BOT Law to allow the project proponent or the winning bidder to obtain
financing for the project, especially in this case which involves the
construction, operation and maintenance of the NAIA IPT III. Expectedly,
compliance by the project proponent of its undertakings therein would
involve a substantial amount of investment. It is therefore inevitable for the
awardee of the contract to seek alternate sources of funds to support the
project. Be that as it may, this Court maintains that amendments to the
contract bidded upon should always conform to the general policy on public
bidding if such procedure is to be faithful to its real nature and purpose. By
its very nature and characteristic, competitive public bidding aims to protect
the public interest by giving the public the best possible advantages through
open competition.45 It has been held that the three principles in public
bidding are (1) the offer to the public; (2) opportunity for competition; and (3)
a basis for the exact comparison of bids. A regulation of the matter which
excludes any of these factors destroys the distinctive character of the
system and thwarts the purpose of its adoption.46 These are the basic
parameters which every awardee of a contract bidded out must conform to,
requirements of financing and borrowing notwithstanding. Thus, upon a
concrete showing that, as in this case, the contract signed by the
government and the contract-awardee is an entirely different contract from
the contract bidded, courts should not hesitate to strike down said contract
in its entirety for violation of public policy on public bidding. A strict
adherence on the principles, rules and regulations on public bidding must be
sustained if only to preserve the integrity and the faith of the general public
on the procedure.
In view of the above discussion, the fact that the foregoing substantial
amendments were made on the 1997 Concession Agreement renders the
same null and void for being contrary to public policy. These amendments
convert the 1997 Concession Agreement to an entirely different agreement
from the contract bidded out or the draft Concession Agreement. It is not
difficult to see that the amendments on (1) the types of fees or charges that
are subject to MIAA regulation or control and the extent thereof and (2) the
assumption by the Government, under certain conditions, of the liabilities of
PIATCO directly translates concrete financial advantages to PIATCO that
were previously not available during the bidding process. These
amendments cannot be taken as merely supplements to or implementing
provisions of those already existing in the draft Concession Agreement. The
amendments discussed above present new terms and conditions which
provide financial benefit to PIATCO which may have altered the technical
and financial parameters of other bidders had they known that such terms
were available.
III
Direct Government Guarantee
Article IV, Section 4.04(b) and (c), in relation to Article 1.06, of the 1997
Concession Agreement provides:
Attendant Liabilities refer to all amounts recorded and from time to time
outstanding in the books of the Concessionaire as owing to Unpaid
Creditors who have provided, loaned or advanced funds actually used
for the Project, including all interests, penalties, associated fees,
charges, surcharges, indemnities, reimbursements and other related
expenses, and further including amounts owed by Concessionaire to
its suppliers, contractors and sub-contractors.48
One of the main impetus for the enactment of the BOT Law is the lack of
government funds to construct the infrastructure and development projects
necessary for economic growth and development. This is why private sector
resources are being tapped in order to finance these projects. The BOT law
allows the private sector to participate, and is in fact encouraged to do so by
way of incentives, such as minimizing the unstable flow of returns,52
provided that the government would not have to unnecessarily expend
scarcely available funds for the project itself. As such, direct guarantee,
subsidy and equity by the government in these projects are strictly
prohibited.53 This is but logical for if the government would in the end still be
at a risk of paying the debts incurred by the private entity in the BOT
projects, then the purpose of the law is subverted.
The fact that the ARCA superseded the 1997 Concession Agreement did
not cure this fatal defect. Article IV, Section 4.04(c), in relation to Article I,
Section 1.06, of the ARCA provides:
It is clear from the foregoing contractual provisions that in the event that
PIATCO fails to fulfill its loan obligations to its Senior Lenders, the
Government is obligated to directly negotiate and enter into an agreement
relating to NAIA IPT III with the Senior Lenders, should the latter fail to
appoint a qualified nominee or transferee who will take the place of
PIATCO. If the Senior Lenders and the Government are unable to enter into
an agreement after the prescribed period, the Government must then pay
PIATCO, upon transfer of NAIA IPT III to the Government, termination
payment equal to the appraised value of the project or the value of the
attendant liabilities whichever is greater. Attendant liabilities as defined in
the ARCA includes all amounts owed or thereafter may be owed by PIATCO
not only to the Senior Lenders with whom PIATCO has defaulted in its loan
obligations but to all other persons who may have loaned, advanced funds
or provided any other type of financial facilities to PIATCO for NAIA IPT III.
The amount of PIATCO's debt that the Government would have to pay as a
result of PIATCO's default in its loan obligations -- in case no qualified
nominee or transferee is appointed by the Senior Lenders and no other
agreement relating to NAIA IPT III has been reached between the
Government and the Senior Lenders -- includes, but is not limited to, "all
principal, interest, associated fees, charges, reimbursements, and other
related expenses . . . whether payable at maturity, by acceleration or
otherwise."55
It is clear from the foregoing that the ARCA provides for a direct guarantee
by the government to pay PIATCO's loans not only to its Senior Lenders but
all other entities who provided PIATCO funds or services upon PIATCO's
default in its loan obligation with its Senior Lenders. The fact that the
Government's obligation to pay PIATCO's lenders for the latter's obligation
would only arise after the Senior Lenders fail to appoint a qualified nominee
or transferee does not detract from the fact that, should the conditions as
stated in the contract occur, the ARCA still obligates the Government to pay
any and all amounts owed by PIATCO to its lenders in connection with NAIA
IPT III. Worse, the conditions that would make the Government liable for
PIATCO's debts is triggered by PIATCO's own default of its loan obligations
to its Senior Lenders to which loan contracts the Government was never a
party to. The Government was not even given an option as to what course
of action it should take in case PIATCO defaulted in the payment of its
senior loans. The Government, upon PIATCO's default, would be merely
notified by the Senior Lenders of the same and it is the Senior Lenders who
are authorized to appoint a qualified nominee or transferee. Should the
Senior Lenders fail to make such an appointment, the Government is then
automatically obligated to "directly deal and negotiate" with the Senior
Lenders regarding NAIA IPT III. The only way the Government would not be
liable for PIATCO's debt is for a qualified nominee or transferee to be
appointed in place of PIATCO to continue the construction, operation and
maintenance of NAIA IPT III. This "pre-condition", however, will not take the
contract out of the ambit of a direct guarantee by the government as the
existence, availability and willingness of a qualified nominee or transferee is
totally out of the government's control. As such the Government is virtually
at the mercy of PIATCO (that it would not default on its loan obligations to
its Senior Lenders), the Senior Lenders (that they would appoint a qualified
nominee or transferee or agree to some other arrangement with the
Government) and the existence of a qualified nominee or transferee who is
able and willing to take the place of PIATCO in NAIA IPT III.
The BOT Law and its implementing rules provide that in order for an
unsolicited proposal for a BOT project may be accepted, the following
conditions must first be met: (1) the project involves a new concept in
technology and/or is not part of the list of priority projects, (2) no direct
government guarantee, subsidy or equity is required, and (3) the
government agency or local government unit has invited by publication other
interested parties to a public bidding and conducted the same.56 The failure
to meet any of the above conditions will result in the denial of the proposal.
It is further provided that the presence of direct government guarantee,
subsidy or equity will "necessarily disqualify a proposal from being treated
and accepted as an unsolicited proposal."57 The BOT Law clearly and
strictly prohibits direct government guarantee, subsidy and equity in
unsolicited proposals that the mere inclusion of a provision to that effect is
fatal and is sufficient to deny the proposal. It stands to reason therefore that
if a proposal can be denied by reason of the existence of direct government
guarantee, then its inclusion in the contract executed after the said proposal
has been accepted is likewise sufficient to invalidate the contract itself. A
prohibited provision, the inclusion of which would result in the denial of a
proposal cannot, and should not, be allowed to later on be inserted in the
contract resulting from the said proposal. The basic rules of justice and fair
play alone militate against such an occurrence and must not, therefore, be
countenanced particularly in this instance where the government is exposed
to the risk of shouldering hundreds of million of dollars in debt.
This Court has long and consistently adhered to the legal maxim that those
that cannot be done directly cannot be done indirectly.58 To declare the
PIATCO contracts valid despite the clear statutory prohibition against a
direct government guarantee would not only make a mockery of what the
BOT Law seeks to prevent -- which is to expose the government to the risk
of incurring a monetary obligation resulting from a contract of loan between
the project proponent and its lenders and to which the Government is not a
party to -- but would also render the BOT Law useless for what it seeks to
achieve –- to make use of the resources of the private sector in the
"financing, operation and maintenance of infrastructure and development
projects"59 which are necessary for national growth and development but
which the government, unfortunately, could ill-afford to finance at this point
in time.
IV
The above provision pertains to the right of the State in times of national
emergency, and in the exercise of its police power, to temporarily take over
the operation of any business affected with public interest. In the 1986
Constitutional Commission, the term "national emergency" was defined to
include threat from external aggression, calamities or national disasters, but
not strikes "unless it is of such proportion that would paralyze government
service."60 The duration of the emergency itself is the determining factor as
to how long the temporary takeover by the government would last.61 The
temporary takeover by the government extends only to the operation of the
business and not to the ownership thereof. As such the government is not
required to compensate the private entity-owner of the said business as
there is no transfer of ownership, whether permanent or temporary. The
private entity-owner affected by the temporary takeover cannot, likewise,
claim just compensation for the use of the said business and its properties
as the temporary takeover by the government is in exercise of its police
power and not of its power of eminent domain.
….
(c) In the event the development Facility or any part thereof and/or the
operations of Concessionaire or any part thereof, become the subject
matter of or be included in any notice, notification, or declaration
concerning or relating to acquisition, seizure or appropriation by GRP
in times of war or national emergency, GRP shall, by written notice to
Concessionaire, immediately take over the operations of the Terminal
and/or the Terminal Complex. During such take over by GRP, the
Concession Period shall be suspended; provided, that upon
termination of war, hostilities or national emergency, the operations
shall be returned to Concessionaire, at which time, the Concession
period shall commence to run again. Concessionaire shall be entitled
to reasonable compensation for the duration of the temporary take
over by GRP, which compensation shall take into account the
reasonable cost for the use of the Terminal and/or Terminal Complex,
(which is in the amount at least equal to the debt service requirements
of Concessionaire, if the temporary take over should occur at the time
when Concessionaire is still servicing debts owed to project lenders),
any loss or damage to the Development Facility, and other
consequential damages. If the parties cannot agree on the reasonable
compensation of Concessionaire, or on the liability of GRP as
aforesaid, the matter shall be resolved in accordance with Section
10.01 [Arbitration]. Any amount determined to be payable by GRP to
Concessionaire shall be offset from the amount next payable by
Concessionaire to GRP.62
Regulation of Monopolies
Sec. 19. The state shall regulate or prohibit monopolies when the
public interest so requires. No combinations in restraint of trade or
unfair competition shall be allowed.
Clearly, monopolies are not per se prohibited by the Constitution but may be
permitted to exist to aid the government in carrying on an enterprise or to
aid in the performance of various services and functions in the interest of
the public.67 Nonetheless, a determination must first be made as to whether
public interest requires a monopoly. As monopolies are subject to abuses
that can inflict severe prejudice to the public, they are subject to a higher
level of State regulation than an ordinary business undertaking.
In the cases at bar, PIATCO, under the 1997 Concession Agreement and
the ARCA, is granted the "exclusive right to operate a commercial
international passenger terminal within the Island of Luzon" at the NAIA IPT
III.68 This is with the exception of already existing international airports in
Luzon such as those located in the Subic Bay Freeport Special Economic
Zone ("SBFSEZ"), Clark Special Economic Zone ("CSEZ") and in Laoag
City.69 As such, upon commencement of PIATCO's operation of NAIA IPT
III, Terminals 1 and 2 of NAIA would cease to function as international
passenger terminals. This, however, does not prevent MIAA to use
Terminals 1 and 2 as domestic passenger terminals or in any other manner
as it may deem appropriate except those activities that would compete with
NAIA IPT III in the latter's operation as an international passenger
terminal.70 The right granted to PIATCO to exclusively operate NAIA IPT III
would be for a period of twenty-five (25) years from the In-Service Date71
and renewable for another twenty-five (25) years at the option of the
government.72 Both the 1997 Concession Agreement and the ARCA further
provide that, in view of the exclusive right granted to PIATCO, the
concession contracts of the service providers currently servicing Terminals
1 and 2 would no longer be renewed and those concession contracts whose
expiration are subsequent to the In-Service Date would cease to be
effective on the said date.73
Section 3.01(e) of the 1997 Concession Agreement and the ARCA provide:
During the oral arguments on December 10, 2002, the counsel for the
petitioners-in-intervention for G.R. No. 155001 stated that there are
two service providers whose contracts are still existing and whose
validity extends beyond the In-Service Date. One contract remains
valid until 2008 and the other until 2010.77
VI
CONCLUSION
In sum, this Court rules that in view of the absence of the requisite financial
capacity of the Paircargo Consortium, predecessor of respondent PIATCO,
the award by the PBAC of the contract for the construction, operation and
maintenance of the NAIA IPT III is null and void. Further, considering that
the 1997 Concession Agreement contains material and substantial
amendments, which amendments had the effect of converting the 1997
Concession Agreement into an entirely different agreement from the
contract bidded upon, the 1997 Concession Agreement is similarly null and
void for being contrary to public policy. The provisions under Sections
4.04(b) and (c) in relation to Section 1.06 of the 1997 Concession
Agreement and Section 4.04(c) in relation to Section 1.06 of the ARCA,
which constitute a direct government guarantee expressly prohibited by,
among others, the BOT Law and its Implementing Rules and Regulations
are also null and void. The Supplements, being accessory contracts to the
ARCA, are likewise null and void.
SO ORDERED.
SEPARATE OPINIONS
VITUG, J.:
The rule is explicit. A petition for prohibition may be filed against a tribunal,
corporation, board, officer or person, exercising judicial, quasi-judicial or
ministerial functions. What the petitions seek from respondents do not
involve judicial, quasi-judicial or ministerial functions. In prohibition, only
legal issues affecting the jurisdiction of the tribunal, board or officer involved
may be resolved on the basis of undisputed facts.2 The parties allege,
respectively, contentious evidentiary facts. It would be difficult, if not
anomalous, to decide the jurisdictional issue on the basis of the
contradictory factual submissions made by the parties.3 As the Court has so
often exhorted, it is not a trier of facts.
The petitions, in effect, are in the nature of actions for declaratory relief
under Rule 63 of the Rules of Court. The Rules provide that any person
interested under a contract may, before breach or violation thereof, bring an
action in the appropriate Regional Trial Court to determine any question of
construction or validity arising, and for a declaration of his rights or duties
thereunder.4 The Supreme Court assumes no jurisdiction over petitions for
declaratory relief which are cognizable by regional trial courts.5
PANGANIBAN, J.:
The five contracts for the construction and the operation of Ninoy Aquino
International Airport (NAIA) Terminal III, the subject of the consolidated
Petitions before the Court, are replete with outright violations of law, public
policy and the Constitution. The only proper thing to do is declare them all
null and void ab initio and let the chips fall where they may. Fiat iustitia ruat
coelum.
The facts leading to this controversy are already well presented in the
ponencia. I shall not burden the readers with a retelling thereof. Instead, I
will cut to the chase and directly address the two sets of gut issues:
1. The first issue is procedural: Does the Supreme Court have original
jurisdiction to hear and decide the Petitions? Corollarily, do petitioners have
locus standi and should this Court decide the cases without any mandatory
referral to arbitration?
Definitely and surely, the issues involved in these Petitions are clearly of
transcendental importance and of national interest. The subject contracts
pertain to the construction and the operation of the country's premiere
international airport terminal - an ultramodern world-class public utility that
will play a major role in the country's economic development and serve to
project a positive image of our country abroad. The five build-operate-&-
transfer (BOT) contracts, while entailing the investment of billions of pesos
in capital and the availment of several hundred millions of dollars in loans,
contain provisions that tend to establish a monopoly, require the
disbursements of public funds sans appropriations, and provide government
guarantees in violation of statutory prohibitions, as well as other provisions
equally offensive to law, public policy and the Constitution. Public interest
will inevitably be affected thereby.
The Court has, in the past, held that questions relating to gargantuan
government contracts ought to be settled without delay.2 This holding
applies with greater force to the instant cases. Respondent Piatco is partly
correct in averring that petitioners can obtain relief from the regional trial
courts via an action to annul the contracts.
Contrary to Piatco's argument that the resolution of the issues raised in the
Petitions will require delving into factual questions,4 I submit that their
disposition ultimately turns on questions of law.5 Further, many of the
significant and relevant factual questions can be easily addressed by an
examination of the documents submitted by the parties. In any event, the
Petitions raise some novel questions involving the application of the
amended BOT Law, which this Court has seen fit to tackle.
Arbitration
As will be discussed at length later, the Piatco contracts are indeed void in
their entirety; thus, a resort to the aforesaid provision on arbitration is
unavailing. Besides, petitioners and petitioners-in-intervention have pointed
out that, even granting arguendo that the arbitration clause remained a valid
provision, it still cannot bind them inasmuch as they are not parties to the
Piatco contracts. And in the final analysis, it is unarguable that the
arbitration process provided for under Section 10.02 of the ARCA, to be
undertaken by a panel of three (3) arbitrators appointed in accordance with
the Rules of Arbitration of the International Chamber of Commerce, will not
be able to address, determine and definitively resolve the constitutional and
legal questions that have been raised in the Petitions before us.
Locus Standi
Given this Court's previous decisions in cases of similar import, no one will
seriously doubt that, being taxpayers and members of the House of
Representatives, Petitioners Baterina et al. have locus standi to bring the
Petition in GR No. 155547. In Albano v. Reyes,7 this Court held that the
petitioner therein, suing as a citizen, taxpayer and member of the House of
Representatives, was sufficiently clothed with standing to bring the suit
questioning the validity of the assailed contract. The Court cited the fact that
public interest was involved, in view of the important role of the Manila
International Container Terminal (MICT) in the country's economic
development and the magnitude of the financial consideration. This,
notwithstanding the fact that expenditure of public funds was not required
under the assailed contract.
Petitioners thus correctly assert that the injury to them has a twofold aspect:
(1) they are adversely affected as taxpayers on account of the illegal
disbursement of public funds; and (2) they are prejudiced qua legislators,
since the contractual provisions requiring the government to incur
expenditures without appropriations also operate as limitations upon the
exclusive power and prerogative of Congress over the public purse. As
members of the House of Representatives, they are actually deprived of
discretion insofar as the inclusion of those items of expenditure in the
budget is concerned. To prevent such encroachment upon the legislative
privilege and obviate injury to the institution of which they are members,
petitioners-legislators have locus standi to bring suit.
Messrs. Agan et al. and Lopez et al., are likewise taxpayers and thus
possessed of standing to challenge the illegal disbursement of public funds.
Messrs. Agan et al., in particular, are employees (or representatives of
employees) of various service providers that have (1) existing concession
agreements with the MIAA to provide airport services necessary to the
operation of the NAIA and (2) service agreements to furnish essential
support services to the international airlines operating at the NAIA.
On the other hand, Messrs. Lopez et al. are employees of the MIAA. These
petitioners (Messrs. Agan et al. and Messrs. Lopez et al.) are confronted
with the prospect of being laid off from their jobs and losing their means of
livelihood when their employer-companies are forced to shut down or
otherwise retrench and cut back on manpower. Such development would
result from the imminent implementation of certain provisions in the
contracts that tend toward the creation of a monopoly in favor of Piatco, its
subsidiaries and related companies.
From the Outset, the Bidding Process Was Flawed and Tainted
At this point, I must emphasize that the law requires the award of a BOT
project to the bidder that has satisfied the minimum requirements; and met
the technical, financial, organizational and legal standards provided in the
BOT Law. Section 5 of this statute states:
The same provision requires that the price challenge via public bidding
"must be conducted under a two-envelope/two-stage system: the first
envelope to contain the technical proposal and the second envelope to
contain the financial proposal." Moreover, the 1994 Implementing Rules and
Regulations (IRR) provide that only those bidders that have passed the
prequalification stage are permitted to have their two envelopes reviewed.
Aside from complying with the legal and technical requirements (track
record or experience of the firm and its key personnel), a project proponent
desiring to prequalify must also demonstrate its financial capacity to
undertake the project. To establish such capability, a proponent must prove
that it is able to raise the minimum amount of equity required for the project
and to procure the loans or financing needed for it. Section 5.4(c) of the
1994 IRR provides:
"Sec. 5.4. Prequalification Requirements. - To pre-qualify, a project
proponent must comply with the following requirements:
Since the minimum amount of equity for the project was set at 30 percent12
of the minimum project cost of US$350 million, the minimum amount of
equity required of any proponent stood at US$105 million. Converted to
pesos at the exchange rate then of P26.239 to US$1.00 (as quoted by the
Bangko Sentral ng Pilipinas), the peso equivalent of the minimum equity
was P2,755,095,000.
Inasmuch as the Paircargo consortium did not possess the minimum equity
equivalent to 30 percent of the minimum project cost, it should not have
been prequalified or allowed to participate further in the bidding. The
Prequalification and Bidding Committee (PBAC) should therefore not have
opened the two envelopes of the consortium containing its technical and
financial proposals; required AEDC to match the consortium's bid; 16 or
awarded the Concession Agreement to the consortium's successor-in-
interest, Piatco.
As there was effectively no public bidding to speak of, the entire bidding
process having been flawed and tainted from the very outset, therefore, the
award of the concession to Paircargo's successor Piatco was void, and the
Concession Agreement executed with the latter was likewise void ab initio.
For this reason, Piatco cannot and should not be allowed to benefit from
that Agreement.17
In DOTC PBAC Bid Bulletin No. 4 (par. 3), Undersecretary Cal declared
that, for purposes of matching the price challenge of Piatco, AEDC as
originator of the unsolicited proposal would be permitted access only to the
schedule of proposed Annual Guaranteed Payments submitted by Piatco,
and not to the latter's financial and technical proposals that constituted the
basis for the price challenge in the first place. This was supposedly in
keeping with Section 11.6 of the 1994 IRR, which provides that proprietary
information is to be respected, protected and treated with utmost
confidentiality, and is therefore not to form part of the bidding/tender and
related documents.
A competing bid is never just any figure conjured from out of the blue; it is
arrived at after studying economic, financial, technical and other, factors; it
is likewise based on certain assumptions as to the nature of the business,
the market potentials, the probable demand for the product or service, the
future behavior of cost items, political and other risks, and so on. It is thus
self-evident that in order to be able to intelligently match a bid or price
challenge, a bidder must be given access to the assumptions and the
calculations that went into crafting the competing bid.
In this instance, the financial and technical proposals of Piatco would have
provided AEDC with the necessary information to enable it to make a
reasonably informed matching bid. To put it more simply, a bidder unable to
access the competitor's assumptions will never figure out how the
competing bid came about; requiring him to "counter-propose" is like having
him shoot at a target in the dark while blindfolded.
At the end of the day, the bottom line is that the validity and the propriety of
the award to Piatco had been irreparably impaired.
Delayed Issuance of the Notice of Award Violated the BOT Law and the IRR
Section 9.5 of the IRR requires that the Notice of Award must indicate the
time frame within which the winner of the bidding (and therefore the
prospective awardee) shall submit the prescribed performance security,
proof of commitment of equity contributions, and indications of sources of
financing (loans); and, in the case of joint ventures, an agreement showing
that the members are jointly and severally responsible for the obligations of
the project proponent under the contract.
The purpose of having a definite and firm timetable for the submission of the
aforementioned requirements is not only to prevent delays in the project
implementation, but also to expose and weed out unqualified proponents,
who might have unceremoniously slipped through the earlier prequalification
process, by compelling them to put their money where their mouths are, so
to speak.
In particular, Section 9.1 of the 1994 IRR prescribed that within 30 calendar
days from the time the second-stage evaluation shall have been completed,
the Committee must come to a decision whether or not to award the
contract and, within 7 days therefrom, the Notice of Award must be
approved by the head of agency or local government unit (LGU) concerned,
and its issuance must follow within another 7 days thereafter.
Section 9.2 of the IRR set the procedure applicable to projects involving
substantial government undertakings as follows: Within 7 days after the
decision to award is made, the draft contract shall be submitted to the ICC
for clearance on a no-objection basis. If the draft contract includes
government undertakings already previously approved, then the submission
shall be for information only.
Despite the clear timetables set out in the IRR, several lengthy and still-
unexplained delays occurred in the award process, as can be observed
from the presentation made by the counsel for public respondents,19 quoted
hereinbelow:
"11 Dec. 1996 - The Paircargo Joint Venture was informed by the
PBAC that AEDC failed to match and that negotiations preparatory to
Notice of Award should be commenced. This was the decision to
award that should have commenced the running of the 7-day period to
approve the Notice of Award, as per Section 9.1 of the IRR, or to
submit the draft contract to the ICC for approval conformably with
Section 9.2.
"01 April 1997 - The PBAC resolved that a copy of the final draft of the
Concession Agreement be submitted to the NEDA for clearance on a
no-objection basis. This resolution came more than 3 months too late
as it should have been made on the 20th of December 1996 at the
latest.
"16 April 1997 - The PBAC resolved that the period of signing the
Concession Agreement be extended by 15 days.
"09 July 1997 - The Notice of Award was issued to PIATCO. Following
the provisions of the IRR, the Notice of Award should have been
issued fourteen days after NEDA's approval, or the 28th of January
1997. In any case, even if it were to be assumed that the release of
NEDA's approval on the 18th of April was timely, the Notice of Award
should have been issued on the 9th of May 1997. In both cases,
therefore, the release of the Notice of Award occurred in a decidedly
less than timely fashion."
From the foregoing, the only conclusion that can possibly be drawn is that
the BOT law and its IRR were repeatedly violated with unmitigated impunity
- and by agents of government, no less! On account of such violation, the
award of the contract to Piatco, which undoubtedly gained time and
benefited from the delays, must be deemed null and void from the
beginning.
But the violations and desecrations did not stop there. After the PBAC made
its decision on December 11, 1996 to award the contract to Piatco, the latter
negotiated changes to the Contract bidded out and ended up with what
amounts to a substantially new contract without any public bidding. This
Contract was subsequently further amended four more times through
negotiation and without any bidding. Thus, the contract actually executed
between Piatco and DOTC/MIAA on July 12, 1997 (the Concession
Agreement or "CA") differed from the contract bidded out (the draft
concession agreement or "DCA") in the following very significant respects:
6. Under Section 6.01 of the DCA, the following fees are subject to the
written approval of MIAA: lease/rental charges, concession privilege
fees for passenger services, food services, transportation utility
concessions, groundhandling, catering and miscellaneous concession
fees, porterage fees, greeter/well-wisher fees, carpark fees, advertising
fees, VIP facilities fees and others. Moreover, adjustments to the
groundhandling fees, rentals and porterage fees are permitted only
once every two years and in accordance with a parametric formula, per
DCA Section 6.03. However, the CA as executed with Piatco provides
in Section 6.06 that all the aforesaid fees, rentals and charges may be
adjusted without MIAA's approval or intervention. Neither are the
adjustments to these fees and charges subject to or limited by any
parametric formula.25
7. Section 1.29 of the DCA provides that the terminal fees, aircraft
tacking fees, aircraft parking fees, check-in counter fees and other fees
are to be quoted and paid in Philippine pesos. But per Section 1.33 of
the CA, all the aforesaid fees save the terminal fee are denominated in
US Dollars.
8. Under Section 8.07 of the DCA, the term attendant liabilities refers
to liabilities pertinent to NAIA Terminal III, such as payment of lease
rentals and performance of other obligations under the Land Lease
Agreement; the obligations under the Tenant Agreements; and
payment of all taxes, fees, charges and assessments of whatever kind
that may be imposed on NAIA Terminal III or parts thereof. But in
Section 1.06 of the CA, Attendant Liabilities refers to unpaid debts of
Piatco: "All amounts recorded and from time to time outstanding in the
books of (Piatco) as owing to Unpaid Creditors who have provided,
loaned or advanced funds actually used for the Project, including all
interests, penalties, associated fees, charges, surcharges, indemnities,
reimbursements and other related expenses, and further including
amounts owed by [Piatco] to its suppliers, contractors and
subcontractors."
10. Under the DCA, any delay by Piatco in the payment of the amounts
due the government constitutes breach of contract. However, under
the CA, such delay does not necessarily constitute breach of contract,
since Piatco is permitted to suspend payments to the government in
order to first satisfy the claims of its secured creditors, per Section
8.04(d) of the CA.
It goes without saying that the amendment of the Contract bidded out (the
DCA or draft concession agreement) - in such substantial manner, without
any public bidding, and after the bidding process had been concluded on
December 11, 1996 - is violative of public policy on public biddings, as well
as the spirit and intent of the BOT Law. The whole point of going through
the public bidding exercise was completely lost. Its very rationale was totally
subverted by permitting Piatco to amend the contract for which public
bidding had already been concluded. Competitive bidding aims to obtain the
best deal possible by fostering transparency and preventing favoritism,
collusion and fraud in the awarding of contracts. That is the reason why
procedural rules pertaining to public bidding demand strict observance.26
In a later case, Mata v. San Diego,29 this Court reiterated its ruling as
follows:
"It is true that modification of government contracts, after the same had
been awarded after a public bidding, is not allowed because such
modification serves to nullify the effects of the bidding and whatever
advantages the Government had secured thereby and may also result
in manifest injustice to the other bidders. This prohibition, however,
refers to a change in vital and essential particulars of the agreement
which results in a substantially new contract."
I submit that accepting such warped argument will result in perverting the
policy underlying public bidding. The BOT Law cannot be said to allow the
negotiation of contractual stipulations resulting in a substantially new
contract after the bidding process and price challenge had been concluded.
In fact, the BOT Law, in recognition of the time, money and effort invested in
an unsolicited proposal, accords its originator the privilege of matching the
challenger's bid.
Section 4-A of the BOT Law specifically refers to a "lower price proposal" by
a competing bidder; and to the right of the original proponent "to match the
price" of the challenger. Thus, only the price proposals are in play. The
terms, conditions and stipulations in the contract for which public bidding
has been concluded are understood to remain intact and not be subject to
further negotiation. Otherwise, the very essence of public bidding will be
destroyed - there will be no basis for an exact comparison between bids.
Moreover, Piatco misinterpreted the meaning behind PBAC Bid Bulletin No.
3. The phrase amendments . . . from time to time refers only to those
amendments to the draft concession agreement issued by the PBAC prior to
the submission of the price challenge; it certainly does not include or permit
amendments negotiated for and introduced after the bidding process, has
been terminated.
Not satisfied with the Concession Agreement, Piatco - once more without
bothering with public bidding - negotiated with government for still more
substantial changes. The result was the Amended and Restated
Concession Agreement (ARCA) executed on November 26, 1998. The
following changes were introduced:
7. Government bound itself to set the initial rate of the terminal fee, to
be charged when Terminal III begins operations, at an amount higher
than US$20.36
In any event, it is quite patent that the sum total of the aforementioned
changes resulted in drastically weakening the position of government to a
degree that seems quite excessive, even from the standpoint of a
businessperson who regularly transacts with banks and foreign lenders, is
familiar with their mind-set, and understands what motivates them. On the
other hand, whatever it was that impelled government officials concerned to
accede to those grossly disadvantageous changes, I can only hazard a
guess.
There is no question in my mind that the ARCA was unauthorized and illegal
for lack of public bidding and for being patently disadvantageous to
government.
In the First Supplement ("FS") executed on August 27, 1999, the following
changes were made to the ARCA:
(a) Working for the removal of the general aviation traffic from the
NAIA airport complex48
(b) Providing through MIAA the land required by Piatco for the
taxilane and one taxiway at no cost to Piatco49
(e) Dealing directly with BCDA and the Phil. Air Force in acquiring
additional land or right of way for the road upgrade and
improvement program.53
I must emphasize that the First Supplement is void in two respects. First, it
is merely an amendment to the ARCA, upon which it is wholly dependent;
therefore, since the ARCA is void, inexistent and not capable of being
ratified or amended, it follows that the FS too is void, inexistent and
inoperative. Second, even assuming arguendo that the ARCA is somehow
remotely valid, nonetheless the FS, in imposing significant new obligations
upon government, altered the fundamental terms and stipulations of the
ARCA, thus necessitating a public bidding all over again. That the FS was
entered into sans public bidding renders it utterly void and inoperative.
The scope of the works, the procedures involved, and the obligations of the
contractor are provided for in Parts II and III of the SS. Section 4.1 sets out
the compensation to be paid, listing specific rates per cubic meter of
materials for each phase of the work - excavation, leveling, removal and
disposal, backfilling and dewatering. The amounts collectible by Piatco are
to be offset against the Annual Guaranteed Payments it must pay
government.
The Third Supplement ("TS"), executed between the government and Piatco
on June 22, 2001, passed on to the government certain obligations of Piatco
as Terminal III concessionaire, with respect to the surface road connecting
Terminals II and III.
However, in Section 5 of the First Supplement, the parties declared that the
access tunnel was not economically viable at that time. In lieu thereof, the
parties agreed that a surface access road (now called the T2-T3 Road) was
to be constructed by Piatco to connect the two terminals. Since it was
plainly in substitution of the tunnel, the surface road construction should
likewise be considered part and parcel of the same project, and therefore
part of Piatco's obligation as well. While the access tunnel was estimated to
cost about P800 million, the surface road would have a price tag in the
vicinity of about P100 million, thus producing significant savings for Piatco.
Yet, the Third Supplement, while confirming that Piatco would construct the
T2-T3 Road, nevertheless shifted to government some of the obligations
pertaining to the former, as follows:
3. MIAA will answer for the operation, maintenance and repair of the
T2-T3 Road.60
In patiently tracing the progress of the Piatco contracts from their inception
up to the present, I noted that the whole process was riddled with significant
lapses, if not outright irregularity and wholesale violations of law and public
policy. The rationale of beginning at the beginning, so to speak, will become
evident when the question of what to do with the five Piatco contracts is
discussed later on.
Certainly the most discussed provision in the parties' arguments is the one
creating an unauthorized, direct government guarantee of Piatco's
obligations in favor of the lenders.
Section 4-A of the BOT Law as amended states that unsolicited proposals,
such as the NAIA Terminal III Project, may be accepted by government
provided inter alia that no direct government guarantee, subsidy or equity is
required. In short, such guarantee is prohibited in unsolicited proposals.
Section 2(n) of the same legislation defines direct government guarantee as
"an agreement whereby the government or any of its agencies or local
government units (will) assume responsibility for the repayment of debt
directly incurred by the project proponent in implementing the project in
case of a loan default."
Both the CA and the ARCA have provisions that undeniably create such
prohibited government guarantee. Section 4.04 (c)(iv) to (vi) of the ARCA,
which is similar to Section 4.04 of the CA, provides thus:
In turn, the term Attendant Liabilities is defined in Section 1.06 of the ARCA
as follows:
Piatco also argues that there is no proviso requiring government to pay the
Senior Lenders in the event of Piatco's default. This is literally true, in the
sense that Section 4.04(c)(vi) of ARCA speaks of government making the
termination payment to Piatco, not to the lenders. However, it is almost a
certainty that the Senior Lenders will already have made Piatco sign over to
them, ahead of time, its right to receive such payments from government;
and/or they may already have had themselves appointed its attorneys-in-
fact for the purpose of collecting and receiving such payments.
To the extent that the project proponent is able to obtain loans to fund the
project, those risks are shared between the project proponent on the one
hand, and its banks and other lenders on the other. But where the
proponent or its lenders manage to cajol or coerce the government into
extending a guarantee of payment of the loan obligations, the risks
assumed by the lenders are passed right back to government. I cannot
understand why, in the instant case, government cheerfully assented to re-
assuming the risks of the project when it gave the prohibited guarantee and
thus simply negated the very purpose of the BOT Law and the protection it
gives the government.
"In the event that the government defaults on certain major obligations
in the contract and such failure is not remediable or if remediable shall
remain unremedied for an unreasonable length of time, the project
proponent/contractor may, by prior notice to the concerned national
government agency or local government unit specifying the turn-over
date, terminate the contract. The project proponent/contractor shall be
reasonably compensated by the Government for equivalent or
proportionate contract cost as defined in the contract."
The foregoing statutory provision in effect provides for the following limited
instances when termination compensation may be allowed:
To emphasize, the law does not permit compensation for the project
proponent when contract termination is due to the proponent's own fault or
breach of contract.
This principle was clearly violated in the Piatco Contracts. The ARCA
stipulates that government is to pay termination compensation to Piatco
even when termination is initiated by government for the following causes:
As if that were not bad enough, the ARCA also inserted into Section 8.01
the phrase "Subject to Section 4.04." The effect of this insertion is that in
those instances where government may terminate the contract on account
of Piatco's breach, and it is nevertheless required under the ARCA to make
termination compensation to Piatco even though unauthorized by law, such
compensation is to be equivalent to the payment amount guaranteed by
government - either a) the Appraised Value of the terminal facility or (b) the
aggregate of the Attendant Liabilities, whichever amount is greater!
Clearly, this condition is not in line with Section 7 of the BOT Law. That
provision permits a project proponent to recover the actual expenses it
incurred in the prosecution of the project plus a reasonable rate of return not
in excess of that provided in the contract; or to be compensated for the
equivalent or proportionate contract cost as defined in the contract, in case
the government is in default on certain major contractual obligations.
It will be recalled that Section 4-A of the BOT Law as amended prohibits not
only direct government guarantees, but likewise a direct government
subsidy for unsolicited proposals. Section 13.2. b. iii. of the 1999 IRR
defines a direct government subsidy as encompassing "an agreement
whereby the Government . . . will . . . postpone any payments due from the
proponent."
Despite the statutory ban, Section 8.01 (d) of the ARCA provides thus:
But beyond the clear violations of law, there are larger issues involved in the
ARCA. Earlier, I mentioned that Section 8.01(d) of the ARCA completely
eliminated the proviso in Section 8.04(d) of the CA which gave government
the right to appoint a financial controller to manage the cash position of
Piatco during situations of financial distress. Not only has government been
deprived of any means of monitoring and managing the situation; worse, as
can be seen from Section 8.01(d) above-quoted, the Senior Lenders have
effectively locked in on the right to exercise financial controllership over
Piatco and to allocate its cash resources to the payment of all amounts
owed to the Senior Lenders before allowing any payment to be made to
government.
In brief, this particular provision of the ARCA has placed in the hands of
foreign lenders the power and the authority to determine how much (if at all)
and when the Philippine government (as grantor of the franchise) may be
allowed to receive from Piatco. In that situation, government will be at the
mercy of the foreign lenders. This is a situation completely contrary to the
rationale of the BOT Law and to public policy.
The aforesaid provision rouses mixed emotions - shame and disgust at the
parties' (especially the government officials') docile submission and abject
servitude and surrender to the imperious and excessive demands of the
foreign lenders, on the one hand; and vehement outrage at the affront to the
sovereignty of the Republic and to the national honor, on the other. It is
indeed time to put an end to such an unbearable, dishonorable situation.
I will now discuss the manner in which the Piatco Contracts offended the
Constitution.
While Section 2.02 of the ARCA spoke of granting to Piatco "a franchise to
operate and maintain the Terminal Complex," Section 3.02(a) of the same
ARCA granted to Piatco, for the entire term of the concession agreement,
"the exclusive right to operate a commercial international passenger
terminal within the Island of Luzon" with the exception of those three
terminals already existing63 at the time of execution of the ARCA.
In its Opinion No. 078, Series of 1995, the Department of justice held that
"the NAIA Terminal III which . . . is a 'terminal for public use' is a public
utility." Consequently, the constitutional prohibition against the exclusivity of
a franchise applies to the franchise for the operation of NAIA Terminal III as
well.
What was granted to Piatco was not merely a franchise, but an "exclusive
right" to operate an international passenger terminal within the "Island of
Luzon." What this grant effectively means is that the government is now
estopped from exercising its inherent power to award any other person
another franchise or a right to operate such a public utility, in the event
public interest in Luzon requires it. This restriction is highly detrimental to
government and to the public interest. Former Secretary of Justice
Hernando B. Perez expressed this point well in his Memorandum for the
President dated 21 May 2002:
Actually, the aforementioned Section 3.02 of the ARCA more than just
guaranteed exclusivity; it also guaranteed that the government will not
improve or expand the facilities at Clark - and in fact is required to put a cap
on the latter's operations - until after Terminal III shall have been operated
at or beyond its peak capacity for three consecutive years.65 As counsel for
public respondents pointed out, in the real world where the rate of influx of
international passengers can fluctuate substantially from year to year, it may
take many years before Terminal III sees three consecutive years'
operations at peak capacity. The Diosdado Macapagal International Airport
may thus end up stagnating for a long time. Indeed, in order to ensure
greater profits for Piatco, the economic progress of a region has had to be
sacrificed.
Section 11 of Article XII of the Constitution also provides that "no franchise,
certificate or any other form of authorization for the operation of a public
utility shall be . . . for a longer period than fifty years." After all, a franchise
held for an unreasonably long time would likely give rise to the same evils
as a monopoly.
a) x x x xxx xxx
The aforesaid easy payment scheme is less beneficial than it first appears.
Although it enables government to avoid having to make outright payment of
an obligation that will likely run into billions of pesos, this easy payment plan
will nevertheless cost government considerable loss of income, which it
would earn if it were to operate Terminal III by itself. Inasmuch as payments
to the concessionaire (Piatco) will be on "installment basis," interest charges
on the remaining unpaid balance would undoubtedly cause the total
outstanding balance to swell. Piatco would thus be entitled to remain in the
driver's seat and keep operating the terminal for an indefinite length of time.
In furtherance of the first monopoly, the Piatco Contracts stipulate that the
NAIA Terminal III will be the only facility to be operated as an international
passenger terminal;66 that NAIA Terminals I and II will no longer be
operated as such;67 and that no one (including the government) will be
allowed to compete with Piatco in the operation of an international
passenger terminal in the NAIA Complex.68 Given that, at this time, the
government and Piatco are the only ones engaged in the business of
operating an international passenger terminal, I am not acutely concerned
with this particular monopolistic situation.
There was however another monopoly within the NAIA created by the
subject contracts for Piatco - in the business of providing international
airlines with the following: groundhandling, in-flight catering, cargo handling,
and aircraft repair and maintenance services. These are lines of business
activity in which are engaged many service providers (including the
petitioners-in-intervention), who will be adversely affected upon full
implementation of the Piatco Contracts, particularly Sections 3.01(d)69 and
(e)70 of both the ARCA and the CA.
On the one hand, Section 3.02(a) of the ARCA makes Terminal III the only
international passenger terminal at the NAIA, and therefore the only place
within the NAIA Complex where the business of providing airport-related
services to international airlines may be conducted. On the other hand,
Section 3.01(d) of the ARCA requires government, through the MIAA, not to
allow service providers with expired MIAA contracts to renew or extend their
contracts to render airport-related services to airlines. Meanwhile, Section
3.01(e) of the ARCA requires government, through the DOTC and MIAA,
not to allow service providers - those with subsisting concession
agreements for services and operations being conducted at Terminal I - to
carry over their concession agreements, services and operations to
Terminal III, unless they first enter into a separate agreement with Piatco.
Worse, there is nothing whatsoever in the Piatco Contracts that can serve to
restrict, control or regulate the concessionaire's discretion and power to
reject any service provider and/or impose any term or condition it may see
fit in any contract it enters into with a service provider. In brief, there is no
safeguard whatsoever to ensure free and fair competition in the service-
provider sector.
In the meantime, and not surprisingly, Piatco is first in line, ready to exploit
the unique business opportunity. It announced72 that it has accredited three
groundhandlers for Terminal III. Aside from the Philippine Airlines, the other
accredited entities are the Philippine Airport and Ground Services
Globeground, Inc. ("PAGSGlobeground") and the Orbit Air Systems, Inc.
("Orbit"). PAGSGlobeground is a wholly-owned subsidiary of the Philippine
Airport and Ground Services, Inc. or PAGS,73 while Orbit is a wholly-owned
subsidiary of Friendship Holdings, Inc.,74 which is in turn owned 80 percent
by PAGS.75 PAGS is a service provider owned 60 percent by the Cheng
Family;76 it is a stockholder of 35 percent of Piatco77 and is the latter's
designated contractor-operator for NAIA Terminal III.78
Such entry into and domination of the airport-related services sector appear
to be very much in line with the following provisions contained in the First
Addendum to the Piatco Shareholders Agreement,79 executed on July 6,
1999, which appear to constitute a sort of master plan to create a monopoly
and combinations in restraint of trade:
a. x x x xxx x x x.;
b. That (Phil. Airport and Ground Services, Inc.) PAGS and/or its
designated Affiliates shall, at all times during the Concession Period,
be exclusively authorized by (PIATCO) to engage in the provision of
ground-handling, catering and fueling services within the Terminal
Complex.
Precisely, proscribed by our Constitution are the monopoly and the restraint
of trade being fostered by the Piatco Contracts through the erection of
barriers to the entry of other service providers into Terminal III. In Tatad v.
Secretary of the Department of Energy,80 the Court ruled:
Aside from creating a monopoly, the Piatco contracts also give the
concessionaire virtually limitless power over the charging of fees, rentals
and so forth. What little "oversight function" the government might be able
and minded to exercise is less than sufficient to protect the public interest,
as can be gleaned from the following provisions:
"Sec. 6.06. Adjustment of Non-Public Utility Fees and Charges
Earlier, I discussed how Section 3.01(e)84 of both the CA and the ARCA
requires government, through DOTC/MIAA, not to permit the carry-over to
Terminal III of the services and operations of certain service providers
currently operating at Terminal I with subsisting contracts.
By the In-Service Date, Terminal III shall be the only facility to be operated
as an international passenger terminal at the NAIA;85 thus, Terminals I and
II shall no longer operate as such,86 and no one shall be allowed to compete
with Piatco in the operation of an international passenger terminal in the
NAIA.87 The bottom line is that, as of the In-Service Date, Terminal III will be
the only terminal where the business of providing airport-related services to
international airlines and passengers may be conducted at all.
In short, the CA and the ARCA obligate and constrain government to break
its existing contracts with these service providers.
True, doing business at the NAIA may be viewed more as a privilege than
as a right. Nonetheless, where that privilege has been availed of by the
petitioners-in-intervention service providers for years on end, a situation
arises, similar to that in American Inter-fashion v. GTEB.89 We held therein
that a privilege enjoyed for seven years "evolved into some form of property
right which should not be removed x x x arbitrarily and without due process."
Said pronouncement is particularly relevant and applicable to the situation
at bar because the livelihood of the employees of petitioners-intervenors are
at stake.
The Piatco Contracts Violate Constitutional Prohibition
Against Deprivation of Liberty Without Due Process
The Piatco Contracts by locking out existing service providers from entry
into Terminal III and restricting entry of future service providers, thereby
infringed upon the freedom - guaranteed to and heretofore enjoyed by
international airlines - to contract with local service providers of their choice,
and vice versa.
Both the service providers and their client airlines will be deprived of the
right to liberty, which includes the right to enter into all contracts,90 and/or
the right to make a contract in relation to one's business.91
Referring to the aforequoted provisions, this Court has held that "(I)t is quite
evident from the tenor of the language of the law that the existence of
appropriations and the availability of funds are indispensable pre-requisites
to or conditions sine qua non for the execution of government contracts. The
obvious intent is to impose such conditions as a priori requisites to the
validity of the proposed contract."93
In the First Supplement ("FS") dated August 27, 1999, the following
requirements were imposed on the government:
o Providing thru MIAA the land required by Piatco for the taxilane
and one taxiway, at no cost to Piatco
o Implementing the government's existing storm drainage master
plan
o Coordinating with DPWH the financing, implementation and
completion of the following works before the In-Service Date:
three left-turning overpasses (Edsa to Tramo St., Tramo to
Andrews Ave., and Manlunas Road to Sales Ave.) and a road
upgrade and improvement program involving widening, repair and
resurfacing of Sales Road, Andrews Avenue and Manlunas Road;
improvement of Nichols Interchange; and removal of squatters
along Andrews Avenue
o Dealing directly with BCDA and the Philippine Air Force in
acquiring additional land or right of way for the road upgrade and
improvement program
o Requiring government to work for the immediate reversion to
MIAA of the Nayong Pilipino National Park, in order to permit the
building of the second west parallel taxiway
On the other hand, the Third Supplement ("TS") obligates the government to
deliver, within 120 days from date thereof, clean possession of the land on
which the T2-T3 Road is to be constructed.
Viewed in this light, the "Additional Special Obligations" set out in Section 4
of the FS take on a different aspect. In particular, each of the following may
all be deemed to play a major role in the successful and timely prosecution
of the Terminal III Project: the obtention of land required by PIATCO for the
taxilane and taxiway; the implementation of government's existing storm
drainage master plan; and coordination with DPWH for the completion of the
three left-turning overpasses before the In-Service Date, as well as
acquisition and delivery of additional land for the construction of the T2-T3
access road.
Regarding MIAA's obligation to coordinate with the DPWH for the complete
implementation of the road upgrading and improvement program for Sales,
Andrews and Manlunas Roads (which provide access to the Terminal III
site) prior to the In-Service Date, it is essential to take note of the fact that
there was a pressing need to complete the program before the opening of
Terminal III.95 For that reason, the MIAA was compelled to enter into a
memorandum of agreement with the DPWH in order to ensure the timely
completion of the road widening and improvement program. MIAA agreed to
advance the total amount of P410.11 million to DPWH for the works, while
the latter was committed to do the following:
It can be easily inferred, then, that DPWH did not set aside enough funds to
be able to complete the upgrading program for the crucially situated access
roads prior to the targeted opening date of Terminal III; and that, had MIAA
not agreed to lend the P410 Million, DPWH would not have been able to
complete the program on time. As a consequence, government would have
been in breach of a material obligation. Hence, this particular undertaking of
government may likewise not be construed as being for best-efforts
compliance only.
They also Infringe on the Legislative Prerogative and Power Over the Public
Purse
But the particularly sad thing about this transaction between MIAA and
DPWH is the fact that both agencies were maneuvered into (or allowed
themselves to be maneuvered into) an agreement that would ensure
delivery of upgraded roads for Piatco's benefit, using funds not allocated for
that purpose. The agreement would then be presented to Congress as a
done deal. Congress would thus be obliged to uphold the agreement and
support it with the necessary allocations and appropriations for three years,
in order to enable DPWH to deliver on its committed repayments to MIAA.
The net result is an infringement on the legislative power over the public
purse and a diminution of Congress' control over expenditures of public
funds - a development that would not have come about, were it not for the
Supplements. Very clever but very illegal!
EPILOGUE
What Do We Do Now?
In the final analysis, there remains but one ultimate question, which I raised
during the Oral Argument on December 10, 2002: What do we do with the
Piatco Contracts and Terminal III?96 (Feeding directly into the resolution of
the decisive question is the other nagging issue: Why should we bother with
determining the legality and validity of these contracts, when the Terminal
itself has already been built and is practically complete?)
Prescinding from all the foregoing disquisition, I find that all the Piatco
contracts, without exception, are void ab initio, and therefore inoperative.
Even the very process by which the contracts came into being - the bidding
and the award - has been riddled with irregularities galore and blatant
violations of law and public policy, far too many to ignore. There is thus no
conceivable way, as proposed by some, of saving one (the original
Concession Agreement) while junking all the rest.
Despite all the insidious contraventions of the Constitution, law and public
policy Piatco perpetrated, keeping Piatco on as concessionaire and even
rewarding it by allowing it to operate and profit from Terminal III - instead of
imposing upon it the stiffest sanctions permissible under the laws - is
unconscionable.
It is no exaggeration to say that Piatco may not really mind which contract
we decide to keep in place. For all it may care, we can do just as well
without one, if we only let it continue and operate the facility. After all, the
real money will come not from building the Terminal, but from actually
operating it for fifty or more years and charging whatever it feels like, without
any competition at all. This scenario must not be allowed to happen.
If the Piatco contracts are junked altogether as I think they should be,
should not AEDC automatically be considered the winning bidder and
therefore allowed to operate the facility? My answer is a stone-cold 'No'.
AEDC never won the bidding, never signed any contract, and never built
any facility. Why should it be allowed to automatically step in and benefit
from the greed of another?
FIRST DIVISION
DECISION
QUISUMBING, J.:
For review on certiorari is the Decision,[2] dated February 22, 2002, of the
Court of Appeals, in the consolidated cases CA-G.R. CV No. 51521 and
CA-G.R. SP No. 40457. The decretal portion read:
No pronouncement as to costs.
The Petition in CA-G.R. SP No. 40457 is DENIED for being moot and
academic.
SO ORDERED.[3]
Herein respondents Spouses Virgilio Japor and Luz Roces Japor were the
owners of an 845.5 square-meter residential lot including its improvements,
situated in Barangay Ibabang Mayao, Lucena City, as shown by Transfer
Certificate of Title (TCT) No. T-39514. Adjacent to the Japor's lot is another
lot owned by respondent Marta Japor, which consisted of 325.5 square
meters and titled under TCT No. T-15018.
On August 23, 1982, the respondents obtained a loan of P90,000 from the
Quezon Development Bank (QDB), and as security therefor, they
mortgaged the lots covered by TCT Nos. T-39514 and T-15018 to QDB, as
evidenced by a Deed of Real Estate Mortgage duly executed by and
between the respondents and QDB.
The respondents failed to pay their aforesaid loans. However, before the
bank could foreclose on the mortgage, respondents, thru their broker, one
Lucia G. Orian, offered to mortgage their properties to petitioner Teresita
Dio. Petitioner prepared a Deed of Real Estate Mortgage, whereby
respondents mortgaged anew the two properties already mortgaged with
QDB to secure the timely payment of a P350,000 loan that respondents had
from petitioner Dio. The Deed of Real Estate Mortgage, though dated
January 1989, was actually executed on February 13, 1989 and notarized
on February 17, 1989.
Under the terms of the deed, respondents agreed to pay the petitioner
interest at the rate of five percent (5%) a month, within a period of two
months or until April 14, 1989. In the event of default, an additional interest
equivalent to five percent (5%) of the amount then due, for every month of
delay, would be charged on them.
The respondents failed to settle their obligation to petitioner on April 14,
1989, the agreed deadline for settlement.
The trial court issued an Order enjoining the auction sale of the
aforementioned mortgaged properties.
On June 15, 1992, the Japors filed a Motion to Admit Amended Complaint
with an attached copy of their Amended Complaint praying that the Deed of
Real Estate Mortgage dated February 13, 1989 be declared null and void,
but reiterating the plea that the trial court fix the contractual obligations of
the Japors with Dio. The trial court denied the motion.
On December 11, 1995, the trial court handed down the following judgment:
SO ORDERED.[7]
On January 17, 1996, respondents filed their notice of appeal. On April 26,
1996, they also filed a Petition for Temporary Restraining Order And/Or
Mandatory Injunction in Aid of Appellate Jurisdiction with the Court of
Appeals.
As stated at the outset, the appellate court affirmed the decision of the trial
court with respect to the validity of the Deed of Real Estate Mortgage, but
modified the interest and penalty rates for being unconscionable and
exorbitant.
Before us, petitioner assigns the following errors allegedly committed by the
appellate court:
II
THE STIPULATED INTEREST AND PENALTY ARE NOT 'EXCESSIVE,
INIQUITOUS, UNCONSCIONABLE, EXORBITANT AND CONTRARY TO
MORAL[S].
III
IV
Simply stated, the issue is: Did the Court of Appeals err when it held that the
stipulations on interest and penalty in the Deed of Real Estate Mortgage is
contrary to morals, if not illegal? Corollarily, were respondents entitled to
any 'surplus' on the auction sale price?
On the main issue, petitioner contends that The Usury Law[10] has been
rendered ineffective by Central Bank Circular No. 905, series of 1982 and
accordingly, usury has become legally non-existent in this jurisdiction, thus,
interest rates may accordingly be pegged at such levels or rates as the
lender and the borrower may agree upon. Petitioner avers she has not
violated any law considering she is not engaged in the business of money-
lending. Moreover, she claims she has suffered inconveniences and
incurred expenses for some 13 years now as a result of respondents' failure
to pay her. Petitioner further points out that the 5% interest rate was
proposed by the respondents and have only themselves to blame if the
interests and penalties ballooned to its present amount due to their willful
delay and default in payment. The appellate court thus erred, petitioner now
insists, in applying Sps. Almeda v. Court of Appeals[11] and Medel v. Court
of Appeals[12] to reduce the interest rate to 12% per annum and the penalty
to 1% per month.
Respondents admit they owe petitioner P350,000 and do not question any
lawful interest on their loan but they maintain that the Deed of Real Estate
Mortgage is null and void since it did not state the true intent of the parties,
which limited the 5% interest rate to only two (2) months from the date of the
loan and which did not provide for penalties and other charges in the event
of default or delay. Respondents vehemently contend that they never
consented to the said stipulations and hence, should not be bound by them.
Central Bank Circular No. 905, which took effect on January 1, 1983,
effectively removed the ceiling on interest rates for both secured and
unsecured loans, regardless of maturity. However, nothing in said Circular
grants lenders carte blanche authority to impose interest rates which would
result in the enslavement of their borrowers or to the hemorrhaging of their
assets.[13] While a stipulated rate of interest may not technically and
necessarily be usurious under Circular No. 905, usury now being legally
non-existent in our jurisdiction,[14] nonetheless, said rate may be equitably
reduced should the same be found to be iniquitous, unconscionable, and
exorbitant, and hence, contrary to morals (contra bonos mores), if not
against the law.[15] What is iniquitous, unconscionable, and exorbitant shall
depend upon the factual circumstances of each case.
In the instant case, the Court of Appeals found that the 5% interest rate per
month and 5% penalty rate per month for every month of default or delay is
in reality interest rate at 120% per annum. This Court has held that a
stipulated interest rate of 5.5% per month or 66% per annum is void for
being iniquitous or unconscionable.[16] We have likewise ruled that an
interest rate of 6% per month or 72% per annum is outrageous and
inordinate.[17] Conformably to these precedent cases, a combined interest
and penalty rate at 10% per month or 120% per annum, should be deemed
iniquitous, unconscionable, and inordinate. Hence, we sustain the appellate
court when it found the interest and penalty rates in the Deed of Real Estate
Mortgage in the present case excessive, hence legally impermissible.
Reduction is legally called for now in rates of interest and penalty stated in
the mortgage contract.
The evidence shows that it was indeed the respondents who proposed the
5% interest rate per month for two (2) months. Having agreed to said rate,
the parties are now estopped from claiming otherwise. For the succeeding
period after the two months, however, the Court of Appeals correctly
reduced the interest rate to 12% per annum and the penalty rate to 1% per
month, in accordance with Article 2227[18] of the Civil Code.
We note that the 'surplus' was the result of the computation by the Court of
Appeals of respondents' outstanding liability based on a reduced interest
rate of 12% per annum and the reduced penalty rate of 1% per month. The
court a quo then proceeded to apply our ruling in Sulit v. Court of
Appeals,[20] to the effect that in case of surplus in the purchase price, the
mortgagee is liable for such surplus as actually comes into his hands, but
where he sells on credit instead of cash, he must still account for the
proceeds as if the price were paid in cash, for such surplus stands in the
place of the land itself with respect to liens thereon or vested rights therein
particularly those of the mortgagor or his assigns.
SO ORDERED.
Consolidated Bank and Trust Corporation vs. Court of
Appeals, 365 SCRA 671 (2001)
Republic of the Philippines
SUPREME COURT
Baguio City
FIRST DIVISION
YNARES-SANTIAGO, J.:
The instant petition for review seeks to partially set aside the July 26, 1993
Decision1 of respondent Court of Appeals in CA-GR. CV No. 29950, insofar
as it orders petitioner to reimburse respondent Continental Cement
Corporation the amount of P490, 228.90 with interest thereon at the legal
rate from July 26, 1988 until fully paid. The petition also seeks to set aside
the March 8, 1994 Resolution2 of respondent Court of Appeals denying its
Motion for Reconsideration.
On September 17, 1990, the trial court rendered its Decision,5 dismissing
the Complaint and ordering petitioner to pay respondents the following
amounts under their counterclaim: P490,228.90 representing overpayment
of respondent Corporation, with interest thereon at the legal rate from July
26, 1988 until fully paid; P10,000.00 as attorney's fees; and costs.
Both parties appealed to the Court of Appeals, which partially modified the
Decision by deleting the award of attorney's fees in favor of respondents
and, instead, ordering respondent Corporation to pay petitioner P37,469.22
as and for attorney's fees and litigation expenses.
On the first issue respecting the fact of overpayment found by both the
lower court and respondent Court of Appeals, we stress the time-honored
rule that findings of fact by the Court of Appeals especially if they affirm
factual findings of the trial court will not be disturbed by this Court, unless
these findings are not supported by evidence.7
Petitioner decries the lack of computation by the lower court as basis for its
ruling that there was an overpayment made. While such a computation may
not have appeared in the Decision itself, we note that the trial court's finding
of overpayment is supported by evidence presented before it. At any rate,
we painstakingly reviewed and computed the payments together with the
interest and penalty charges due thereon and found that the amount of
overpayment made by respondent Bank to petitioner, i.e., P263,070.13, was
more than what was ordered reimbursed by the lower court. However, since
respondents did not file an appeal in this case, the amount ordered
reimbursed by the lower court should stand.
Hence, the interests and other charges on the subject letter of credit should
be computed only on the balance of P681,075.93, which was the portion
actually loaned by the bank to respondent Corporation.
Neither do we find error when the lower court and the Court of Appeals set
aside as invalid the floating rate of interest exhorted by petitioner to be
applicable. The pertinent provision in the trust receipt agreement of the
parties fixing the interest rate states:
Petitioner has also failed to convince us that its transaction with respondent
Corporation is really a trust receipt transaction instead of merely a simple
loan, as found by the lower court and the Court of Appeals.
The Trust Receipts Law does not seek to enforce payment of the loan,
rather it 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. Here, it is crystal clear that on the part
of Petitioners there was neither dishonesty nor abuse of confidence in
the handling of money to the prejudice of PBC. Petitioners continually
endeavored to meet their obligations, as shown by several receipts
issued by PBC acknowledging payment of the loan.
Also noteworthy is the fact that Petitioners are not importers acquiring
the goods for re-sale, contrary to the express provision embodied in
the trust receipt. They are contractors who obtained the fungible goods
for their construction project. At no time did title over the construction
materials pass to the bank, but directly to the Petitioners from CM
Builders Centre. This impresses upon the trust receipt in question
vagueness and ambiguity, which should not be the basis for criminal
prosecution in the event of violation of its provisions.
The practice of banks of making borrowers sign trust receipts to
facilitate collection of loans and place them under the threats of
criminal prosecution should they be unable to pay it may be unjust and
inequitable if not reprehensible. Such agreements are contracts of
adhesion which borrowers have no option but to sign lest their loan be
disapproved. The resort to this scheme leaves poor and hapless
borrowers at the mercy of banks, and is prone to misinterpretation, as
had happened in this case. Eventually, PBC showed its true colors and
admitted that it was only after collection of the money, as manifested
by its Affidavit of Desistance.
Q -After the bank opened a letter of credit in favor of Petrophil Corp. for
the account of the defendants thereby paying the value of the bunker
fuel oil what transpired next after that?
A -Upon purchase of the bunker fuel oil and upon the requests of the
defendant possession of the bunker fuel oil were transferred to them.
A -To the Continental Cement Corp. upon the execution of the trust
receipt acknowledging the ownership of the bunker fuel oil this should
be acceptable for whatever disposition he may make.
Q - You mentioned about acknowledging ownership of the bunker fuel
oil to whom by whom?
A TTY. RACHON:
COURT:
A TTY. RACHON :
A TTY. BANAGA:
COURT:
Proceed.
A TTY .BANAGA:
Q - Who owns the bunker fuel oil after purchase from Petrophil Corp. ?
A - Gregory Lim.15
By all indications, then, it is apparent that there was really no trust receipt
transaction that took place. Evidently, respondent Corporation was required
to sign the trust receipt simply to facilitate collection by petitioner of the loan
it had extended to the former.
Finally, we are not convinced that respondent Gregory T. Lim and his
spouse should be personally liable under the subject trust receipt.
Petitioner's argument that respondent Corporation and respondent Lim and
his spouse are one and the same cannot be sustained. The transactions
sued upon were clearly entered into by respondent Lim in his capacity as
Executive Vice President of respondent Corporation. We stress the
hornbook law that corporate personality is a shield against personal liability
of its officers. Thus, we agree that respondents Gregory T. Lim and his
spouse cannot be made personally liable since respondent Lim entered into
and signed the contract clearly in his official capacity as Executive Vice
President. The personality of the corporation is separate and distinct from
the persons composing it.16
WHEREFORE, in view of all the foregoing, the instant Petition for Review is
DENIED. The Decision of the Court of Appeals dated July 26, 1993 in CA-
G.R. CY No.29950 is AFFIRMED.
SO ORDERED.
Macalinao vs. Bank of the Philippine Islands, G.R. No. 175490,
September 17, 2009
THIRD DIVISION
DECISION
The Case
The Facts
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:
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 attorney’s 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.101avvphi1
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:
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.
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:
3. 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.
I.
II.
III.
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 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 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.
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:
Total
Purchase
Penalty Amount
Stateme Previous s Interest
Balance Charge Due for
nt Date Balance (Paymen (1%)
(1%) the
ts)
Month
10/27/20 94,843.7 94,843.7 96,740.5
948.44 948.44
02 0 0 8
11/27/20 94,843.7 79,843.7 81,440.5
(15,000) 798.44 798.44
02 0 0 8
12/31/20 79,843.7 30,308.8 110,152. 1,101.5 1,101.5 112,355.
02 0 0 50 3 3 56
1/27/200 110,152. 110,152. 1,101.5 1,101.5 112,355.
3 50 50 3 3 56
2/27/200 110,152. 110,152. 1,101.5 1,101.5 112,355.
3 50 50 3 3 56
3/27/200 110,152. (18,000. 92,152.5 93,995.5
921.53 921.53
3 50 00) 0 6
4/27/200 92,152.5 92,152.5 93,995.5
921.53 921.53
3 0 0 6
5/27/200 92,152.5 (10,000. 82,152.5 83,795.5
821.53 821.53
3 0 00) 0 6
8,362.50
6/29/200 82,152.5 83,515.0 85,185.3
(7,000.0 835.15 835.15
3 0 0 0
0)
7/27/200 83,515.0 83,515.0 85,185.3
835.15 835.15
3 0 0 0
8/27/200 83,515.0 83,515.0 85,185.3
835.15 835.15
3 0 0 0
9/28/200 83,515.0 83,515.0 85,185.3
835.15 835.15
3 0 0 0
10/28/20 83,515.0 83,515.0 85,185.3
835.15 835.15
03 0 0 0
11/28/20 83,515.0 83,515.0 85,185.3
835.15 835.15
03 0 0 0
12/28/20 83,515.0 83,515.0 85,185.3
835.15 835.15
03 0 0 0
1/27/200 83,515.0 83,515.0 85,185.3
835.15 835.15
4 0 0 0
83,515.0 14,397. 14,397. 112,309.
TOTAL
0 26 26 52
(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;
SO ORDERED.
China Banking Corporation vs. Court of Appeals, 461 SCRA
162 (2005)
FIRST DIVISION
DECISION
QUISUMBING, J.:
In its Answer,4 the petitioner admitted being the registered owner of the
Home Notes, the subject matter of the complaint. These are instruments of
indebtedness issued in favor of a corporation named Fund Centrum
Finance, Inc. (FCFI) and were sold, transferred and assigned to private
respondent. Thus, the petitioner filed a Motion to Dismiss alleging that the
real party in interest was FCFI, which was not joined in the complaint, and
that petitioner was a mere trustee of FCFI.
The trial court denied the motion to dismiss. Petitioner filed a motion for
reconsideration, which the court a quo again denied. Petitioner elevated the
case to the Court of Appeals through a Petition for Certiorari and
Prohibition. The appellate court denied the petition for lack of merit. The
petitioner then brought the matter to this Court via a Petition for Certiorari,
under Rule 65. We dismissed the petition for being an improper remedy.
This Court finds that there are conflicting claims on the issue of whether or
not the action has already prescribed. A full blown trial is in order to
determine fully the rights of the contending parties.5
Undeterred, petitioner impugned, through a petition under Rule 65, the two
orders of the trial court claiming before the appellate court that:
In its assailed Decision, the Court of Appeals dismissed the petition, ruling
that:
Since the defense of prescription under the facts obtaining did not rest on
solid ground, the trial court took a more judicious move to direct the
defendant therein, herein petitioner, to present its evidence. It is self-evident
that with the evidence of both parties adduced, the trial court could proceed
to decide on the merits of the case including prescription, and thus avoid
collateral proceedings such as the one at bar that unduly prolong the final
determination of the controversy. After all, prescription subsists as a valid
issue in the decision process. The trial court wanted precisely a definite and
definitive-factual premise to determine whether or not the action has
prescribed. Surely, such exercise of judgment is not grave abuse of
discretion correctible by writ of certiorari. If ever he erred, it was error in
judgment. Errors of judgment may be reviewed only by appeal.7
Petitioner insists that upon the face of the complaint, prescription has set in.
It claims that the Home Notes annexed to the pleading bearing a uniform
maturity date of December 2, 1983 indicate the date of accrual of the cause
of action. Hence, argues petitioner, private respondent’s filing of the
complaint for sum of money on September 24, 1996, is way beyond the
prescriptive period of ten years under Article 11449 of the Civil Code. Citing
Soriano v. Ubat,10 petitioner maintains the prescription period starts from the
time when the creditor may file an action, not from the time he wishes to do
so.
We find the petition without merit. The Court of Appeals validly dismissed
the petition, there being no grave abuse of discretion committed by the trial
court in denying petitioner’s motion to dismiss the complaint on the ground
of prescription.
It bears stressing that it is only when the last element occurs that a cause of
action arises. Accordingly, a cause of action on a written contract accrues
only when an actual breach or violation thereof occurs.14
Applying the foregoing principle to the instant case, we rule that private
respondent’s cause of action accrued only on July 20, 1995, when its
demand for payment of the Home Notes was refused by petitioner. It was
only at that time, and not before that, when the written contract was
breached and private respondent could properly file an action in court.
The cause of action cannot be said to accrue on the uniform maturity date of
the Home Notes as petitioner posits because at that point, the third
essential element of a cause of action, namely, an act or omission on the
part of petitioner violative of the right of private respondent or constituting a
breach of the obligation of petitioner to private respondent, had not yet
occurred.
The subject Home Notes, in fact, specifically states that payment of the
principal and interest due on the notes shall be made only upon
presentation for notation and/or surrender for cancellation of the notes, thus:
Payment of the principal amount and interest due on this Note shall be
made by the Company at the principal office of the Trustee herein referred
to or at such other office or agency that the Company may designate for the
purpose, in such coin or currency of the Republic of the Philippines as at the
time of payment shall be legal tender for payment of public and private
debts, upon presentation for notation and/or surrender for cancellation of
this Note. . . .15 (Emphasis supplied.)
Thus, the maturity date of the Home Notes is not controlling as far as
accrual of cause of action is concerned. What said date indicates is the time
when the obligation matures, when payment on the Notes would
commence, subject to presentation, notation and/or cancellation of those
Notes. The date for computing when prescription of the action for collection
begins to set in is properly a function related to the date of actual demand
by the holder of the Notes for payment by the obligor, herein petitioner bank.
Since the demand was made only on July 20, 1995, while the civil action for
collection of a sum of money was filed on September 24, 1996, within a
period of not more than ten years, such action was not yet barred by
prescription.
SO ORDERED.
Development Bank of the Philippines vs. Arcilla, Jr., 462 SCRA
599 (2005)
SECOND DIVISION
x - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
Atty. Felipe P. Arcilla, Jr. was employed by the Development Bank of the
Philippines (DBP) in October 1981. About five or six months thereafter, he
was assigned to the legal department, and thereafter, decided to avail of a
loan under the Individual Housing Project (IHP) of the bank.1 On September
12, 1983, DBP and Arcilla executed a Deed of Conditional Sale2 over a
parcel of land, as well as the house to be constructed thereon, for the price
of P160,000.00. Arcilla borrowed the said amount from DBP for the
purchase of the lot and the construction of a residential building thereon. He
obliged himself to pay the loan in 25 years, with a monthly amortization of
P1,417.91, with 9% interest per annum, to be deducted from his monthly
salary.3
DBP obliged itself to transfer the title of the property upon the payment of
the loan, including any increments thereof. It was also agreed therein that if
Arcilla availed of optional retirement, he could elect to continue paying the
loan, provided that the loan/amount would be converted into a regular real
estate loan account with the prevailing interest assigned on real estate
loans, payable within the remaining term of the loan account.4
Arcilla was notified of the periodic release of his loan.5 During the period of
July 1984 to December 31, 1986, the monthly amortizations for the said
account were deducted from his monthly salary, for which he was issued
receipts.6
Amount
Remaining Monthly
converted to PH Interest Rate
Term Amortization
Loan
P 155,218.79 - 22 yrs. & 6
9% P1,342.72
1 mos<
21 yrs. & 10
6,802.45 - 2 9% 59.41
mos.
24,342.91 - 3 9% 22 yrs. 212.07
Plus: MRI at PC. 41/thousand P1,614.20
76.41
On July 24, 1987, Arcilla signed three Promissory Notes8 for the total
amount of P186,364.15. He was also obliged to pay service charge and
interests, as follows:
b. Taxes
b.1 One time service charge 2% of the amount advanced
b.2 Interest and penalty Interest - 7% p.a. over borrowing cost
charge Penalty charge û 8% p.a. if unpaid
after 30 days from date of advance
i. Interest of the advance at ]
7% p.a. over DBP's ]
borrowing costs; ]-- To be computed from start of 30-
day period
One time 2% service
ii. ]
charge
iii. Interest on the service ]
charge
iv. 8% penalty charge on ]
the ]
balances of the advance ]
and
service charge.
b. Taxes
b.1 One time service charge 2% of the amount advanced
b.2 Interest and penalty charge Interest - 7% p.a. over borrowing cost
Penalty charge û 8% p.a. if unpaid
after 30 days from date of advance
However, Arcilla also agreed to the reservation by the DBP of its right to
increase (with notice to him) the "rate of interest on the loan, as well as all
other fees and charges on loans and advances pursuant to such policy as it
may adopt from time to time during the period of the loan; Provided, that the
rate of interest on the loan shall be reduced by law or by the Monetary
Board; Provided, further, that the adjustment in the rate of interest shall take
effect on or after the effectivity of the increase or decrease in the maximum
rate of interest."10
Upon his request, DBP agreed to grant Arcilla an additional cash advance of
P32,000.00. Thereafter, on May 23, 1984, a Supplement to the Conditional
Sale Agreement was executed in which DBP and Arcilla agreed on the
following terms of the loan:
Interest Rate
Amount Terms Amortization
Per Annum
P32,000.00 Nine (9%) per 24 P271.57
cent MRI for years
P32,000.00 at 12.80
P0.40/1,000.00
P32,000.00 same to be (Est.
consolidated Amort.) P 284.37
with the =========
original
advance in
accordance
with Condition
No. 8 hereof.11
Arcilla filed a complaint against DBP with the Regional Trial Court (RTC) of
Antipolo, Rizal, on February 21, 1994. He alleged that DBP failed to furnish
him with the disclosure statement required by Republic Act (R.A.) No. 3765
and Central Bank (CB) Circular No. 158 prior to the execution of the deed of
conditional sale and the conversion of his loan account with the bank into a
regular housing loan account. Despite this, DBP immediately deducted the
account from his salary as early as 1984. Moreover, the bank applied its
own formula and imposed its usurious interests, penalties and charges on
his loan account and advances. He further alleged, thus:
13. That when plaintiff could no longer cope-up with defendant's illegal and
usurious impositions, the DBP unilaterally increased further the rate of
interest, without notice to the latter, and heaped-up usurious interests,
penalties and charges;
---
14. That to further bend the back of the plaintiff, defendant rescinded the
subject deed of conditional sale on 4 December 1990 without giving due
notice to plaintiff;
15. That much later, on 10 October 1993, plaintiff received a letter from
defendant dated 19 September 1993, informing plaintiff that the subject
deed of conditional sale was already rescinded on 4 December 1990 (xerox
copy of the same is hereto attached and made an integral part hereof as
Annex "C";17
In its answer to the complaint, the DBP alleged that it substantially complied
with R.A. No. 3765 and CB Circular No. 158 because the details required in
said statements were particularly disclosed in the promissory notes, deed of
conditional sale and the required notices sent to Arcilla. In any event, its
failure to comply strictly with R.A. No. 3765 did not affect the validity and
enforceability of the subject contracts or transactions. DBP interposed a
counterclaim for the possession of the property.
On April 27, 2001, the trial court rendered judgment in favor of Arcilla and
nullified the notarial rescission of the deeds executed by the parties. The
fallo of the decision reads:
SO ORDERED.18
DBP appealed the decision to the Court of Appeals (CA) wherein it made
the following assignment of errors:
4.1. The trial court erred in ruling that the provision of the details of the
loan without the issuance of a "Disclosure Statement" is not
compliance with the "Truth in Lending Act;"
4.2. The trial court erred in declaring the Notarial Rescission null and
void; and
4.3. The trial court erred in denying DBP's counterclaims for recovery
of possession, back rentals and litigation expenses.19
On May 29, 2003, the CA rendered judgment setting aside and reversing
the decision of the RTC. In ordering the dismissal of the complaint, the
appellate court ruled that DBP substantially complied with R.A. No. 3765
and CB Circular No. 158. Arcilla filed a motion for reconsideration of the
decision. For its part, DBP filed a motion for partial reconsideration of the
decision, praying that Arcilla be ordered to vacate the property. However,
the appellate court denied both motions.
The parties filed separate petitions for review on certiorari with this Court.
The first petition, entitled Development Bank of the Philippines v. Court of
Appeals, was docketed as G.R. No. 161397; the second petition, entitled
Felipe Arcilla, Jr. v. Court of Appeals, was docketed as G.R. No. 161426.
The Court resolved to consolidate the two cases.
The issues raised in the two petitions are the following: a) whether or not
petitioner DBP complied with the disclosure requirement of R.A. No. 3765
and CB Circular No. 158, Series of 1978, in the execution of the deed of
conditional sale, the supplemental deed of conditional sale, as well as the
promissory notes; and b) whether or not respondent Felipe Arcilla, Jr. is
mandated to vacate the property and pay rentals for his occupation thereof
after the notarial rescission of the deed of conditional sale was rescinded by
notarial act, as well as the supplement executed by DBP.
On the first issue, Arcilla avers that under R.A. No. 3765 and CB Circular
No. 158, the DBP, as the creditor bank, was mandated to furnish him with
the requisite information in such form prescribed by the Central Bank before
the commutation of the loan transaction. He avers that the disclosure of the
details of the loan contained in the deed of conditional sale and the
supplement thereto, the promissory notes and release sheet, do not
constitute substantial compliance with the law and the CB Circular. He avers
that the required disclosure did not include the following:
Arcilla further posits that the failure of DBP to comply with its obligation
under R.A. No. 3765 and CB Circular No. 158 forecloses its right to rescind
the transaction between them, and to demand compliance of his obligation
arising from said transaction. Moreover, the bank had no right to deduct the
monthly amortizations from his salary without first complying with the
mandate of R.A. No. 3765.
DBP, on the other hand, avers that all the information required by R.A. No.
3765 was already contained in the loan transaction documents. It posits that
even if it failed to comply strictly with the disclosure requirement of R.A. No.
3765, nevertheless, under Section 6(b) of the law, the validity and
enforceability of any action or transaction is not affected. It asserts that
Arcilla was estopped from invoking R.A. No. 3765 because he failed to
demand compliance with R.A. No. 3765 from the bank before the
consummation of the loan transaction, until the time his complaint was filed
with the trial court.
In its petition in G.R. No. 161397, DBP asserts that the RTC erred in not
rendering judgment on its counterclaim for the possession of the subject
property, and the liability of Arcilla for rentals while in the possession of the
property after the notarial rescission of the deeds of conditional sale. For his
part, Arcilla (in G.R. No. 161426) insists that the respondent failed to comply
with its obligation under R.A. No. 3765; hence, the notarial rescission of the
deed of conditional sale and the supplement thereof was null and void. Until
DBP complies with its obligation, he is not obliged to comply with his.
(3) the difference between the amounts set forth under clauses (1) and
(2);
(6) the finance charges expressed in terms of pesos and centavos; and
(7) the percentage that the finance charge bears to the total amount to
be financed expressed as a simple annual rate on the outstanding
unpaid balance of the obligation.
Under Circular No. 158 of the Central Bank, the information required by R.A.
No. 3765 shall be included in the contract covering the credit transaction or
any other document to be acknowledged and signed by the debtor, thus:
If the borrower is not duly informed of the data required by the law prior to
the consummation of the availment or drawdown, the lender will have no
right to collect such charge or increases thereof, even if stipulated in the
promissory note.22 However, such failure shall not affect the validity or
enforceability of any contract or transaction.23
In the present case, DBP failed to disclose the requisite information in the
disclosure statement form authorized by the Central Bank, but did so in the
loan transaction documents between it and Arcilla. There is no evidence on
record that DBP sought to collect or collected any interest, penalty or other
charges, from Arcilla other than those disclosed in the said
deeds/documents.
The Court is convinced that Arcilla's claim of not having been furnished the
data/information required by R.A. No. 3765 and CB Circular No. 158 was
but an afterthought. Despite the notarial rescission of the conditional sale in
1990, and DBP's subsequent repeated offers to repurchase the property,
the latter maintained his silence. Arcilla filed his complaint only on February
21, 1994, or four years after the said notarial rescission. The Court finds and
so holds that the following findings and ratiocinations of the CA are correct:
After a careful perusal of the records, We find that the appellee had been
sufficiently informed of the terms and the requisite charges necessarily
included in the subject loan. It must be stressed that the Truth in Lending
Act (R.A. No. 3765), was enacted primarily "to protect its citizens from a
lack of awareness of the true cost of credit to the user by using a full
disclosure of such cost with a view of preventing the uninformed use of
credit to the detriment of the national economy" (Emata vs. Intermediate
Appellate Court, 174, SCRA 464 [1989]; Sec. 2, R.A. No. 3765). Contrary to
appellee's claim that he was not sufficiently informed of the details of the
loan, the records disclose that the required informations were readily
available in the three (3) promissory notes he executed. Precisely, the said
promissory notes were executed to apprise appellee of the remaining
balance on his loan when the same was converted into a regular housing
loan. And on its face, the promissory notes signed by no less than the
appellee readily shows all the data required by the Truth in Lending Act
(R.A. No. 3765).
Apropos, We agree with the appellant that appellee, a lawyer, would not be
so gullible or negligent as to sign documents without knowing fully well the
legal implications and consequences of his actions, and that appellee was a
former employee of appellant. As such employee, he is as well presumed
knowledgeable with matters relating to appellant's business and fully
cognizant of the terms of the loan he applied for, including the charges that
had to be paid.
It might have been different if the borrower was, say, an ordinary employee
eager to buy his first house and is easily lured into accepting onerous terms
so long as the same is payable on installments. In such cases, the Court
would be disposed to be stricter in the application of the Truth in Lending
Act, insisting that the borrower be fully informed of what he is entering into.
But in the case at bar, considering appellee's education and training, We
must hold, in the light of the evidence at hand, that he was duly informed of
the necessary charges and fully understood their implications and effects.
Consequently, the trial court's annulment of the rescission anchored on this
ground was unjustified.24
Anent the prayer of DBP to order Arcilla to vacate the property and pay
rentals therefor from 1990, a review of the records has shown that it failed to
adduce evidence on the reasonable amount of rentals for Arcilla's
occupancy of the property. Hence, the Court orders a remand of the case to
the court of origin, for the parties to adduce their respective evidence on the
bank's counterclaim.
SO ORDERED.
Ejercito vs. Sandiganbayan (Special Division), 509
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
DECISION
The present petition for certiorari under Rule 65 assails the Sandiganbayan
Resolutions dated February 7 and 12, 2003 denying petitioner Joseph Victor
G. Ejercito’s Motions to Quash Subpoenas Duces Tecum/Ad Testificandum,
and Resolution dated March 11, 2003 denying his Motion for
Reconsideration of the first two resolutions.
The three resolutions were issued in Criminal Case No. 26558, "People of
the Philippines v. Joseph Ejercito Estrada, et al.," for plunder, defined and
penalized in R.A. 7080, "AN ACT DEFINING AND PENALIZING THE
CRIME OF PLUNDER."
d. Urban Bank Corp. MC # 37661 dated November 23, 1999 in the amount
of P54,161,496.52;
2. Statement of Account/Ledger
III. Urban Bank Manager’s Check and their corresponding Urban Bank
Manager’s Check Application Forms, as follows:
The Special Prosecution Panel also filed on January 20, 2003, a Request
for Issuance of Subpoena Duces Tecum/Ad Testificandum directed to the
authorized representative of Equitable-PCI Bank to produce statements of
account pertaining to certain accounts in the name of "Jose Velarde" and to
testify thereon.
The Special Prosecution Panel filed still another Request for Issuance of
Subpoena Duces Tecum/Ad Testificandum dated January 23, 2003 for the
President of EIB or his/her authorized representative to produce the same
documents subject of the Subpoena Duces Tecum dated January 21, 2003
and to testify thereon on the hearings scheduled on January 27 and 29,
2003 and subsequent dates until completion of the testimony. The request
was likewise granted by the Sandiganbayan. A Subpoena Duces Tecum/Ad
Testificandum was accordingly issued on January 24, 2003.
Petitioner, claiming to have learned from the media that the Special
Prosecution Panel had requested for the issuance of subpoenas for the
examination of bank accounts belonging to him, attended the hearing of the
case on January 27, 2003 and filed before the Sandiganbayan a letter of
even date expressing his concerns as follows, quoted verbatim:
Your Honors:
It is with much respect that I write this court relative to the concern of
subpoenaing the undersigned’s bank account which I have learned
through the media.
The prosecution was not content with a general request. It even lists
and identifies specific documents meaning someone else in the bank
illegally released confidential information.
If this can be done to me, it can happen to anyone. Not that anything
can still shock our family. Nor that I have anything to hide. Your
Honors.
But, I am not a lawyer and need time to consult one on a situation that
affects every bank depositor in the country and should interest the
bank itself, the Bangko Sentral ng Pilipinas, and maybe the
Ombudsman himself, who may want to investigate, not exploit, the
serious breach that can only harm the economy, a consequence that
may have been overlooked. There appears to have been deplorable
connivance.
xxxx
I hope and pray, Your Honors, that I will be given time to retain the
services of a lawyer to help me protect my rights and those of every
banking depositor. But the one I have in mind is out of the country right
now.
May I, therefore, ask your Honors, that in the meantime, the issuance
of the subpoena be held in abeyance for at least ten (10) days to
enable me to take appropriate legal steps in connection with the
prosecution’s request for the issuance of subpoena concerning my
accounts. (Emphasis supplied)
In his Motion to Quash, petitioner claimed that his bank accounts are
covered by R.A. No. 1405 (The Secrecy of Bank Deposits Law) and do not
fall under any of the exceptions stated therein. He further claimed that the
specific identification of documents in the questioned subpoenas, including
details on dates and amounts, could only have been made possible by an
earlier illegal disclosure thereof by the EIB and the Philippine Deposit
Insurance Corporation (PDIC) in its capacity as receiver of the then Urban
Bank.
3. Statements of Account.
The prosecution also filed a Request for the Issuance of Subpoena Duces
Tecum/Ad Testificandum bearing the same date, January 31, 2003, directed
to Aurora C. Baldoz, Vice President-CR-II of the PDIC for her to produce the
following documents on the scheduled hearings on February 3 and 5, 2003:
1. Letter of authority dated November 23, 1999 re: SPAN [Special Private
Account Number] 858;
5. Urban Bank check no. 052093 dated April 24, 2000 for the amount of
P107,191,780.85; and
2. Whether petitioner’s Trust Account No. 858 and Savings Account No.
0116-17345-9 are excepted from the protection of R.A. 1405; and
Respondent People posits that Trust Account No. 858 5 may be inquired
into, not merely because it falls under the exceptions to the coverage of
R.A. 1405, but because it is not even contemplated therein. For, to
respondent People, the law applies only to "deposits" which strictly means
the money delivered to the bank by which a creditor-debtor relationship is
created between the depositor and the bank.
The contention that trust accounts are not covered by the term "deposits,"
as used in R.A. 1405, by the mere fact that they do not entail a creditor-
debtor relationship between the trustor and the bank, does not lie. An
examination of the law shows that the term "deposits" used therein is to be
understood broadly and not limited only to accounts which give rise to a
creditor-debtor relationship between the depositor and the bank.
Trust Account No. 858 is, without doubt, one such account. The Trust
Agreement between petitioner and Urban Bank provides that the trust
account covers "deposit, placement or investment of funds" by Urban Bank
for and in behalf of petitioner. 6 The money deposited under Trust Account
No. 858, was, therefore, intended not merely to remain with the bank but to
be invested by it elsewhere. To hold that this type of account is not
protected by R.A. 1405 would encourage private hoarding of funds that
could otherwise be invested by banks in other ventures, contrary to the
policy behind the law.
Section 2 of the same law in fact even more clearly shows that the term
"deposits" was intended to be understood broadly:
Clearly, therefore, R.A. 1405 is broad enough to cover Trust Account No.
858.
The protection afforded by the law is, however, not absolute, there being
recognized exceptions thereto, as above-quoted Section 2 provides. In the
present case, two exceptions apply, to wit: (1) the examination of bank
accounts is upon order of a competent court in cases of bribery or
dereliction of duty of public officials, and (2) the money deposited or
invested is the subject matter of the litigation.
Indeed, all the above-enumerated overt acts are similar to bribery such that,
in each case, it may be said that "no reason is seen why these two classes
of cases cannot be excepted from the rule making bank deposits
confidential." 8
The crime of bribery and the overt acts constitutive of plunder are crimes
committed by public officers, and in either case the noble idea that "a public
office is a public trust and any person who enters upon its discharge does
so with the full knowledge that his life, so far as relevant to his duty, is open
to public scrutiny" applies with equal force.
Respecting petitioner’s claim that the money in his bank accounts is not the
"subject matter of the litigation," the meaning of the phrase "subject matter
of the litigation" as used in R.A. 1405 is explained in Union Bank of the
Philippines v. Court of Appeals, 9 thus:
Petitioner contends that the Court of Appeals confuses the "cause of action"
with the "subject of the action". In Yusingco v. Ong Hing Lian, petitioner
points out, this Court distinguished the two concepts.
Clearly, Mellon Bank involved a case where the money deposited was the
subject matter of the litigation since the money deposited was the very thing
in dispute. x x x" (Emphasis and underscoring supplied)
As no plunder case against then President Estrada had yet been filed
before a court of competent jurisdiction at the time the Ombudsman
conducted an investigation, petitioner concludes that the information about
his bank accounts were acquired illegally, hence, it may not be lawfully used
to facilitate a subsequent inquiry into the same bank accounts.
The case of U.S. v. Frazin, [11] involving the Right to Financial Privacy Act
of 1978 (RFPA) of the United States, is instructive.
How the Ombudsman conducted his inquiry into the bank accounts of
petitioner is recounted by respondent People of the Philippines, viz:
xxxx
In compliance with the said subpoena dated February 16, 2001, Ms. Dela
Paz, as interim receiver, furnished the Office of the Ombudsman certified
copies of documents under cover latter dated February 21, 2001:
Trading Order A No. 07125 is filed in two copies – a white copy which
showed "set up" information; and a yellow copy which showed "reversal"
information. Both copies have been reproduced and are enclosed with this
letter.
We are continuing our search for other records and documents pertinent to
your request and we will forward to you on Friday, 23 February 2001, such
additional records and documents as we might find until then. (Attachment
"4")
The Office of the Ombudsman then requested for the manger’s checks,
detailed in the Subpoena Duces Tecum dated March 7, 2001. (Attachment
"5")
PDIC again complied with the said Subpoena Duces Tecum dated March 7,
2001 and provided copies of the manager’s checks thus requested under
cover letter dated March 16, 2001. (Attachment "6") [14] (Emphasis in the
original)
For the Ombudsman issued the subpoenas bearing on the bank accounts of
petitioner about four months before Marquez was promulgated on June 27,
2001.
Banco Filipino involved subpoenas duces tecum issued by the Office of the
Ombudsman, then known as the Tanodbayan, [18] in the course of its
preliminary investigation of a charge of violation of the Anti-Graft and
Corrupt Practices Act.
While the main issue in Banco Filipino was whether R.A. 1405 precluded
the Tanodbayan’s issuance of subpoena duces tecum of bank records in
the name of persons other than the one who was charged, this Court, citing
P.D. 1630, [19] Section 10, the relevant part of which states:
(d) He may issue a subpoena to compel any person to appear, give sworn
testimony, or produce documentary or other evidence the Tanodbayan
deems relevant to a matter under his inquiry,
Marquez, on the other hand, practically reversed this ruling in Banco Filipino
despite the fact that the subpoena power of the Ombudsman under R.A.
6770 was essentially the same as that under P.D. 1630. Thus Section 15 of
R.A. 6770 empowers the Office of the Ombudsman to
(8) Administer oaths, issue subpoena and subpoena duces tecum, and take
testimony in any investigation or inquiry, including the power to examine and
have access to bank accounts and records;
The Marquez ruling that there must be a pending case in order for the
Ombudsman to validly inspect bank records in camera thus reversed a
prevailing doctrine. [21] Hence, it may not be retroactively applied.
The Ombudsman’s inquiry into the subject bank accounts prior to the filing
of any case before a court of competent jurisdiction was therefore valid at
the time it was conducted.
Likewise, the Marquez ruling that "the account holder must be notified to be
present during the inspection" may not be applied retroactively to the inquiry
of the Ombudsman subject of this case. This ruling is not a judicial
interpretation either of R.A. 6770 or R.A. 1405, but a "judge-made" law
which, as People v. Luvendino [22] instructs, can only be given prospective
application:
In fine, the subpoenas issued by the Ombudsman in this case were legal,
hence, invocation of the "fruit of the poisonous tree" doctrine is misplaced.
Only with such prior independent information could it have been possible for
the Ombudsman to issue the February 8, 2001 subpoena duces tecum
addressed to the President and/or Chief Executive Officer of Urban Bank,
which described the documents subject thereof as follows:
(a) bank records and all documents relative thereto pertaining to all bank
accounts (Savings, Current, Time Deposit, Trust, Foreign Currency
Deposits, etc…) under the account names of Jose Velarde, Joseph E.
Estrada, Laarni Enriquez, Guia Gomez, Joy Melendrez, Peach Osorio,
Rowena Lopez, Kevin or Kelvin Garcia, 727, 737, 747, 757, 777 and 858.
(Emphasis and underscoring supplied)
Thus, with the filing of the plunder case against former President Estrada
before the Sandiganbayan, the Ombudsman, using the above independent
information, may now proceed to conduct the same investigation it earlier
conducted, through which it can eventually obtain the same information
previously disclosed to it by the PDIC, for it is an inescapable fact that the
bank records of petitioner are no longer protected by R.A. 1405 for the
reasons already explained above.
IN SUM, the Court finds that the Sandiganbayan did not commit grave
abuse of discretion in issuing the challenged subpoenas for documents
pertaining to petitioner’s Trust Account No. 858 and Savings Account No.
0116-17345-9 for the following reasons:
2. The "fruit of the poisonous tree" principle, which states that once the
primary source (the "tree") is shown to have been unlawfully obtained, any
secondary or derivative evidence (the "fruit") derived from it is also
inadmissible, does not apply in this case. In the first place, R.A. 1405 does
not provide for the application of this rule. Moreover, there is no basis for
applying the same in this case since the primary source for the detailed
information regarding petitioner’s bank accounts – the investigation
previously conducted by the Ombudsman – was lawful.
SO ORDERED.
China Banking Corporation vs. Court of Appeals, 511 SCRA
110 (2006)
FIRST DIVISION
DECISION
CHICO-NAZARIO, J.:
Jose Gotianuy accused his daughter Mary Margaret Dee of stealing, among
his other properties, US dollar deposits with Citibank N.A. amounting to not
less than P35,000,000.00 and US$864,000.00. Mary Margaret Dee received
these amounts from Citibank N.A. through checks which she allegedly
deposited at China Banking Corporation (China Bank). He likewise accused
his son-in-law, George Dee, husband of his daughter, Mary Margaret, of
transferring his real properties and shares of stock in George Dee's name
without any consideration. Jose Gotianuy, died during the pendency of the
case before the trial court.1 He was substituted by his daughter, Elizabeth
Gotianuy Lo. The latter presented the US Dollar checks withdrawn by Mary
Margaret Dee from his US dollar placement with Citibank. The details of the
said checks are:
Upon motion of Elizabeth Gotianuy Lo, the trial court3 issued a subpoena to
Cristota Labios and Isabel Yap, employees of China Bank, to testify on the
case. The Order of the trial court dated 23 February 1999, states:
China Bank moved for a reconsideration. Resolving the motion, the trial
court issued an Order dated 16 April 1999 and held:
The Court is of the view that as the foreign currency fund (Exhs. "AAA"
to "AAA-5") is deposited with the movant China Banking Corporation,
Cebu Main Branch, Cebu City, the disclosure only as to the name or in
whose name the said fund is deposited is not violative of the law.
Justice will be better served if the name or names of the depositor of
said fund shall be disclosed because such a disclosure is material and
important to the issues between the parties in the case at bar.
From this Order, China Bank filed a Petition for Certiorari6 with the Court of
Appeals. In a Decision7 dated 29 October 1999, the Court of Appeals
denied the petition of China Bank and affirmed the Order of the RTC.
It has to be pointed out that the April 16, 1999 Order of the court of
origin modified its previous February 23, 1999 Order such that the
CBC representatives are directed solely to divulge "in whose name or
names is the foreign currency fund (Exhs. "AAA" to "AAA-5") deposited
with the movant bank." It precluded inquiry on "other materials and
relevant to the issues in the case at bar." We find that the directive of
the court below does not contravene the plain language of RA 6426 as
amended by P.D. No. 1246.
From the Decision of the Court of Appeals, China Bank elevated the case to
this Court based on the following issues:
II
III
PETITIONER CAN RIGHTLY INVOKE THE PROVISION OF SEC. 8,
R.A. 6426, IN BEHALF OF THE FOREIGN CURRENCY DEPOSITOR,
OWING TO ITS SOLEMN OBLIGATION TO ITS CLIENT TO
EXERCISE EXTRAORDINARY DILIGENCE IN THE HANDLING OF
THE ACCOUNT.9
Under the above provision, the law provides that all foreign currency
deposits authorized under Republic Act No. 6426, as amended by Sec. 8,
Presidential Decree No. 1246, Presidential Decree No. 1035, as well as
foreign currency deposits authorized under Presidential Decree No. 1034
are considered absolutely confidential in nature and may not be inquired
into. There is only one exception to the secrecy of foreign currency deposits,
that is, disclosure is allowed upon the written permission of the depositor.
It is in this light that the court in the case of Salvacion v. Central Bank of the
Philippines,13 allowed the inquiry of the foreign currency deposit in question
mainly due to the peculiar circumstances of the case such that a strict
interpretation of the letter of the law would result to rank injustice. Therein,
Greg Bartelli y Northcott, an American tourist, was charged with criminal
cases for serious illegal detention and rape committed against then 12 year-
old Karen Salvacion. A separate civil case for damages with preliminary
attachment was filed against Greg Bartelli. The trial court issued an Order
granting the Salvacions' application for the issuance of a writ of preliminary
attachment. A notice of garnishment was then served on China Bank where
Bartelli held a dollar account. China Bank refused, invoking the secrecy of
bank deposits. The Supreme Court ruled: "In fine, the application of the law
depends on the extent of its justice x x x It would be unthinkable, that the
questioned law exempting foreign currency deposits from attachment,
garnishment, or any other order or process of any court, legislative body,
government agency or any administrative body whatsoever would be used
as a device by an accused x x x for wrongdoing, and in so doing, acquitting
the guilty at the expense of the innocent.14
With the foregoing, we are now tasked to determine the single material
issue of whether or not petitioner China Bank is correct in its submission
that the Citibank dollar checks with both Jose Gotianuy and/or Mary
Margaret Dee as payees, deposited with China Bank, may not be looked
into under the law on secrecy of foreign currency deposits. As a corollary
issue, sought to be resolved is whether Jose Gotianuy may be considered a
depositor who is entitled to seek an inquiry over the said deposits.
The following facts are established: (1) Jose Gotianuy and Mary Margaret
Dee are co-payees of various Citibank checks;15 (2) Mary Margaret Dee
withdrew these checks from Citibank;16 (3) Mary Margaret Dee admitted in
her Answer to the Request for Admissions by the Adverse Party sent to her
by Jose Gotianuy17 that she withdrew the funds from Citibank upon the
instruction of her father Jose Gotianuy and that the funds belonged
exclusively to the latter; (4) these checks were endorsed by Mary Margaret
Dee at the dorsal portion; and (5) Jose Gotianuy discovered that these
checks were deposited with China Bank as shown by the stamp of China
Bank at the dorsal side of the checks.
Thus, with this, there is no issue as to the source of the funds. Mary
Margaret Dee declared the source to be Jose Gotianuy. There is likewise no
dispute that these funds in the form of Citibank US dollar Checks are now
deposited with China Bank.
As the owner of the funds unlawfully taken and which are undisputably now
deposited with China Bank, Jose Gotianuy has the right to inquire into the
said deposits.
A depositor, in cases of bank deposits, is one who pays money into the
bank in the usual course of business, to be placed to his credit and subject
to his check or the beneficiary of the funds held by the bank as trustee.18
On this score, the observations of the Court of Appeals are worth reiterating:
SO ORDERED.
Ana Rivera vs. People's Bank and Trust Company, 73 Phil. 546
(1942)
EN BANC
OZAETA, J.:
SURVIVORSHIP AGREEMENT
That we hereby agree with each other and with the PEOPLES BANK
AND TRUST COMPANY, Manila, Philippine Islands (hereinafter called
the Bank), that all moneys now or hereafter deposited by us or either of
us with the Bank in our savings account shall be deposited in and
received by the Bank with the understanding and upon the condition
that said money be deposited without consideration of its previous
ownership, and that said money and all interest thereon, if any there
be, shall be the property of both of us joint tenants, and shall be
payable to and collectible by either of us during our joint lives, and after
the death of one of us shall belong to and be the sole property of the
survivor, and shall be payable to and collectible by such survivor.
And we further covenant and agree with each other and the Bank, its
successors or assigns, that the receipt or check of either of us during
our joint lives, or the receipt or check of the survivor, for any payment
made from this account, and shall be valid and sufficient and discharge
to the Bank for such payment.
The Bank is hereby authorized to accept and deposit to this account all
checks made payable to either or both of us, when endorsed by either
or both of us or one for the other.
This is a joint and several agreement and is binding upon each of us,
our heirs, executors, administrators, and assigns.
In witness whereof we have signed our names here to this 17th day of
October, 1931.
Witness:
(Sgd.) FRED W. BOHLER
(Sgd.) Y. E. Cox
S. A. #4146
The trial court held that the agreement in question, viewed from its effect
during the lives of the parties, was a mere power of attorney authorizing Ana
Rivera to withdraw the deposit, which power terminated upon the death of
the principal, Edgar Stephenson; but that, viewed from its effect after the
death of either of the parties, the agreement was a donation mortis causa
with reference to the balance remaining at the death of one of them, which,
not having been executed with the formalities of a testamentary disposition
as required by article 620 of the Civil Code, was of no legal effect.
The defendant bank did not appear in this Court. Counsel for the intervenor-
appellee in his brief contends that the survivorship agreement was a
donation mortis causa from Stephenson to Ana Rivera of the bank account
in question and that, since it was not executed with the formalities of a will, it
can have no legal effect.
We find no basis for the conclusion that the survivorship agreement was a
mere power of attorney from Stephenson to Ana Rivera, or that it is a gift
mortis causa of the bank account in question from him to her. Such
conclusion is evidently predicated on the assumption that Stephenson was
the exclusive owner of the funds deposited in the bank, which assumption
was in turn based on the facts (1) that the account was originally opened in
the name of Stephenson alone and (2) that Ana Rivera "served only as
housemaid of the deceased." But it not infrequently happens that a person
deposits money in the bank in the name of another; and in the instant case
it also appears that Ana Rivera served her master for about nineteen years
without actually receiving her salary from him. The fact that subsequently
Stephenson transferred the account to the name of himself and/or Ana
Rivera and executed with the latter the survivorship agreement in question
although there was no relation of kinship between them but only that of
master and servant, nullifies the assumption that Stephenson was the
exclusive owner of the bank account. In the absence, then, of clear proof of
the contrary, we must give full faith and credit to the certificate of deposit,
which recites in effect that the funds in question belonged to Edgar
Stephenson and Ana Rivera; that they were joint owners thereof; and that
either of them could withdraw any part or the whole of said account during
the lifetime of both, and the balance, if any, upon the death of either,
belonged to the survivor.
The case of Macam vs. Gatmaitan (decided March 11, 1937), 36 Off. Gaz.,
2175, is in point. Two friends Juana Gatmaitan and Leonarda Macam, who
had lived together for some time, agreed in writing that the house of strong
materials which they bought with the money belonging to Leonarda Macam
and the Buick automobile and certain furniture which belonged to Juana
Gatmaitan shall belong to the survivor upon the death of one of them and
that "this agreement shall be equivalent to a transfer of the rights of the one
who dies first and shall be kept by the survivor." After the death of Leonarda
Macam, her executrix assailed that document on the ground that with
respect to the house the same constituted a donation mortis causa by
Leonarda Macam in favor of Juana Gatmaitan. In affirming the judgment of
the trial court absolving the defendants from the complaint this Court,
speaking through Chief Justice Avaceña, said:
But although the survivorship agreement is per se not contrary to law, its
operation or effect may be violative of the law. For instance, if it be shown in
a given case that such agreement is a mere cloak to hide an inofficious
donation, to transfer property in fraud of creditors, or to defeat the legitime
of a forced heir, it may be assailed and annulled upon such grounds. No
such vice has been imputed and established against the agreement
involved in the case.
SECOND DIVISION
SARMIENTO, J.:
This case is a chapter in an earlier suit decided by this Court 1 involving the
probate of the two wills of the late Dolores Luchangco Vitug, who died in
New York, U. S.A., on November 10, 1980, naming private respondent
Rowena Faustino-Corona executrix. In our said decision, we upheld the
appointment of Nenita Alonte as co-special administrator of Mrs. Vitug's
estate with her (Mrs. Vitug's) widower, petitioner Romarico G. Vitug,
pending probate.
On January 13, 1985, Romarico G. Vitug filed a motion asking for authority
from the probate court to sell certain shares of stock and real properties
belonging to the estate to cover allegedly his advances to the estate in the
sum of P667,731.66, plus interests, which he claimed were personal funds.
As found by the Court of Appeals, 2 the alleged advances consisted of
P58,147.40 spent for the payment of estate tax, P518,834.27 as deficiency
estate tax, and P90,749.99 as "increment thereto." 3 According to Mr. Vitug,
he withdrew the sums of P518,834.27 and P90,749.99 from savings
account No. 35342-038 of the Bank of America, Makati, Metro Manila.
On April 12, 1985, Rowena Corona opposed the motion to sell on the
ground that the same funds withdrawn from savings account No. 35342-038
were conjugal partnership properties and part of the estate, and hence,
there was allegedly no ground for reimbursement. She also sought his
ouster for failure to include the sums in question for inventory and for
"concealment of funds belonging to the estate." 4
Vitug insists that the said funds are his exclusive property having acquired
the same through a survivorship agreement executed with his late wife and
the bank on June 19, 1970. The agreement provides:
We further agree with each other and the BANK that the receipt or
check of either, any or all of us during our lifetime, or the receipt
or check of the survivor or survivors, for any payment or
withdrawal made for our above-mentioned account shall be valid
and sufficient release and discharge of the BANK for such
payment or withdrawal. 5
The trial courts 6 upheld the validity of this agreement and granted "the
motion to sell some of the estate of Dolores L. Vitug, the proceeds of which
shall be used to pay the personal funds of Romarico Vitug in the total sum
of P667,731.66 ... ." 7
On the other hand, the Court of Appeals, in the petition for certiorari filed by
the herein private respondent, held that the above-quoted survivorship
agreement constitutes a conveyance mortis causa which "did not comply
with the formalities of a valid will as prescribed by Article 805 of the Civil
Code," 8 and secondly, assuming that it is a mere donation inter vivos, it is a
prohibited donation under the provisions of Article 133 of the Civil Code. 9
The dispositive portion of the decision of the Court of Appeals states:
In his petition, Vitug, the surviving spouse, assails the appellate court's
ruling on the strength of our decisions in Rivera v. People's Bank and Trust
Co. 11 and Macam v. Gatmaitan 12 in which we sustained the validity of
"survivorship agreements" and considering them as aleatory contracts. 13
The conveyance in question is not, first of all, one of mortis causa, which
should be embodied in a will. A will has been defined as "a personal,
solemn, revocable and free act by which a capacitated person disposes of
his property and rights and declares or complies with duties to take effect
after his death." 14 In other words, the bequest or device must pertain to the
testator. 15 In this case, the monies subject of savings account No. 35342-
038 were in the nature of conjugal funds In the case relied on, Rivera v.
People's Bank and Trust Co., 16 we rejected claims that a survivorship
agreement purports to deliver one party's separate properties in favor of the
other, but simply, their joint holdings:
There is no showing that the funds exclusively belonged to one party, and
hence it must be presumed to be conjugal, having been acquired during the
existence of the marita. relations. 20
No costs.
SO ORDERED.
Feati Bank and Trust Company vs. Court of Appeals, 196 SCRA
576 (1990)
THIRD DIVISION
This is a petition for review seeking the reversal of the decision of the Court
of Appeals dated June 29, 1990 which affirmed the decision of the Regional
Trial Court of Rizal dated October 20, 1986 ordering the defendants
Christiansen and the petitioner, to pay various sums to respondent Villaluz,
jointly and severally.
After inspecting the logs, Christiansen issued purchase order No. 76171.
On the arrangements made and upon the instructions of the consignee,
Hanmi Trade Development, Ltd., de Santa Ana, California, the Security
Pacific National Bank of Los Angeles, California issued Irrevocable Letter of
Credit No. IC-46268 available at sight in favor of Villaluz for the sum of
$54,000.00, the total purchase price of the lauan logs.
The letter of credit was mailed to the Feati Bank and Trust Company (now
Citytrust) with the instruction to the latter that it "forward the enclosed letter
of credit to the beneficiary." (Records, Vol. I, p. 11)
The letter of credit further provided that the draft to be drawn is on Security
Pacific National Bank and that it be accompanied by the following
documents:
The logs were thereafter loaded on the vessel "Zenlin Glory" which was
chartered by Christiansen. Before its loading, the logs were inspected by
custom inspectors Nelo Laurente, Alejandro Cabiao, Estanislao Edera from
the Bureau of Customs (Records, Vol. I, p. 124) and representatives
Rogelio Cantuba and Jesus Tadena of the Bureau of Forestry (Records,
Vol. I, pp. 16-17) all of whom certified to the good condition and exportability
of the logs.
After the loading of the logs was completed, the Chief Mate, Shao Shu
Wang issued a mate receipt of the cargo which stated the same are in good
condition (Records, Vol. I, p. 363). However, Christiansen refused to issue
the certification as required in paragraph 4 of the letter of credit, despite
several requests made by the private respondent.
The letter of credit lapsed on June 30, 1971, (extended, however up to July
31, 1971) without the private respondent receiving any certification from
Christiansen.
Meanwhile, the logs arrived at Inchon, Korea and were received by the
consignee, Hanmi Trade Development Company, to whom Christiansen
sold the logs for the amount of $37.50 per cubic meter, for a net profit of $10
per cubic meter. Hanmi Trade Development Company, on the other hand
sold the logs to Taisung Lumber Company at Inchon, Korea. (Rollo, p. 39)
On or about 1979, while the case was still pending trial, Christiansen left the
Philippines without informing the Court and his counsel. Hence, Villaluz,
filed an amended complaint to make the petitioner solidarily liable with
Christiansen.
The trial court, in its order dated August 29, 1979, admitted the amended
complaint.
After trial, the lower court found:
The defendant Feati Bank and Trust Company, on the other hand,
must be held liable together with his (sic) co-defendant for having,
by its wrongful act, i.e., its refusal to negotiate the letter of credit
in the absence of CHRISTIANSEN's certification (in spite of the
Central Bank's ruling that the requirement was illegal), prevented
payment to the plaintiff. The said letter of credit, as may be seen
on its face, is irrevocable and the issuing bank, the Security
Pacific National Bank in Los Angeles, California, undertook by its
terms that the same shall be honored upon its presentment. On
the other hand, the notifying bank, the defendant Feati Bank and
Trust Company, by accepting the instructions from the issuing
bank, itself assumed the very same undertaking as the issuing
bank under the terms of the letter of credit.
The Court likewise agrees with the plaintiff that the defendant
BANK may also be held liable under the principles and laws on
both trust and estoppel. When the defendant BANK accepted its
role as the notifying and negotiating bank for and in behalf of the
issuing bank, it in effect accepted a trust reposed on it, and
became a trustee in relation to plaintiff as the beneficiary of the
letter of credit. As trustee, it was then duty bound to protect the
interests of the plaintiff under the terms of the letter of credit, and
must be held liable for damages and loss resulting to the plaintiff
from its failure to perform that obligation.
On the basis of the foregoing the trial court on October 20, 1986, ruled in
favor of the private respondent. The dispositive portion of its decision reads:
All three foregoing sums shall be with interest thereon at 12% per
annum from September 1, 1971, when the complaint was filed,
until fully paid:
(Rollo, p. 28)
On November 10, 1986, the private respondent filed a motion for the
immediate execution of the judgment on the ground that the appeal of the
petitioner was frivolous and dilatory.
The trial court ordered the immediate execution of its judgment upon the
private respondent's filing of a bond.
The petitioner then filed a motion for reconsideration and a motion to
suspend the implementation of the writ of execution. Both motions were,
however, denied. Thus, petitioner filed before the Court of Appeals a petition
for certiorari and prohibition with preliminary injunction to enjoin the
immediate execution of the judgment.
The Court of Appeals in a decision dated April 9, 1987 granted the petition
and nullified the order of execution, the dispositive portion of the decision
states:
In the meantime, the appeal filed by the petitioner before the Court of
Appeals was given due course. In its decision dated June 29, 1990, the
Court of Appeals affirmed the decision of the lower court dated October 20,
1986 and ruled that:
The petitioner interposes the following reasons for the allowance of the
petition.
First Reason
Second Reason
The case of Anglo-South America Trust Co. v. Uhe et al. (184 N.E. 741
[1933]) expounded clearly on the rule of strict compliance.
And even if the U.C.P. was not incorporated in the letter of credit, we have
already ruled in the affirmative as to the applicability of the U.C.P. in cases
before us.
In Bank of P.I. v. De Nery (35 SCRA 256 [1970]), we pronounced that the
observance of the U.C.P. in this jurisdiction is justified by Article 2 of the
Code of Commerce. Article 2 of the Code of Commerce enunciates that in
the absence of any particular provision in the Code of Commerce,
commercial transactions shall be governed by the usages and customs
generally observed.
Article 3.
Article 7.
Article 8.
Under the foregoing provisions of the U.C.P., the bank may only negotiate,
accept or pay, if the documents tendered to it are on their face in
accordance with the terms and conditions of the documentary credit. And
since a correspondent bank, like the petitioner, principally deals only with
documents, the absence of any document required in the documentary
credit justifies the refusal by the correspondent bank to negotiate, accept or
pay the beneficiary, as it is not its obligation to look beyond the documents.
It merely has to rely on the completeness of the documents tendered by the
beneficiary.
In regard to the ruling of the lower court and affirmed by the Court of
Appeals that the petitioner is not a notifying bank but a confirming bank, we
find the same erroneous.
The trial court wrongly mixed up the meaning of an irrevocable credit with
that of a confirmed credit. In its decision, the trial court ruled that the
petitioner, in accepting the obligation to notify the respondent that the
irrevocable credit has been transmitted to the petitioner on behalf of the
private respondent, has confirmed the letter.
The trial court appears to have overlooked the fact that an irrevocable credit
is not synonymous with a confirmed credit. These types of letters have
different meanings and the legal relations arising from there varies. A credit
may be an irrevocable credit and at the same time a confirmed credit or
vice-versa.
Hence, the mere fact that a letter of credit is irrevocable does not
necessarily imply that the correspondent bank in accepting the instructions
of the issuing bank has also confirmed the letter of credit. Another error
which the lower court and the Court of Appeals made was to confuse the
obligation assumed by the petitioner.
In this case, the letter merely provided that the petitioner "forward the
enclosed original credit to the beneficiary." (Records, Vol. I, p. 11)
Considering the aforesaid instruction to the petitioner by the issuing bank,
the Security Pacific National Bank, it is indubitable that the petitioner is only
a notifying bank and not a confirming bank as ruled by the courts below.
Since the petitioner was only a notifying bank, its responsibility was solely to
notify and/or transmit the documentary of credit to the private respondent
and its obligation ends there.
The notifying bank may suggest to the seller its willingness to negotiate, but
this fact alone does not imply that the notifying bank promises to accept the
draft drawn under the documentary credit.
A notifying bank is not a privy to the contract of sale between the buyer and
the seller, its relationship is only with that of the issuing bank and not with
the beneficiary to whom he assumes no liability. It follows therefore that
when the petitioner refused to negotiate with the private respondent, the
latter has no cause of action against the petitioner for the enforcement of his
rights under the letter. (See Kronman and Co., Inc. v. Public National Bank
of New York, supra)
In order that the petitioner may be held liable under the letter, there should
be proof that the petitioner confirmed the letter of credit.
The records are, however, bereft of any evidence which will disclose that
the petitioner has confirmed the letter of credit. The only evidence in this
case, and upon which the private respondent premised his argument, is the
P75,000.00 loan extended by the petitioner to him.
The private respondent relies on this loan to advance his contention that the
letter of credit was confirmed by the petitioner. He claims that the loan was
granted by the petitioner to him, "in anticipation of the presentment of the
letter of credit."
As earlier stated, there must have been an absolute assurance on the part
of the petitioner that it will undertake the issuing bank's obligation as its
own. Verily, the loan agreement it entered into cannot be categorized as an
emphatic assurance that it will carry out the issuing bank's obligation as its
own.
Of course, it may be presumed that the petitioner loaned the money to the
private respondent in anticipation that it would later be paid by the latter
upon the receipt of the letter. Yet, we would have no basis to rule definitively
that such "act" should be construed as an act of confirmation.
The private respondent no doubt was in need of money in loading the logs
on the ship "Zenlin Glory" and the only way to satisfy this need was to
borrow money from the petitioner which the latter granted. From these
circumstances, a logical conclusion that can be gathered is that the letter of
credit was merely to serve as a collateral.
At the most, when the petitioner extended the loan to the private
respondent, it assumed the character of a negotiating bank. Even then, the
petitioner will still not be liable, for a negotiating bank before negotiation has
no contractual relationship with the seller.
A trust has been defined as the "right, enforceable solely in equity, to the
beneficial enjoyment of property the legal title to which is vested to another."
(89 C.J.S. 712)
We also find erroneous the statement of the Court of Appeals that the
petitioner "acted as a guarantor of the issuing bank and in effect also of the
latter's principal or client, i.e., Hans Axel Christiansen."
As a mere notifying bank, not only does the petitioner not have any
contractual relationship with the buyer, it has also nothing to do with the
contract between the issuing bank and the buyer regarding the issuance of
the letter of credit.
In the first place, the guarantee theory destroys the independence of the
bank's responsibility from the contract upon which it was opened. In the
second place, the nature of both contracts is mutually in conflict with each
other. In contracts of guarantee, the guarantor's obligation is merely
collateral and it arises only upon the default of the person primarily liable.
On the other hand, in an irrevocable credit the bank undertakes a primary
obligation. (See National Bank of Eagle Pass, Tex v. American National
Bank of San Francisco, 282 F. 73 [1922])
The relationship between the issuing bank and the notifying bank, on the
contrary, is more similar to that of an agency and not that of a guarantee. It
may be observed that the notifying bank is merely to follow the instructions
of the issuing bank which is to notify or to transmit the letter of credit to the
beneficiary. (See Kronman v. Public National Bank of New York, supra). Its
commitment is only to notify the beneficiary. It does not undertake any
assurance that the issuing bank will perform what has been mandated to or
expected of it. As an agent of the issuing bank, it has only to follow the
instructions of the issuing bank and to it alone is it obligated and not to
buyer with whom it has no contractual relationship.
In fact the notifying bank, even if the seller tenders all the documents
required under the letter of credit, may refuse to negotiate or accept the
drafts drawn thereunder and it will still not be held liable for its only
engagement is to notify and/or transmit to the seller the letter of credit.
The failure by him to submit the certification was fatal to his case. The
U.C.P. which is incorporated in the letter of credit ordains that the bank may
only pay the amount specified under the letter if all the documents tendered
are on their face in compliance with the credit. It is not tasked with the duty
of ascertaining the reason or reasons why certain documents have not been
submitted, as it is only concerned with the documents. Thus, whether or not
the buyer has performed his responsibility towards the seller is not the
bank's problem.
Considering the foregoing, the materiality of ruling upon the validity of the
certificate of approval required of the private respondent to submit under the
letter of credit, has become insignificant.
In any event, we affirm the earlier ruling of the Court of Appeals dated April
9, 1987 in regard to the petition before it for certiorari and prohibition with
preliminary injunction, to wit:
SO ORDERED.
Transfield Philippines, Inc. vs. Luzon Hydro Corporation, 442
SCRA 307 (2004)
SECOND DIVISION
DECISION
TINGA, J.:
Subject of this case is the letter of credit which has evolved as the
ubiquitous and most important device in international trade. A creation of
commerce and businessmen, the letter of credit is also unique in the
number of parties involved and its supranational character.
Petitioner has appealed from the Decision1 of the Court of Appeals in CA-
G.R. SP No. 61901 entitled "Transfield Philippines, Inc. v. Hon. Oscar
Pimentel, et al.," promulgated on 31 January 2001.2
The first of the actions was a Request for Arbitration which LHC filed before
the Construction Industry Arbitration Commission (CIAC) on 1 June 1999.10
This was followed by another Request for Arbitration, this time filed by
petitioner before the International Chamber of Commerce (ICC)11 on 3
November 2000. In both arbitration proceedings, the common issues
presented were: [1) whether typhoon Zeb and any of its associated events
constituted force majeure to justify the extension of time sought by
petitioner; and [2) whether LHC had the right to terminate the Turnkey
Contract for failure of petitioner to complete the Project on target date.
Meanwhile, foreseeing that LHC would call on the Securities pursuant to the
pertinent provisions of the Turnkey Contract,12 petitioner—in two separate
letters13 both dated 10 August 2000—advised respondent banks of the
arbitration proceedings already pending before the CIAC and ICC in
connection with its alleged default in the performance of its obligations.
Asserting that LHC had no right to call on the Securities until the resolution
of disputes before the arbitral tribunals, petitioner warned respondent banks
that any transfer, release, or disposition of the Securities in favor of LHC or
any person claiming under LHC would constrain it to hold respondent banks
liable for liquidated damages.
Dissatisfied with the trial court's denial of its application for a writ of
preliminary injunction, petitioner elevated the case to the Court of Appeals
via a Petition for Certiorari under Rule 65, with prayer for the issuance of a
temporary restraining order and writ of preliminary injunction.20 Petitioner
submitted to the appellate court that LHC's call on the Securities was
premature considering that the issue of its default had not yet been resolved
with finality by the CIAC and/or the ICC. It asserted that until the fact of
delay could be established, LHC had no right to draw on the Securities for
liquidated damages.
However, the appellate court failed to act on the application for preliminary
injunction until the temporary restraining order expired on 27 January 2001.
Immediately thereafter, representatives of LHC trooped to ANZ Bank and
withdrew the total amount of US$4,950,000.00, thereby reducing the
balance in ANZ Bank to US$1,852,814.00.
On 2 February 2001, the appellate court dismissed the petition for certiorari.
The appellate court expressed conformity with the trial court's decision that
LHC could call on the Securities pursuant to the first principle in credit law
that the credit itself is independent of the underlying transaction and that as
long as the beneficiary complied with the credit, it was of no moment that he
had not complied with the underlying contract. Further, the appellate court
held that even assuming that the trial court's denial of petitioner's application
for a writ of preliminary injunction was erroneous, it constituted only an error
of judgment which is not correctible by certiorari, unlike error of jurisdiction.
Undaunted, petitioner filed the instant Petition for Review raising the
following issues for resolution:
Petitioner asserts that LHC should be ordered to return the proceeds of the
Securities pursuant to the principle against unjust enrichment and that,
under the premises, injunction was the appropriate remedy obtainable from
the competent local courts.
Article 3 of the UCP provides that credits, by their nature, are separate
transactions from the sales or other contract(s) on which they may be based
and banks are in no way concerned with or bound by such contract(s), even
if any reference whatsoever to such contract(s) is included in the credit.
Consequently, the undertaking of a bank to pay, accept and pay draft(s) or
negotiate and/or fulfill any other obligation under the credit is not subject to
claims or defenses by the applicant resulting from his relationships with the
issuing bank or the beneficiary. A beneficiary can in no case avail himself of
the contractual relationships existing between the banks or between the
applicant and the issuing bank.
Thus, the engagement of the issuing bank is to pay the seller or beneficiary
of the credit once the draft and the required documents are presented to it.
The so-called "independence principle" 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. Under this principle, banks assume no liability
or responsibility for the form, sufficiency, accuracy, genuineness,
falsification or legal effect of any documents, or for the general and/or
particular conditions stipulated in the documents or superimposed thereon,
nor do they assume any liability or responsibility for the description, quantity,
weight, quality, condition, packing, delivery, value or existence of the goods
represented by any documents, or for the good faith or acts and/or
omissions, solvency, performance or standing of the consignor, the carriers,
or the insurers of the goods, or any other person whomsoever.39
The independent nature of the letter of credit may be: (a) independence in
toto where the credit is independent from the justification aspect and is a
separate obligation from the underlying agreement like for instance a typical
standby; or (b) independence may be only as to the justification aspect like
in a commercial letter of credit or repayment standby, which is identical with
the same obligations under the underlying agreement. In both cases the
payment may be enjoined if in the light of the purpose of the credit the
payment of the credit would constitute fraudulent abuse of the credit.40
Petitioner insists that the independence principle does not apply to the
instant case and assuming it is so, it is a defense available only to
respondent banks. LHC, on the other hand, contends that it would be
contrary to common sense to deny the benefit of an independent contract to
the very party for whom the benefit is intended. As beneficiary of the letter of
credit, LHC asserts it is entitled to invoke the principle.
Petitioner's argument that any dispute must first be resolved by the parties,
whether through negotiations or arbitration, before the beneficiary is entitled
to call on the letter of credit in essence would convert the letter of credit into
a mere guarantee. Jurisprudence has laid down a clear distinction between
a letter of credit and a guarantee in that the settlement of a dispute between
the parties is not a pre-requisite for the release of funds under a letter of
credit. In other words, the argument is incompatible with the very nature of
the letter of credit. If a letter of credit is drawable only after settlement of the
dispute on the contract entered into by the applicant and the beneficiary,
there would be no practical and beneficial use for letters of credit in
commercial transactions.
Professor John F. Dolan, the noted authority on letters of credit, sheds more
light on the issue:
Because parties and courts should not confuse the different functions
of the surety contract on the one hand and the standby credit on the
other, the distinction between surety contracts and credits merits some
reflection. The two commercial devices share a common purpose. Both
ensure against the obligor's nonperformance. They function, however,
in distinctly different ways.
While it is the bank which is bound to honor the credit, it is the beneficiary
who has the right to ask the bank to honor the credit by allowing him to draw
thereon. The situation itself emasculates petitioner's posture that LHC
cannot invoke the independence principle and highlights its puerility, more
so in this case where the banks concerned were impleaded as parties by
petitioner itself.
8.7.1 If the Contractor fails to comply with Clause 8.2, the Contractor
shall pay to the Employer by way of liquidated damages ("Liquidated
Damages for Delay") the amount of US$75,000 for each and every day
or part of a day that shall elapse between the Target Completion Date
and the Completion Date, provided that Liquidated Damages for Delay
payable by the Contractor shall in the aggregate not exceed 20% of
the Contract Price. The Contractor shall pay Liquidated Damages for
Delay for each day of the delay on the following day without need of
demand from the Employer.
A contract once perfected, binds the parties not only to the fulfillment of
what has been expressly stipulated but also to all the consequences which
according to their nature, may be in keeping with good faith, usage, and
law.46 A careful perusal of the Turnkey Contract reveals the intention of the
parties to make the Securities answerable for the liquidated damages
occasioned by any delay on the part of petitioner. The call upon the
Securities, while not an exclusive remedy on the part of LHC, is certainly an
alternative recourse available to it upon the happening of the contingency
for which the Securities have been proffered. Thus, even without the use of
the "independence principle," the Turnkey Contract itself bestows upon LHC
the right to call on the Securities in the event of default.
Next, petitioner invokes the "fraud exception" principle. It avers that LHC's
call on the Securities is wrongful because it fraudulently misrepresented to
ANZ Bank and SBC that there is already a breach in the Turnkey Contract
knowing fully well that this is yet to be determined by the arbitral tribunals. It
asserts that the "fraud exception" exists when the beneficiary, for the
purpose of drawing on the credit, fraudulently presents to the confirming
bank, documents that contain, expressly or by implication, material
representations of fact that to his knowledge are untrue. In such a situation,
petitioner insists, injunction is recognized as a remedy available to it.
Would injunction then be the proper remedy to restrain the alleged wrongful
draws on the Securities?
In its complaint for injunction before the trial court, petitioner alleged that it is
entitled to a total extension of two hundred fifty-three (253) days which
would move the target completion date. It argued that if its claims for
extension would be found meritorious by the ICC, then LHC would not be
entitled to any liquidated damages.50
In the instant case, petitioner failed to show that it has a clear and
unmistakable right to restrain LHC's call on the Securities which would
justify the issuance of preliminary injunction. By petitioner's own admission,
the right of LHC to call on the Securities was contractually rooted and
subject to the express stipulations in the Turnkey Contract.55 Indeed, the
Turnkey Contract is plain and unequivocal in that it conferred upon LHC the
right to draw upon the Securities in case of default, as provided in Clause
4.2.5, in relation to Clause 8.7.2, thus:
4.2.5 The Employer shall give the Contractor seven days' notice of
calling upon any of the Securities, stating the nature of the default for
which the claim on any of the Securities is to be made, provided that
no notice will be required if the Employer calls upon any of the
Securities for the payment of Liquidated Damages for Delay or for
failure by the Contractor to renew or extend the Securities within 14
days of their expiration in accordance with Clause 4.2.2.56
The pendency of the arbitration proceedings would not per se make LHC's
draws on the Securities wrongful or fraudulent for there was nothing in the
Contract which would indicate that the parties intended that all disputes
regarding delay should first be settled through arbitration before LHC would
be allowed to call upon the Securities. It is therefore premature and absurd
to conclude that the draws on the Securities were outright fraudulent given
the fact that the ICC and CIAC have not ruled with finality on the existence
of default.
Nowhere in its complaint before the trial court or in its pleadings filed before
the appellate court, did petitioner invoke the fraud exception rule as a
ground to justify the issuance of an injunction.58 What petitioner did assert
before the courts below was the fact that LHC's draws on the Securities
would be premature and without basis in view of the pending disputes
between them. Petitioner should not be allowed in this instance to bring into
play the fraud exception rule to sustain its claim for the issuance of an
injunctive relief. Matters, theories or arguments not brought out in the
proceedings below will ordinarily not be considered by a reviewing court as
they cannot be raised for the first time on appeal.59 The lower courts could
thus not be faulted for not applying the fraud exception rule not only
because the existence of fraud was fundamentally interwoven with the issue
of default still pending before the arbitral tribunals, but more so, because
petitioner never raised it as an issue in its pleadings filed in the courts
below. At any rate, petitioner utterly failed to show that it had a clear and
unmistakable right to prevent LHC's call upon the Securities.
With respect to the issue of whether the respondent banks were justified in
releasing the amounts due under the Securities, this Court reiterates that
pursuant to the independence principle the banks were under no obligation
to determine the veracity of LHC's certification that default has occurred.
Neither were they bound by petitioner's declaration that LHC's call thereon
was wrongful. To repeat, respondent banks' undertaking was simply to pay
once the required documents are presented by the beneficiary.
Settled is the rule that injunction would not lie where the acts sought to be
enjoined have already become fait accompli or an accomplished or
consummated act.63 In Ticzon v. Video Post Manila, Inc.64 this Court ruled
that where the period within which the former employees were prohibited
from engaging in or working for an enterprise that competed with their
former employer—the very purpose of the preliminary injunction —has
expired, any declaration upholding the propriety of the writ would be entirely
useless as there would be no actual case or controversy between the
parties insofar as the preliminary injunction is concerned.
In the instant case, the consummation of the act sought to be restrained had
rendered the instant petition moot—for any declaration by this Court as to
propriety or impropriety of the non-issuance of injunctive relief could have
no practical effect on the existing controversy.65 The other issues raised by
petitioner particularly with respect to its right to recover the amounts
wrongfully drawn on the Securities, according to it, could properly be
threshed out in a separate proceeding.
One final point. LHC has charged petitioner of forum-shopping. It raised the
charge on two occasions. First, in its Counter-Manifestation dated 29 June
200466 LHC alleges that petitioner presented before this Court the same
claim for money which it has filed in two other proceedings, to wit: ICC Case
No. 11264/TE/MW and Civil Case No. 04-332 before the RTC of Makati.
LHC argues that petitioner's acts constitutes forum-shopping which should
be punished by the dismissal of the claim in both forums. Second, in its
Comment to Petitioner's Motion for Leave to File Addendum to Petitioner's
Memorandum dated 8 October 2004, LHC alleges that by maintaining the
present appeal and at the same time pursuing Civil Case No. 04-332—
wherein petitioner pressed for judgment on the issue of whether the funds
LHC drew on the Securities should be returned—petitioner resorted to
forum-shopping. In both instances, however, petitioner has apparently opted
not to respond to the charge.
SO ORDERED.
Philippine National Bank vs. Pineda, 197 SCRA 1 (1991)
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
FERNAN, C.J.:p
In this petition for certiorari, petitioner Philippine National Bank (PNB) seeks
to annul and set aside the orders dated March 4, 1977 and May 31, 1977
rendered in Civil Case No. 24422 1 of the Court of First Instance of Rizal,
Branch XXI, respectively granting private respondent Tayabas Cement
Company, Inc.'s application for a writ of preliminary injunction to enjoin the
foreclosure sale of certain properties in Quezon City and Negros Occidental
and denying petitioner's motion for reconsideration thereof.
The imported cement plant machinery and equipment arrived from Japan
and were released to TCC under a trust receipt agreement. Subsequently,
Toyo Menka Kaisha, Ltd. made the corresponding drawings against the L/C
as scheduled. TCC, however, failed to remit and/or pay the corresponding
amount covered by the drawings. Thus, on May 19, 1968, pursuant to the
trust receipt agreement, PNB notified TCC of its intention to repossess, as it
later did, the imported machinery and equipment for failure of TCC to settle
its obligations under the L/C. 5
On July 18, 1975, PNB filed with the City Sheriff of Quezon City a petition
for extra-judicial foreclosure under Act 3138, as amended by Act 4118 and
under Presidential Decree No. 385 of the real estate mortgage over the
properties known as the La Vista property covered by TCT No. 55323. 6
PNB likewise filed a similar petition with the City Sheriff of Bacolod, Negros
Occidental with respect to the mortgaged properties located at Isabela,
Negros Occidental and covered by OCT No. RT 1615.
The foreclosure sale of the La Vista property was scheduled on August 11,
1975. At the auction sale, PNB was the highest bidder with a bid price of
P1,000,001.00. However, when said property was about to be awarded to
PNB, the representative of the mortgagor-spouses objected and demanded
from the PNB the difference between the bid price of P1,000,001.00 and the
indebtedness of P499,060.25 of the Arroyo spouses on their personal
account. It was the contention of the spouses Arroyo's representative that
the foreclosure proceedings referred only to the personal account of the
mortgagor spouses without reference to the account of TCC.
On September 12, 1975, Acting Clerk of Court and Ex-Officio Sheriff Diana
L. Dungca issued a resolution finding that the questions raised by the
parties required the reception and evaluation of evidence, hence, proper for
adjudication by the courts of law. Since said questions were prejudicial to
the holding of the foreclosure sale, she ruled that her "Office, therefore,
cannot properly proceed with the foreclosure sale unless and until there be
a court ruling on the aforementioned issues." 8
Thus, in May, 1976, PNB filed with the Court of First Instance of Quezon
City, Branch V a petition for mandamus 9 against said Diana Dungca in her
capacity as City Sheriff of Quezon City to compel her to proceed with the
foreclosure sale of the mortgaged properties covered by TCT No. 55323 in
order to satisfy both the personal obligation of the spouses Arroyo as well
as their liabilities as sureties of TCC. 10
On September 6, 1976, the petition was granted and Dungca was directed
to proceed with the foreclosure sale of the mortgaged properties covered by
TCT No. 55323 pursuant to Act No. 3135 and to issue the corresponding
Sheriff's Certificate of Sale. 11
Before the decision could attain finality, TCC filed on September 14, 1976
before the Court of First Instance of Rizal, Pasig, Branch XXI a
complaint 12 against PNB, Dungca, and the Provincial Sheriff of Negros
Occidental and Ex-Officio Sheriff of Bacolod City seeking, inter alia, the
issuance of a writ of preliminary injunction to restrain the foreclosure of the
mortgages over the La Vista property and Hacienda Bacon as well as a
declaration that its obligation with PNB had been fully paid by reason of the
latter's repossession of the imported machinery and equipment. 13
Petitioner PNB advances four grounds for the setting aside of the writ of
preliminary injunction, namely: a) that it contravenes P.D. No. 385 which
prohibits the issuance of a restraining order against a government financial
institution in any action taken by such institution in compliance with the
mandatory foreclosure provided in Section 1 thereof; b) that the writ
countermands a final decision of a co-equal and coordinate court; c) that the
writ seeks to prohibit the performance of acts beyond the court's territorial
jurisdiction; and, d) private respondent TCC has not shown any clear legal
right or necessity to the relief of preliminary injunction.
Private respondent TCC counters with the argument that P.D. No. 385 does
not apply to the case at bar, firstly because no foreclosure proceedings
have been instituted against it by PNB and secondly, because its account
under the L/C has been fully satisfied with the repossession of the imported
machinery and equipment by PNB.
We rule for the petitioner PNB. It must be remembered that PNB took
possession of the imported cement plant machinery and equipment
pursuant to the trust receipt agreement executed by and between PNB and
TCC giving the former the unqualified right to the possession and disposal
of all property shipped under the Letter of Credit until such time as all the
liabilities and obligations under said letter had been discharged. 16 In the
case of Vintola vs. Insular Bank of Asia and America 17 wherein the same
argument was advanced by the Vintolas as entrustees of imported seashells
under a trust receipt transaction, we said:
Proceeding from this finding, PNB has the right to foreclose the mortgages
executed by the spouses Arroyo as sureties of TCC. A surety is considered
in law as being the same party as the debtor in relation to whatever is
adjudged touching the obligation of the latter, and their liabilities are
interwoven as to be inseparable. 21 As sureties, the Arroyo spouses are
primarily liable as original promissors and are bound immediately to pay the
creditor the amount outstanding. 22
Under Presidential Decree No. 385 which took effect on January 31, 1974,
government financial institutions like herein petitioner PNB are required to
foreclose on the collaterals and/or securities for any loan, credit or
accommodation whenever the arrearages on such account amount to at
least twenty percent (20%) of the total outstanding obligations, including
interests and charges, as appearing in the books of account of the financial
institution concerned. 23 It is further provided therein that "no restraining
order, temporary or permanent injunction shall be issued by the court
against any government financial institution in any action taken by such
institution in compliance with the mandatory foreclosure provided in Section
1 hereof, whether such restraining order, temporary or permanent injunction
is sought by the borrower(s) or any third party or parties . . ." 24
SECOND DIVISION
MELENCIO-HERRERA, J.:
Briefly, the antecedent facts disclose that sometime in 1976 and 1977
respondent spouses Ben S. Mendoza and Juanita M. Mendoza (the
Mendozas, for brevity), obtained two (2) loans from respondent Philippine
American Life Insurance Co. (Philam Life) in the total amount of
P600,000.00 to finance the construction of their residential house at
Mandaue City. The said loans, with a 14% nominal interest rate, were to be
liquidated in equal amortizations over a period of five (5) years from March
1977 to March 1982.
To secure payment, Philam Life required that amortizations be guaranteed
by an irrevocable standby letter of credit of a commercial bank. Thus, the
Mendozas contracted with petitioner Insular Bank of Asia and America
(IBAA) for the issuance of two (2) irrevocable standby Letters of Credit in
favor of Philam Life for the total amount of P600,000.00. The first L/C for
P500,000.00 was to expire on 1 October 1981 (Exhibit "7", IBAA) and the
second for P100,000.00 on 1 January 1982 (Exhibit "8", IBAA) These two
(2) irrevocable standby L/Cs were, in turn, secured by a real estate
mortgage for the same amount on the property of Respondent Spouses in
favor of IBAA.
The Mendozas failed to pay Philam Life the amortization that fell due on 1
June 1978 so that Philam Life informed IBAA that it was declaring both
loans as "entirely due and demandable" and demanded payment of
P492,996.30 (Exhibit "H"). However, because IBAA contested the propriety
of calling ill the entire loan, Philam Life desisted and resumed availing of the
L/Cs by drawing on them for five (5) more amortizations.
Limit of P
Liability 600,000.00
Less:
a) Payment P 280,
of Mendozas 293.11
b) Payment 372,227.65
of IBAA 652,520.76
Overpayment ( P
by IBAA 52,520.76)
On 21 April 1980 the Real Estate Mortgage, which secured the two (2)
standby L/Cs. was extrajudicially foreclosed by, and sold at public auction
for P775,000.00, to petitioner IBAA as the lone and highest bidder (Exhibit
"17-Mendoza"). The bid price of P775,000.00 by petitioner IBAA was arrived
at as follows:
Principal P
(unpaid 432,386.07
advances
under the
2
standby
LCs) plus
interest &
charges
Add:
a) P
Stipulated 86,477.20
Attorney's
fees (20%)
b)
Principals
(clean
loans) plus
accrued
interest
under
P/Ns Nos.
562/77
and
564/77 P
255,346.95
c) P 72.20
Expenses
of
foreclosure
TOTAL P
775,000.42
On a date that does not appear of record, Philam Life filed suit against
Respondent Spouses and IBAA before the Regional Trial Court of Manila,
Branch XXXXI, for the recovery of the sum of P274,779.56, the amount
allegedly still owing under the loan. After trial, said Court rendered a
Decision finding that IBAA had paid Philam Life only P342,127.05 and not
P372,227.65, as claimed by IBAA, because of a stale IBAA Manager's
check in the amount of P30,100.60, which had to be deducted. With this
deduction, the Trial Court arrived at the following computation:
Limit of P
Liability of 600,000.00
IBAA Less:
a) Payment P 280,
by Mendozas 293.11
b) Payment P342,127.05
by IBAA P
622,420.16
Overpayment P 22,420.16
by IBAA
In so deciding, the Trial Court took the position that IBAA, "as surety" was
discharged of its liability to the extent of the payment made by the
Mendozas, as the principal debtors, to the creditor, Philam Life.
The pivotal issue is the first one. IBAA stresses that it has no more liability
to Philam Life under the two (2) standby Letters of Credit and, instead, is
entitled to a refund. Whereas Philam Life and the Mendoza spouses
separately maintain that IBAA's obligation under said two (2) L/Cs is original
and primary and is not reduced by the direct payments made by the
Mendozas to Philam Life.
Letters of credit and contracts for the issuance of such letters are
subject to the same rules of construction as are ordinary
commercial contracts. They are to receive a reasonable and not a
technical construction and although usage and custom cannot
control express terms in letters of credit, they are to be construed
with reference to all the surrounding facts and circumstances, to
the particular and often varying terms in which they may be
expressed, the circumstances and intention of the parties to them,
and the usages of the particular trade of business contemplated.
(International Banking Corp. vs. Irving National Bank, CCA N.Y.
283 F. 103, affirming DC 274 F. 122; Old Colony Trust Co. vs.
Lawyers' Title and Trust Co., CAA NY, 297 F. 152, cited in Vol.
72, CJS sec. 178, pp. 387-388).<äre||anº•1àw>
The terms of the subject Irrevocable Standby Letters of Credit read, in part,
as follows:
Each drawing under this credit shall be available at any time after
one (1) day from due date of the obligations therein secured.
Each drawing under this credit shall be accomplished by your
signed statement in duplicate that the amount drawn represents
payment due and unpaid by the accountee. (pp. 11-12, Decision,
pp. 38-39, Rollo). [Emphasis our ].
Both the Trial Court and the Appellate Court found, as a fact, that there still
remains a balance on the loan, Pursuant to its absolute undertaking under
the L/Cs, therefore, IBAA cannot escape the obligation to pay Philam Life
for this unexpended balance. The Appellate Court found it to be
P222,000.00, arrived at by the Trial Court and adopted by the Appellate
Court, as follows:
3. The third issue faults respondent Appellate Court with having passed
sub-silencio over certain points raised by petitioner IBAA in his Brief
sustaining the Decision of the Trial Court. It is accepted judicial practice,
however, that Courts are not required to resolve all issues raised in
pleadings unless necessary for the resolution of the case. Apparently,
respondent Appellate Court deemed it unnecessary to pass upon those
points. Be that as it may, suffice it to state:
a) It is a matter of common knowledge in lending procedures that the
nominal interest is different from the effective rate of interest and that the
discounting interest scheme as well as the principal amortization scheme
are practices commonly resorted to by lending institutions. If IBAA
disagreed with the computation scheme adopted by Philam Life, which
could have been detected in the early stages of the controversy, IBAA could
have interposed its objections.
b) The right to call in at one time the two standby L/Cs was specifically
provided for in the Loan Agreement, which was specifically made an integral
part of the L/Cs Section 8 thereof read:
... 8. The Lender shall have the light to declare the entire balance
of the loans and all obligations of the borrower to the lender as
immediately due and payable in case the borrower fails for any
reason to comply with any payment or other obligations of the
Lender. (p. 248, Rollo)
c) The omission by Philam Life to draw the required drafts on the standby
L/Cs can be explained by the fact that all the drafts were pre-prepared, pre-
dated and
pre-accepted by the Mendozas. Philam Life, therefore, could not have
complied to the letter with the provision in the L/Cs that drawings therefrom
were to be made by drafts for each due and unpaid amortization. Besides,
the accelaration of the entire balance of the loan was sufficient notice of
dishonor of the pre-drawn and pre-accepted drafts.
SO ORDERED.
Transfield Philippines, Inc. vs. Luzon Hydro Corporation, 443 SCRA 307
(2004)
SECOND DIVISION
DECISION
PUNO, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court
to set aside the Decision of the Court of Appeals in CA-G.R. SP No. 39255,
dated February 17, 2003, affirming the decision of the trial court denying
petitioners’ motion to dismiss.
The complaint alleged that in 1991, BMC needed additional capital for its
business and applied for various loans, amounting to a total of five million
pesos, with the respondent bank. Petitioners-spouses acted as sureties for
these loans and issued three (3) promissory notes for the purpose. Under
the terms of the notes, it was stipulated that respondent bank may consider
debtor BMC in default and demand payment of the remaining balance of the
loan upon the levy, attachment or garnishment of any of its properties, or
upon BMC’s insolvency, or if it is declared to be in a state of suspension of
payments. Respondent bank granted BMC’s loan applications.
SO ORDERED.
International Finance Corporation vs. Imperial Textile Mills,
Inc., 475 SCRA 149 (2005)
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
INTERNATIONAL FINANCE G.R. No. 160324
CORPORATION,
Petitioner, Present:
Panganiban, J.,
Chairman,
- versus - Sandoval-Gutierrez,*
Corona,
INC.,**
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x
DECISION
PANGANIBAN, J.:
T he terms of a contract govern the rights and obligations of the contracting
parties. When the obligor undertakes to be 'jointly and severally liable, it
means that the obligation is solidary. If solidary liability was instituted to
'guarantee a principal obligation, the law deems the contract to be one of
suretyship.
The creditor in the present Petition was able to show convincingly that,
although denominated as a 'Guarantee Agreement, the Contract was
actually a surety. Notwithstanding the use of the words 'guarantee and
'guarantor, the subject Contract was indeed a surety, because its terms
were clear and left no doubt as to the intention of the parties.
The Case
By virtue of PPIC's failure to pay, IFC, together with DBP, applied for
the extrajudicial foreclosure of mortgages on the real estate, buildings,
machinery, equipment plant and all improvements owned by PPIC,
located at Calamba, Laguna, with the regional sheriff of Calamba,
Laguna. On July 30, 1985, the deputy sheriff of Calamba, Laguna
issued a notice of extrajudicial sale. IFC and DBP were the only
bidders during the auction sale. IFC's bid was for P99,269,100.00
which was equivalent to US$5,250,000.00 (at the prevailing exchange
rate of P18.9084 = US$1.00). The outstanding loan, however,
amounted to US$8,083,967.00 thus leaving a balance of
US$2,833,967.00. PPIC failed to pay the remaining balance.
Thereafter, on May 20, 1988, IFC filed a complaint with the RTC of
Manila against PPIC and ITM for the payment of the outstanding
balance plus interests and attorney's fees.
The trial court held PPIC liable for the payment of the outstanding loan
plus interests. It also ordered PPIC to pay IFC its claimed attorney's
fees. However, the trial court relieved ITM of its obligation as
guarantor. Hence, the trial court dismissed IFC's complaint against
ITM.
xxxxxxxxx
Thus, apropos the decision dismissing the complaint against ITM, IFC
appealed [to the CA].[5]
The CA reversed the Decision of the trial court, insofar as the latter
exonerated ITM from any obligation to IFC. According to the appellate court,
ITM bound itself under the 'Guarantee Agreement to pay PPIC's obligation
upon default.[6] ITM was not discharged from its obligation as guarantor when
PPIC mortgaged the latter's properties to IFC.[7] The CA, however, held that
ITM's liability as a guarantor would arise only if and when PPIC could not pay.
Since PPIC's inability to comply with its obligation was not sufficiently
established, ITM could not immediately be made to assume the liability.[8]
The Issues
The main issue is whether ITM is a surety, and thus solidarily liable with
PPIC for the payment of the loan.
Main Issue:
The present controversy arose from the following Contracts: (1) the Loan
Agreement dated December 17, 1974, between IFC and PPIC;[13] and (2)
the Guarantee Agreement dated December 17, 1974, between ITM and
Grandtex, on the one hand, and IFC on the other.[14]
IFC claims that, under the Guarantee Agreement, ITM bound itself as a
surety to PPIC's obligations proceeding from the Loan Agreement.[15] For
its part, ITM asserts that, by the terms of the Guarantee Agreement, it was
merely a guarantor[16] and not a surety. Moreover, any ambiguity in the
Agreement should be construed against IFC -- the party that drafted it.[17]
Language of the
Contract
Whereas,
The Agreement uses 'guarantee and guarantors, prompting ITM to base its
argument on those words.[20] This Court is not convinced that the use of
the two words limits the Contract to a mere guaranty. The specific
stipulations in the Contract show otherwise.
Solidary Liability
Agreed to by ITM
While referring to ITM as a guarantor, the Agreement specifically stated that
the corporation was 'jointly and severally liable. To put emphasis on the
nature of that liability, the Contract further stated that ITM was a primary
obligor, not a mere surety. Those stipulations meant only one thing: that at
bottom, and to all legal intents and purposes, it was a surety.
Initially, ITM was a stranger to the Loan Agreement between PPIC and IFC.
ITM's liability commenced only when it guaranteed PPIC's obligation. It
became a surety when it bound itself solidarily with the principal obligor.
Thus, the applicable law is as follows:
The creditor may proceed against any one of the solidary debtors or
some or all of them simultaneously. The demand made against one of
them shall not be an obstacle to those which may subsequently be
directed against the others, so long as the debt has not been fully
collected.
No Ambiguity in the
Undertaking
The Court does not find any ambiguity in the provisions of the Guarantee
Agreement. When qualified by the term jointly and severally, the use of the
word 'guarantor to refer to a 'surety does not violate the law.[23] As Article
2047 provides, a suretyship is created when a guarantor binds itself
solidarily with the principal obligor. Likewise, the phrase in the Agreement --
'as primary obligor and not merely as surety -- stresses that ITM is being
placed on the same level as PPIC. Those words emphasize the nature of
their liability, which the law characterizes as a suretyship.
The use of the word guarantee does not ipso facto make the contract one of
guaranty.[24] This Court has recognized that the word is frequently
employed in business transactions to describe the intention to be bound by
a primary or an independent obligation.[25] The very terms of a contract
govern the obligations of the parties or the extent of the obligor's liability.
Thus, this Court has ruled in favor of suretyship, even though contracts
were denominated as a 'Guarantor's Undertaking [26] or a 'Continuing
Guaranty.[27]
Contracts have the force of law between the parties,[28] who are free to
stipulate any matter not contrary to law, morals, good customs, public order
or public policy.[29] None of these circumstances are present, much less
alleged by respondent. Hence, this Court cannot give a different meaning to
the plain language of the Guarantee Agreement.
Indeed, the finding of solidary liability is in line with the premise provided in
the 'Whereas' clause of the Guarantee Agreement. The execution of the
Agreement was a condition precedent for the approval of PPIC's loan from
IFC. Consistent with the position of IFC as creditor was its requirement of a
higher degree of liability from ITM in case PPIC committed a breach. ITM
agreed with the stipulation in Section 2.01 and is now estopped from
feigning ignorance of its solidary liability. The literal meaning of the
stipulations control when the terms of the contract are clear and there is no
doubt as to the intention of the parties.[30]
We note that the CA denied solidary liability, on the theory that the parties
would not have executed a Guarantee Agreement if they had intended to
name ITM as a primary obligor.[31] The appellate court opined that ITM's
undertaking was collateral to and distinct from the Loan Agreement. On this
point, the Court stresses that a suretyship is merely an accessory or a
collateral to a principal obligation.[32] Although a surety contract is
secondary to the principal obligation, the liability of the surety is direct,
primary and absolute; or equivalent to that of a regular party to the
undertaking.[33] A surety becomes liable to the debt and duty of the
principal obligor even without possessing a direct or personal interest in the
obligations constituted by the latter.[34]
With the present finding that ITM is a surety, it is clear that the CA erred in
declaring the former secondarily liable.[35] A surety is considered in law to
be on the same footing as the principal debtor in relation to whatever is
adjudged against the latter.[36] Evidently, the dispositive portion of the
assailed Decision should be modified to require ITM to pay the amount
adjudged in favor of IFC.
Peripheral Issues
Alleged Change of
Theory on Appeal
Petitioner's arguments before the trial court (that ITM was a 'primary
obligor') and before the CA (that ITM was a 'surety') were related and
intertwined in the action to enforce the solidary liability of ITM under the
Guarantee Agreement. We emphasize that the terms primary obligor and
'surety were premised on the same stipulations in Section 2.01 of the
Agreement. Besides, both terms had the same legal consequences. There
was therefore effectively no change of theory on appeal. At any rate, ITM
failed to show to this Court a disparity between IFC's allegations in the trial
court and those in the CA. Bare allegations without proof deserve no
credence.
Review of Factual
Findings Necessary
As to the issue that only questions of law may be raised in a Petition for
Review,[39] the Court has recognized exceptions,[40] one of which applies
to the present case. The assailed Decision was based on a
misapprehension of facts,[41] which particularly related to certain
stipulations in the Guarantee Agreement -- stipulations that had not been
disputed by the parties. This circumstance compelled the Court to review
the Contract firsthand and to make its own findings and conclusions
accordingly.
SO ORDERED.
JN Development Corporation vs. Philippine Export and
Foreign Loan Guarantee Corporation, 468 SCRA 555 (2005)
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
DECISION
TINGA, J.:
It appears that JN failed to pay the loan to TRB upon its maturity; thus, on 8
October 1980 TRB requested PhilGuarantee to make good its guarantee.[8]
PhilGuarantee informed JN about the call made by TRB, and inquired about
the action of JN to settle the loan.[9] Having received no response from JN,
on 10 March 1981 PhilGuarantee paid TRB Nine Hundred Thirty Four
Thousand Eight Hundred Twenty Four Pesos and Thirty Four Centavos
(P934,824.34).[10] Subsequently, PhilGuarantee made several demands on
JN, but the latter failed to pay. On 30 May 1983, JN, through Rodrigo Sta.
Ana, proposed to settle the obligation 'by way of development and sale of
the mortgaged property.[11] PhilGuarantee, however, rejected the proposal.
According to the RTC, the failure of TRB to sue JN for the recovery of the
loan precludes PhilGuarantee from seeking recoupment from the spouses
Sta. Ana and Cruz what it paid to TRB. Thus, PhilGuarantee's payment to
TRB amounts to a waiver of its right under Art. 2058 of the Civil Code.[17]
Aggrieved by the RTC Decision, PhilGuarantee appealed to the CA. The
appellate court reversed the RTC and ordered petitioners to pay
PhilGuarantee Nine Hundred Thirty Four Thousand Six Hundred Twenty
Four Pesos and Thirty Four Centavos (P934,624.34), plus service charge
and interest.[18]
In reaching its denouement, the CA held that the RTC's finding that the loan
was extinguished by virtue of the foreclosure sale of the mortgaged property
had no factual support,[19] and that such finding is negated by Rodrigo Sta.
Ana's testimony that JN did not receive any notice of foreclosure from
PhilGuarantee or from TRB. [20] Moreover, Sta. Ana even offered the same
mortgaged property to PhilGuarantee to settle its obligations with the
latter.[21]
The CA also ruled that JN's obligation had become due and demandable
within the one-year period of effectivity of the guarantee; thus,
PhilGuarantee's payment to TRB conformed with its guarantee, although
the payment itself was effected one year after the maturity date of the
loan.[22] Contrary to the trial court's finding, the CA ruled that the contract of
guarantee was not extinguished by the alleged lack of evidence on
PhilGuarantee's consent to the extensions granted by TRB to JN.[23]
Interpreting Art. 2058 of the Civil Code,[24] the appellate court explained
that while the provision states that the guarantor cannot be compelled to
pay unless the properties of the debtor are exhausted, the guarantor is not
precluded from waiving the benefit of excussion and paying the obligation
altogether.[25]
Finally, the CA found that Narciso Cruz was unable to prove the alleged
forgery of his signature in the Undertaking, the evidence presented not
being sufficient to overcome the presumption of regularity of the
Undertaking which is a notarized document. [26]
So now before the Court are the separate petitions for review of the CA
Decision. JN and the spouses Sta. Ana, petitioners in G.R. No. 151060,
posit that the CA erred in interpreting Articles 2079, 2058, and 2059 of the
Civil Code in its Decision.[28] Meanwhile, petitioner Narciso Cruz in G.R.
No. 151311 claims that the CA erred when it held that petitioners are liable
to PhilGuarantee despite its payment after the expiration of its contract of
guarantee and the lack of PhilGuarantee's consent to the extensions
granted by TRB to JN. Moreover, Cruz questions the reversal of the ruling of
the trial court anent his liability as a signatory to the Undertaking.[29]
On the other hand, PhilGuarantee maintains that the date of default, not the
actual date of payment, determines the liability of the guarantor and that
having paid TRB when the loan became due, it should be indemnified by
petitioners.[30] It argues that, contrary to petitioners' claim, there could be
no waiver of its right to excussion more explicit than its act of payment to
TRB very directly.[31] Besides, the right to excussion is for the benefit of the
guarantor and is not a defense for the debtor to raise and use to evade
liability.[32] Finally, PhilGuarantee maintains that there is no sufficient
evidence proving the alleged forgery of Cruz's signature on the Undertaking,
which is a notarized document and as such must be accorded the
presumption of regularity.[33]
It is clear that excussion may only be invoked after legal remedies against
the principal debtor have been expanded. Thus, it was held that the creditor
must first obtain a judgment against the principal debtor before assuming to
run after the alleged guarantor, 'for obviously the 'exhaustion of the
principal's property cannot even begin to take place before judgment has
been obtained.[37] The law imposes conditions precedent for the invocation
of the defense. Thus, in order that the guarantor may make use of the
benefit of excussion, he must set it up against the creditor upon the latter's
demand for payment and point out to the creditor available property of the
debtor within the Philippines sufficient to cover the amount of the debt.[38]
....
This guarantee shall be valid for a period of one (1) year from date hereof
but may be renewed upon payment by JNDC of the guarantee fee at the
same rate of 1.5% per annum.[40]
The guarantee was only up to 17 December 1980. JN's obligation with TRB
fell due on 30 June 1980, and demand on PhilGuarantee was made by TRB
on 08 October 1980. That payment was actually made only on 10 March
1981 does not take it out of the terms of the guarantee. What is controlling
is that default and demand on PhilGuarantee had taken place while the
guarantee was still in force.
For the above reasons, there is no basis for petitioner's claim that
PhilGuarantee was a mere volunteer payor and had no legal obligation to
pay TRB. The law does not prohibit the payment by a guarantor on his own
volition, heedless of the benefit of excussion. In fact, it recognizes the right
of a guarantor to recover what it has paid, even if payment was made before
the debt becomes due,[43] or if made without notice to the debtor,[44]
subject of course to some conditions.
The cited case finds no application in the case a quo. PhilGuarantee is not
invoking the benefit of excussion. It cannot be overemphasized that
excussion is a right granted to the guarantor and, therefore, only he may
invoke it at his discretion.
Petitioners assert that TRB's alleged foreclosure of the real estate mortgage
over the land executed as security for the loan agreement had extinguished
PhilGuarantee's obligation; thus, PhilGuarantee's recourse should be
directed against TRB, as per the pari-passu provision[46] in the contract of
guarantee.[47] We disagree.
The foreclosure was made on 27 August 1993, 'after the case was
submitted for decision in 1992 and before the issuance of the decision of the
court a quo in 1998.[48] Thus, foreclosure was resorted to by TRB against
JN when they both had become aware that PhilGuarantee had already paid
TRB and that there was a pending case filed by PhilGuarantee against
petitioners. This matter was not raised and proved in the trial court, nor in
the appeal before the CA, but raised for the first time in petitioners' motion
for reconsideration in the CA. In their appellants' Brief, petitioners claimed
that 'there was no need for the defendant-appellee JNDC to present any
evidence before the lower court to show that indeed foreclosure of the REM
took place.[49] As properly held by the CA,
The Court notes the letter[51] of Rodrigo Sta. Ana offering, by way of
settlement of JN's obligations to PhilGuarantee, the very same parcel of
land mortgaged as security for the loan agreement. This further weakens
the position of petitioners, since it becomes obvious that they acknowledged
the payment made by PhilGuarantee on their behalf and that they were in
fact willing to negotiate with PhilGuarantee for the settlement of the said
obligation before the filing of the complaint a quo.
Anent the issue of forgery, the CA is correct in reversing the decision of the
trial court. Save for the denial of Narciso Cruz that it was not his signature in
the Undertaking and the perfunctory comparison of the signatures, nothing
in the records would support the claim of forgery. Forgery cannot be
presumed and must be proved by clear, positive and convincing evidence
and the burden of proof lies on the party alleging forgery.[52] Mere denial
will not suffice to overcome the positive value of the Undertaking, which is a
notarized document, has in its favor the presumption of regularity, and
carries the evidentiary weight conferred upon it with respect to its due
execution.[53] Even in cases where the alleged forged signature was
compared to samples of genuine signatures to show its variance therefrom,
this Court still found such evidence insufficient.[54] Mere variance of the
signatures cannot be considered as conclusive proof that the same were
forged.[55]
No pronouncement as to costs.
SO ORDERED.
People's Bank and Trust Co. vs. Odom, 64 Phil. 126 (1937)
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
IMPERIAL, J.:
The plaintiff brought this action to recover from the defendant the balance of
an overdraft owing to it from the latter, and to foreclose the mortgage of
properties to guarantee his obligation. The defendant appealed from the
judgment of the Court of First Instance of Manila ordering him to pay to the
plaintiff the sum of P138,403.68, with 9 per cent interest per annum from
January 4, 1934, until fully paid, plus P500 as attorney's fees, and the costs.
The judgment decreed that the principal and interest should be paid within
three months, failing which the mortgaged properties will be sold at public
auction, consisting of the rights, title and interest of the defendant in the
contracts of lease of the building known as the "Sugar News Co., Building"
and "Edward J. Nell Co. Building" as well as his rights, title, and interest in
the land on which the two buildings are constructed, and that the proceeds
of the sale should be applied to the payment of the amount of the judgment.
On January 12, 1927, the defendant entered into a contract with A. D. Gibbs
(Exhibit E) whereby the latter authorized him to construct two concrete
buildings of three floors each, upon his land on Loaisa Street, District of
Binondo, City of Manila, described in certificate of title No. 27584. Upon that
date, the building known as the Sugar News Co. Building was completely
constructed and its first floor was occupied by the People Bank and Trust
Co., but the two upper floors were not fully equipped; the other building
known as the "Edward J. Nell Co. Building" was then under construction.
Under the contract the defendant bore all the expenses of consideration
thereof Gibbs assigned to him all the rents which the building may produce
for a period of eight (8) years from November 1, 1926, as to the first floor
then already occupied, and as to the other floors to be equipped, from the
date they are thus fully equipped. As to the other building, "Edward J. Nell
Co. Building", the parties agreed that the defendant would also bear all the
expenses of construction until it is fully completed, and in consideration
thereof Gibbs assigned to him all the rent which it may produce for a period
of the eight (8) years and three (3) months from the date of the termination
of its construction; this period, however, to be counted from the completion
of each floor in the event that the floors composing the building should not
be completed and equipped at the same time.
By virtue of contracts entered into with the plaintiff, the defendant obtained
an overdraft from the former amounting to P110,000. To secure this
overdraft, the defendant, on April 26, 1928, assigned to the plaintiff all his
rights, title and interest in the contracts of lease with the Sugar News
Company, Manila Machinery and Supply Co., Inc., and T. Yamamoto of the
various portions of the "Sugar News Company Building", as well as the
rights, title and interest which he had acquired in the land on which the said
building was constructed under the contract which he had with A. D. Gibbs.
As additional security, the defendant also assigned to the plaintiff insurance
policy No. 402894 for P100,000 issued by the Manufacturers Life Insurance
Company (Exhibit C).
On January 20, 1931, the overdraft was again increased to P165,000, and
to guarantee the payment thereof the defendant executed Exhibit D
whereby he assigned to the plaintiff his rights, title and interest in the
contracts of lease with Edward J. Nell Company, El Progreso, Inc., and
France & Goulette of various portions of the "Edward J. Nell Company
Building"; in whatever contracts of lease of any portion of the same building
which he may enter not in the future, and the rights, title and interest which
he had in the land occupied by the building according to his contract with A.
D. Gibbs on January 12, 1927.
On the same date, January 20, 1931, the plaintiff and the defendant
executed Exhibit F, whereby the latter assigned to the former his right to
collect the rents of the "Edward J. Nell Company Building" to secure the
payment of the overdraft of P165.000 with interest at 9 per cent per annum.
The annual rentals then produced by the building were the following: from
Edward J. Nell Company P1,3000, from El Progreso P300 and from the
Lyric Film Exchange, Inc., successor of France & Goulette, P800.
Pursuant to the aforesaid contracts, the defendant drew funds upon plaintiff
by way of overdrafts, and on January 4, 1934, his account showed a
balance against him in the amount of P138,403.68, including stipulated
interest up to said date.
The defendant contends in his first assigned error that the contract Exhibit D
took the place of the previous conrtracts Exhibit B and C. To resolve this
point, it is necessary to take into account the intention of the parties
expressed in the contract Exhibit D and the terms in which it was drawn. It
was executed, according to the contract itself, as a result of the increase of
the overdraft to P165,000 as well as the additional guaranty given by
defendant, consisting of the assignment by way of guaranty of his rights in
his contracts of lease of the Edward J. Nell Company Building and of his
rights in the land occupied by the same building. Clause 3 of said contract
stipulated that the contract Exhibit C of April 26, 1928, was incorporated
therein and also constituted a guaranty of the payment of the overdraft as
increased to P165,000. In the light of these facts, it is evident that the
intention of the parties was neither to set aside the previous contracts nor to
substitute Exhibit D therefor.
In his second assignment of error the defendant contends that the court
should have held that the obligation contracted by him was with a term, and
the parties not having fixed the date of payment, the plaintiff should have
first brought an action to fix said date under article 1128 of the Civil Code
providing that, when it is to be inferred from the nature and circumstances of
the obligation that it was intended to grant the debtor time to pay, and the
term is not otherwise stated, the courts should fix the date of the maturity of
the obligation. The contract Exhibit D is a complement of the contracts
Exhibits B and C, hence, its language and the intention of the parties must
be interpreted in relation to and jointly with those of the latter under the
provisions of article 1285 of the same Code. It was expressly stipulated in
Exhibits B and C that the obligation contracted by the defendant shall expire
and be due upon demand of the plaintiff, and in view of the fact that the
latter deed was incorporated in Exhibit D as above stated and that the
defendant was required by the plaintiff to pay all his indebtedness, it is plain
that the obligation was without a term and that it became due and is
demandable. Wherefore, article 1128 of the Civil Code relied upon is not
applicable.
The subject of the third assignment of error is the ruling of the court that the
contracts evidenced by Exhibits B, C and D are one of mortgage and that
the plaintiff's action is for the foreclosure thereof. The defendant vigorously
argues that none of the three contracts is one of mortgage, but an
assignment of rights, because in none of said contracts did the parties
intend to constitute a mortgage. A careful examination of the documents
shows, in our opinion, that they were really mortgage contracts inasmuch as
they were executed to guarantee the principal obligations of the defendant,
consisting of the overdrafts of the indebtedness resulting therefrom. It
positively appears in each of them that the defendant assigned to the
plaintiff all his rights in the contracts of lease, in the land, and in the
insurance policy to guarantee his indebtedness resulting from the
overdrafts. An assignment to guarantee an obligation as in effect a
mortgage and not an absolute conveyance of title which confers ownership
on the assignee. (Title Guaranty & Surety Co. vs. Witmire 195 Fed., 41, 44;
Polhemus vs. Trainer, 30 Cal., 685; Campbell vs. Woodstock Iron Co., 83
Ala., 351; Dunham vs. Whitehead, 21 N. Y., 131; Woodward vs. Crump, 32
S. W., 195.) In Exhibits C and D it was stipulated, among other things, that if
the defendant should comply with all the conditions of the contracts and
should pay his indebtedness, together with interest at 9 per cent per annum,
the assignments would become null and void, otherwise they would remain
in full force. If the parties' intention as contended by the defendant were that
the assignments are absolute, and not by way of guaranty or mortgage, the
stipulation would not have been made because it would be inconsistent with
the will of the contracting parties. Wherefore, we hold that the third
assignment of error is untenable.
As a corollary of his theory that the contracts are absolute conveyances, the
defendant contends in his fourth and last assignment of error that his civil
liability has ceased and that he does not now owe the plaintiff anything. The
conclusions that we have reached in resolving the next preceding
assignment of error show that this last contention of the defendant is equally
untenable. The assignments he made not being absolute, and the plaintiff
having established that he has not paid his total overdraft, inasmuch as he
still owes the amount of money above stated, with interest, it is evident that
he is not yet relieved of his obligation.
In view of the foregoing, we affirm the appealed judgment, except that part
ordering the public sale of the mortgaged rights, with costs to the defendant
and appellant. The plaintiff is ordered to account to the defendant for the
rents received from two buildings which have not been included in its
liquidation, Exhibit G-4, and within ten days from notice of this judgment by
the court of origin, it shall file a written liquidation showing the final state of
the account of the defendant. So ordered.
Avanceña, C.J., Villa-Real, Abad Santos, Diaz, Laurel and Concepcion, JJ.,
concur.
Lopez vs. Court of Appeals, 114 SCRA 671 (1982)
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
GUERRERO, J.:
— WITNESSETH —
With the execution of this deed of assignment, Lopez endorsed the stock
certificate and delivered it to Philamgen.
It appears from the evidence on record that the loan of P20,000.00 was
approved conditioned upon the posting of a surety bond of a bonding
company acceptable to the bank. Thus, Lopez persuaded Emilio Abello,
Assistant Executive Vice-President of Philamgen and member of the Bond
Under writing Committee to request Atty. Timoteo J. Sumawang, Assistant
Vice- President and Manager of the Bonding Department, to accommodate
him in putting up the bond against the security of his shares of stock with
the Baguio Military Institute, Inc. It was their understanding that if he could
not pay the loan, Vice-President Abello and Pio Pedrosa of the Prudential
Bank would buy the shares of stocks and out of the proceeds thereof, the
loan would be paid to the Prudential Bank.
The complaint was thereafter dismissed. But when no payment was still
made by the principal debtor or by the surety, the Prudential Bank filed on
November 8, 1963 another complaint for the recovery of the P20,000.00. On
November 18, 1963, after being informed of said complaint, Lopez
addressed the following letter to Philamgen:
The contention of the plaintiff that the stock of the defendant were
merely pledged to it by the defendant is not borne out by the
evidence. On the contrary, it appears to be contradicted by the
facts of the case. The shares of stock of the defendant were
actually transferred to the plaintiff when it became clear after the
plaintiff and the defendant had been sued by the Prudential Bank
that plaintiff would be compelled to make the payment to the
Prudential Bank, in view of the inability of the defendant Benito H.
Lopez to pay his said obligation. The certificate bearing No. 44
was cancelled and upon request of the plaintiff to the Baguio
Military Institute a new certificate of stock was issued in the name
of the plaintiff bearing No. 171, by means of which plaintiff
became the registered owner of the 4,000 shares originally
belonging to the defendant.
The lower court erred in finding that the evidence does not bear
out the contention of plaintiff that the shares of stock belonging to
defendant were transferred by him to plaintiff by way of pledge.
II
III
The lower court erred in not finding that the instant case is one
where the pledge has abandoned the security and elected instead
to enforce his claim against the pledgor by ordinary action. 6
The motion for reconsideration with prayer to set the same for oral argument
having been denied, Lopez brought this petition for review on certiorari
presenting for resolution these questions:
a) Where, as in this case, a party "sells, assigns and transfers" and delivers
shares of stock to another, duly endorsed in blank, in consideration of a
contingent obligation of the former to the latter, and, the obligations having
arisen, the latter causes the shares of stock to be transferred in its name,
what is the juridical nature of the transaction-a dation in payment or a
pledge?
b) Where, as in this case, the debtor assigns the shares of stock to the
creditor under an agreement between the latter and determinate third
persons that the latter would buy the shares of stock so that the obligations
could be paid out of the proceeds, was there a novation of the obligation by
substitution of debtor? 8
Philamgen failed to file its comment on the petition for review on certiorari
within the extended period which expired on March 19, 1971. This Court
thereby resolved to require Lopez to file his brief. 9
It is true that if Lopez should "well and truly perform and fulfill all the
undertakings, covenants, terms, conditions, and agreements stipulated" in
his promissory note to Prudential Bank, the obligation of Philamgen under
the surety bond would become null and void. Corollarily, the stock
assignment, which is predicated on the obligation of Philamgen under the
surety bond, would necessarily become null and void likewise, for want of
cause or consideration under Article 1352 of the New Civil Code. But this is
not the case here because aside from the obligations undertaken by
Philamgen under the surety bond, the stock assignment had other
considerations referred to therein as "value received". Hence, based on the
manifest terms thereof, it is an absolute transfer.
We agree with the holding of the respondent Court of Appeals that the stock
assignment, Exhibit C, is in truth and in fact, a pledge. Indeed, the facts and
circumstances leading to the execution of the stock assignment, Exhibit C,
and the admission of Lopez prove that it is in fact a pledge. The appellate
court is correct in ruling that the following requirements of a contract of
pledge have been satisfied: (1) that it be constituted to secure the fulfillment
of a principal obligation; (2) that the pledgor be the absolute owner of the
thing pledged; and (3) that the person constituting the pledge has the free
disposal of the property, and in the absence thereof, that he be legally
authorized for the purpose. (Article 2085, New Civil Code).
Article 2087 of the New Civil Code providing that it is also the essence of
these contracts (pledge, mortgage, and antichresis) that when the principal
obligation becomes due, the things in which the pledge or mortgage
consists may be alienated for the payment to the creditor, further supports
the appellate court's ruling, which We also affirm. On this point further, the
Court of Appeals correctly ruled:
We also do not agree with the contention of petitioner that "petitioner's 'sale
assignment and transfer' unto private respondent of the shares of stock,
coupled with their endorsement in blank and delivery, comes exactly under
the Civil Code's definition of dation in payment, a long recognized and
deeply rooted concept in Civil Law denominated by Spanish commentators
as 'adjudicacion en pago'".
By the contract of pledge, the pledgor does not part with his
general right of property in the collateral. The general property
therein remains in him, and only a special property vests in the
pledgee. The pledgee does not acquire an interest in the property,
except as a security for his debt. Thus, the pledgee holds
possession of the security subject to the rights of the pledgor; he
cannot acquire any interest therein that is adverse to the pledgor's
title. Moreover, even where the legal title to incorporeal property
which may be pledged is transferred to a pledgee as collateral
security, he takes only a special property therein Such transfer
merely performs the office that the delivery of possession does in
case of a pledge of corporeal property.
We do not agree.
Under Article 1291 of the New Civil Code, obligations may be modified by:
(1) changing their object or principal condition; (2) substituting the person of
the debtor; (3) subrogating a third person in the rights of the creditor. And in
order that an obligation may be extinguished by another which substitute the
same, it is imperative that it be so declared in unequivocal terms, or that the
old and the new obligations be on every point incompatible with each other.
(Article 1292, N.C.C.) Novation which consists in substituting a new debtor
in the place of the original one, may be made even without the knowledge or
against the will of the latter, but not without the consent of the creditor.
Payment by the new debtor gives him the rights mentioned in Articles 1236
and 1237. (Article 1293, N.C.C.)
In the case at bar, the undertaking of Messrs. Emilio Abello and Pio
Pedrosa that they would buy the shares of stock so that Philamgen could be
reimbursed from the proceeds that it paid to Prudential Bank does not
necessarily imply the extinguishment of the liability of petitioner Lopez.
Since it was not established nor shown that Lopez would be released from
responsibility, the same does not constitute novation and hence, Philamgen
may still enforce the obligation. As the Court of Appeals correctly held that
"(t)he representation of Mr. Abello to Atty. Sumawang that he and Mr.
Pedrosa would buy the stocks was a purely private arrangement between
them, not an agreement between (Philamgen) and (Lopez)" and which We
hereby affirm, petitioner's second assignment of error must be rejected.
In fine, We hold and rule that the transaction entered into by and between
petitioner and respondent under the Stock Assignment Separate From
Certificate in relation to the Surety Bond No. 14164 and the Indemnity
Agreement, all executed and dated June 2, 1959, constitutes a pledge of
the 40,000 shares of stock by the petitioner-pledgor in favor of the private
respondent-pledgee, and not a dacion en pago. It is also Our ruling that
upon the facts established, there was no novation of the obligation by
substitution of debtor.
The promise of Abello and Pedrosa to buy the shares from private
respondent not having materialized (which promise was given to said
respondent only and not to petitioner) and no action was taken against the
two by said respondent who chose instead to sue the petitioner on the
Indemnity Agreement, it is quite clear that this respondent has abandoned
its right and interest over the pledged properties and must, therefore,
release or return the same to the petitioner-pledgor upon the latter's
satisfaction of his obligation under the Indemnity Agreement.
It must also be made clear that there is no double payment nor unjust
enrichment in this case because We have ruled that the shares of stock
were merely pledged. As the Court of Appeals said:
The appellant (Philam) is not enriching himself at the expense of
the appellee. True, the stock certificate of the appellee had been
in the name of the appellant but the transfer was merely nominal,
and was not intended to make the plaintiff the owner thereof. No
offer had been made for the return of the stocks to the defendant.
As the appellant had stated, the appellee could have the stocks
transferred to him anytime as long as he reimburses the plaintiff
the amount it had paid to the Prudential Bank. Pending payment,
plaintiff is merely holding the certificates as a pledge or security
for the payment of defendant's obligation.
The above holding of the appellate court is correct and We affirm the same.
SO ORDERED.
Manila Banking Corporation vs. Teodoro, 169 SCRA 95 (1989)
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
BIDIN, J.:
This is an appeal from the decision* of the Court of First Instance of Manila,
Branch XVII in Civil Case No. 78178 for collection of sum of money based
on promissory notes executed by the defendants-appellants in favor of
plaintiff-appellee bank. The dispositive portion of the appealed decision
(Record on Appeal, p. 33) reads as follows:
The three Promissory Notes stipulated that any interest due if not
paid at the end of every month shall be added to the total amount
then due, the whole amount to bear interest at the rate of 12% per
annum until fully paid; and in case of collection through an
attorney-at-law, the makers shall, jointly and severally, pay 10%
of the amount over-due as attorney's fees, which in no case shall
be leas than P200.00.
On April 17, 1972, the trial court rendered its judgment adverse to
defendants. On June 8, 1972, defendants filed a motion for reconsideration
(Record on Appeal, p. 33) which was denied by the trial court in its order of
June 14, 1972 (Record on Appeal, p. 37). On June 23, 1972, defendants
filed with the lower court their notice of appeal together with the appeal bond
(Record on Appeal, p. 38). The record of appeal was forwarded to the Court
of Appeals on August 22, 1972 (Record on Appeal, p. 42).
In their appeal (Brief for the Appellants, Rollo, p. 12), appellants raised a
single assignment of error, that is —
As the appeal involves a pure question of law, the Court of Appeals, in its
resolution promulgated on March 6, 1980, certified the case to this Court
(Rollo, p. 24). The record on Appeal was forwarded to this Court on March
31, 1980 (Rollo, p. 1).
In the resolution of May 30, 1980, the First Division of this Court ordered
that the case be docketed and declared submitted for decision (Rollo, p.
33).
On March 7, 1988, considering the length of time that the case has been
pending with the Court and to determine whether supervening events may
have rendered the case moot and academic, the Court resolved (1) to
require the parties to MOVE IN THE PREMISES within thirty days from
notice, and in case they fail to make the proper manifestation within the
required period, (2) to consider the case terminated and closed with the
entry of judgment accordingly made thereon (Rollo, p. 40).
On April 27, 1988, appellee moved for a resolution of the appeal review
interposed by defendants-appellants (Rollo, p. 41).
The major issues raised in this case are as follows: (1) whether or not the
assignment of receivables has the effect of payment of all the loans
contracted by appellants from appellee bank; and (2) whether or not
appellee bank must first exhaust all legal remedies against the Philippine
Fisheries Commission before it can proceed against appellants for
collections of loan under the promissory notes which are plaintiffs bases in
the action for collection in Civil Case No. 78178.
... that the title and right of possession to said account receivable
is to remain in said assignee and it shall have the right to collect
directly from the debtor, and whatever the Assignor does in
connection with the collection of said accounts, it agrees to do so
as agent and representative of the Assignee and it trust for said
Assignee ...(Ibid. par. 2 of Deed of Assignment).' (Record on
Appeal, p. 27)
Definitely, the assignment of the receivables did not result from a sale
transaction. It cannot be said to have been constituted by virtue of a dation
in payment for appellants' loans with the bank evidenced by promissory
note Nos. 11487, 11515 and 11699 which are the subject of the suit for
collection in Civil Case No. 78178. At the time the deed of assignment was
executed, said loans were non-existent yet. The deed of assignment was
executed on January 24, 1964 (Exh. "G"), while promissory note No. 11487
is dated April 25, 1966 (Exh. 'A), promissory note 11515, dated May 3, 1966
(Exh. 'B'), promissory note 11699, on June 20, 1966 (Exh. "C"). At most, it
was a dation in payment for P10,000.00, the amount of credit from appellee
bank indicated in the deed of assignment. At the time the assignment was
executed, there was no obligation to be extinguished except the amount of
P10,000.00. Moreover, in order that an obligation may be extinguished by
another which substitutes the same, it is imperative that it be so declared in
unequivocal terms, or that the old and the new obligations be on every point
incompatible with each other (Article 1292, New Civil Code).
In one case, the assignments of rights, title and interest of the defendant in
the contracts of lease of two buildings as well as her rights, title and interest
in the land on which the buildings were constructed to secure an overdraft
from a bank amounting to P110,000.00 which was increased to
P150,000.00, then to P165,000.00 was considered by the Court to be
documents of mortgage contracts inasmuch as they were executed to
guarantee the principal obligations of the defendant consisting of the
overdrafts or the indebtedness resulting therefrom. The Court ruled that an
assignment to guarantee an obligation is in effect a mortgage and not an
absolute conveyance of title which confers ownership on the assignee
(People's Bank & Trust Co. v. Odom, 64 Phil. 126 [1937]).
II
As to whether or not appellee bank must have to exhaust all legal remedies
against the Philippine Fisheries Commission before it can proceed against
appellants for collection of loans under their promissory notes, must also be
answered in the negative.
The obligation of appellants under the promissory notes not having been
released by the assignment of receivables, appellants remain as the
principal debtors of appellee bank rather than mere guarantors. The deed of
assignment merely guarantees said obligations. That the guarantor cannot
be compelled to pay the creditor unless the latter has exhausted all the
property of the debtor, and has resorted to all the legal remedies against the
debtor, under Article 2058 of the New Civil Code does not therefore apply to
them. It is of course of the essence of a contract of pledge or mortgage that
when the principal obligation becomes due, the things in which the pledge
or mortgage consists may be alienated for the payment to the creditor
(Article 2087, New Civil Code). In the instant case, appellants are both the
principal debtors and the pledgors or mortgagors. Resort to one is,
therefore, resort to the other.
WHEREFORE, the appeal is Dismissed for lack of merit and the appealed
decision of the trial court is affirmed in toto.
SO ORDERED.
Separate Opinions
I quite agree with the general reasoning of and the results reached by my
distinguished brother Bidin in respect of both of the principal issues he
addressed in his opinion.
I would merely wish to add a few lines in respect of the point made by Bidin,
J., that "the character of the transactions between the parties is not,
however, determined by the language used in the document but by their
intention.' This statement is basically not exceptionable, so far as it goes. It
might, however, be borne in mind that the intent of the parties to the
transaction is to be determined in the first instance, by the very language
which they use. The deed of assignment contains language which suggest
that the parties intended to effect a complete alienation of title to and rights
over the receivables which are the subject of the assignment. This language
is comprised of works like "remise," "release and quitclaim" and clauses like
"the title and right of possession to said accounts receivable is to remain in
said assignee" who "shall have the right to collect directly from the debtor."
The same intent is also suggested by the use of the words "agent and
representative of the assignee" in reffering to the assignor.
The point that appears to me to be worth making is that although in its form,
the deed of assignment of receivables partakes of the nature of a complete
alienation of the receivables assigned, such form should be taken in
conjunction with, and indeed must be qualified and controlled by, other
language showing an intent of the parties that title to the receivables shall
pass to the assignee for the limited purpose of securing another, principal;
obligation owed by the assignor to the assignee. Title moves from assignor
to asignee but that title is defeasible being designed to collateralize the
principal obligation. Operationally, what this means is that the assignee is
burdened with an obligation of taking the proceeds of the receivables
assigned and applying such proceeds to the satisfaction of the principal
obligation and returning any balance remaining thereafter to the assignor.
SECOND DIVISION
REGALADO, J.:
On the other hand, in G.R. No. 60907, petitioner OBM challenges the
decision of respondent court insofar as it holds OBM liable for interest on
the time deposit with it of Santos corresponding to the period of its closure
by order of the Central Bank. 3
In its assailed decision, the respondent Court of Appeals, quoting from the
decision of the lower court, 4 narrated the antecedents of this case in this
wise:
The facts of this case are not seriously disputed by any of the
parties. They are set forth in the decision of the trial court as
follows:
On January 30, 1976, the lower court rendered judgment for the
plaintiff, the dispositive portion of which reads as foIlows
SO ORDERED. 5
IRC Santos and OBM all appealed to the respondent Court of Appeals. As
stated in limine, on March 16, 1982 respondent court promulgated its
appealed decision, with a modification and the deletion of that portion of the
judgment of the trial court ordering OBM to pay IRC and Santos whatever
amounts they will pay to PNB with interest from the date of payment.
Along the same vein, in the case at bar it would not have been necessary
on the part of IRC and Santos to execute promissory notes in favor of PNB
if the assignment of the time deposits of Santos was really intended as an
absolute conveyance.
There are cogent reasons to conclude that the parties intended said deed of
assignment to complement the promissory notes. In declaring that the deed
of assignment did not operate as payment of the loan so as to extinguish
the obligations of IRC and Santos with PNB, the trial court advanced several
valid bases, to wit:
For all intents and purposes, the deed of assignment in this case is actually
a pledge. Adverting again to the Court's pronouncements in Lopez, supra,
we quote therefrom:
We have held in The Overseas Bank of Manila vs. Court of Appeals and
Tony D. Tapia, 13 that:
We cannot accept the holding of the respondent Court of Appeals that the
above-cited decisions apply only where the bank is in a state of liquidation.
In the very case aforecited, this issue was likewise raised and We resolved:
4. Lastly, IRC and Santos claim that OBM should reimburse them
for whatever amounts they may be adjudged to pay PNB by way
of compensation for damages incurred, pursuant to Articles 1170
and 2201 of the Civil Code.
It appears that as early as April, 1967, the financial situation of OBM had
already caused mounting concern in the Central Bank. 14 On December 5,
1967, new directors and officers drafted from the Central Bank (CB) itself,
the Philippine National Bank (PNB) and the Development Bank of the
Philippines (DBP) were elected and installed and they took over the
management and control of the Overseas Bank. 15 However, it was only on
July 31, 1968 when OBM was excluded from clearing with the CB under
Monetary Board Resolution No. 1263. Subsequently, on August 2, 1968,
pursuant to Resolution No. 1290 of the CB OBM's operations were
suspended. 16 These CB resolutions were eventually annulled and set aside
by this Court on October 4, 1971 in the decision rendered in the herein cited
case of Ramos.
Thus, when PNB demanded from OBM payment of the amounts due on the
two time deposits which matured on January 11, 1968 and February 6,
1968, respectively, there was as yet no obstacle to the faithful compliance
by OBM of its liabilities thereunder. Consequently, for having incurred in
delay in the performance of its obligation, OBM should be held liable for
damages. 17 When respondent Santos invested his money in time deposits
with OBM they entered into a contract of simple loan or mutuum, 18 not a
contract of deposit.
While it is true that under Article 1956 of the Civil Code no interest shall be
due unless it has been expressly stipulated in writing, this applies only to
interest for the use of money. It does not comprehend interest paid as
damages. 19 OBM contends that it had agreed to pay interest only up to the
dates of maturity of the certificates of time deposit and that respondent
Santos is not entitled to interest after the maturity dates had expired, unless
the contracts are renewed. This is true with respect to the stipulated
interest, but the obligations consisting as they did in the payment of money,
under Article 1108 of the Civil Code he has the right to recover damages
resulting from the default of OBM and the measure of such damages is
interest at the legal rate of six percent (6%) per annum on the amounts due
and unpaid at the expiration of the periods respectively provided in the
contracts. In fine, OBM is being required to pay such interest, not as interest
income stipulated in the certificates of time deposit, but as damages for
failure and delay in the payment of its obligations which thereby compelled
IRC and Santos to resort to the courts.
The applicable rule is that legal interest, in the nature of damages for non-
compliance with an obligation to pay a sum of money, is recoverable from
the date judicial or extra-judicial demand is made, 20 Which latter mode of
demand was made by PNB, after the maturity of the certificates of time
deposit, on March 1, 1968. 21 The measure of such damages, there being
no stipulation to the contrary, shall be the payment of the interest agreed
upon in the certificates of deposit 22 Which is six and onehalf percent (6-
1/2%). Such interest due or accrued shall further earn legal interest from the
time of judicial demand. 23
We reject the proposition of IRC and Santos that OBM should reimburse
them the entire amount they may be adjudged to pay PNB. It must be noted
that their liability to pay the various interests of nine percent (9%) on the
principal obligation, one and one-half percent (1-1/2%) additional interest
and one percent (1%) penalty interest is an offshoot of their failure to pay
under the terms of the two promissory notes executed in favor of PNB. OBM
was never a party to Id promissory notes. There is, therefore, no privity of
contract between OBM and PNB which will justify the imposition of the
aforesaid interests upon OBM whose liability should be strictly confined to
and within the provisions of the certificates of time deposit involved in this
case. In fact, as noted by respondent court, when OBM assigned as error
that portion of the judgment of the court a quo requiring OBM to make the
disputed reimbursement, IRC and Santos did not dispute that objection of
OBM Besides, IRC and Santos are not without fault. They likewise acted in
bad faith when they refuse to comply with their obligations under the
promissory notes, thus incurring liability for all damages reasonably
attributable to the non-payment of said obligations. 24
SO ORDERED.
Yau Chu vs. Court of Appeals, 177 SCRA 793 (1989)
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
GRINO-AQUINO, J.:
This is a petition for review on certiorari to annul and set aside the Court of
Appeals' decision dated October 28, 1986 in CA-G.R. CV No. 03269 which
affirmed the decision of the trial court in favor of the private respondents in
an action to recover the petitioners' time deposits in the respondent Family
Savings Bank.
Since 1980, the petitioner, Victoria Yau Chu, had been purchasing cement
on credit from CAMS Trading Enterprises, Inc. (hereafter "CAMS Trading"
for brevity). To guaranty payment for her cement withdrawals, she executed
in favor of Cams Trading deeds of assignment of her time deposits in the
total sum of P320,000 in the Family Savings Bank (hereafter the Bank).
Except for the serial numbers and the dates of the time deposit certificates,
the deeds of assignment, which were prepared by her own lawyer, uniformly
provided —
... That the assignment serves as a collateral or guarantee for the
payment of my obligation with the said CAMS TRADING
ENTERPRISES, INC. on account of my cement withdrawal from
said company, per separate contract executed between us.
On July 24,1980, Cams Trading notified the Bank that Mrs. Chu had an
unpaid account with it in the sum of P314,639.75. It asked that it be allowed
to encash the time deposit certificates which had been assigned to it by Mrs.
Chu. It submitted to the Bank a letter dated July 18, 1980 of Mrs. Chu
admitting that her outstanding account with Cams Trading was P404,500.
After verbally advising Mrs. Chu of the assignee's request to encash her
time deposit certificates and obtaining her verbal conformity thereto, the
Bank agreed to encash the certificates.It delivered to Cams Trading the sum
of P283,737.75 only, as one time deposit certificate (No. 0048120954)
lacked the proper signatures. Upon being informed of the encashment, Mrs.
Chu demanded from the Bank and Cams Trading that her time deposit be
restored. When neither complied, she filed a complaint to recover the sum
of P283,737.75 from them. The case was docketed in the Regional Trial
Court of Makati, Metro Manila (then CFI of Rizal, Pasig Branch XIX), as Civil
Case No. 38861.
In a decision dated December 12, 1983, the trial court dismissed the
complaint for lack of merit.
In this petition for review, she alleges that the Court of Appeals erred:
The Court of Appeals found that the deeds of assignment were contracts of
pledge, but, as the collateral was also money or an exchange of "peso for
peso," the provision in Article 2112 of the Civil Code for the sale of the thing
pledged at public auction to convert it into money to satisfy the pledgor's
obligation, did not have to be followed. All that had to be done to convert the
pledgor's time deposit certificates into cash was to present them to the bank
for encashment after due notice to the debtor.
Whether the debt had already been paid as now alleged by the debtor, is a
factual question which the Court of Appeals found not to have been proven
for the evidence which the debtor sought to present on appeal, were
receipts for payments made prior to July 18, 1980. Since the petitioner
signed on July 18, 1980 a letter admitting her indebtedness to be in the sum
of P404,500, and there is no proof of payment made by her thereafter to
reduce or extinguish her debt, the application of her time deposits, which
she had assigned to the creditor to secure the payment of her debt, was
proper. The Court of Appeals did not commit a reversible error in holding
that it was so.
WHEREFORE, the petition for review is denied. Costs against the appellant.
SO ORDERED.
Caltex (Philippines), Inc. vs. Court of Appeals, 212 SCRA 448
(1992)
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
REGALADO, J.:
This petition for review on certiorari impugns and seeks the reversal of the
decision promulgated by respondent court on March 8, 1991 in CA-G.R. CV
No. 23615 1 affirming with modifications, the earlier decision of the Regional
Trial Court of Manila, Branch XLII, 2 which dismissed the complaint filed
therein by herein petitioner against respondent bank.
The undisputed background of this case, as found by the court a quo and
adopted by respondent court, appears of record:
11. In April 1983, the loan of Angel dela Cruz with the defendant
bank matured and fell due and on August 5, 1983, the latter set-
off and applied the time deposits in question to the payment of the
matured loan (TSN, February 9, 1987, pp. 130-131).
12. In view of the foregoing, plaintiff filed the instant complaint,
praying that defendant bank be ordered to pay it the aggregate
value of the certificates of time deposit of P1,120,000.00 plus
accrued interest and compounded interest therein at 16% per
annum, moral and exemplary damages as well as attorney's fees.
After trial, the court a quo rendered its decision dismissing the
instant complaint. 3
SECURITY BANK
AND TRUST COMPANY
6778 Ayala Ave., Makati No. 90101
Metro Manila, Philippines
SUCAT OFFICEP 4,000.00
CERTIFICATE OF DEPOSIT
Rate 16%
AUTHORIZED SIGNATURES 5
We disagree with these findings and conclusions, and hereby hold that the
CTDs in question are negotiable instruments. Section 1 Act No. 2031,
otherwise known as the Negotiable Instruments Law, enumerates the
requisites for an instrument to become negotiable, viz:
The CTDs in question undoubtedly meet the requirements of the law for
negotiability. The parties' bone of contention is with regard to requisite (d)
set forth above. It is noted that Mr. Timoteo P. Tiangco, Security Bank's
Branch Manager way back in 1982, testified in open court that the depositor
reffered to in the CTDs is no other than Mr. Angel de la Cruz.
Atty. Calida:
witness:
Atty. Calida:
witness:
Atty. Calida:
witness:
If it was really the intention of respondent bank to pay the amount to Angel
de la Cruz only, it could have with facility so expressed that fact in clear and
categorical terms in the documents, instead of having the word "BEARER"
stamped on the space provided for the name of the depositor in each CTD.
On the wordings of the documents, therefore, the amounts deposited are
repayable to whoever may be the bearer thereof. Thus, petitioner's
aforesaid witness merely declared that Angel de la Cruz is the depositor
"insofar as the bank is concerned," but obviously other parties not privy to
the transaction between them would not be in a position to know that the
depositor is not the bearer stated in the CTDs. Hence, the situation would
require any party dealing with the CTDs to go behind the plain import of
what is written thereon to unravel the agreement of the parties thereto
through facts aliunde. This need for resort to extrinsic evidence is what is
sought to be avoided by the Negotiable Instruments Law and calls for the
application of the elementary rule that the interpretation of obscure words or
stipulations in a contract shall not favor the party who caused the obscurity.
12
The next query is whether petitioner can rightfully recover on the CTDs. This
time, the answer is in the negative. The records reveal that Angel de la
Cruz, whom petitioner chose not to implead in this suit for reasons of its
own, delivered the CTDs amounting to P1,120,000.00 to petitioner without
informing respondent bank thereof at any time. Unfortunately for petitioner,
although the CTDs are bearer instruments, a valid negotiation thereof for
the true purpose and agreement between it and De la Cruz, as ultimately
ascertained, requires both delivery and indorsement. For, although
petitioner seeks to deflect this fact, the CTDs were in reality delivered to it
as a security for De la Cruz' purchases of its fuel products. Any doubt as to
whether the CTDs were delivered as payment for the fuel products or as a
security has been dissipated and resolved in favor of the latter by
petitioner's own authorized and responsible representative himself.
If it were true that the CTDs were delivered as payment and not as security,
petitioner's credit manager could have easily said so, instead of using the
words "to guarantee" in the letter aforequoted. Besides, when respondent
bank, as defendant in the court below, moved for a bill of particularity
therein 17 praying, among others, that petitioner, as plaintiff, be required to
aver with sufficient definiteness or particularity (a) the due date or dates of
payment of the alleged indebtedness of Angel de la Cruz to plaintiff and (b)
whether or not it issued a receipt showing that the CTDs were delivered to it
by De la Cruz as payment of the latter's alleged indebtedness to it, plaintiff
corporation opposed the motion. 18 Had it produced the receipt prayed for, it
could have proved, if such truly was the fact, that the CTDs were delivered
as payment and not as security. Having opposed the motion, petitioner now
labors under the presumption that evidence willfully suppressed would be
adverse if produced. 19
The pertinent law on this point is that where the holder has a lien on the
instrument arising from contract, he is deemed a holder for value to the
extent of his lien. 23 As such holder of collateral security, he would be a
pledgee but the requirements therefor and the effects thereof, not being
provided for by the Negotiable Instruments Law, shall be governed by the
Civil Code provisions on pledge of incorporeal rights, 24 which inceptively
provide:
Art. 2096. A pledge shall not take effect against third persons if a
description of the thing pledged and the date of the pledge do not
appear in a public instrument.
Aside from the fact that the CTDs were only delivered but not indorsed, the
factual findings of respondent court quoted at the start of this opinion show
that petitioner failed to produce any document evidencing any contract of
pledge or guarantee agreement between it and Angel de la Cruz. 25
Consequently, the mere delivery of the CTDs did not legally vest in
petitioner any right effective against and binding upon respondent bank. The
requirement under Article 2096 aforementioned is not a mere rule of
adjective law prescribing the mode whereby proof may be made of the date
of a pledge contract, but a rule of substantive law prescribing a condition
without which the execution of a pledge contract cannot affect third persons
adversely. 26
On the other hand, the assignment of the CTDs made by Angel de la Cruz
in favor of respondent bank was embodied in a public instrument. 27 With
regard to this other mode of transfer, the Civil Code specifically declares:
Finally, petitioner faults respondent court for refusing to delve into the
question of whether or not private respondent observed the requirements of
the law in the case of lost negotiable instruments and the issuance of
replacement certificates therefor, on the ground that petitioner failed to
raised that issue in the lower court. 28
Pre-trial is primarily intended to make certain that all issues necessary to the
disposition of a case are properly raised. Thus, to obviate the element of
surprise, parties are expected to disclose at a pre-trial conference all issues
of law and fact which they intend to raise at the trial, except such as may
involve privileged or impeaching matters. The determination of issues at a
pre-trial conference bars the consideration of other questions on appeal. 32
Still, even assuming arguendo that said issue of negligence was raised in
the court below, petitioner still cannot have the odds in its favor. A close
scrutiny of the provisions of the Code of Commerce laying down the rules to
be followed in case of lost instruments payable to bearer, which it invokes,
will reveal that said provisions, even assuming their applicability to the
CTDs in the case at bar, are merely permissive and not mandatory. The
very first article cited by petitioner speaks for itself.
Art 548. The dispossessed owner, no matter for what cause it
may be, may apply to the judge or court of competent jurisdiction,
asking that the principal, interest or dividends due or about to
become due, be not paid a third person, as well as in order to
prevent the ownership of the instrument that a duplicate be issued
him. (Emphasis ours.)
The use of the word "may" in said provision shows that it is not mandatory
but discretionary on the part of the "dispossessed owner" to apply to the
judge or court of competent jurisdiction for the issuance of a duplicate of the
lost instrument. Where the provision reads "may," this word shows that it is
not mandatory but discretional. 34 The word "may" is usually permissive, not
mandatory. 35 It is an auxiliary verb indicating liberty, opportunity, permission
and possibility. 36
SO ORDERED.
Allied Banking Corp. vs. Ordofiez, 192 SCRA 246 (1990)
SECOND DIVISION
[G.R. No. 82495 : December 10, 1990.]
192 SCRA 246
ALLIED BANKING CORPORATION, Petitioner, vs. HON. SECRETARY
SEDFREY ORDOÑEZ (Public Respondent) and ALFREDO CHING (Private
Respondent), Respondents.
DECISION
PADILLA, J.:
In this special civil action for Certiorari, the interpretation by the Department
of Justice of the penal provision of PD 115, the Trust Receipts Law, is
assailed by petitioner.
On 23 January 1981, Philippine Blooming Mills (PBM, for short) thru its duly
authorized officer, private respondent Alfredo Ching, applied for the
issuance of commercial letters of credit with petitioner's Makati branch to
finance the purchase of 500 M/T Magtar Branch Dolomites and one (1) Lot
High Fired Refractory Sliding Nozzle Bricks.
2. The Provincial Fiscal of Rizal did not have jurisdiction over the case, as
respondent's obligation was purely civil;
"It cannot be denied that the offense was consummated long before the
appointment of rehabilitation receivers. The filing of a criminal case against
respondent Ching is not only for the purpose of effectuating a collection of a
debt but primarily for the purpose of punishing an offender for a crime
committed not only against the complaining witness but also against the
state. The crime of estafa for violation of the Trust Receipts Law is a special
offense or mala prohibita. It is a fundamental rule in criminal law that when
the crime is punished by a special law, the act alone, irrespective of its
motives, constitutes the offense. In the instant case the failure of the
entrustee to pay complainant the remaining balance of the value of the
goods covered by the trust receipt when the same became due constitutes
the offense penalized under Section 13 of P.D. No. 115; and on the basis of
this failure alone, the prosecution has sufficient evidence to establish a
prima facie case (Res. No. 671, s. 1981; Allied Banking Corporation vs.
Reinhard Sagemuller, et al., Provincial Fiscal of Rizal, September 18,
1981).
"You will note that the term 'all actions for claims' refer only to actions for
money claims but not to criminal liability of offenders." 3
". . . it is clear that what the law contemplates or covers are goods which
have, for their ultimate destination, the sale thereof or if unsold, their
surrender to the entruster, this whether the goods are in their original form
or in their manufactured/processed state. Since the goods covered by the
trust receipts and subject matter of these proceedings are to be utilized in
the operation of the equipment and machineries of the corporation, they
could not have been contemplated as being covered by PD 115. It is
axiomatic that penal statutes are strictly construed against the state and
liberally in favor of the accused (People vs. Purisima, 86 SCRA 542,
People vs. Terrado, 125 SCRA 648). This means that penal statutes cannot
be enlarged or extended by intendment, implication, or any equitable
consideration (People vs. Garcia, 85 Phil. 651). Thus, not all transactions
covered by trust receipts may be considered as trust receipt transactions
defined and penalized under PD 115.
x x x
Apparently, the trust receipt agreements were executed as security for the
payment of the drafts. As such, the main transaction was that of a loan. . . .
In essence, therefore, the relationship between the Bank and the
corporation, consequently, the respondent herein likewise included, is that
of debtor and creditor.
x x x
WHEREFORE, premises considered, our resolution dated September 24,
1986, recorded 119 Resolution No. 456, series of 1986, and that dated
March 17, 1987, the latter being necessarily dependent upon and incidental
to the former, are hereby abrogated and abandoned. You are hereby
directed to move for the withdrawal of the informations and the dismissal of
the criminal cases filed in court . . ." 5
This time, petitioner Allied Bank filed a motion for reconsideration of the
Ordoñez resolution, which was resolved by the Department of Justice on 17
February 1988, enunciating that PD 115 covers goods or components of
goods which are ultimately destined for sale. It concluded that:
". . . The goods subject of the instant case were shown to have been used
and/or consumed in the operation of the equipment and machineries of the
corporation, and are therefore outside the ambit of the provisions of PD 115
albeit covered by Trust Receipt agreements . . . Finally, it is noted that
under the Sia vs. People (121 SCRA 655 (1983), and Vintola vs. Insular
Bank of Asia and America (150 SCRA 578 (1987) rulings, the trend in the
Supreme Court appears to be to the effect that trust receipts under PD 115
are treated as security documents for basically loan transactions, so much
so that criminal liability is virtually obliterated and limiting liability of the
accused to the civil aspect only.
From the Department of Justice, petitioner is now before this Court praying
for writs of Certiorari and prohibition to annul the 11 January and 17
February 1988 DOJ rulings, mainly on two (2) grounds:
2. public respondent acted with grave abuse of discretion in holding that the
goods covered by the trust receipts are outside the contemplation of PD
115.
Private and public respondents both filed their comments on the petition to
which a consolidated reply was filed. After the submission of the parties'
respective memoranda, the case was calendared for deliberation.
Does the penal provision of PD 115 (Trust Receipts Law) apply when the
goods covered by a Trust Receipt do not form part of the finished products
which are ultimately sold but are instead, utilized/used up in the operation of
the equipment and machineries of the entrustee-manufacturer?
The trust receipts, there is an obligation to repay the entruster. 8 Their terms
are to be interpreted in accordance with the general rules on contracts, the
law being alert in all cases to prevent fraud on the part of either party to the
transaction. 9 The entrustee binds himself to sell or otherwise dispose of the
entrusted goods with the obligation to turn over to the entruster the
proceeds if sold, or return the goods if unsold or not otherwise disposed of,
in accordance with the terms and conditions specified in the trust receipt. A
violation of this undertaking constitutes estafa under Sec. 13, PD 115.
And even assuming the absence of a clear provision in the trust receipt
agreement, Lee v. Rodil 10 and Sia v. CA 11 have held: Acts involving the
violation of trust receipt agreements occurring after 29 January 1973 (when
PD 115 was issued) would render the accused criminally liable for estafa
under par. 1(b), Art. 315 of the Revised Penal Code, pursuant to the explicit
provision in Sec. 13 of PD 115. 12 The act punishable is malum prohibitum.
Respondent Secretary's prognostication of the Supreme Court's supposed
inclination to treat trust receipts as mere security documents for loan
transactions, thereby obliterating criminal liability, appears to be a
misjudgment. 13
The Court takes judicial notice of customary banking and business practices
where trust receipts are used for importation of heavy equipment,
machineries and supplies used in manufacturing operations. We are
perplexed by the statements in the assailed DOJ resolution that the goods
subject of the instant case are outside the ambit of the provisions of PD 115
albeit covered by Trust Receipt Agreements (17 February 1988 resolution)
and that not all transactions covered by trust receipts may be considered as
trust receipt transactions defined and penalized under PD 115 (11 January
1988 resolution). A construction should be avoided when it affords an
opportunity to defeat compliance with the terms of a statute.: nad
In the construction of statutes, the courts start with the assumption that the
legislature intended to enact an effective law, and the legislature is not to be
presumed to have done a vain thing in the enactment of a statute. Hence, it
is a general principle, embodied in the maxim, 'ut res magis valeat quam
pereat,' that the courts should, if reasonably possible to do so without
violence to the spirit and language of an act, so interpret the statute to give
it efficient operation and effect as a whole. An interpretation should, if
possible, be avoided, under which a statute or provision being construed is
defeated, or as otherwise expressed, nullified, destroyed, emasculated,
repealed, explained away, or rendered insignificant, meaningless,
inoperative, or nugatory." 16
To uphold the Justice Department's ruling would contravene not only the
letter but the spirit of PD 115.
"An examination of P.D. 115 shows the growing importance of trust receipts
in Philippine business, the need to provide for the rights and obligations of
parties to a trust receipt transaction, the study of the problems involved and
the action by monetary authorities, and the necessity of regulating the
enforcement of rights arising from default or violations of trust receipt
agreements. The legislative intent to meet a pressing need is clearly
expressed . . ." 17
SO ORDERED.
Colinares vs. Court of Appeals, 339 SCRA 609 (2000)
FIRST DIVISION
DECISION
On 14 January 1983, Petitioners were charged with the violation of P.D. No.
115 (Trust Receipts Law) in relation to Article 315 of the Revised Penal
Code in an Information which was filed with Branch 18, Regional Trial Court
of Cagayan de Oro City. The accusatory portion of the Information reads:
with a total value of P22,389.80, with the obligation on the part of the
accused-entrustee to hold the aforesaid items in trust for the entruster
and/or to sell on cash basis or otherwise dispose of the said items and to
turn over to the entruster the proceeds of the sale of said goods or if there
be no sale to return said items to the entruster on or before January 29,
1980 but that the said accused after receipt of the goods, with intent to
defraud and cause damage to the entruster, conspiring, confederating
together and mutually helping one another, did then and there wilfully,
unlawfully and feloniously fail and refuse to remit the proceeds of the sale of
the goods to the entruster despite repeated demands but instead converted,
misappropriated and misapplied the proceeds to their own personal use,
benefit and gain, to the damage and prejudice of the Philippine Banking
Corporation, in the aforesaid sum of P22,389.80, Philippine Currency.
During trial, petitioner Veloso insisted that the transaction was a “clean loan”
as per verbal guarantee of Cayo Garcia Tuiza, PBC’s former manager. He
and petitioner Colinares signed the documents without reading the fine print,
only learning of the trust receipt implication much later. When he brought
this to the attention of PBC, Mr. Tuiza assured him that the trust receipt was
a mere formality.
The trial court considered the transaction between PBC and Petitioners as a
trust receipt transaction under Section 4, P.D. No. 115. It considered
Petitioners’ use of the goods in their Carmelite monastery project an act of
“disposing” as contemplated under Section 13, P.D. No. 115, and treated
the charge invoice for goods issued by CM Builders Centre as a “document”
within the meaning of Section 3 thereof. It concluded that the failure of
Petitioners to turn over the amount they owed to PBC constituted estafa.
Petitioners appealed from the judgment to the Court of Appeals which was
docketed as CA-G.R. CR No. 05408. Petitioners asserted therein that the
trial court erred in ruling that they violated the Trust Receipt Law, and in
holding them criminally liable therefor. In the alternative, they contend that
at most they can only be made civilly liable for payment of the loan.
In its decision 6 March 1989, the Court of Appeals modified the judgment of
the trial court by increasing the penalty to six years and one day of prision
mayor as minimum to fourteen years eight months and one day of reclusion
temporal as maximum. It held that the documentary evidence of the
prosecution prevails over Veloso’s testimony, discredited Petitioners’ claim
that the documents they signed were in blank, and disbelieved that they
were coerced into signing them.
In its resolutionof 16 October 1989 the Court of Appeals denied the Motion
for New Trial/Reconsideration because the alleged newly discovered
evidence was actually forgotten evidence already in existence during the
trial, and would not alter the result of the case.
In its Comment of 22 January 1990, the Office of the Solicitor General urged
us to deny the petition for lack of merit.
In its Comment of 30 July 1990, the Solicitor General opined that payment
of the loan was akin to a voluntary surrender or plea of guilty which merely
serves to mitigate Petitioners’ culpability, but does not in any way extinguish
their criminal liability.
In the Resolution of 13 August 1990, we gave due course to the Petition and
required the parties to file their respective memoranda.
It was only on 18 May 1999 when this case was assigned to the ponente.
Thereafter, we required the parties to move in the premises and for
Petitioners to manifest if they are still interested in the further prosecution of
this case and inform us of their present whereabouts and whether their bail
bonds are still valid.
The core issues raised in the petition are the denial by the Court of Appeals
of Petitioners’ Motion for New Trial and the true nature of the contract
between Petitioners and the PBC. As to the latter, Petitioners assert that it
was an ordinary loan, not a trust receipt agreement under the Trust
Receipts Law.
The grant or denial of a motion for new trial rests upon the discretion of the
judge. New trial may be granted if: (1) errors of law or irregularities have
been committed during the trial prejudicial to the substantial rights of the
accused; or (2) new and material evidence has been discovered which the
accused could not with reasonable diligence have discovered and produced
at the trial, and which, if introduced and admitted, would probably change
the judgment.
For newly discovered evidence to be a ground for new trial, such evidence
must be (1) discovered after trial; (2) could not have been discovered and
produced at the trial even with the exercise of reasonable diligence; and (3)
material, not merely cumulative, corroborative, or impeaching, and of such
weight that, if admitted, would probably change the judgment. It is essential
that the offering party exercised reasonable diligence in seeking to locate
the evidence before or during trial but nonetheless failed to secure it.
Petitioners could not have been unaware that the two-page document
exists. The Disclosure Statement itself states, “NOTICE TO BORROWER:
YOU ARE ENTITLED TO A COPY OF THIS PAPER WHICH YOU SHALL
SIGN.” Assuming Petitioners’ copy was then unavailable, they could have
compelled its production in court, which they never did. Petitioners have
miserably failed to establish the second requisite of the rule on newly
discovered evidence.
Section 4, P.D. No. 115, the Trust Receipts Law, defines a trust receipt
transaction as any transaction by and between a person referred to as the
entruster, and another person referred to as the entrustee, whereby the
entruster who owns or holds absolute title or security interest 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 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.
There are two possible situations in a trust receipt transaction. The first is
covered by the provision which refers to money received under the
obligation involving the duty to deliver it (entregarla) to the owner of the
merchandise sold. The second is covered by the provision which refers to
merchandise received under the obligation to “return” it (devolvera) to the
owner.
Failure of the entrustee to turn over the proceeds of the sale of the goods,
covered by the trust receipt to the entruster or to return said goods if they
were not disposed of in accordance with the terms of the trust receipt shall
be punishable as estafa under Article 315 (1) of the Revised Penal Code,
without need of proving intent to defraud.
A thorough examination of the facts obtaining in the case at bar reveals that
the transaction intended by the parties was a simple loan, not a trust receipt
agreement.
This situation belies what normally obtains in a pure trust receipt transaction
where goods are owned by the bank and only released to the importer in
trust subsequent to the grant of the loan. The bank acquires a “security
interest” in the goods as holder of a security title for the advances it had
made to the entrustee. The ownership of the merchandise continues to be
vested in the person who had advanced payment until he has been paid in
full, or if the merchandise has already been sold, the proceeds of the sale
should be turned over to him by the importer or by his representative or
successor in interest. To secure that the bank shall be paid, it takes full title
to the goods at the very beginning and continues to hold that title as his
indispensable security until the goods are sold and the vendee is called
upon to pay for them; hence, the importer has never owned the goods and
is not able to deliver possession. In a certain manner, trust receipts partake
of the nature of a conditional sale where the importer becomes absolute
owner of the imported merchandise as soon as he has paid its price.
Trust receipt transactions are intended to aid in financing importers and
retail dealers who do not have sufficient funds or resources to finance the
importation or purchase of merchandise, and who may not be able to
acquire credit except through utilization, as collateral, of the merchandise
imported or purchased.
PBC attempted to cover up the true delivery date of the merchandise, yet
the trial court took notice even though it failed to attach any significance to
such fact in the judgment. Despite the Court of Appeals’ contrary view that
the goods were delivered to Petitioners previous to the execution of the
letter of credit and trust receipt, we find that the records of the case speak
volubly and this fact remains uncontroverted. It is not uncommon for us to
peruse through the transcript of the stenographic notes of the proceedings
to be satisfied that the records of the case do support the conclusions of the
trial court. After such perusal Grego Mutia, PBC’s credit investigator,
admitted thus:
Q Do you know if the goods subject matter of this letter of credit and trust
receipt agreement were received by the accused?
A Yes, sir
Q Do you have evidence to show that these goods subject matter of this
letter of credit and trust receipt were delivered to the accused?
A Yes, sir.
A Yes, sir.
xxx
COURT:
During the cross and re-direct examinations he also impliedly admitted that
the transaction was indeed a loan. Thus:
Q In short the amount stated in your Exhibit C, the trust receipt was a loan
to the accused you admit that?
xxx
Petitioner Veloso’s claim that they were made to believe that the transaction
was a loan was also not denied by PBC. He declared:
Q Testimony was given here that that was covered by trust receipt. In short
it was a special kind of loan. What can you say as to that?
PBC could have presented its former bank manager, Cayo Garcia Tuiza,
who contracted with Petitioners, to refute Veloso’s testimony, yet it only
presented credit investigator Grego Mutia. Nowhere from Mutia’s testimony
can it be gleaned that PBC represented to Petitioners that the transaction
they were entering into was not a pure loan but had trust receipt
implications.
The Trust Receipts Law does not seek to enforce payment of the loan,
rather it 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. Here, it is crystal clear that on the part of Petitioners there was
neither dishonesty nor abuse of confidence in the handling of money to the
prejudice of PBC. Petitioners continually endeavored to meet their
obligations, as shown by several receipts issued by PBC acknowledging
payment of the loan.
Also noteworthy is the fact that Petitioners are not importers acquiring the
goods for re-sale, contrary to the express provision embodied in the trust
receipt. They are contractors who obtained the fungible goods for their
construction project. At no time did title over the construction materials pass
to the bank, but directly to the Petitioners from CM Builders Centre. This
impresses upon the trust receipt in question vagueness and ambiguity,
which should not be the basis for criminal prosecution in the event of
violation of its provisions.
No costs.
SO ORDERED.
Development Bank of the Philippines vs. Prudential Bank, 475
SCRA 623 (2005)
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
THE PHILIPPINES,
Petitioner,
Present:
SANDOVAL-GUTIERREZ,
- v e r s u s - CORONA,
GARCIA, JJ.
PRUDENTIAL BANK,
Respondent. Promulgated:
x-------------------------------------------x
DECISION
CORONA, J.:
Development Bank of the Philippines (DBP) assails in this petition for review
on certiorari under Rule 45 of the Rules of Court the December 14, 1999
decision[1] and the June 8, 2000 resolution of the Court of Appeals in CA-
G.R. CV No. 45783. The challenged decision dismissed DBP's appeal and
affirmed the February 12, 1991 decision of the Regional Trial Court of
Makati, Branch 137 in Civil Case No. 88-931 in toto, while the impugned
resolution denied DBP's motion for reconsideration for being pro forma.
On October 10, 1980, DBP granted a foreign currency loan in the amount of
US$4,807,551 to Litex. To secure the loan, Litex executed real estate and
chattel mortgages on its plant site in Montalban, Rizal, including the
buildings and other improvements, machineries and equipments there.
Among the machineries and equipments mortgaged in favor of DBP were
the articles covered by the 'trust receipts.
Sometime in June 1982, Prudential Bank learned about DBP's plan for the
overall rehabilitation of Litex. In a July 14, 1982 letter, Prudential Bank
notified DBP of its claim over the various items covered by the 'trust
receipts' which had been installed and used by Litex in the textile mill.
Prudential Bank informed DBP that it was the absolute and juridical owner
of the said items and they were thus not part of the mortgaged assets that
could be legally ceded to DBP.
For the failure of Litex to pay its obligation, DBP extra-judicially foreclosed
on the real estate and chattel mortgages, including the articles claimed by
Prudential Bank. During the foreclosure sale held on April 19, 1983, DBP
acquired the foreclosed properties as the highest bidder.
On February 12, 1991, the trial court decided[2] in favor of Prudential Bank.
Applying the provisions of PD 115, otherwise known as the 'Trust Receipts
Law, it ruled:
SO ORDERED.
Aggrieved, DBP filed an appeal with the Court of Appeals. However, the
appellate court dismissed the appeal and affirmed the decision of the trial
court in toto. It applied the provisions of PD 115 and held that ownership
over the contested articles belonged to Prudential Bank as entrustor, not to
Litex. Consequently, even if Litex mortgaged the items to DBP and the latter
foreclosed on such mortgage, DBP was duty-bound to turn over the
proceeds to Prudential Bank, being the party that advanced the payment for
them.
On DBP's argument that the disputed articles were not proper objects of a
trust receipt agreement, the Court of Appeals ruled that the items were part
of the trust agreement entered into by and between Prudential Bank and
Litex. Since the agreement was not contrary to law, morals, public policy,
customs and good order, it was binding on the parties.
Moreover, the appellate court found that DBP was not a mortgagee in good
faith. It also upheld the finding of the trial court that DBP was a trustee ex
maleficio of Prudential Bank over the articles covered by the 'trust receipts.
DBP filed a motion for reconsideration but the appellate court denied it for
being pro forma. Hence, this petition.
In a trust receipt transaction, the goods are released by the entruster (who
owns or holds absolute title or security interests over the said goods) to the
entrustee on the latter's execution and delivery to the entruster of a trust
receipt. The trust receipt evidences the absolute title or security interest of
the entruster over the goods. As a consequence of the release of the goods
and the execution of the trust receipt, a two-fold obligation is imposed on the
entrustee, namely: (1) to hold the designated goods, documents or
instruments in trust for the purpose of selling or otherwise disposing of them
and (2) to turn over to the entruster either 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. In the case of goods, they may also be
released for other purposes substantially equivalent to (a) their sale or the
procurement of their sale; or (b) their manufacture or processing with the
purpose of ultimate sale, in which case the entruster retains his title over the
said goods whether in their original or processed form until the entrustee
has complied fully with his obligation under the trust receipt; or (c) the
loading, unloading, shipment or transshipment or otherwise dealing with
them in a manner preliminary or necessary to their sale.[4] Thus, in a trust
receipt transaction, the release of the goods to the entrustee, on his
execution of a trust receipt, is essentially for the purpose of their sale or is
necessarily connected with their ultimate or subsequent sale.
Here, Litex was not engaged in the business of selling spinning machinery,
its accessories and spare parts but in manufacturing and producing textile
and various kinds of fabric. The articles were not released to Litex to be
sold. Nor was the transfer of possession intended to be a preliminary step
for the said goods to be ultimately or subsequently sold. Instead, the
contemporaneous and subsequent acts of both Litex and Prudential Bank
showed that the imported articles were released to Litex to be installed in its
textile mill and used in its business. DBP itself was aware of this. To support
its assertion that the contested articles were excluded from goods that could
be covered by a trust receipt, it contended:
Hence, the transactions between Litex and Prudential Bank were allegedly
not trust receipt transactions within the meaning of PD 115. It follows that,
contrary to the decisions of the trial court and the appellate court, the
transactions were not governed by the Trust Receipts Law.
We disagree.
The articles were owned by Prudential Bank and they were only held by
Litex in trust. While it was allowed to sell the items, Litex had no authority to
dispose of them or any part thereof or their proceeds through conditional
sale, pledge or any other means.
Article 2085 (2) of the Civil Code requires that, in a contract of pledge or
mortgage, it is essential that the pledgor or mortgagor should be the
absolute owner of the thing pledged or mortgaged. Article 2085 (3) further
mandates that the person constituting the pledge or mortgage must have
the free disposal of his property, and in the absence thereof, that he be
legally authorized for the purpose.
Litex had neither absolute ownership, free disposal nor the authority to
freely dispose of the articles. Litex could not have subjected them to a
chattel mortgage. Their inclusion in the mortgage was void[7] and had no
legal effect.[8] There being no valid mortgage, there could also be no valid
foreclosure or valid auction sale.[9] Thus, DBP could not be considered
either as a mortgagee or as a purchaser in good faith.[10]
No one can transfer a right to another greater than what he himself has.[11]
Nemo dat quod non habet. Hence, Litex could not transfer a right that it did
not have over the disputed items. Corollarily, DBP could not acquire a right
greater than what its predecessor-in-interest had. The spring cannot rise
higher than its source.[12] DBP merely stepped into the shoes of Litex as
trustee of the imported articles with an obligation to pay their value or to
return them on Prudential Bank's demand. By its failure to pay or return
them despite Prudential Bank's repeated demands and by selling them to
Lyon without Prudential Bank's knowledge and conformity, DBP became a
trustee ex maleficio.
On the matter of actual damages adjudged by the trial court and affirmed by
the Court of Appeals, DBP wants this Court to review the evidence
presented during the trial and to reverse the factual findings of the trial
court. This Court is, however, not a trier of facts and it is not its function to
analyze or weigh evidence anew.[13] The rule is that factual findings of the
trial court, when adopted and confirmed by the CA, are binding and
conclusive on this Court and generally will not be reviewed on appeal.[14]
While there are recognized exceptions to this rule, none of the established
exceptions finds application here.
DBP's assertion that both the trial and appellate courts failed to address the
issue of prescription is of no moment. Its claim that, under Article 1146 (1) of
the Civil Code, Prudential Bank's cause of action had prescribed as it
should be reckoned from October 10, 1980, the day the mortgage was
registered, is not correct. The written extra-judicial demand by the creditor
interrupted the prescription of action.[16] Hence, the four-year prescriptive
period which DBP insists should be counted from the registration of the
mortgage was interrupted when Prudential Bank wrote the extra-judicial
demands for the turn over of the articles or their value. In particular, the last
demand letter sent by Prudential Bank was dated July 30, 1988 and this
was received by DBP the following day. Thus, contrary to DBP's claim,
Prudential Bank's right to enforce its action had not yet prescribed when it
filed the complaint on May 24, 1988.
WHEREFORE, the petition is hereby DENIED. The December 14, 1999
decision and June 8, 2000 resolution of the Court of Appeals in CA-G.R. CV
No. 45783 are AFFIRMED.
SO ORDERED.
Rosario Textile Mills vs. Home Bankers Savings and Trust
Company, 462 SCRA 88 (2005)
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
DECISION
SANDOVAL-GUTIERREZ, J.:
For our resolution is the petition for review on certiorari assailing the
Decision1 of the Court of Appeals dated March 31, 1998 in CA-G.R. CV No.
48708 and its Resolution dated January 12, 1999.
In their answer (OR, pp. 44-47), RTMC and Yujuico contend that they
should be absolved from liability. They claimed that although the grant of the
credit line and the execution of the suretyship agreement are admitted, the
bank gave assurance that the suretyship agreement was merely a formality
under which Yujuico will not be personally liable. They argue that the
importation of raw materials under the credit line was with a grant of option
to them to turn-over to the bank the imported raw materials should these fail
to meet their manufacturing requirements. RTMC offered to make such turn-
over since the imported materials did not conform to the required
specifications. However, the bank refused to accept the same, until the
materials were destroyed by a fire which gutted down RTMC’s premises.
For failure of the parties to amicably settle the case, trial on the merits
proceeded. After the trial, the Court a quo rendered a decision in favor of
the bank, the decretal part of which reads:
The Court of Appeals, however, affirmed the trial court’s judgment, holding
that the bank is merely the holder of the security for its advance payments
to petitioners; and that the goods they purchased, through the credit line
extended by the bank, belong to them and hold said goods at their own risk.
Petitioners then filed a motion for reconsideration but this was denied by the
Appellate Court in its Resolution dated January 12, 1999.
Hence, this petition for review on certiorari ascribing to the Court of Appeals
the following errors:
"I
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING
THAT THE ACTS OF THE PETITIONERS-DEFENDANTS WERE
TANTAMOUNT TO A VALID AND EFFECTIVE TENDER OF THE GOODS
TO THE RESPONDENT-PLAINTIFF.
II
III
IV
The above assigned errors boil down to the following issues: (1) whether the
Court of Appeals erred in holding that petitioners are not relieved of their
obligation to pay their loan after they tried to tender the goods to the bank
which refused to accept the same, and which goods were subsequently lost
in a fire; (2) whether the Court of Appeals erred when it ruled that petitioners
are solidarily liable for the payment of their obligations to the bank; and (3)
whether the Court of Appeals violated the Trust Receipts Law.
On the first issue, petitioners theorize that when petitioner RTMC imported
the raw materials needed for its manufacture, using the credit line, it was
merely acting on behalf of the bank, the true owner of the goods by virtue of
the trust receipts. Hence, under the doctrine of res perit domino, the bank
took the risk of the loss of said raw materials. RTMC’s role in the transaction
was that of end user of the raw materials and when it did not accept those
materials as they did not meet the manufacturing requirements, RTMC
made a valid and effective tender of the goods to the bank. Since the bank
refused to accept the raw materials, RTMC stored them in its warehouse.
When the warehouse and its contents were gutted by fire, petitioners’
obligation to the bank was accordingly extinguished.
It is thus clear that the principal transaction between petitioner RTMC and
the bank is a contract of loan. RTMC used the proceeds of this loan to
purchase raw materials from a supplier abroad. In order to secure the
payment of the loan, RTMC delivered the raw materials to the bank as
collateral. Trust receipts were executed by the parties to evidence this
security arrangement. Simply stated, the trust receipts were mere securities.
In Samo vs. People,5 we described a trust receipt as "a security transaction
intended to aid in financing importers and retail dealers who do not have
sufficient funds or resources to finance the importation or purchase of
merchandise, and who may not be able to acquire credit except through
utilization, as collateral, of the merchandise imported or purchased."6
In Vintola vs. Insular Bank of Asia and America,7 we elucidated further that
"a trust receipt, therefore, is a security agreement, pursuant to which a bank
acquires a ‘security interest’ in the goods. It secures an indebtedness and
there can be no such thing as security interest that secures no obligation."8
Section 3 (h) of the Trust Receipts Law (P.D. No. 115) defines a "security
interest" as follows:
Petitioners’ insistence that the ownership of the raw materials remained with
the bank is untenable. In Sia vs. People,9 Abad vs. Court of Appeals,10 and
PNB vs. Pineda,11 we held that:
"If under the trust receipt, the bank is made to appear as the owner, it was
but an artificial expedient, more of legal fiction than fact, for if it were really
so, it could dispose of the goods in any manner it wants, which it cannot do,
just to give consistency with purpose of the trust receipt of giving a stronger
security for the loan obtained by the importer. To consider the bank as the
true owner from the inception of the transaction would be to disregard the
loan feature thereof..."12
Anent the second issue, petitioner Yujuico contends that the suretyship
agreement he signed does not bind him, the same being a mere formality.
First, there is no record to support his allegation that the surety agreement
is a "mere formality;" and
Second, as correctly held by the Court of Appeals, the Suretyship
Agreement signed by petitioner Yujuico binds him. The terms clearly show
that he agreed to pay the bank jointly and severally with RTMC. The parole
evidence rule under Section 9, Rule 130 of the Revised Rules of Court is in
point, thus:
(b) The failure of the written agreement to express the true intent and
agreement of the parties thereto;
x x x."
Under this Rule, the terms of a contract are rendered conclusive upon the
parties and evidence aliunde is not admissible to vary or contradict a
complete and enforceable agreement embodied in a document.13 We have
carefully examined the Suretyship Agreement signed by Yujuico and found
no ambiguity therein. Documents must be taken as explaining all the terms
of the agreement between the parties when there appears to be no
ambiguity in the language of said documents nor any failure to express the
true intent and agreement of the parties.14
As to the third and final issue – At the risk of being repetitious, we stress
that the contract between the parties is a loan. What respondent bank
sought to collect as creditor was the loan it granted to petitioners.
Petitioners’ recourse is to sue their supplier, if indeed the materials were
defective.
SO ORDERED.
Vintola vs. IBAA, 150 SCRA 578 (1987)
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
MELENCIO-HERRERA, J.:
On August 20, 1975 the spouses Tirso and Loreta Vintola (the VINTOLAS,
for short), doing business under the name and style "Dax Kin International,"
engaged in the manufacture of raw sea shells into finished products, applied
for and were granted a domestic letter of credit by the Insular Bank of Asia
and America (IBAA), Cebu City. 1 in the amount of P40,000.00. The Letter
of Credit authorized the bank to negotiate for their account drafts drawn by
their supplier, one Stalin Tan, on Dax Kin International for the purchase of
puka and olive seashells. In consideration thereof, the VINTOLAS, jointly
and severally, agreed to pay the bank "at maturity, in Philippine currency,
the equivalent, of the aforementioned amount or such portion thereof as
may be drawn or paid, upon the faith of the said credit together with the
usual charges."
On the same day, August 20, 1975, having received from Stalin Tan the
puka and olive shells worth P40,000.00, the VINTOLAS executed a Trust
Receipt agreement with IBAA, Cebu City. Under that Agreement, the
VINTOLAS agreed to hold the goods in trust for IBAA as the "latter's
property with liberty to sell the same for its account, " and "in case of sale"
to turn over the proceeds as soon as received to (IBAA) the due date
indicated in the document was October 19, 1975.
On April 12, 1982, the then Court of First Instance of Cebu, Branch VII,
acquitted the VINTOLAS of the crime charged, after finding that the element
of misappropriation or conversion was inexistent. Concluded the Court:
Shortly thereafter, IBAA commenced the present civil action to recover the
value of the goods before the Regional Trial Court of Cebu, Branch XVI.
Holding that the complaint was barred by the judgment of acquittal in the
criminal case, said Court dismissed the complaint. However, on IBAA's
motion, the Court granted reconsideration and:
The VINTOLAS rest their present appeal on the principal allegation that
their acquittal in the Estafa case bars IBAA's filing of the civil action because
IBAA had not reserved in the criminal case its right to enforce separately
their civil liability. They maintain that by intervening actively in the
prosecution of the criminal case through a private prosecutor, IBAA had
chosen to file the civil action impliedly with the criminal action, pursuant to
Section 1, Rule 111 of the 1985 Rules on Criminal Procedure, reading:
and that since the judgment in the criminal case had made a declaration
that the facts from which the civil action might arise did not exist, the filing of
the civil action arising from the offense is now barred, as provided by
Section 3-b of Rule 111 of the same Rules providing:
(b) Extinction of the penal action does not carry with it extinction
of the civil, unless the extinction proceeds from a declaration in a
final judgment that the fact from which the civil might arise did not
exist. In other cases, the person entitled to the civil action may
institute it in the jurisdiction in the manner provided by law against
the person who may be liable for restitution of the thing and
reparation or indemnity for the damage suffered.
Further, the VINTOLAS take the position that their obligation to IBAA has
been extinguished inasmuch as, through no fault of their own, they were
unable to dispose of the seashells, and that they have relinguished
possession thereof to the IBAA, as owner of the goods, by depositing them
with the Court.
The foregoing submission overlooks the nature and mercantile usage of the
transaction involved. A letter of credit-trust receipt arrangement is endowed
with its own distinctive features and characteristics. Under that set-up, a
bank extends a loan covered by the Letter of Credit, with the trust receipt as
a security for the loan. In other words, the transaction involves a loan
feature represented by the letter of credit, and a security feature which is in
the covering trust receipt.
Thus, Section 4 of P.D. No. 115 defines a trust receipt transaction as:
Contrary to the allegation of the VINTOLAS, IBAA did not become the real
owner of the goods. It was merely the holder of a security title for the
advances it had made to the VINTOLAS The goods the VINTOLAS had
purchased through IBAA financing remain their own property and they hold
it at their own risk. The trust receipt arrangement did not convert the IBAA
into an investor; the latter remained a lender and creditor.
... for the bank has previously extended a loan which the L/C
represents to the importer, and by that loan, the importer should
be the real owner of the goods. If under the trust receipt, the bank
is made to appear as the owner, it was but an artificial expedient,
more of a legal fiction than fact, for if it were so, it could dispose of
the goods in any manner it wants, which it cannot do, just to give
consistency with the purpose of the trust receipt of giving a
stronger security for the loan obtained by the importer. To
consider the bank as the true owner from the inception of the
transaction would be to disregard the loan feature thereof. ... 7
Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot
justifiably claim that because they have surrendered the goods to IBAA and
subsequently deposited them in the custody of the court, they are absolutely
relieved of their obligation to pay their loan because of their inability to
dispose of the goods. The fact that they were unable to sell the seashells in
question does not affect IBAA's right to recover the advances it had made
under the Letter of Credit. In so arguing, the VINTOLAS conveniently close
their eyes to their application for a Letter of Credit wherein they expressly
obligated themselves in these terms:
Art. 31. When the civil action is based on an obligation not arising
from the act or omission complained of as a felony, such civil
action may proceed independently of the criminal proceedings
and regardless of the result of the latter.
SO ORDERED.
People vs. Nitafan, 207 SCRA 726 (1992)
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
This petition for certiorari involves an issue that has been raised before this
Court several times in the past. The petitioner, in effect, is asking for a re-
examination of our decisions on the issue of whether or not an entrustee in
a trust receipt agreement who fails to deliver the proceeds of the sale or to
return the goods if not sold to the entruster-bank is liable for the crime of
estafa.
Petitioner Allied Banking Corporation charged Betty Sia Ang with estafa in
Criminal Case No. 87-53501 in an information which alleged:
The accused filed a motion to quash the information on the ground that the
facts charged do not constitute an offense.
On January 7, 1988, the respondent judge granted the motion to quash. The
order was anchored on the premise that a trust receipt transaction is an
evidence of a loan being secured so that there is, as between the parties to
it, a creditor-debtor relationship. The court ruled that the penal clause of
Presidential Decree No. 15 on the Trust Receipts Law is inoperative
because it does not actually punish an offense mala prohibita. The law only
refers to the relevant estafa provision in the Revised Penal Code. The Court
relied on the judicial pronouncements in People v. Cuevo, 104 SCRA 312
[1981] where, for lack of the required number of votes, this Court upheld the
dismissal of a charge for estafa for a violation of a trust receipt agreement;
and in Sia v. People, 121 SCRA 655 [1983] where we held that the violation
merely gives rise to a civil obligation. At the time the order to quash was
issued or on January 7, 1988, these two decisions were the only most
recent ones. Hence, this petition.
The private respondent adopted practically the same stance of the lower
court. She likewise asserts that P.D. 115 is unconstitutional as it violates the
constitutional prohibition against imprisonment for non-payment of a debt.
She argues that where no malice exists in a breach of a purely commercial
undertaking, P.D. 115 imputes it.
This Court notes that the petitioner bank brought a similar case before this
Court in G.R. No. 82495, entitled Allied Banking Corporation v. Hon.
Secretary Sedfrey Ordoñez and Alfredo Ching which we decided on
December 10, 1990 (192 SCRA 246). In that case, the petitioner additionally
questioned, and we accordingly reversed, the pronouncement of the
Secretary of Justice limiting the application of the penal provision of P.D.
115 only to goods intended to be sold to the exclusion of those still to be
manufactured.
As in G.R. No. 82495, we resolve the instant petition in the light of the
Court's ruling in Lee v. Rodil, 175 SCRA 100 [1989] and Sia v. Court of
Appeals, 166 SCRA 263 [1988]. We have held in the latter cases that acts
involving the violation of trust receipt agreements occurring after 29 January
1973 (date of enactment of P.D. 115) would make the accused criminally
liable for estafa under paragraph 1 (b), Article 315 of the Revised Penal
Code (RPC) pursuant to the explicit provision in Section 13 of P.D. 115.
Section 1 (b), Article 315 of the RPC under which the violation is made to
fall, states:
The factual circumstances in the present case show that the alleged
violation was committed sometime in 1980 or during the effectivity of P.D.
115. The failure, therefore, to account for the P114,884.22 balance is what
makes the accused-respondent criminally liable for estafa. The Court
reiterates its definitive ruling that, in the Cuevo and Sia (1983) cases relied
upon by the accused, P.D. 115 was not applied because the questioned
acts were committed before its effectivity. (Lee v. Rodil, supra, p. 108) At
the time those cases were decided, the failure to comply with the obligations
under the trust receipt was susceptible to two interpretations. The Court in
Sia adopted the view that a violation gives rise only to a civil liability as the
more feasible view "before the promulgation of P.D. 115," notwithstanding
prior decisions where we ruled that a breach also gives rise to a liability for
estafa. (People v. Yu Chai Ho, 53 Phil. 874 [1929]; Samo v. People, 115
Phil. 346 [1962]; Philippine National Bank v. Arrozal, 103 Phil. 213 [1958];
Philippine National Bank v. Viuda e Hijos de Angel Jose, 63 Phil. 814
[1936]).
Contrary to the reasoning of the respondent court and the accused, a trust
receipt arrangement does not involve a simple loan transaction between a
creditor and debtor-importer. Apart from a loan feature, the trust receipt
arrangement has a security feature that is covered by the trust receipt itself.
(Vintola v. Insular Bank of Asia and America, 151 SCRA 578 [1987]) That
second feature is what provides the much needed financial assistance to
our traders in the importation or purchase of goods or merchandise through
the use of those goods or merchandise as collateral for the advancements
made by a bank. (Samo v. People, supra). The title of the bank to the
security is the one sought to be protected and not the loan which is a
separate and distinct agreement.
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 seek to enforce
payment of the loan. Thus, there can be no violation of a right against
imprisonment for non-payment of a debt.
We are continually re-evaluating the opposite view which insists that the
violation of a trust receipt agreement should result only in a civil action for
collection. The respondent contends that there is no malice involved. She
cites the dissent of the late Chief Justice Claudio Teehankee in Ong v.
Court of Appeals, (124 SCRA 578 [1983]) to wit:
As earlier stated, however, the law punishes the dishonesty and abuse of
confidence in the handling of money or goods to the prejudice of the bank.
The Court reiterates that the enactment of P.D. 115 is a valid exercise of the
police power of the State and is, thus, constitutional. (Lee v. Rodil, supra;
Lozano v. Martinez, supra) The arguments of the respondent are
appropriate for a repeal or modification of the law and should be directed to
Congress. But until the law is repealed, we are constrained to apply it.
SO ORDERED.
Torres vs. Limjap, 56 Phil. 141 (1931)
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
x---------------------------------------------------------x
JOHNSON, J.:
These two actions were commenced in the Court of First Instance of Manila
on April 16, 1930, for the purpose of securing from the defendant the
possession of two drug stores located in the City of Manila, covered by two
chattel mortgages executed by the deceased Jose B. Henson in favor of the
plaintiffs.
In the first case the plaintiffs alleged that Jose B. Henson, in his lifetime,
executed in their favor a chattel mortgage (Exhibit A) on his drug store at
Nos. 101-103 Calle Rosario, known as Farmacia Henson, to secure a loan
of P7,000, although it was made to appear in the instrument that the loan
was for P20,000.
In the second case the plaintiffs alleged that they were the heirs of the late
Don Florentino Torres; and that Jose B. Henson, in his lifetime, executed in
favor of Don Florentino Torres a chattel mortgage (also Exhibit A) on his
three drug stores known as Henson's Pharmacy, Farmacia Henson and
Botica Hensonina, to secure a loan of P50,000, which was later reduced to
P26,000, and for which, Henson's Pharmacy at Nos. 71-73 Escolta,
remained as the only security by agreement of the parties.
In both cases the plaintiffs alleged that the defendant violated the terms of
the mortgage and that, in consequence thereof they became entitled to the
possession of the chattels and to foreclose their mortgages thereon. Upon
the petition of the plaintiffs and after the filing of the necessary bonds, the
court issued in each case an order directing the sheriff of the City of Manila
to take immediate possession of said drug stores.
(1) That the chattel mortgages (Exhibit A, in G.R. No. 34385 and Exhibit A,
in G.R. No. 34286) are null and void for lack of sufficient particularity in the
description of the property mortgaged; and
(2) That the chattels which the plaintiffs sought to recover were not the
same property described in the mortgage.
The defendant also filed a counterclaim for damages in the sum of P20,000
in the first case and P100,000 in the second case.
Upon the issue thus raised by the pleadings, the two causes were tried
together by agreement of the parties. After hearing the evidence adduced
during the trial and on July 17, 1930, the Honorable Mariano Albert, judge,
in a very carefully prepared opinion, arrived at the conclusion (a) that the
defendant defaulted in the payment of interest on the loans secured by the
mortgages, in violation of the terms thereof; (b) that by reason of said failure
said mortgages became due, and (c) that the plaintiffs, as mortgagees, were
entitled to the possession of the drug stores Farmacia Henson at Nos. 101-
103 Calle Rosario and Henson's Pharmacy at Nos. 71-73 Escolta.
Accordingly, a judgment was rendered in favor of the plaintiffs and against
the defendant, confirming the attachment of said drug stores by the sheriff
of the City of Manila and the delivery thereof to the plaintiffs. The dispositive
part of the decision reads as follows:
From the judgment the defendant appealed, and now makes the following
assignments of error:
II. The lower court erred in refusing to allow the defendant to introduce
evidence tending to show that the stock of merchandise found in the
two drug stores was not in existence or owned by the mortgagor at the
time of the execution of the mortgages in question.
III. The lower court erred in holding that the administrator of the
deceased is now estopped from contesting the validity of the
mortgages in question.
In his second assignment of error the appellant attacks the validity of the
stipulation in said mortgages authorizing the mortgagor to sell the goods
covered thereby and to replace them with other goods thereafter acquired.
He insists that a stipulation authorizing the disposal and substitution of the
chattels mortgaged does not operate to extend the mortgage to after-
acquired property, and that such stipulation is in contravention of the
express provision of the last paragraph of section 7 Act No. 1508, which
reads as follows:
In harmony with the foregoing, we are of the opinion (a) that the provision of
the last paragraph of section 7 of Act No. 1508 is not applicable to drug
stores, bazaars and all other stores in the nature of a revolving and floating
business; (b) that the stipulation in the chattel mortgages in question,
extending their effect to after-acquired property, is valid and binding; and (c)
that the lower court committed no error in not permitting the defendant-
appellant to introduce evidence tending to show that the goods seized by
the sheriff were in the nature of after-acquired property.
With reference to the third assignment of error, we agree with the lower
court that, from the facts of record, the defendant-appellant is estopped from
contenting the validity of the mortgages in question. This feature of the case
has been very ably and fully discussed by the lower court in its decision,
and said discussion is made, by reference, a part of this opinion.
For all of the foregoing, we are of the opinion and so hold that the judgment
appealed from is in accordance with the facts and the law, and the same
should be and is hereby affirmed, with costs. So ordered.
EN BANC
PEOPLE'S BANK AND TRUST CO. and ATLANTIC GULF AND PACIFIC
CO. OF MANILA, plaintiffs-appellants,
vs.
DAHICAN LUMBER COMPANY, DAHICAN AMERICAN LUMBER
CORPORATION and CONNELL BROS. CO. (PHIL.), defendants-
appellants.
DIZON, J.:
As security for the payment of the abovementioned loans, on July 13, 1950
DALCO executed in favor of the BANK — the latter acting for itself and as
trustee for the Export-Import Bank of Washington D.C. — a deed of
mortgage covering five parcels of land situated in the province of Camarines
Norte together with all the buildings and other improvements existing
thereon and all the personal properties of the mortgagor located in its place
of business in the municipalities of Mambulao and Capalonga, Camarines
Norte (Exhibit D). On the same date, DALCO executed a second mortgage
on the same properties in favor of ATLANTIC to secure payment of the
unpaid balance of the sale price of the lumber concession amounting to the
sum of $450,000.00 (Exhibit G). Both deeds contained the following
provision extending the mortgage lien to properties to be subsequently
acquired — referred to hereafter as "after acquired properties" — by the
mortgagor:
Upon DALCO's and DAMCO's failure to pay the fifth promissory note upon
its maturity, the BANK paid the same to the Export-Import Bank of
Washington D.C., and the latter assigned to the former its credit and the first
mortgage securing it. Subsequently, the BANK gave DALCO and DAMCO
up to April 1, 1953 to pay the overdue promissory note.
After July 13, 1950 — the date of execution of the mortgages mentioned
above — DALCO purchased various machineries, equipment, spare parts
and supplies in addition to, or in replacement of some of those already
owned and used by it on the date aforesaid. Pursuant to the provision of the
mortgage deeds quoted theretofore regarding "after acquired properties,"
the BANK requested DALCO to submit complete lists of said properties but
the latter failed to do so. In connection with these purchases, there
appeared in the books of DALCO as due to Connell Bros. Company
(Philippines) — a domestic corporation who was acting as the general
purchasing agent of DALCO — thereinafter called CONNELL — the sum of
P452,860.55 and to DAMCO, the sum of P2,151,678.34.
On January 13, 1953, the BANK, in its own behalf and that of ATLANTIC,
demanded that said agreements be cancelled but CONNELL and DAMCO
refused to do so. As a result, on February 12, 1953; ATLANTIC and the
BANK, commenced foreclosure proceedings in the Court of First Instance of
Camarines Norte against DALCO and DAMCO. On the same date they filed
an ex-parte application for the appointment of a Receiver and/or for the
issuance of a writ of preliminary injunction to restrain DALCO from removing
its properties. The court granted both remedies and appointed George H.
Evans as Receiver. Upon defendants' motion, however, the court, in its
order of February 21, 1953, discharged the Receiver.
On April 1, 1953, CONNELL filed its answer denying the material averment
of the complaint, and asserting affirmative defenses and a counterclaim.
Upon motion of the parties the Court, on September 30, 1953, issued an
order transferring the venue of the action to the Court of First Instance of
Manila where it was docketed as Civil Case No. 20987.
On August 30, 1958, upon motion of all the parties, the Court ordered the
sale of all the machineries, equipment and supplies of DALCO, and the
same were subsequently sold for a total consideration of P175,000.00 which
was deposited in court pending final determination of the action. By a similar
agreement one-half (P87,500.00) of this amount was considered as
representing the proceeds obtained from the sale of the "undebated
properties" (those not claimed by DAMCO and CONNELL), and the other
half as representing those obtained from the sale of the "after acquired
properties".
After due trial, the Court, on July 15, 1960, rendered judgment as follows:
1. Condemns Dahican Lumber Co. to pay unto People's Bank the sum
of P200,000,00 with 7% interest per annum from July 13, 1950, Plus
another sum of P100,000.00 with 5% interest per annum from July 13,
1950; plus 10% on both principal sums as attorney's fees;
2. Condemns Dahican Lumber Co. to pay unto Atlantic Gulf the sum of
P900,000.00 with 4% interest per annum from July 3, 1950, plus 10%
on both principal as attorney's fees;
3. Condemns Dahican Lumber Co. to pay unto Connell Bros, the sum
of P425,860.55, and to pay unto Dahican American Lumber Co. the
sum of P2,151,678.24 both with legal interest from the date of the filing
of the respective answers of those parties, 10% of the principals as
attorney's fees;
4. Orders that of the sum realized from the sale of the properties of
P175,000.00, after deducting the recognized expenses, one-half
thereof be adjudicated unto plaintiffs, the court no longer specifying the
share of each because of that announced intention under the
stipulation of facts to "pool their resources"; as to the other one-half,
the same should be adjudicated unto both plaintiffs, and defendant
Dahican American and Connell Bros. in the proportion already set forth
on page 9, lines 21, 22 and 23 of the body of this decision; but with the
understanding that whatever plaintiffs and Dahican American and
Connell Bros. should receive from the P175,000.00 deposited in the
Court shall be applied to the judgments particularly rendered in favor of
each;
Main contentions of plaintiffs as appellants are the following: that the "after
acquired properties" were subject to the deeds of mortgage mentioned
heretofore; that said properties were acquired from suppliers other than
DAMCO and CONNELL; that even granting that DAMCO and CONNELL
were the real suppliers, the rescission of the sales to DALCO could not
prejudice the mortgage lien in favor of plaintiffs; that considering the
foregoing, the proceeds obtained from the sale of the "after acquired
properties" as well as those obtained from the sale of the "undebated
properties" in the total sum of P175,000.00 should have been awarded
exclusively to plaintiffs by reason of the mortgage lien they had thereon; that
damages should have been awarded to plaintiffs against defendants, all of
them being guilty of an attempt to defraud the former when they sought to
rescind the sales already mentioned for the purpose of defeating their
mortgage lien, and finally, that defendants should have been made to bear
all the expenses of the receivership, costs and attorney's fees.
On the other hand, defendants-appellants contend that the trial court erred:
firstly, in not holding that plaintiffs had no cause of action against them
because the promissory note sued upon was not yet due when the action to
foreclose the mortgages was commenced; secondly, in not holding that the
mortgages aforesaid were null and void as regards the "after acquired
properties" of DALCO because they were not registered in accordance with
the Chattel Mortgage Law, the court erring, as a consequence, in holding
that said properties were subject to the mortgage lien in favor of plaintiffs;
thirdly, in not holding that the provision of the fourth paragraph of each of
said mortgages did not automatically make subject to such mortgages the
"after acquired properties", the only meaning thereof being that the
mortgagor was willing to constitute a lien over such properties; fourthly, in
not ruling that said stipulation was void as against DAMCO and CONNELL
and in not awarding the proceeds obtained from the sale of the "after
acquired properties" to the latter exclusively; fifthly, in appointing a Receiver
and in holding that the damages suffered by DAMCO and CONNELL by
reason of the depreciation or loss in value of the "after acquired properties"
placed under receivership was damnum absque injuria and, consequently,
in not awarding, to said parties the corresponding damages claimed in their
counterclaim; lastly, in sentencing DALCO and DAMCO to pay attorney's
fees and in requiring DAMCO and CONNELL to pay the costs of the
Receivership, instead of sentencing plaintiffs to pay attorney's fees.
Firstly, are the so-called "after acquired properties" covered by and subject
to the deeds of mortgage subject of foreclosure?; secondly, assuming that
they are subject thereto, are the mortgages valid and binding on the
properties aforesaid inspite of the fact that they were not registered in
accordance with the provisions of the Chattel Mortgage Law?; thirdly,
assuming again that the mortgages are valid and binding upon the "after
acquired properties", what is the effect thereon, if any, of the rescission of
sales entered into, on the one hand, between DAMCO and DALCO, and
between DALCO and CONNELL, on the other?; and lastly, was the action to
foreclose the mortgages premature?
A. Under the fourth paragraph of both deeds of mortgage, it is crystal clear
that all property of every nature and description taken in exchange or
replacement, as well as all buildings, machineries, fixtures, tools,
equipments, and other property that the mortgagor may acquire, construct,
install, attach; or use in, to upon, or in connection with the premises — that
is, its lumber concession — "shall immediately be and become subject to
the lien" of both mortgages in the same manner and to the same extent as if
already included therein at the time of their execution. As the language thus
used leaves no room for doubt as to the intention of the parties, We see no
useful purpose in discussing the matter extensively. Suffice it to say that the
stipulation referred to is common, and We might say logical, in all cases
where the properties given as collateral are perishable or subject to
inevitable wear and tear or were intended to be sold, or to be used — thus
becoming subject to the inevitable wear and tear — but with the
understanding — express or implied — that they shall be replaced with
others to be thereafter acquired by the mortgagor. Such stipulation is neither
unlawful nor immoral, its obvious purpose being to maintain, to the extent
allowed by circumstances, the original value of the properties given as
security. Indeed, if such properties were of the nature already referred to, it
would be poor judgment on the part of the creditor who does not see to it
that a similar provision is included in the contract.
B. But defendants contend that, granting without admitting, that the deeds of
mortgage in question cover the "after acquired properties" of DALCO, the
same are void and ineffectual because they were not registered in
accordance with the Chattel Mortgage Law. In support of this and of the
proposition that, even if said mortgages were valid, they should not
prejudice them, the defendants argue (1) that the deeds do not describe the
mortgaged chattels specifically, nor were they registered in accordance with
the Chattel Mortgage Law; (2) that the stipulation contained in the fourth
paragraph thereof constitutes "mere executory agreements to give a lien"
over the "after acquired properties" upon their acquisition; and (3) that any
mortgage stipulation concerning "after acquired properties" should not
prejudice creditors and other third persons such as DAMCO and CONNELL.
Conceding, on the other hand, that it is the law in this jurisdiction that, to
affect third persons, a chattel mortgage must be registered and must
describe the mortgaged chattels or personal properties sufficiently to enable
the parties and any other person to identify them, We say that such law
does not apply to this case.
As the mortgages in question were executed on July 13, 1950 with the old
Civil Code still in force, there can be no doubt that the provisions of said
code must govern their interpretation and the question of their validity. It
happens however, that Articles 334 and 1877 of the old Civil Code are
substantially reproduced in Articles 415 and 2127, respectively, of the new
Civil Code. It is, therefore, immaterial in this case whether we take the
former or the latter as guide in deciding the point under consideration.
Article 415 does not define real property but enumerates what are
considered as such, among them being machinery, receptacles, instruments
or replacements intended by owner of the tenement for an industry or works
which may be carried on in a building or on a piece of land, and shall tend
directly to meet the needs of the said industry or works.
On the strength of the above-quoted legal provisions, the lower court held
that inasmuch as "the chattels were placed in the real properties mortgaged
to plaintiffs, they came within the operation of Art. 415, paragraph 5 and Art.
2127 of the New Civil Code".
We find the above ruling in agreement with our decisions on the subject:
(1) In Berkenkotter vs. Cu Unjieng, 61 Phil. 663, We held that Article 334,
paragraph 5 of the Civil Code (old) gives the character of real property to
machinery, liquid containers, instruments or replacements intended by the
owner of any building or land for use in connection with any industry or trade
being carried on therein and which are expressly adapted to meet the
requirements of such trade or industry.
(2) In Cu Unjieng e Hijos vs. Mabalacat Sugar Co., 58 Phil. 439, We held
that a mortgage constituted on a sugar central includes not only the land on
which it is built but also the buildings, machinery and accessories installed
at the time the mortgage was constituted as well as the buildings, machinery
and accessories belonging to the mortgagor, installed after the constitution
thereof .
It is not disputed in the case at bar that the "after acquired properties" were
purchased by DALCO in connection with, and for use in the development of
its lumber concession and that they were purchased in addition to, or in
replacement of those already existing in the premises on July 13, 1950. In
Law, therefore, they must be deemed to have been immobilized, with the
result that the real estate mortgages involved herein — which were
registered as such — did not have to be registered a second time as chattel
mortgages in order to bind the "after acquired properties" and affect third
parties.
But defendants, invoking the case of Davao Sawmill Company vs. Castillo,
61 Phil. 709, claim that the "after acquired properties" did not become
immobilized because DALCO did not own the whole area of its lumber
concession all over which said properties were scattered.
The facts in the Davao Sawmill case, however, are not on all fours with the
ones obtaining in the present. In the former, the Davao Sawmill Company,
Inc., had repeatedly treated the machinery therein involved as personal
property by executing chattel mortgages thereon in favor of third parties,
while in the present case the parties had treated the "after acquired
properties" as real properties by expressly and unequivocally agreeing that
they shall automatically become subject to the lien of the real estate
mortgages executed by them. In the Davao Sawmill decision it was, in fact,
stated that "the characterization of the property as chattels by the appellant
is indicative of intention and impresses upon the property the character
determined by the parties" (61 Phil. 112, emphasis supplied). In the present
case, the characterization of the "after acquired properties" as real property
was made not only by one but by both interested parties. There is,
therefore, more reason to hold that such consensus impresses upon the
properties the character determined by the parties who must now be held in
estoppel to question it.
Moreover, quoted in the Davao Sawmill case was that of Valdez vs. Central
Altagracia, Inc. (225 U.S. 58) where it was held that while under the general
law of Puerto Rico, machinery placed on property by a tenant does not
become immobilized, yet, when the tenant places it there pursuant to
contract that it shall belong to the owner, it then becomes immobilized as to
that tenant and even as against his assignees and creditors who had
sufficient notice of such stipulation. In the case at bar it is not disputed that
DALCO purchased the "after acquired properties" to be placed on, and be
used in the development of its lumber concession, and agreed further that
the same shall become immediately subject to the lien constituted by the
questioned mortgages. There is also abundant evidence in the record that
DAMCO and CONNELL had full notice of such stipulation and had never
thought of disputed validity until the present case was filed. Consequently all
of them must be deemed barred from denying that the properties in question
had become immobilized.
Now to the question of whether or not DAMCO CONNELL have rights over
the "after acquired properties" superior to the mortgage lien constituted
thereon in favor of plaintiffs. It is defendants' contention that in relation to
said properties they are "unpaid sellers"; that as such they had not only a
superior lien on the "after acquired properties" but also the right to rescind
the sales thereof to DALCO.
This contention — it is obvious — would have validity only if it were true that
DAMCO and CONNELL were the suppliers or vendors of the "after acquired
properties". According to the record, plaintiffs did not know their exact
identity and description prior to the filing of the case bar because DALCO, in
violation of its obligation under the mortgages, had failed and refused
theretofore to submit a complete list thereof. In the course of the
proceedings, however, when defendants moved to dissolve the order of
receivership and the writ of preliminary injunction issued by the lower court,
they attached to their motion the lists marked as Exhibits 1, 2 and 3
describing the properties aforesaid. Later on, the parties agreed to consider
said lists as identifying and describing the "after acquire properties," and
engaged the services of auditors to examine the books of DALCO so as to
bring out the details thereof. The report of the auditors and its annexes
(Exhibits V, V-1 — V4) show that neither DAMCO nor CONNELL had
supplied any of the goods of which they respective claimed to be the unpaid
seller; that all items were supplied by different parties, neither of whom
appeared to be DAMCO or CONNELL that, in fact, CONNELL collected a
5% service charge on the net value of all items it claims to have sold to
DALCO and which, in truth, it had purchased for DALCO as the latter's
general agent; that CONNELL had to issue its own invoices in addition to
those o f the real suppliers in order to collect and justify such service
charge.
Taking into account the above circumstances together with the fact that
DAMCO was a stockholder and CONNELL was not only a stockholder but
the general agent of DALCO, their claim to be the suppliers of the "after
acquired required properties" would seem to be preposterous. The most
that can be claimed on the basis of the evidence is that DAMCO and
CONNELL probably financed some of the purchases. But if DALCO still
owes them any amount in this connection, it is clear that, as financiers, they
can not claim any right over the "after acquired properties" superior to the
lien constituted thereon by virtue of the deeds of mortgage under
foreclosure. Indeed, the execution of the rescission of sales mentioned
heretofore appears to be but a desperate attempt to better or improve
DAMCO and CONNELL's position by enabling them to assume the role of
"unpaid suppliers" and thus claim a vendor's lien over the "after acquired
properties". The attempt, of course, is utterly ineffectual, not only because
they are not the "unpaid sellers" they claim to be but also because there is
abundant evidence in the record showing that both DAMCO and CONNELL
had known and admitted from the beginning that the "after acquired
properties" of DALCO were meant to be included in the first and second
mortgages under foreclosure.
The claim that Belden, of ATLANTIC, had given his consent to the
rescission, expressly or otherwise, is of no consequence and does not make
the rescission valid and legally effective. It must be stated clearly, however,
in justice to Belden, that, as a member of the Board of Directors of DALCO,
he opposed the resolution of December 15, 1952 passed by said Board and
the subsequent rescission of the sales.
Finally, defendants claim that the action to foreclose the mortgages filed on
February 12, 1953 was premature because the promissory note sued upon
did not fall due until April 1 of the same year, concluding from this that,
when the action was commenced, the plaintiffs had no cause of action.
Upon this question the lower court says the following in the appealed
judgment;
and as the guaranty was plainly inadequate since the claim of plaintiffs
reached in the aggregate, P1,200,000 excluding interest while the
aggregate price of the "after-acquired" chattels claimed by Connell
under the rescission contracts was P1,614,675.94, Exh. 1, Exh. V,
report of auditors, and as a matter of fact, almost all the properties
were sold afterwards for only P175,000.00, page 47, Vol. IV, and the
Court understanding that when the law permits the debtor to enjoy the
benefits of the period notwithstanding that he is insolvent by his giving
a guaranty for the debt, that must mean a new and efficient guaranty,
must concede that the causes of action for collection of the notes were
not premature.
Very little need be added to the above. Defendants, however, contend that
the lower court had no basis for finding that, when the action was
commenced, DALCO was insolvent for purposes related to Article 1198,
paragraph 1 of the Civil Code. We find, however, that the finding of the trial
court is sufficiently supported by the evidence particularly the resolution
marked as Exhibit K, which shows that on December 16, 1952 — in the
words of the Chairman of the Board — DALCO was "without funds, neither
does it expect to have any funds in the foreseeable future." (p. 64, record on
appeal).
The remaining issues, namely, whether or not the proceeds obtained from
the sale of the "after acquired properties" should have been awarded
exclusively to the plaintiffs or to DAMCO and CONNELL, and if in law they
should be distributed among said parties, whether or not the distribution
should be pro-rata or otherwise; whether or not plaintiffs are entitled to
damages; and, lastly, whether or not the expenses incidental to the
Receivership should be borne by all the parties on a pro-rata basis or
exclusively by one or some of them are of a secondary nature as they are
already impliedly resolved by what has been said heretofore.
As regard the proceeds obtained from the sale of the of after acquired
properties" and the "undebated properties", it is clear, in view of our opinion
sustaining the validity of the mortgages in relation thereto, that said
proceeds should be awarded exclusively to the plaintiffs in payment of the
money obligations secured by the mortgages under foreclosure.
The facts of this case, as stated heretofore, clearly show that DALCO and
DAMCO, after failing to pay the fifth promissory note upon its maturity,
conspired jointly with CONNELL to violate the provisions of the fourth
paragraph of the mortgages under foreclosure by attempting to defeat
plaintiffs' mortgage lien on the "after acquired properties". As a result, the
plaintiffs had to go to court to protect their rights thus jeopardized.
Defendants' liability for damages is therefore clear.
However, the measure of the damages suffered by the plaintiffs is not what
the latter claim, namely, the difference between the alleged total obligation
secured by the mortgages amounting to around P1,200,000.00, plus the
stipulated interest and attorney's fees, on the one hand, and the proceeds
obtained from the sale of "after acquired properties", and of those that were
not claimed neither by DAMCO nor CONNELL, on the other. Considering
that the sale of the real properties subject to the mortgages under
foreclosure has not been effected, and considering further the lack of
evidence showing that the true value of all the properties already sold was
not realized because their sale was under stress, We feel that We do not
have before Us the true elements or factors that should determine the
amount of damages that plaintiffs are entitled recover from defendants. It is,
however, our considered opinion that, upon the facts established, all the
expenses of the Receivership, which was deemed necessary to safeguard
the rights of the plaintiffs, should be borne by the defendants, jointly and
severally, in the same manner that all of them should pay to the plaintiffs,
jointly a severally, attorney's fees awarded in the appealed judgment.
In consonance with the portion of this decision concerning the damages that
the plaintiffs are entitled to recover from the defendants, the record of this
case shall be remanded below for the corresponding proceedings.
EN BANC
VILLA-REAL, J.:
For all the foregoing, the court is of the opinion that the plaintiff has a
right to the relief prayed for in its complaint. Wherefore, judgment is
rendered declaring that Exhibits C and D, that is, the mortgage deeds
in question in this proceeding, in so far as they prejudice the rights of
the plaintiff, are null and void; that the preliminary injunction issued in
this case against the defendant Jose Ma. Memije is final and absolute;
and that the plaintiff recover the amount of the fire insurance policies of
the defendant "Magallanes Press, Inc.," which, or the representatives
of which, is hereby ordered to endorse said insurance policies to the
plaintiff, with the costs of the proceedings against the defendants, with
the exception of J.P. Heilbronn Co., Inc. It is so ordered.
In support of his appeal, the appellant assigns the following supposed
errors as committed by the lower court in its judgment, to wit: (1) The court
erred in overruling the demurrer filed by this defendant to the complaint in
this action; (2) the trial court erred in giving the plaintiff corporation
possession of the property mortgaged to this appellant without following the
necessary proceedings or complying with the provisions of the law; (3) the
trial court erred in issuing the writ of preliminary injunction against the
appellant and E. E. Elser, restraining the former from receiving from the
latter, or the latter from delivering to the former, the amount of the insurance
policies covering the property mortgaged to the appellant, which was
damaged by the fire that occurred in the establishment of the Magallanes
Press, Inc; (4) the trial court erred in giving to the unnecessary intervention
of the Magallanes Press, Inc., in the execution of the deed Exhibit C an
interpretation which is neither based upon law nor upon the contract; (5) the
trial court erred in ordering the suspension of the foreclosure of the
appellant's mortgage on the property of the Magallanes Press, Inc.; (6) the
trial court erred, under the facts proven in this case, in applying article 1297
of the Civil Code; (7) the trial court erred in finding in its decision that the
defendant Jose Ma. Memije should not have executed the documents
Exhibits C and D without taking into account the rights of the plaintiff
corporation, The Belgian Catholic Missionaries, Inc; (8) the trial court erred
in declaring Exhibits C and D null and void in so far as they prejudice the
rights of the plaintiff, over whose credit that of the herein appellant is
preferential; in declaring the writ of preliminary injunction issued against the
defendant Jose Ma. Memije final and absolute; in giving judgment for the
plaintiff to recover the amount of the fire insurance policies of the defendant
the Magallanes Press, Inc; and (9) the trial court erred in not making any
pronouncement as to the counterclaim and cross-complaint of the defendant
Jose Ma. Memije in this action, nor taking the same into consideration and
rendering judgment thereon in favor of said defendant.
The oral evidence has not been forwarded to this court so that we are
compelled to base our opinion exclusively upon the documentary evidence
and the facts found and stated by the trial court in its judgment.
One June 19, 1922, the Magallanes Press Co., Inc., successor to the
Magallanes Press, with all the latter's rights and obligations, through its duly
authorized president, E. F. Clemente, executed a chattel mortgage on the
same printing machinery ad its accessories in favor of the Belgian Catholic
Missionaries Co., Inc., which the Magallanes Press had mortgaged to J. P.
Heilbronn & Co., Inc., to secure the payment of a loan of P30,500, with
interest at 12 per cent per annum, which the said Magallanes Press & Co.,
Inc., had obtained from the Belgian Catholic Missionaries Co., Inc., the
duration of the mortgage loan being one year from the execution of the
mortgage deed.
In December, 1922 the appellant Jose Ma. Memije made a loan in the
sum of P2,000 to E. F. Clemente which was paid on account of the
indebtedness of the Magallanes Press to J. P. Heilbronn & co., Inc.,
together with the sum of P1,641 which A. F. Mendoza owed said E. F.
Clemente.
On April 21, 1923, a fire occurred in the building where the pointing
machinery, its accessories and other personal property of the Magallanes
Press Co., Inc., were located and which were covered by said chattel
mortgages. Said property was insured, and the insurance policies covering
it were endorsed to J. P. Heilbronn & Co., Inc., upon the execution of the
chattel mortgage thereon in favor of the latter. When J. P. Heilbronn & Co.,
Inc., transferred its mortgage credit to Jose Ma. Memije it, in turn, endorsed
said insurance policies to him. The insurance companies were disposed to
pay the respective insurance policies, which amounted to P7,686.45, but
due to the issuance of the above-mentioned writ of preliminary injunction,
payment could not be made.
Due to the filing of the complaint in the present case on May 9, 1923,
and the issuance of the writ of preliminary injunction on May 10th of the
same year, Jose Ma. Memije was unable to collect the amount of the
insurance policies, and when he was summoned under the complaint on
May 14, 1923, he made demand on the Magallanes Press Co., Inc., for the
payment of his mortgage credit on the same date the manager of said
corporation, E. F. Clemente, permitted the secretary of the said corporation
to place the property covered by the mortgage into the hands of the said
Jose Ma. Memije in order that the same might be sold, but the sale could
not be consummated due to the issuance of the said writ of preliminary
injunction.
One of the grounds of said demurrer was that the complaint in this
case did not allege facts sufficient to constitute a cause of action against the
said defendant, in that, notwithstanding the fact that the said complaint was
instituted to annul the document of transfer of the mortgage credit Exhibit C,
it was not alleged in the said complaint that the defendant Jose Ma. Memije
had any intention to defraud the interests of the plaintiff corporation, which
was absolutely impossible due to the nature of the transaction and the
preferential character of the mortgage credit of J. P. Heilbronn & Co., Inc.
The lower court, therefore, did not err in authorizing the plaintiff
company to take possession of the personal property in litigation upon the
filing of a bond sufficient to secure the conservation or value thereof.
There is no question but that J. P. Heilbronn & Co., Inc., at the time of
the transfer of this mortgage rights to Jose Ma. Memije, had a preferential
right over that of the Belgian Catholic Missionaries Co., Inc., for the
remainder of the amount of the mortgage credit, that is, P8,280.90. The
plaintiff company had a preferential right to the rest of the value of the
mortgaged property after deducting the remaining mortgage credit of J. P.
Heilbronn & Co., Inc.
(b) That the plaintiff corporation, the Belgian Catholic Missionaries Co.,
Inc., has a right to the remainder of the value of said chattels and the
insurance policies up to the amount of P30,500, after deducting the
preferential credit of Jose Ma. Memije;
FIRST DIVISION
VITUG, J.:p
makes it obvious that the debt referred to in the law is a current, not an
obligation that is yet merely contemplated. In the chattel mortgage here
involved, the only obligation specified in the chattel mortgage contract
was the P3,000,000.00 loan which petitioner corporation later fully
paid. By virtue of Section 3 of the Chattel Mortgage Law, the payment
of the obligation automatically rendered the chattel mortgage void or
terminated. In Belgian Catholic Missionaries, Inc., vs. Magallanes
14
Press, Inc., et al., the Court
said —
The significance of the ruling to the instant problem would be that since
the 1978 chattel mortgage had ceased to exist coincidentally with the
full payment of the P3,000,000.00 loan, 16 there no longer was any
chattel mortgage that could cover the new loans that were concluded
thereafter.
We find no merit in petitioner corporation's other prayer that the case should
be remanded to the trial court for a specific finding on the amount of
damages it has sustained "as a result of the unlawful action taken by
respondent bank against it." 17 This prayer is not reflected in its complaint
which has merely asked for the amount of P3,000,000.00 by way of moral
damages. 18 In LBC Express, Inc. vs. Court of Appeals, 19 we have said:
The statement is not called for. The Court invites counsel's attention to
the admonition in Guerrero vs. Villamor; 22 thus:
The virtues of humility and of respect and concern for others must still
live on even in an age of materialism.
SO ORDERED.
Ong Liong Tiak vs. Luneta Motor Co., 66 Phil. 459 (1938)
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
DIAZ, J.:
Ong Liong Tiak appealed from the decision rendered by the Court of
First Instance of Manila in civil case No. 47997 of said court, overruling and
dismissing his complaint, wherein he sought an injunction against the
defendant and a judgment in his favor for damages in the sum of P500, plus
the costs. In his brief, Ong Liong Tiak, the appellant, makes the following
enumeration of the errors alleged by him to have been committed by the
lower court in rendering its decision appealed from, to wit:
For all the foregoing consideration, finding as this court finds that the
decision appealed from is in accordance with law, the same is hereby
affirmed, with the costs to the appellant. So ordered.
Avanceña C.J., Villa-Real, Abad Santos, Imperial and Laurel, JJ., concur.
Prudential Bank vs. Alviar, 464 SCRA 353 (2005)
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
DECISION
Tinga, J.:
That for and in consideration of certain loans, overdraft and other credit
accommodations obtained from the Mortgagee by the Mortgagor and/or
________________ hereinafter referred to, irrespective of number, as
DEBTOR, and to secure the payment of the same and those that may
hereafter be obtained, the principal or all of which is hereby fixed at Two
Hundred Fifty Thousand (P250,000.00) Pesos, Philippine Currency, as well
as those that the Mortgagee may extend to the Mortgagor and/or DEBTOR,
including interest and expenses or any other obligation owing to the
Mortgagee, whether direct or indirect, principal or secondary as appears in
the accounts, books and records of the Mortgagee, the Mortgagor does
hereby transfer and convey by way of mortgage unto the Mortgagee, its
successors or assigns, the parcels of land which are described in the list
inserted on the back of this document, and/or appended hereto, together
with all the buildings and improvements now existing or which may hereafter
be erected or constructed thereon, of which the Mortgagor declares that
he/it is the absolute owner free from all liens and incumbrances. . . .[4]
Respondents filed a complaint for damages with a prayer for the issuance of
a writ of preliminary injunction with the RTC of Pasig,[11] claiming that they
have paid their principal loan secured by the mortgaged property, and thus
the mortgage should not be foreclosed. For its part, petitioner averred that
the payment of P2,000,000.00 made on 6 March 1979 was not a payment
made by respondents, but by G.B. Alviar Realty and Development Inc.,
which has a separate loan with the bank secured by a separate
mortgage.[12]
On 15 March 1994, the trial court dismissed the complaint and ordered the
Sheriff to proceed with the extra-judicial foreclosure.[13] Respondents
sought reconsideration of the decision.[14] On 24 August 1994, the trial
court issued an Order setting aside its earlier decision and awarded
attorney’s fees to respondents.[15] It found that only the P250,000.00 loan
is secured by the mortgage on the land covered by TCT No. 438157. On the
other hand, the P382,680.83 loan is secured by the foreign currency deposit
account of Don A. Alviar, while the P545,000.00 obligation was an
unsecured loan, being a mere conversion of the temporary overdraft of
Donalco Trading, Inc. in compliance with a Central Bank circular. According
to the trial court, the "blanket mortgage clause" relied upon by petitioner
applies only to future loans obtained by the mortgagors, and not by parties
other than the said mortgagors, such as Donalco Trading, Inc., for which
respondents merely signed as officers thereof.
On appeal to the Court of Appeals, petitioner made the following
assignment of errors:
I. The trial court erred in holding that the real estate mortgage covers only
the promissory note BD#75/C-252 for the sum of P250,000.00.
II. The trial court erred in holding that the promissory note BD#76/C-345 for
P2,640,000.00 (P382,680.83 outstanding principal balance) is not covered
by the real estate mortgage by expressed agreement.
III. The trial court erred in holding that Promissory Note BD#76/C-430 for
P545,000.00 is not covered by the real estate mortgage.
IV. The trial court erred in holding that the real estate mortgage is a contract
of adhesion.
The Court of Appeals affirmed the Order of the trial court but deleted the
award of attorney’s fees.[17] It ruled that while a continuing loan or credit
accommodation based on only one security or mortgage is a common
practice in financial and commercial institutions, such agreement must be
clear and unequivocal. In the instant case, the parties executed different
promissory notes agreeing to a particular security for each loan. Thus, the
appellate court ruled that the extrajudicial foreclosure sale of the property for
the three loans is improper.[18]
The Court of Appeals, however, found that respondents have not yet paid
the P250,000.00 covered by PN BD#75/C-252 since the payment of
P2,000,000.00 adverted to by respondents was issued for the obligations of
G.B. Alviar Realty and Development, Inc.[19]
Anent the Court of Appeals’ conclusion that the parties did not intend to
include PN BD#76/C-345 in the real estate mortgage because the same
was specifically secured by a foreign currency deposit account, petitioner
states that there is no law or rule which prohibits an obligation from being
covered by more than one security.[27] Besides, respondents even
continued to withdraw from the same foreign currency account even while
the promissory note was still outstanding, strengthening the belief that it was
the real estate mortgage that principally secured all of respondents’
promissory notes.[28] As for PN BD#76/C-345, which the Court of Appeals
found to be exclusively secured by the Clean-Phase out TOD 3923,
petitioner posits that such security is not exclusive, as the "dragnet clause"
of the real estate mortgage covers all the obligations of the respondents.[29]
For their part, respondents claim that the "dragnet clause" cannot be applied
to the subsequent loans extended to Don Alviar and Donalco Trading, Inc.
since these loans are covered by separate promissory notes that expressly
provide for a different form of security.[33] They reiterate the holding of the
trial court that the "blanket mortgage clause" would apply only to loans
obtained jointly by respondents, and not to loans obtained by other
parties.[34] Respondents also place a premium on the finding of the lower
courts that the real estate mortgage clause is a contract of adhesion and
must be strictly construed against petitioner bank.[35]
The instant case thus poses the following issues pertaining to: (i) the validity
of the "blanket mortgage clause" or the "dragnet clause"; (ii) the coverage of
the "blanket mortgage clause"; and consequently, (iii) the propriety of
seeking foreclosure of the mortgaged property for the non-payment of the
three loans.
That for and in consideration of certain loans, overdraft and other credit
accommodations obtained from the Mortgagee by the Mortgagor and/or
________________ hereinafter referred to, irrespective of number, as
DEBTOR, and to secure the payment of the same and those that may
hereafter be obtained, the principal or all of which is hereby fixed at Two
Hundred Fifty Thousand (P250,000.00) Pesos, Philippine Currency, as well
as those that the Mortgagee may extend to the Mortgagor and/or DEBTOR,
including interest and expenses or any other obligation owing to the
Mortgagee, whether direct or indirect, principal or secondary as appears in
the accounts, books and records of the Mortgagee, the Mortgagor does
hereby transfer and convey by way of mortgage unto the Mortgagee, its
successors or assigns, the parcels of land which are described in the list
inserted on the back of this document, and/or appended hereto, together
with all the buildings and improvements now existing or which may hereafter
be erected or constructed thereon, of which the Mortgagor declares that
he/it is the absolute owner free from all liens and incumbrances. . . .[43]
(Emphasis supplied.)
Hence, based on the "reliance on the security test," the California court in
the cited case made an inquiry whether the second loan was made in
reliance on the original security containing a "dragnet clause." Accordingly,
finding a different security was taken for the second loan no intent that the
parties relied on the security of the first loan could be inferred, so it was
held. The rationale involved, the court said, was that the "dragnet clause" in
the first security instrument constituted a continuing offer by the borrower to
secure further loans under the security of the first security instrument, and
that when the lender accepted a different security he did not accept the
offer.[47]
It was therefore improper for petitioner in this case to seek foreclosure of the
mortgaged property because of non-payment of all the three promissory
notes. While the existence and validity of the "dragnet clause" cannot be
denied, there is a need to respect the existence of the other security given
for PN BD#76/C-345. The foreclosure of the mortgaged property should
only be for the P250,000.00 loan covered by PN BD#75/C-252, and for any
amount not covered by the security for the second promissory note. As held
in one case, where deeds absolute in form were executed to secure any
and all kinds of indebtedness that might subsequently become due, a
balance due on a note, after exhausting the special security given for the
payment of such note, was in the absence of a special agreement to the
contrary, within the protection of the mortgage, notwithstanding the giving of
the special security.[50] This is recognition that while the "dragnet clause"
subsists, the security specifically executed for subsequent loans must first
be exhausted before the mortgaged property can be resorted to.
One other crucial point. The mortgage contract, as well as the promissory
notes subject of this case, is a contract of adhesion, to which respondents’
only participation was the affixing of their signatures or "adhesion"
thereto.[51] A contract of adhesion is one in which a party imposes a ready-
made form of contract which the other party may accept or reject, but which
the latter cannot modify.[52]
The real estate mortgage in issue appears in a standard form, drafted and
prepared solely by petitioner, and which, according to jurisprudence must be
strictly construed against the party responsible for its preparation.[53] If the
parties intended that the "blanket mortgage clause" shall cover subsequent
advancement secured by separate securities, then the same should have
been indicated in the mortgage contract. Consequently, any ambiguity is to
be taken contra proferentum, that is, construed against the party who
caused the ambiguity which could have avoided it by the exercise of a little
more care.[54] To be more emphatic, any ambiguity in a contract whose
terms are susceptible of different interpretations must be read against the
party who drafted it,[55] which is the petitioner in this case.
Even the promissory notes in issue were made on standard forms prepared
by petitioner, and as such are likewise contracts of adhesion. Being of such
nature, the same should be interpreted strictly against petitioner and with
even more reason since having been accomplished by respondents in the
presence of petitioner’s personnel and approved by its manager, they could
not have been unaware of the import and extent of such contracts.
Petitioner, however, is not without recourse. Both the Court of Appeals and
the trial court found that respondents have not yet paid the P250,000.00,
and gave no credence to their claim that they paid the said amount when
they paid petitioner P2,000,000.00. Thus, the mortgaged property could still
be properly subjected to foreclosure proceedings for the unpaid
P250,000.00 loan, and as mentioned earlier, for any deficiency after D/A
SFDX#129, security for PN BD#76/C-345, has been exhausted, subject of
course to defenses which are available to respondents.
SO ORDERED.
Cuyco vs. Cuyco, 487 SCRA 693 (2006)
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari assails the Decision1 of the Court of
Appeals (CA) in CA G.R. CV No. 62352 dated November 5, 2003 which
modified the Decision2 of the Regional Trial Court (RTC) of Quezon City,
Branch 105 in Civil Case No. Q-97-32130 dated January 27, 1999, as well
as the Resolution3 dated June 28, 2005 denying the motion for
reconsideration thereof.
Petitioners filed a motion to dismiss9 on the ground that the complaint states
no cause of action which was denied by the RTC10 for lack of merit.
In their answer,11 petitioners admitted their loan obligations but argued that
only the original loan of P1,500,000.00 was secured by the real estate
mortgage at 18% per annum and that there was no agreement that the
same will be compounded monthly.
SO ORDERED.13
Petitioners appealed to the CA reiterating their previous claim that only the
amount of P1,500,000.00 was secured by the real estate mortgage.14 They
also contended that the RTC erred in ordering the foreclosure of the real
estate mortgage to satisfy the total indebtedness of P6,532,019.84, as of
January 10, 1999, plus interest until fully paid, and in imposing legal interest
of 12% per annum on the stipulated interest of 18% from the filing of the
case until fully paid.15
On November 5, 2003, the CA partially granted the petition and modified the
RTC decision insofar as the amount of the loan obligations secured by the
real estate mortgage. It held that by express intention of the parties, the real
estate mortgage secured the original P1,500,000.00 loan and the
subsequent loans of P150,000.00 and P500,000.00 obtained on July 1,
1992 and September 5, 1992, respectively. As regards the loans obtained
on May 31, 1992, October 29, 1992 and January 13, 1993 in the amounts of
P150,000.00, P200,000.00 and P250,000.00, respectively, the appellate
tribunal held that the parties never intended the same to be secured by the
real estate mortgage. The Court of Appeals also found that the trial court
properly imposed 12% legal interest on the stipulated interest from the date
of filing of the complaint. The dispositive portion of the Decision reads:
1. the legal interest at the rate of 12% per annum on the stipulated
interest of 18% per annum, computed from the filing of the complaint
until fully paid;
SO ORDERED.16
Petitioners contend that the imposition of the 12% legal interest per annum
on the stipulated interest of 18% per annum computed from the filing of the
complaint until fully paid was not provided in the real estate mortgage
contract, thus, the same has no legal basis.
While a contract is the law between the parties,18 it is also settled that an
existing law enters into and forms part of a valid contract without the need
for the parties expressly making reference to it.19 Thus, the lower courts
correctly applied Article 2212 of the Civil Code as the basis for the
imposition of the legal interest on the stipulated interest due. It reads:
Art. 2212. Interest due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent upon this point.
In the case at bar, the evidence shows that petitioners obtained several
loans from the respondent, some of which as held by the CA were secured
by real estate mortgage and earned an interest of 18% per annum. Upon
default thereof, respondents demanded payment from the petitioners by
filing an action for foreclosure of the real estate mortgage. Clearly, the case
falls under the rule stated in paragraph 1.
Total amount due as of the date of finality of judgment will earn an interest
of 12% per annum until fully paid.
In their Reply, petitioners alleged that their petition only raised the sole issue
of interest on the interest due, thus, by not filing their own petition for review,
respondents waived their privilege to bring matters for the Court’s review
that do not deal with the sole issue raised.
Procedurally, the appellate court in deciding the case shall consider only the
assigned errors, however, it is equally settled that the Court is clothed with
ample authority to review matters not assigned as errors in an appeal, if it
finds that their consideration is necessary to arrive at a just disposition of
the case.26
"July 1, [1]992
"Received from Mr. & Mrs. Renato Q. Cuyco PCIB Ck # 498243 in the
amount of P150,000.00 July 1/92 as additional loan against mortgaged
property TCT No. RT-43723 (188321) Q.C.
"Sept. 05/92
The pertinent provisions of the November 26, 1991 real estate mortgage
reads:
That the MORTGAGOR is indebted unto the MORTGAGEE in the sum of
ONE MILLION FIVE THOUSAND PESOS (sic) (1,500,000.00) Philippine
Currency, receipt whereof is hereby acknowledged and confessed, payable
within a period of one year, with interest at the rate of eighteen percent
(18%) per annum;
xxxx
It is clear from a perusal of the aforequoted real estate mortgage that there
is no stipulation that the mortgaged realty shall also secure future loans and
advancements. Thus, what applies is the general rule above stated.
What the parties could have done in order to bind the realty for the
additional loans was to execute a new real estate mortgage or to amend the
old mortgage conformably with the form prescribed by the law. Failing to do
so, the realty cannot be bound by such additional loans, which may be
recovered by the respondents in an ordinary action for collection of sums of
money.
Lastly, the CA held that to discharge the real estate mortgage, payment only
of the principal and the stipulated interest of 18% per annum is sufficient as
the mortgage document does not contain a stipulation that the legal interest
on the stipulated interest due, attorney’s fees, and costs of suit must be paid
first before the same may be discharged.37
We do not agree.
Indeed, the above provision of the Rules of Court provides that the
mortgaged property may be charged not only for the mortgage debt or
obligation but also for the interest, other charges and costs approved by the
court. Thus, to discharge the real estate mortgage, petitioners must pay the
respondents (1) the total amount due, as computed in accordance with the
formula indicated above, that is, the principal loan of P1,500,000.00, the
stipulated interest of 18%, the interest on the stipulated interest due of 12%
computed from the filing of the complaint until finality of the decision less
partial payments made, (2) the 12% legal interest on the total amount due
from finality until fully satisfied, (3) the reasonable attorney’s fees of
P25,000.00 and (4) the costs of suit, within the period specified by the
Rules. Should the petitioners default in the payment thereof, the property
shall be sold at public auction to satisfy the judgment.
SO ORDERED.
Garrido vs. Tuason, 24 SCRA 727 (1968)
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
CONCEPCION, C.J.:
On October 17, 1959, Jose Garrido commenced Civil Case No. 71763 of
the Municipal Court of Manila, for the foreclosure of a chattel mortgage,
executed in his favor by defendant, Pilar G. Tuason, to guarantee the
payment of a debt in the sum of P1,000, as well as for the recovery of
attorney's fees and the costs. After appropriate proceedings, decision was
rendered, on November 14, 1959, ordering the defendant to pay to plaintiff
"the sum of P1,000 with interest thereon at the rate of 1% per month from
June 30, 1959 until the whole amount is fully paid, plus the sum of P100 for
attorney's fees, and the costs."
Soon later, or on April 1, 1960, plaintiff commenced Civil Case No. 76462,
of said court, against the same defendant — whose husband was included,
as her co-defendant, on May 27, 1960 — for the recovery of said alleged
balance of P1,290.58. On motion of said defendants, plaintiff's complaint in
said case No. 76462 was dismissed by the Municipal Court, on August 31,
1960. Plaintiff appealed to the Court of First Instance of Manila, which, in
due course rendered its decision, on April 17, 1961, dismissing the case,
without pronouncement as to costs, upon the ground that, pursuant to
Article 2115 of the Civil Code of the Philippines, plaintiff has no cause of
action against the defendants. Hence, this appeal by the plaintiff.
... The sale of the thing pledged shall extinguish the principal
obligation, whether or not the proceeds of the sale are equal to the
amount of the principal obligation, interest and expenses in a proper
case. If the price of the sale is more than said amount, the debtor shall
not be entitled to the excess, unless it is otherwise agreed. If the price
of the sale is less, neither shall the creditor be entitled to recover the
deficiency, notwithstanding any stipulation to the contrary.
The Court of First Instance must have applied this precept in view of Article
2141 of the same Code, pursuant to which the provisions thereof on pledge
shall be applicable to chattel mortgages "insofar as they are not in conflict
with the Chattel Mortgage Law." We have already held, however,1 that said
Article 2115 is inconsistent with the provisions of the Chattel Mortgage
Law,2 and that, accordingly, the chattel mortgage creditor may maintain an
action3 for the deficiency.
Then, again, said Court would seem to have acted under the impression,
that, since Case No. 71763 was one for the foreclosure of a chattel
mortgage, the decision therein rendered was for such foreclosure; but such
was not the nature of said decision, for it merely ordered the defendant to
pay the sum of P1,000, with interest thereon, in addition to attorney's fees
and the costs. It did not order the sale of the property mortgaged to the
plaintiff or of any other particular property, for the satisfaction of his credit
against the defendant. It did not purport to enforce plaintiff's lien over the
mortgaged property. In other words, it was an ordinary money judgment, to
which said Articles 2115 and 2141 were absolutely irrelevant.
DECISION
CHICO-NAZARIO, J.:
The undisputed facts of this case show that on 11 June 1997, Elias Colarina
bought on installment from Magna Financial Services Group, Inc., one (1)
unit of Suzuki Multicab, more particularly described as follows:
After making a down payment, Colarina executed a promissory note for the
balance of P229,284.00 payable in thirty-six (36) equal monthly installments
at P6,369.00 monthly, beginning 18 July 1997. To secure payment thereof,
Colarina executed an integrated promissory note and deed of chattel
mortgage over the motor vehicle.
Colarina failed to pay the monthly amortization beginning January 1999,
accumulating an unpaid balance of P131,607.00. Despite repeated
demands, he failed to make the necessary payment. On 31 October 2000
Magna Financial Services Group, Inc. filed a Complaint for Foreclosure of
Chattel Mortgage with Replevin[2] before the Municipal Trial Court in Cities
(MTCC), Branch 2, Legaspi City, docketed as Civil Case No. 4822.[3] Upon
the filing of a Replevin Bond, a Writ of Replevin was issued by the MTCC.
On 27 December 2000, summons, together with a copy of the Writ of
Replevin, was served on Colarina who voluntarily surrendered physical
possession of the vehicle to the Sheriff, Mr. Antonio Lozano. On 02 January
2001, the aforesaid motor vehicle was turned over by the sheriff to Magna
Financial Services Group, Inc.[4] On 12 July 2001, Colarina was declared in
default for having filed his answer after more than six (6) months from the
service of summons upon him. Thereupon, the trial court rendered judgment
based on the facts alleged in the Complaint. In a decision dated 23 July
2001, it held:[5]
Colarina filed a Petition for Review before the Court of Appeals, docketed as
CA-G.R. SP No. 69481. On 21 January 2003, the Court of Appeals
rendered its decision[9] holding:
...
On the other hand, respondent countered that the Court of Appeals correctly
set aside the trial court's decision due to the inconsistency of the remedies
or reliefs sought by the petitioner in its Complaint where it prayed for the
custody of the chattel mortgage and at the same time asked for the payment
of the unpaid balance on the motor vehicle.[14]
(2) Cancel the sale, should the vendee's failure to pay cover two
or more installments;
(3) Foreclose the chattel mortgage or the thing sold, if one has
been constituted, should the vendee's failure to pay cover two or
more installments. In this case, he shall have no further action
against the purchaser to recover any unpaid balance of the price.
Any agreement to the contrary shall be void.
Our Supreme Court in Bachrach Motor Co., Inc. v. Millan[15] held:
'Undoubtedly the principal object of the above amendment (referring to Act
4122 amending Art. 1454, Civil Code of 1889) was to remedy the abuses
committed in connection with the foreclosure of chattel mortgages. This
amendment prevents mortgagees from seizing the mortgaged property,
buying it at foreclosure sale for a low price and then bringing the suit against
the mortgagor for a deficiency judgment. The almost invariable result of this
procedure was that the mortgagor found himself minus the property and still
owing practically the full amount of his original indebtedness.
In its Complaint, Magna Financial Services Group, Inc. made the following
prayer:
In its Memorandum before us, petitioner resolutely declared that it has opted
for the remedy provided under Article 1484(3) of the Civil Code,[17] that is,
to foreclose the chattel mortgage.
Article 1484, paragraph 3, provides that if the vendor has availed himself of
the right to foreclose the chattel mortgage, 'he shall have no further action
against the purchaser to recover any unpaid balance of the purchase price.
Any agreement to the contrary shall be void. In other words, in all
proceedings for the foreclosure of chattel mortgages executed on chattels
which have been sold on the installment plan, the mortgagee is limited to
the property included in the mortgage.[19]
The next issue of consequence is whether or not there has been an actual
foreclosure of the subject vehicle.
In the case at bar, there is no dispute that the subject vehicle is already in
the possession of the petitioner, Magna Financial Services Group, Inc.
However, actual foreclosure has not been pursued, commenced or
concluded by it.
Where the mortgagee elects a remedy of foreclosure, the law requires the
actual foreclosure of the mortgaged chattel. Thus, in Motor Co. v.
Fernandez,[24] our Supreme Court said that it is actual sale of the
mortgaged chattel in accordance with Sec. 14 of Act No. 1508 that would
bar the creditor (who chooses to foreclose) from recovering any unpaid
balance.[25] And it is deemed that there has been foreclosure of the
mortgage when all the proceedings of the foreclosure, including the sale of
the property at public auction, have been accomplished.[26]
SO ORDERED.
Register of Deeds vs. China Banking Corporation, 4 SCRA
1145 (1962)
EN BANC
DIZON, J.:
Maintaining the affirmative, appellant argues that: (a) the temporary holding
of land by an alien-owned commercial bank under a public instrument such
as the deed of transfer in question "bears no reasonable connection with the
constitutional purpose" underlying the provisions of Section 5, Article XIII of
the Constitution of the Philippines; hence, such holding or acquisition "was
not within the contemplation of the framers of the Constitution"; (b) by
judicial as well as by executive-administrative an legislative construction, the
constitutional prohibition against alien landholding does not preclude
enjoyment by aliens of temporary rights and land; (c) under the provisions of
Section 25 of Republic Act No. 337 (General Banking Act) an alien or an
alien-owned commercial bank may acquire land in the Philippines subject to
the obligation of disposing of it within 5 years from the date of its acquisition.
1äwphï1.ñët
Upon the other hand, the argument supporting the appealed resolution is
that the privilege of acquiring real estate granted to commercial banks under
the provisions of Section 25 of Republic Act No. 337 was not intended as an
amendment, much less as a nullification of the constitutional prohibition
against alien acquisition of lands in the Philippines, the same being merely
an exception to the general rule, under existing banking and corporation
laws, that banks and corporations can engage only in the particular
business for which they were specifically created; that a mere statute, like
the republic act relied upon by, appellant, cannot amend the Constitution;
that in connection with the particular constitutional prohibition involved
herein, it is the character and nature of the possession — whether in strict
ownership or otherwise — and not the length of possession that is material,
the result being that, if real property is to be held in ownership, an alien may
not legally do so even for a single day.
After considering the arguments adduced by appellant in its brief, jointly with
those expounded in the briefs submitted by Alfonso Ponce Enrile and
William H. Quasha and Associates, as amici curiae, on the one hand, and
on the other, those relied upon in the brief submitted by the Office of the
Solicitor General on behalf of the Commission, we are inclined to uphold, as
we do uphold, the appealed resolution.
To support its view appellant relies particularly upon paragraphs (c) and (d),
Section 25 of Republic Act 337 which read as follows: .
SEC. 25. Any commercial bank may purchase, hold, and convey real
estate for the following purposes:
But no such bank shall hold the possession of any real estate under
mortgage or trust deed, or the title and possession of any real estate
purchased to secure any debt due to it, for a longer period than five
years.
Assuming, arguendo, that under the provisions of the aforesaid Act any
commercial bank, whether alien-owned or controlled or not, may purchase
and hold real estate for the specific purposes and in the particular cases
enumerated in Section 25 thereof, we find that the case before Us does not
fall under anyone of them.
Neither do the provisions of paragraph (d) of the Same section apply to the
present case because the deed of transfer in question can in no sense be
considered as a sale made by virtue of a judgment, decree, mortgage, or
trust deed held by appellant bank. In the same manner it cannot be said that
the real property in question was purchased by appellant "to secure debts
due to it", considering that, as stated heretofore, the term debt employed in
the pertinent legal provision can logically refer only to such debts as may
become payable to appellant bank as a result of a banking transaction.
That the constitutional prohibition under consideration has for its purpose
the preservation of the patrimony of the nation can not be denied, but
appellant and the amici curiae claim that it should be liberally construed so
that the prohibition be limited to the permanent acquisition of real estate by
aliens — whether natural or juridical persons. This, of course, would make
legal the ownership acquired by appellant bank by virtue of the deed of
transfer mentioned heretofore, subject to its obligation to dispose of it in
accordance with law, within 5 years from the date of its acquisition. We can
not give assent to this contention, in view of the fact that the constitutional
prohibition in question is absolute in terms. We have so held in Ong Sui Si
Temple vs. The Register of Deeds of Manila (G. R. No. L-6776, prom. May
21, 1955) where we said, inter alia, the following:
We are of the opinion that the Court below has correctly held that in
view of the absolute terms of section 5, Title XIII, of the Constitution,
the provisions of Act 271 of the old Philippine Commission must be
deemed repealed since the Constitution was enacted, in so far as
incompatible therewith. In providing that —
Even in the case of Smith Bell & Co. vs. Register of Deeds of Davao (50
O.G., 5239) where a lease of a parcel of land for a total period of 50 years in
favor of an alien corporation was held to be registerable, the reason we
gave for such ruling was that a lease — unlike a sale — does not involve
the transfer of dominion over the land, the clear implication from this being
that transfer of ownership over land, even for a limited period of time, is not
permissible in view of the constitutional prohibition. The reason for this is
manifestly the desire and purpose of the Constitution to place and keep in
the hands of the people the ownership over private lands in order not to
endanger the integrity of the nation. Inasmuch as when an alien buys land
he acquires and will naturally exercise ownership over the same, either
permanently or temporarily, to that extent his acquisition jeopardizes the
purpose of the Constitution.
Some may say that this construction is too narrow and unwise; to this we
answer that it is not our privilege to determine the wisdom or lack of wisdom
of this constitutional mandate. It is, rather, Our sworn duty to enforce it free
from qualifications and distinctions that tend to render futile the
constitutional intent.
THIRD DIVISION
xx - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - xx
DECISION
On January 25, 1985, for failure of MICC to settle its obligations, Banco
Filipino filed a verified Petition[12] for the extrajudicial foreclosure of MICC's
mortgage. At the auction sale of the foreclosed properties on March 25,
1985, Banco Filipino submitted a bid of P3,092,547.82 and was declared
the highest bidder. A Certificate of Sale[13] was issued in its favor which
was registered with the Registry of Deeds and annotated on the
corresponding TCTs covering the mortgaged properties on July 29, 1985.
Sec. 7. In any sale made under the provisions of this Act, the
purchaser may petition the Court of First Instance of the province
or place where the property or any part thereof is situated, to give
him possession thereof during the redemption period, furnishing
bond in an amount equivalent to the use of the property for a
period of twelve months, to indemnify the debtor in case it be
shown that the sale was made without violating the mortgage or
without complying with the requirements of this Act. Such petition
shall be made under oath and filed in form of an ex parte motion
in the registration or cadastral proceedings if the property is
registered, or in special proceedings in the case of property
registered under the Mortgage Law or under section one hundred
and ninety-four of the Administrative Code, or of any other real
property encumbered with a mortgage duly registered in the office
of any register of deeds in accordance with any existing law, and
in each case the clerk of the court shall, upon the filing of such
petition, collect the fees specified in paragraph eleven of section
one hundred and fourteen of Act Numbered Four hundred and
ninety-six, as amended by Act Numbered Twenty-eight hundred
and sixty-six, and the court shall, upon approval of the bond,
order that a writ of possession issue, addressed to the sheriff of
the province in which the property is situated, who shall execute
said order immediately.
As for petitioners' argument that they are still entitled to redeem the
foreclosed properties, it must be rejected too.
The debtor in extra-judicial foreclosures under Act No. 3135, or his
successor-in-interest, has, one year from the date of registration of the
Certificate of Sale with the Registry of Deeds, a right to redeem the
foreclosed mortgage,[28] hence, petitioners, as MICC's successors-in-
interest, had one year from the registration of the Certificate of Sale on July
29, 1985 or until July 29, 1986 for the purpose.
Dear Madam:
Then came the news that Banco Filipino Savings and Mortgage
Bank was under conservatorship by the Board of Liquidators. On
the other hand, MICC became bankrupt and closed shop. The
spouses were [sic] nowhere to go to then at the time to get the
title of the property they purchased from MICC.
Until, the spouses received a letter dated April 6, 1987 from the
Board of Liquidators via Alberto Reyes, Deputy Liquidator,
informing the spouses that the property they purchased from
MICC was already foreclosed by the bank. The spouses
answered the letter and disclaimed any knowledge of the
foreclosure. In their answer to the said letter, they emphasized
that their unpaid balance with MICC was P188,985.60.
We are addressing your goodself [sic] to inform the bank that the
spouses Sonia and Rodrigo Paderes are exercising their
right of redemption as subrogees of the defunct MICC under
special laws.
[SGD.]
LUCIANO D. VALENCIA
Counsel for Spouses Paderes
JPA Subdivision, City of Muntinlupa[32]
x x x (Emphasis supplied).
Dear Sir:
Thank you.
[SGD.]
LUZ B. DACASIN
Assistant Vice-President
Real Estate Department[33]
November 4, 1996
Mrs. Luz B. Dacasin
Asst. Vice-President
Real Estate Dept., Banco Filipino
Makati City
Dear Madam:
Thank you very much for your letter dated October 25, 1996,
which was received on October 31, 1996, the contents of which
had been duly noted. Pursuant thereto I advised my clients '
spouses Rodrigo and Sonia Paderes to see [you].
[SGD.]
LUCIANO D. VALENCIA
Counsel for Spouses Paderes
JPA Subdivision, City of Muntinlupa[34]
x x x (Emphasis supplied).
November 8, 1996
1. Regarding the lot, you mentioned that, the cost per square
meter was P7,500.00. To this price we are no-committal for
the said price is high. Although, we are still to have the
amount re-negotiated.
[SGD.]
SPS. SONIA &
RODRIGO PADERES
[SGD.]
SPS. ISABELO &
JUANA HERMINIA BERGADO[35]
(Emphasis supplied).
Under Article 1318 of the Civil Code, there are three essential
requisites which must concur in order to give rise to a binding contract: (1)
consent of the contracting parties; (2) object certain which is the subject
matter of the contract; and (3) cause of the obligation which is established.
'Consent is further defined in Article 1319 of the Code as follows:
The letters dated October 17, 1996 and November 4, 1996, signed by
petitioners' counsel, while ostensibly proposing to redeem the foreclosed
properties and requesting Banco Filipino to suggest a price for their
repurchase, made it clear that any proposal by the bank would be subject to
further action on the part of petitioners.
The letter dated October 25, 1996 signed by Luz Dacasin, Assistant
Vice-President of Banco Filipino, merely invited petitioners to engage in
further negotiations and does not contain a recognition of petitioners'
claimed right of redemption or a definite offer to sell the subject properties
back to them.
Hence, petitioners argue, the writ of possession had lost its validity and
efficacy and should therefore be declared null and void.
Petitioners' ultimate argument fails too. In Rodil vs. Benedicto,[42] this Court
categorically held that the right of the applicant or a subsequent purchaser
to request for the issuance of a writ of possession of the land never
prescribes:
The respondents claim that the petition for the issuance of a writ
of possession was filed out of time, the said petition having been
filed more than five years after the issuance of the final decree of
registration. In support of their contention, the respondents cite
the case of Sorogon vs. Makalintal [80 Phil. 259 (1948)], wherein
the following was stated:
"It is the law and well settled doctrine in this jurisdiction that
a writ of possession must be issued within the same period
of time in which a judgment in ordinary civil actions may be
summarily executed (section 17, Act 496, as amended),
upon the petition of the registered owner or his successors in
interest and against all parties who claim a right to or interest
in the land registered prior to the registration proceeding."
The better rule, however, is that enunciated in the case of
Manlapas and Tolentino vs. Lorente [48 Phil. 298 (1925)], which
has not yet been abandoned, that the right of the applicant or a
subsequent purchaser to ask for the issuance of a writ of
possession of the land never prescribes. . .
xxx
In a later case [Sta. Ana v. Menla, 111 Phil. 947 (1961)], the
Court also ruled that the provision in the Rules of Court to the
effect that judgment may be enforced within five years by
motion, and after five years but within ten years by an action
(Section 6, Rule 39) refers to civil actions and is not
applicable to special proceedings, such as land registration
cases. The Court said:
"The second assignment of error is as follows:
'That the lower court erred in ordering that the decision
rendered in this land registration case on November 28,
1931 or twenty six years ago, has not yet become final
and unenforceable.
We fail to understand the arguments of the appellant in
support of the above assignment, except in so far as it
supports his theory that after a decision in a land registration
case has become final, it may not be enforced after the
lapse of a period of 10 years, except by another proceeding
to enforce the judgment or decision. Authority for this theory
is the provision in the Rules of Court to the effect that
judgment may be enforced within 5 years by motion, and
after five years but within 10 years, by an action (Sec. 6,
Rule 39). This provision of the Rules refers to civil
actions and is not applicable to special proceedings,
such as a land registration case. This is so because a
party in a civil action must immediately enforce a
judgment that is secured as against the adverse party,
and his failure to act to enforce the same within a
reasonable time as provided in the Rules makes the
decision unenforceable against the losing party. In
special proceedings the purpose is to establish a status,
condition or fact; in land registration proceedings, the
ownership by a person or a parcel of land is sought to
be established. After the ownership has been proved
and confirmed by judicial declaration, no further
proceeding to enforce said ownership is necessary,
except when the adverse or losing party had been in
possession of the land and the winning party desires to
oust him therefrom.[43] (Emphasis and underscoring
supplied)
Petitioners have not supplied any cogent reason for this Court to deviate
from the foregoing ruling.
SO ORDERED.
Banco Filipino Savings and Mortgage Bank vs. Court of
Appeals, 463 SCRA 64 (2005)
SECOND DIVISION
DECISION
AUSTRIA-MARTINEZ, J.:
COMPLAINT
1. .
2. .
6. That in a letter of the Deputy Liquidator dated January 23, 1992, plaintiff
was given up to the end of March 1992 to negotiate and make special
arrangement for any satisfactory plan of payment for the redemption;
7. That in a letter of the Deputy Liquidator dated March 12, 1992, plaintiff
was directed to remit at least P50,000.00 to defendant which would manifest
the interest and willingness of plaintiff to redeem the property, and forthwith
on March 24, 1992, plaintiff remitted the sum of P50,000.00 to defendant
which was duly receipted by the latter under Official Receipt No. 279968 A
dated March 24, 1992;
11. That the delay of the defendant in the finalization of the terms of
redemption did not in any manner alter the right of plaintiff to redeem the
property from defendant;
12. That plaintiff is still in actual possession of the property and intend to
remain in actual possession of the property, while defendant was never in
actual possession of said property;
13. That plaintiff is ready and willing to pay the redemption money, which is
the total bank claim of P925,448.17 plus lawful interest and other allowable
expenses incident to the foreclosure proceedings:
14. That the latest actuations of defendant are indicative of the refusal of
defendant to allow the exercise of redemption by herein plaintiff, reason for
which there is a need for judicial determination of the rights and obligations
of the parties to this case;
AND PLAINTIFF PRAYS for further reliefs just and equitable under the
premises.
Petitioner filed a motion to dismiss on the ground that the complaint does
not state a cause of action. It alleges that assuming that the allegations in
the complaint are true and correct, still there was no redemption effected
within one year from the date of registration of the sheriff's certificate of sale
with the Register of Deeds on January 21, 1991, thus private respondent
had lost its right to redeem the subject land. Petitioner claimed that the letter
cited in paragraph 5 of the complaint was a mere offer to redeem the
property which was promptly answered by a letter dated August 28, 1991,
which categorically denied private respondent's offer and stated that when it
comes to redemption, the basis of payment is the total claim of the bank at
the time the property was foreclosed plus 12% thereof and all litigation
expenses attached thereto or its present appraised value whichever is
higher; that the letter mentioned in paragraph 6 of the complaint dated
January 23, 1992 of the Deputy Liquidator was about negotiation and
special arrangement and not redemption for at that stage the period of
redemption had already expired; that the letter mentioned in paragraph 7
dated March 12, 1992 was of the postponement of the consolidation of the
subject property and not of any extension for the period of redemption; that
the amount of P50,000.00 remitted by private respondent was in
consideration of the postponement of the consolidation of the property in
petitioner's name and as manifestation of private respondent's sincerity to
repurchase the foreclosed property; that when private respondent remitted
P50,000.00, the Deputy Liquidator of petitioner bank requested the legal
counsel of petitioner to defer consolidation of property in petitioner's name;
that in a letter dated November 5, 1993, petitioner's Senior Vice President
declared that the subject property is available for repurchase in the amount
of P5,830,600.00 to which private respondent in another letter asked for an
extension of 30 days to make an offer.
On May 10, 1994, the trial court rendered an Order[3] dismissing the
complaint. It ratiocinated that (1) the letter dated August 6, 1991 was an
offer to redeem for P700,000.00 without any tender of the money; (2) the
reply letter of petitioner dated August 28, 1991 stated that the redemption
price is P1,146,837.81 representing the bank's claim of P925,448.17 plus
12% interest and expenses of foreclosure or the appraised value which was
P1,457,650.00; (3) the March 12, 1992 letter of the petitioner categorically
informed private respondent that the period for redemption had expired,
however, the bank agreed to postpone the consolidation of title of the land
in the bank's name up to the end of March 1992 if the plaintiff shall deposit
P50,000.00 in order to avoid consolidation. Under Section 6 of Act 3135, on
redemption of foreclosed property, it is provided that a debtor may redeem
the property at anytime within one year from and after the date of sale, i.e.,
one year period to be reckoned from the registration of the sheriff's
certificate of sale. The registration of sheriff's sale was on January 21, 1991
so that the redemption period was until January 21, 1992; that although
there was an offer to redeem the property for P700,000.00 on August 6,
1991, which was within the redemption period, there was no tender of
redemption price and the P700,000.00 offered was not the correct
redemption price. It found that the complaint did not state that private
respondent tendered the correct redemption price within the redemption
period as required under Section 30 of Rule 39 of the Rules of Court.
Private respondent's motion for reconsideration was denied in an Order
dated July 25, 1994.[4]
Private respondent filed its appeal with the CA which reversed the trial court
in its assailed decision, the dispositive portion of which reads:
WHEREFORE, the Orders of the respondent trial court dated May 10, 1994,
and July 25, 1994 are hereby REVERSED and SET ASIDE. The appellants
are declared entitled to repurchase the property in question within THIRTY
(30) days from notice hereof which shall be effected upon payment of the
repurchase price of P925,448.17 less P50,000.00, which is the deposit on
the redemption price, with legal interest from March 24, 1992, the time the
contract extending the period of redemption of the property took effect until
it is fully paid.[5]
A perusal of the allegations in the complaint shows that there was sufficient
basis to make out a case against Banco Filipino. The complaint alleged that
as early as August 6, 1991 or about six (6) months before the statutory
period for redemption would expire, the appellant had exerted earnest
efforts to effect the redemption of the property in question and that after an
agreement had been reached by the parties, with the corresponding deposit
on the redemption price had been given by the appellant, the appellee bank
led the appellant to believe that the appellee was negotiating with the former
in good faith. However, the true intention of the appellee bank was to refuse
the redemption of the property as manifested by its act of increasing the
amount of the redemption price after the period for redemption had expired
and after a deposit on the redemption price had been duly accepted by it as
evidenced by a receipt issued by the appellee.
Even assuming however that the appellant is now barred from exercising its
right of redemption, yet it can still repurchase the property in question based
on a new contract entered into between the parties extending the period
within which to purchase the property as evidenced by the appellee's
Deputy Liquidator Rosauro Napa's letter to Belen Jocson dated March 12,
1992 and the letter addressed to Atty. German M. Balot, Legal Counsel,
Banco Filipino ' Santiago, Isabela dated April 7, 1992.
...
In the case of Philippine National Bank vs. Court of Appeals, the Court held:
Indeed under Article 1482 of the Civil Code, earnest money given in a sale
transaction is considered part of the purchase price and proof of the
perfection of the sale. This provision, however, gives no more than a
disputable presumption that prevails in the absence of contrary or rebuttal
evidence. In the instant case, the letter-agreements themselves are the
evidence of an intention on the part of herein private parties to enter into
negotiations leading to a contract of sale that is mutually acceptable as to
absolutely bind them to the performance of their obligations thereunder. The
letter-agreements are replete with substantial condition precedents,
acceptance of which on the part of private respondent must first be made in
order for petitioner to proceed to the next step in the negotiations.
. . . [6]
Hence, the herein petition for review on certiorari filed by petitioner alleging
that the appellate court erred in holding that (1) the allegations in the
complaint of private respondent against petitioner are sufficient to constitute
a cause of action for redemption and specific performance; and (2)
respondent was entitled to repurchase back from petitioner it's foreclosed
property for only P925,448.17.
The sheriff's certificate of sale was registered on January 21, 1991. Section
6 of Act 3135 provides for the requisites for a valid redemption, thus:
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, of the Code of Civil Procedure,[11] insofar
as these are not inconsistent with the provisions of this Act.
Clearly, the right of redemption should be exercised within the specified time
limit, which is one year from the date of registration of the certificate of sale.
The redemptioner should make an actual tender in good faith of the full
amount of the purchase price as provided above, 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.
Moreover, while the complaint alleges that private respondent made an offer
to redeem the subject property on August 6, 1991, which was within the
period of redemption, it is not alleged in the complaint that there was an
actual tender of payment of the redemption price as required by the rules. It
was alleged that private respondent merely made an offer of P700,000.00
as redemption price, which however, as stated under paragraph 13 of the
same complaint, the redemption money was the total bank claim of
P925,448.17 plus lawful interest and other allowable expenses incident to
the foreclosure proceedings. Thus, the offer was even very much lower than
the price paid by petitioner as the highest bidder in the auction sale.
...
Although the letter dated January 23, 1992 gave private respondent up to
the end of March 1992, to negotiate and make special arrangement for a
satisfactory plan of payment for the redemption, there was no categorical
allegation in the complaint that the original period of redemption had been
extended. Assuming arguendo that the period for redemption had been
extended, i.e., up to end of March 1992, still private respondent failed to
exercise its right within said period. This is shown by private respondent's
allegation under paragraph 8 of its complaint that in a letter dated January
20, 1993, private respondent's President amended his first offer and made
an offer of P1 million as redemption price. Notably, such offer was made
beyond the end of the March 1992 alleged extended period. Thus, private
respondent has no more right to seek redemption by force of law which
petitioner was bound to accept.
We find that the CA also erred in stating that assuming appellant is now
barred from exercising its right of redemption, it can still repurchase the
property in question based on a new contract entered into between the
parties extending the period within which to purchase the property.
The allegations in the complaint do not show that a new contract was
entered into between the parties. The March 12, 1992 letter referred to by
the CA as well as in the complaint only directed private respondent to remit
at least P50,000.00 to petitioner as a manifestation of the former's interest
and willingness to redeem the property. Thus, the P50,000.00 remitted by
private respondent was only the first step to show its interest in redeeming
the property. In no way did it establish that a contract of sale, as found by
the CA, had been perfected and that the P50,000.00 remitted by private
respondent is considered as earnest money.
The complaint does not allege that there was already a meeting of the
minds of the parties.
Based on the foregoing, there is no basis for the order of the CA to allow
private respondent to repurchase the foreclosed property in the amount of
P925,448.17 plus the expenses incurred in the sale of the property,
including the necessary and useful expenses made on the thing sold.
WHEREFORE, the decision of the Court of Appeals dated March 31, 2000
is hereby REVERSED and SET ASIDE. The Order of the Regional Trial
Court of Santiago, Isabela, Branch 21, dated May 10, 1994 in Civil Case No.
2036 dismissing the complaint for redemption and specific performance is
REINSTATED and AFFIRMED.
SO ORDERED.
Bukidnon Doctors' Hospital, Inc. vs. Metropolitan Bank & Trust
Co., 463 SCRA 222 (2005)
FIRST DIVISION
DECISION
In its letter of 16 July 2003, or approximately a year and eight months after
the agreed effectivity date of the lease contract, the respondent asked the
petitioner to vacate the leased premises within fifteen days. The petitioner
refused, invoking the subsisting lease agreement.
On 21 August 2003, the respondent filed with the Regional Trial Court
(RTC) of MalaybalayCity, Bukidnon, an Ex Parte Motion for a Writ of
Possession. The case was docketed as Misc. Case No. 735-03 and raffled
to Branch 9 of that court.
Its motion for reconsideration having been denied by the trial court in the
Order of 23 January 2004,[6] the petitioner filed on 29 January 2004 (the
day it received the denial order) a Notice of Appeal stating that it was
appealing to the Court of Appeals on both questions of fact and law.[7]
Earlier, or on 27 November 2003, the petitioner filed with the trial court an
action for specific performance, injunction, and damages, docketed as Civil
Case No. 3312-03.[8] Also, on 30 January 2004, the petitioner filed a
petition for rehabilitation before the RTC of Cagayan de Oro City, Branch
18, docketed as Spec. Pro. Case No. 2004-019.
In our Resolution of 2 August 2004, we gave due course to the petition and
resolved to decide the case based on the pleadings already filed.[12]
Before filing on 4 March 2004 the petition in this case, the petitioner had
filed two other cases, namely, (1) an Action for Specific Performance,
Injunction, and Damages with the RTC of Malaybalay City, docketed as Civil
Case No. 3312-03 and (2) a Petition for Corporate Rehabilitation with the
RTC of Cagayan de Oro City, docketed therein as S.P. Case No. 2004-019.
However, these two cases involve causes of action different from the one at
bar. In Civil Case No. 3312-03, the petitioner sought the enforcement of the
lease contract between it and the respondent, with prayer for damages for
the latter's breach of its contractual obligation. In S.P. Case No. 2004-019,
the petitioner prayed for rehabilitation pursuant to the Interim Rules on
Corporation Rehabilitation.
Upon the other hand, in this case, the ex parte motion for a writ of
possession was filed at the instance of the respondent. When the motion
was granted, the petitioner filed a notice of appeal to the Court of Appeals,
which it later withdrew. Thereafter, it appealed to us via Rule 45 of the Rules
of Court questioning the propriety of the issuance of a writ of possession for
the purpose of evicting the petitioner despite the lease agreement
subsequently entered into by the parties after the expiration of the
redemption period. As can be clearly seen, the two cases and the appeal
filed by the petitioner involved different causes of action. Thus, the petitioner
cannot be said to have engaged in forum-shopping.
Neither can the petitioner be deemed to have waived its right to file this
petition. Realizing that the remaining issue was a pure question of law, it
withdrew its Notice of Appeal stating that it was appealing the 28 January
2002 Order on both questions of law and fact. Section 9 of Rule 41 of the
Rules of Court provides that prior to the transmittal of the original record, the
court may allow withdrawal of the appeal.
Nothing in the Rules prevents a party from filing a petition under Rule 45 of
the Rules of Court after seasonably withdrawing the Notice of Appeal as
long as it is done within the reglementary period and the issue involved is
purely one of law. In this case it was before the lapse of the reglementary
period to appeal that the petitioner withdrew its Notice of Appeal to the
Court of Appeals and filed with us a motion for extension of time to file a
petition under Rule 45 of the Rules of Court. And the petition was filed within
the extended period we granted, raising only one question of law.
Nor is there a violation of the doctrine of hierarchy of courts. Section 2(c),
Rule 41 of the Rules of Court categorically provides that in all cases where
only questions of law are raised, the appeal from a decision or order of the
Regional Trial Court shall be to the Supreme Court by petition for review on
certiorari in accordance with Rule 45. Section 2(c) of Rule 41 of the Rules of
Court reads:
(b) Petition for review. ' The appeal to the Court of Appeals in
cases decided by the Regional Trial Court in the exercise of its
appellate jurisdiction shall be by petition for review in accordance
with Rule 42.
(c) Appeal by certiorari. ' In all cases where only questions of law
are raised or involved, the appeal shall be to the Supreme Court
by petition for review on certiorari in accordance with Rule 45.
A question of law exists when the doubt or controversy concerns the correct
application of law or jurisprudence to a certain set of facts; or when the
issue does not call for an examination of the probative value of the evidence
presented, the truth or falsehood of facts being admitted. A question of fact
exists when the doubt or difference arises as to the truth or falsehood of
facts or when the query invites calibration of the whole evidence considering
mainly the credibility of the witnesses, the existence and relevancy of
specific surrounding circumstances, as well as their relation to each other
and to the whole, and the probability of the situation.[15]
As earlier stated, the only issue raised in this petition is' 'whether [or] not the
court a quo correctly ruled that respondent, a former mortgagee-buyer, was
still entitled to a writ of possession as a matter of right as provided under act
3135, as amended, despite a lease agreement between itself and the
former mortgagor-seller executed after respondent became the absolute
owner of the foreclosed properties.
We shall now consider the issue of the propriety of the issuance of a writ of
possession in favor of the respondent.
However, in the instant case, a writ of possession was not the correct
remedy for the purpose of ousting the petitioner from the subject premises.
It must be noted that possession is the holding of a thing or the enjoyment
of a right.[21] It is acquired by the material occupation of a thing or the
exercise of a right, or by the fact that a thing or right is subject to the action
of one's will, or by the proper acts and legal formalities established for
acquiring such right.[22] 'By material occupation of a thing, it is not
necessary that the person in possession should be the occupant of the
property; the occupancy can be held by another in his name.[23] Thus
Articles 524 and 525 of the Civil Code provide:
In the case at bar, it is not disputed that after the foreclosure of the property
in question and the issuance of new certificates of title in favor of the
respondent, the petitioner and the respondent entered into a contract of
lease of the subject properties. This new contractual relation presupposed
that the petitioner recognized that possession of the properties had been
legally placed in the hands of the respondent, and that the latter had taken
such possession but delivered it to the former as lessee of the property. By
paying the monthly rentals, the petitioner also recognized the superior right
of the respondent to the possession of the property as owner thereof. And
by accepting the monthly rentals, the respondent enjoyed the fruits of its
possession over the subject property.[24] Clearly, the respondent is in
material possession of the subject premises. Thus, the trial court's issuance
of a writ of possession is not only superfluous, but improper under the law.
Moreover, as a lessee, the petitioner was a legitimate possessor of the
subject properties under Article 525 of the Civil Code. Thus, it could not be
deprived of its lawful possession by a mere ex parte motion for a writ of
possession.
Apropos to this case is Banco de Oro Savings and Mortgage Bank v. Court
of Appeals.[25] There, the spouses Nery were not able to redeem the
property they mortgaged to the bank; hence, the latter was able to
consolidate the title to the property in its name. The Nerys requested the
bank for more time to repurchase the subject property, obligating
themselves to pay monthly rentals or reasonable compensation for the
continued occupation of the premises on the ground that they had leased
portions of the building to tenants. Since neither the Nerys nor their tenants
vacated the subject premises nor paid reasonable compensation for the use
thereof, the bank instituted three separate ejectment suits against them
before the Metropolitan Trial Court of Paraaque. The Nerys argued that the
proper remedy that should have been taken by the bank as mortgagee was
to obtain a writ of possession and not an action for ejectment. We rejected
Nerys' argument and ruled that it was proper for the bank to sue for
ejectment. Thus:
The Nerys forget, however, that they had asked the Bank for a
grace period within which to repurchase the mortgaged property
and to be allowed to pay monthly rentals or reasonable
compensation for the use of the premises. In fact, they did pay
rentals for several months. Their continued stay in the property
was thereby converted to one by tolerance or permission. 'A
person who occupies the land of another at the latter's tolerance
or permission, without any contract between them, is necessarily
bound by an implied promise that he will vacate upon demand,
failing which, a summary action for ejectment is proper against
him (Dakudao v. Consolacion, L-54573, 24 June 1983, 112 SCRA
877). The Nerys refused to vacate upon demand, the last of which
was made by letter, dated 25 July 1984, as found by the Trial
Court, and not 9 September 1983 as the Nerys allege. An
ejectment suit, therefore, was proper, with the legally prescribed
period to institute the same having been complied with.
SO ORDERED.
Tanchan vs. Allied Banking Corporation, 571 SCRA 512 (2008)
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
DECISION
AUSTRIA-MARTINEZ, J.:
By way of Petition for Review under Rule 45 of the Rules of Court, spouses
Santiago and Rufina Tanchan (petitioners) seek the modification of the June
15, 2004 Decision1of the Court of Appeals (CA) which affirmed the August
3, 2001 Decision2 and August 8, 2002 Order3 of Branch 137, Regional Trial
Court (RTC), Makati in Civil Case No. 98-2468.4
Exhibit "G" and all the Philippine peso promissory notes, including Exhibit
"H", are secured not only by the two CG/CSAs but also by a Real Estate
Mortgage executed on February 14, 1997 by Henry, for himself and as the
legal guardian of the minors Henry Paul L. Tanchan and Don Henry L.
Tanchan; his wife Ma. Julie Ann; and Spouses Pablo and Milagros Lim, over
real properties registered in their names under Transfer Certificates of Title
No. 115804, No. 111149, No. 110672 and No. 3815, all located in Cebu
City.12
In separate final demand letters, both dated May 14, 1998, respondent
sought from Foremost payment of US$1,054,000.00, as the outstanding
principal balance, exclusive of interest and charges, of its obligations under
the seven US$ promissory notes,and PhP28,900,000.00 under its Philippine
peso promissory notes.13 Separate demands for payment were also made
upon Spouses Tanchan14 and the petitioners15 as sureties.
In a letter dated April 6, 1998, Foremost offered to cede to respondent, by
way of dacion en pago, the mortgaged real properties in full payment of its
loan obligations.16
On October 13, 1998, respondent filed with the RTC a Complaint for
Collection of Sum of Money with Petition for Issuance of Writ of Preliminary
Injunction against Foremost, Spouses Tanchan and herein petitioners
(collectively referred to as Foremost, et al.), praying that they be ordered to
pay, jointly and severally, the following amounts:19
Promissory Amount
Note
0051-96- US$ 80,000.00 plus interest at the rate of
09495 11.4% per annum from December 29, 1997
until fully paid and a penalty charge on the
unpaid interest at the rate of 1% per month
reckoned from December 29, 1997 until fully
paid and a penalty charge on the unpaid
principal reckoned from May 28, 1998 until fully
paid.
0051-96- US$110,000.00 plus interest at the rate of
17617 11.4% per annum and a penalty charge at the
rate of 1% per month, all reckoned from
December 29, 1997 until fully paid.
0051-96- US$250,000.00 plus interest at the rate of
19008 11.4% per annum and a penalty charge at the
rate of 1% per month all reckoned from
November 30, 1997 until fully paid.
0051-96- US$115,000.00 plus interest at the rate of
24801 11.4% per annum and a penalty charge at the
rate of 1% per month all reckoned from
December 29, 1997 until fully paid.
0051-96- US$75,000.00 plus interest at the rate of 11.4%
00603 per annum and a penalty charge at the rate of
1% per month all reckoned from December 29,
1997 until fully paid.
0051-97- US$45,000.00 plus interest at the rate of 11.4%
02444 per annum and a penalty charge at the rate of
1% per month all reckoned from December 29,
1997 until fully paid.
0051-97- US$379,000.00 plus interest at the rate of
03696 11.4% per annum reckoned from January 8,
(Exhibit 1998 until fully paid and a penalty charge at the
"G") rate of 1% per month from February 9, 1998
until fully paid.
0051-97- PhpP7,466,795.67 plus interest at the rate of
03688 20% per annum and a penalty charge at the
(Exhibit rate of 3% per month from August 10, 1998.
"H") (Emphasis supplied)
The application for writ of preliminary attachment was granted by the RTC in
an Order dated November 3, 1998, to wit:
SO ORDERED.21
Thus, armed with a writ of attachment,22 the sheriff levied several parcels of
land registered in the name of Foremost, et al.23
The RTC issued a Pre-trial Order which limited the issues to be resolved to
the following:
On the other hand, Henry averred that even in the wake of the Asian
financial crisis, Foremost struggled to meet interest payments on its loan
obligations with respondent, but the point came when there were no more
construction jobs to be had, and Foremost was constrained to default on its
obligations.36
Santiago testified that he and his spouse could not have defrauded
respondent because they did not directly contract the loans with it but
merely acted as sureties. Thus, the issuance of the writ of attachment
against their properties was arbitrary, and brought upon them social
humiliation and emotional torment.37
SO ORDERED.39
Spouses Tanchan and herein petitioners also filed a Motion to Lift the Writ
of Preliminary Attachment.41
The RTC denied the Motion to Lift the Writ of Attachment in an Order42
dated September 25, 2001, and the Motion for Partial Reconsideration, in
an Order43dated August 8, 2002.
Foremost, et al. appealedto the CA under the following assignment of
errors:
1. The lower court erred in not holding that having opted to extra-
judicially foreclose the real estate mortgage which was executed to
secure the promissory notes marked as Exhibits "G" and "H", the
[respondent] is barred from filing an action for collection of the same;
2. The lower court erred in not holding that Rufina Tanchan did not
authorize her husband, Santiago J. Tanchan, Jr. to sign the Continuing
Guaranty/ Comprehensive Surety Agreement marked as Exhibit "I";
and
3. The lower court erred in not lifting the writ of preliminary attachment
and granting the claim for damages of the individual defendants by
virtue of the wrongful issuance of the writ of preliminary attachment.44
The CA dismissed the appeal in the June 15, 2004 Decision assailed
herein.
Only petitioners took the present recourse to raise the following issues:
II. Whether or not the respondent may claim for deficiency judgment on
its seventh and eight causes of action, not having alleged in its
complaint that said loans were secured by a real estate mortgage and
after the foreclosure there was a deficiency as in fact in its complaint,
the respondent sought full recovery of the promissory notes subject of
its seventh and eighth cause of action?
III. Whether or not the lower court and the Court of Appeals erred in
not awarding petitioners damages for the wrongful issuance of a writ of
preliminary attachment against them?45
Being interrelated, the first and third issues will be resolved jointly.
The issues involve the validity of the writ of preliminary attachment as
against the properties of petitioners only, but not as against the
properties of Foremost and Spouses Tanchan, neither of whom
appealed before the Court. The discussion that follows, therefore,
shall pertain only to the effect of the writ on petitioners.
Under Section 13, Rule 57 of the Rules of Court, a party whose property
has been ordered attached may file a motion "with the court in which the
action is pending" for the discharge of the attachment on the ground that it
has been improperly issued or enforced. In addition, said party may file,
under Section 20, Rule 57, a claim for damages on account of improper
attachment within the following periods:
Records reveal that the RTC issued the writ of preliminary attachment on
November 3, 1998,48 and as early as March 23, 1999, in their Amended
Answer with Counterclaim, petitioners already sought the discharge of the
writ.49 Moreover, after the RTC rendered its Decision on August 3, 2001 but
before appeal therefrom was perfected, petitioners filed on August 23, 2001
a Motion to Lift the Writ of Preliminary Attachment, reiterating their objection
to the writ and seeking payment of damages for its wrongful issuance.50
The question now is whether petitioner has a valid reason to have the writ
discharged and to claim damages.
xxxx
x x x x.
Petitioners argue that the foregoing allegations are not sufficient to justify
issuance of the writ, especially in the absence of findings that they, as
sureties, participated in specific fraudulent acts in the execution and
performance of the loan agreements with respondent. 52
In refusing to lift the writ, the RTC held that the lack of a specific factual
finding of fraud in its decision is not among the grounds provided under
Sections 12 and 13, Rule 57 of the Rules of Court for the discharge of the
writ.53 The CA agreed for the reason that the RTC's affirmative action on the
complaint filed by respondent signifies its agreement with the allegations
found therein that Foremost, et al., including herein petitioners, committed
fraudulent acts in procuring loans from respondent.54
The present case fits perfectly into the mold of Allied Banking Corporation v.
South Pacific Sugar Corporation,55where a writ of preliminary attachment
issued in favor of Allied Banking Corporation was discharged by the lower
courts for lack of evidence of fraud. In sustaining the discharge of the writ,
the Court held:
xxxx
xxxx
Such general averment will not suffice to support the issuance of
the writ of preliminary attachment. It is necessary to recite in what
particular manner an applicant for the writ of attachment was
defrauded x x x.
In the aforecited case -- as in the present case -- the bank presented the
testimony of its account officer who processed the loan application, but the
Court discarded her testimony for it did not detail how the corporation
induced or deceived the bank into granting the loans.56
As shown in Ng Wee, the requirement becomes all the more stringent when
the application for preliminary attachment is directed against a defendant
officer of a defendant corporation, for it will not be inferred from the affiliation
of one to the other that the officer participated in or facilitated in any
fraudulent practice attributed to the corporation. There must be evidence
clear and convincing that the officer committed a fraud or connived with the
corporation to commit a fraud; only then may the properties of said officer,
along with those of the corporation, be held under a writ of preliminary
attachment.
There is every reason to extend the foregoing rule, by analogy, to a mere
surety of the defendant. A surety's involvement is marginal to the principal
agreement between the defendant and the plaintiff; hence, in order for the
surety to be subject to a proceeding for issuance of a writ of preliminary
attachment, it must be shown that said surety participated in or facilitated
the fraudulent practice of the defendant, such as by offering a security solely
to induce the plaintiff to enter into the agreement with the defendant.
In fine, there was no factual basis for the issuance of a writ of preliminary
attachment against the properties of petitioners. The immediate dissolution
of the writ is called for.
The second issue involves that portion of the August 3, 2001 RTC Decision
awarding respondent "(7) US $379,000.00, plus 9.5% interest per annum
from 12 February 1997 to 8 December 1997, 11.4% interest per annum
from 9 December 1997 until fully paid, and 1% penalty per month on the
amount due from maturity date until fully paid" under Promissory Note No.
0051-97-03696, and "(8) P7,582,945.85, plus 28.5% interest per annum,
and 3% penalty per month, from the foreclosure sale on 10 August 1998
until fully paid" under Promissory Note No. 0051-97-03688.
Petitioners argue that respondent is barred from claiming any amount under
the Promissory Notes, Exhibits "G" and "H", because it had already elected
to foreclose on the mortgage security, and it failed to allege in its pleadings
that a deficiency remained after the public auction sale of the securities and
that what it is seeking is the payment of such deficiency.67
More importantly, in the Pre-trial Order issued by the RTC, the right of
respondent to recover the deficiency account under the subject promissory
notes was raised as a specific issue.
No costs.
SO ORDERED.
Onapal Philippines Commodities, Inc. vs. Court of Appeals,
218 SCRA 281 (1993)
SECOND DIVISION
There were only two parties involved as far as the transactions covered by
the Trading Contract are concerned — the petitioner and the private
respondents. We quote hereunder the respondent Court's detailed findings
of the transactions between the parties:
It appears from plaintiff's testimony that sometime in April of 1983,
she was invited by defendant's Account Executive Elizabeth Diaz
to invest in the commodity futures trading by depositing the
amount of P500,000.00 (Exh. "A"); She was further told that the
business is "profitable" and that she could withdraw her money
anytime; she was furthermore instructed to go to the Onapal
Office where she met the Manager, Mr. Ciam, and the Account
Executive Elizabeth Diaz who told her that they would take care of
how to trade business and her account. She was then made to
sign the Trading Contract and other documents without making
her aware/understand the risks involved; that at the time they let
her sign "those papers" they were telling her that those papers
were for "formality sake"; that when she was told later on that she
made a profit of P20,480.00 in a span of three days in the first
transaction, they told her that the business is "very profitable"
(tsn, Francisco, March 14, 1985, p. 11).
On June 2, 1983, plaintiff was informed by Miss Diaz that she had
to deposit an additional amount of P300,000.00 "to pay the
difference" in prices, otherwise she will lose her original deposit of
P500,000.00; Fearing the loss of her original deposit, plaintiff was
constrained to deposit an additional amount of P300,000.00 (Exh.
"B"); Since she was made to understand that she could withdraw
her deposit/investment anytime, she not knowing how the
business is operated/managed as she was not made to
understand what the business was all about, she wanted to
withdraw her investment; but Elizabeth Diaz, defendant's Account
Executive, told her she could not get out because there are some
accounts hanging on the transactions.
Sec. 2 . . .:
At the time private respondent entered into the transaction with the
petitioner, she signed a document denominated as "Trading Contract"
in printed form as prepared by the petitioner represented by its Branch
Manager, Albert Chiam, incorporating the Rules for Commodity
Trading. A copy of said contract was furnished to the private
respondent but the contents thereof were not explained to the former,
beyond what was told her by the petitioner's Account Executive
Elizabeth Diaz. Private respondent was also told that the petitioner's
principal was Frankwell Enterprises with offices in Hongkong but the
private respondent's money which was supposed to have been
transmitted to Hongkong, was kept by petitioner in a separate account
in a local bank.
Petitioner further argues that the SEC, in the exercise of its powers,
authorized the operation of commodity exchanges to supervise and regulate
commodity futures trading. 4
The contract between the parties falls under the kind commonly called
"futures". In the late 1880's, trading in futures became rampant in the
purchase and sale of cotton and grain in the United States, giving rise to
unregulated trading exchanges known as "bucket shops". These were
common in Chicago and New York City where cotton from the South and
grain from the Mid-west were constantly traded in. The name of the party to
whom the seller was to make delivery when the future contract of sale was
closed or from whom he was to receive delivery in case of purchase is not
given the memorandum (contract). The business dealings between the
parties were terminated by the closing of the transaction of purchase and
sale of commodities without directions of the buyer because his margins
were exhausted. 5 Under the rules of the trading exchanges, weekly
settlements were required if there was any difference in the prices of the
cotton between those obtaining at the time of the contract and at the date of
delivery so that under the contract made by the purchaser, if the price of
cotton had advanced, he would have received in cash from the seller each
week the advance (increase) in price and if cotton prices declined, the
purchaser had to make like payments to the seller. In the terminology of the
exchange, these payments are called "margins". 6 Either the seller or the
buyer may elect to make or demand delivery of the cotton agreed to be sold
and bought, but in general, it seems practically a uniform custom that
settlements are made by payments and receipts of difference in prices at
the time of delivery from that prevailing at the time of payment of the past
weekly "margins". These settlements are made by "closing out" the
contracts. 7 Where the broker represented the buyer in buying and selling
cotton for future delivery with himself extending credit margins, and some of
the transactions were closed at a profit while the others at a loss, payments
being made of the difference in prices arising out of their rise or fall above or
below the contract price, and the facts showed that no actual delivery of
cotton was contemplated, such contracts are of the kind commonly called
"futures". 8 Making contracts for the purchase and sale of commodities for
future delivery, the parties not intending an actual delivery, or contracts of
the kind commonly called futures, are unenforceable. 9
The term "futures" has grown out of those purely speculative transactions in
which there are nominal contracts to sell for future delivery, but where in fact
no delivery is intended or executed. The nominal seller does not have or
expect to have a stock of merchandise he purports to sell nor does the
nominal buyer expect to receive it or to pay for the price. Instead of that, a
percentage or margin is paid, which is increased or diminished as the
market rates go up and down, and accounted for to the buyer. This is simple
speculation, gambling or wagering on prices within a given time; it is not
buying and selling and is illegal as against public policy. 10
The defendant admits that in all the transactions that it had with
the plaintiff, there was (sic) no actual deliveries and that it has
made no arrangement with the Central Bank for the remittance of
its customer's money abroad but defendant contends in its
defense that the mere fact that there were no actual deliveries
made in the transactions which plaintiff had with the defendant,
did not mean that no such actual deliveries were intended by the
parties since paragraph 10 of the rules for commodity trading,
attached to the trading contract which plaintiff signed before she
traded with the defendant, amply provides for actual delivery of
the commodity subject of the transaction.
The court has, therefore, to find out from all the facts and
circumstances of this case, whether the parties really intended to
make or accept deliveries of the commodities traded or whether
the defendant merely placed a provision for delivery in its rules for
commodity futures trading so as to escape from being called a
bucket shop, . . .
The written trading contract in question is not illegal but the transaction
between the petitioner and the private respondent purportedly to implement
the contract is in the nature of a gambling agreement and falls within the
ambit of Article 2018 of the New Civil Code, which is quoted hereunder:
If a contract which purports to be for the delivery of goods,
securities or shares of stock is entered into with the intention that
the difference between the price stipulated and the exchange or
market price at the time of the pretended delivery shall be paid by
the loser to the winner, the transaction is null and void. The loser
may recover what he has paid.
The facts clearly establish that the petitioner is a direct participant in the
transaction, acting through its authorized agents. It received the customer's
orders and private respondent's money. As per terms of the trading
contract, customer's orders shall be directly transmitted by the petitioner as
broker to its principal, Frankwell Enterprises Ltd. of Hongkong, being a
registered member of the International Commodity Clearing House, which in
turn must place the customer's orders with the Tokyo Exchange. There is no
evidence that the orders and money were transmitted to its principal
Frankwell Enterprises Ltd. in Hongkong nor were the orders forwarded to
the Tokyo Exchange. We draw the conclusion that no actual delivery of
goods and commodity was intended and ever made by the parties. In the
realities of the transaction, the parties merely speculated on the rise and fall
in the price of the goods/commodity subject matter of the transaction. If
private respondent's speculation was correct, she would be the winner and
the petitioner, the loser, so petitioner would have to pay private respondent
the "margin". But if private respondent was wrong in her speculation then
she would emerge as the loser and the petitioner, the winner. The petitioner
would keep the money or collect the difference from the private respondent.
This is clearly a form of gambling provided for with unmistakeable certainty
under Article 2018 abovestated. It would thus be governed by the New Civil
Code and not by the Revised Securities Act nor the Rules and Regulations
on Commodity Futures Trading laid down by the SEC.
Article 1462 of the New Civil Code does not govern this case because the
said provision contemplates a contract of sale of specific goods where one
of the contracting parties binds himself to transfer the ownership of and
deliver a determinate thing and the other to pay therefore a price certain in
money or its equivalent. 14 The said article requires that there be delivery of
goods, actual or constructive, to be applicable. In the transaction in
question, there was no such delivery; neither was there any intention to
deliver a determinate thing.
The transaction is not what the parties call it but what the law defines it to
be. 15
After considering all the evidence in this case, it appears that petitioner and
private respondent did not intend, in the deals of purchasing and selling for
future delivery, the actual or constructive delivery of the goods/commodity,
despite the payment of the full price therefor. The contract between them
falls under the definition of what is called "futures". The payments made
under said contract were payments of difference in prices arising out of the
rise or fall in the market price above or below the contract price thus making
it purely gambling and declared null and void by law. 16
Under Article 2018, the private respondent is entitled to refund from the
petitioner what she paid. There is no evidence that the orders of private
respondent were actually transmitted to the petitioner's principal in
Hongkong and Tokyo. There was no arrangement made by petitioner with
the Central Bank for the purpose of remitting the money of its customers
abroad. The money which was supposed to be remitted to Frankwell
Enterprises of Hongkong was kept by petitioner in a separate account in a
local bank. Having received the money and orders of private respondent
under the trading contract, petitioner has the burden of proving that said
orders and money of private respondent had been transmitted. But
petitioner failed to prove this point.
For reasons indicated and construed in the light of the applicable rules and
under the plain language of the statute, We find no reversible error
committed by the respondent Court that would justify the setting aside of the
questioned decision and resolution. For lack of merit, the petition is
DISMISSED and the judgment sought to be reversed is hereby AFFIRMED.
With costs against petitioner.
SO ORDERED.
First Philippine International Bank vs. Court of Appeals, 252
SCRA 259 (1996)
THIRD DIVISION
DECISION
PANGANIBAN, J.:
Simply stated, these are the major questions brought before this Court in
the instant Petition for review on certiorari under Rule 45 of the Rules of
Court, to set aside the Decision promulgated January 14, 1994 of the
respondent Court of Appeals1 in CA-G.R CV No. 35756 and the Resolution
promulgated June 14, 1994 denying the motion for reconsideration. The
dispositive portion of the said Decision reads:
WHEREFORE, the decision of the lower court is MODIFIED by the
elimination of the damages awarded under paragraphs 3, 4 and 6 of its
dispositive portion and the reduction of the award in paragraph 5
thereof to P75,000.00, to be assessed against defendant bank. In all
other aspects, said decision is hereby AFFIRMED.
All references to the original plaintiffs in the decision and its dispositive
portion are deemed, herein and hereafter, to legally refer to the
plaintiff-appellee Carlos C. Ejercito.
The dispositive portion of the trial court's2 decision dated July 10, 1991, on
the other hand, is as follows:
After the parties filed their comment, reply, rejoinder, sur-rejoinder and reply
to sur-rejoinder, the petition was given due course in a Resolution dated
January 18, 1995. Thence, the parties filed their respective memoranda and
reply memoranda. The First Division transferred this case to the Third
Division per resolution dated October 23, 1995. After carefully deliberating
on the aforesaid submissions, the Court assigned the case to the
undersigned ponente for the writing of this Decision.
The Parties
Respondent Court of Appeals is the court which issued the Decision and
Resolution sought to be set aside through this petition.
The Facts
The facts of this case are summarized in the respondent Court's Decision3
as follows:
(2) In the early part of August 1987 said plaintiffs, upon the suggestion
of BYME investment's legal counsel, Jose Fajardo, met with defendant
Mercurio Rivera, Manager of the Property Management Department of
the defendant bank. The meeting was held pursuant to plaintiffs' plan
to buy the property (TSN of Jan. 16, 1990, pp. 7-10). After the meeting,
plaintiff Janolo, following the advice of defendant Rivera, made a
formal purchase offer to the bank through a letter dated August 30,
1987 (Exh. "B"), as follows:
Gentleman:
TCT AREA
NO.
T- 113,580
106932 sq. m.
T- 70,899 sq.
106933 m.
T- 52,246 sq.
106934 m.
T- 96,768 sq.
106935 m.
T- 187,114
106936 sq. m.
T- 481,481
106937 sq. m.
September 1, 1987
Dear Sir:
Thank you for your letter-offer to buy our six (6) parcels of acquired lots
at Sta. Rosa, Laguna (formerly owned by Byme Industrial Corp.).
Please be informed however that the bank's counter-offer is at P5.5
million for more than 101 hectares on lot basis.
Best regards.
September 17,
1987
Producers Bank
Paseo de Roxas
Makati, Metro Manila
Attention: Mr. Mercurio Rivera
Gentlemen:
Gentlemen:
Thank you.
(6) On October 12, 1987, the conservator of the bank (which has been
placed under conservatorship by the Central Bank since 1984) was
replaced by an Acting Conservator in the person of defendant Leonida
T. Encarnacion. On November 4, 1987, defendant Rivera wrote plaintiff
Demetria the following letter (Exh. "F"):
Dear Sir:
Your proposal to buy the properties the bank foreclosed from Byme
investment Corp. located at Sta. Rosa, Laguna is under study yet as of
this time by the newly created committee for submission to the newly
designated Acting Conservator of the bank.
This is in connection with the offer of our client, Mr. Jose O. Janolo, to
purchase your 101-hectare lot located in Sta. Rosa, Laguna, and which
are covered by TCT No. T-106932 to 106937.
PRODUCERS BANK OF
THE PHILIPPINES
Paseo de Roxas,
Makati, Metro Manila
(9) The foregoing letter drew no response for more than four months.
Then, on May 3, 1988, plaintiff, through counsel, made a final demand
for compliance by the bank with its obligations under the considered
perfected contract of sale (Exhibit "N"). As recounted by the trial court
(Original Record, p. 656), in a reply letter dated May 12, 1988 (Annex
"4" of defendant's answer to amended complaint), the defendants
through Acting Conservator Encarnacion repudiated the authority of
defendant Rivera and claimed that his dealings with the plaintiffs,
particularly his counter-offer of P5.5 Million are unauthorized or illegal.
On that basis, the defendants justified the refusal of the tenders of
payment and the non-compliance with the obligations under what the
plaintiffs considered to be a perfected contract of sale.
(10) On May 16, 1988, plaintiffs filed a suit for specific performance
with damages against the bank, its Manager Rivers and Acting
Conservator Encarnacion. The basis of the suit was that the
transaction had with the bank resulted in a perfected contract of sale,
The defendants took the position that there was no such perfected sale
because the defendant Rivera is not authorized to sell the property,
and that there was no meeting of the minds as to the price.
On July 11, 1992, during the pendency of the proceedings in the Court of
Appeals, Henry Co and several other stockholders of the Bank, through
counsel Angara Abello Concepcion Regala and Cruz, filed an action
(hereafter, the "Second Case") — purportedly a "derivative suit" — with the
Regional Trial Court of Makati, Branch 134, docketed as Civil Case No. 92-
1606, against Encarnacion, Demetria and Janolo "to declare any perfected
sale of the property as unenforceable and to stop Ejercito from enforcing or
implementing the sale"4 In his answer, Janolo argued that the Second Case
was barred by litis pendentia by virtue of the case then pending in the Court
of Appeals. During the pre-trial conference in the Second Case, plaintiffs
filed a Motion for Leave of Court to Dismiss the Case Without Prejudice.
"Private respondent opposed this motion on the ground, among others, that
plaintiff's act of forum shopping justifies the dismissal of both cases, with
prejudice."5 Private respondent, in his memorandum, averred that this
motion is still pending in the Makati RTC.
I.
II.
III.
The Court of Appeals erred in declaring that the conservator does not
have the power to overrule or revoke acts of previous management.
IV.
The findings and conclusions of the Court of Appeals do not conform to
the evidence on record.
On the other hand, petitioners prayed for dismissal of the instant suit on the
ground8 that:
I.
II.
III.
The Court of Appeals correctly held that there was a perfected contract
between Demetria and Janolo (substituted by; respondent Ejercito)
and the bank.
IV.
The Court of Appeals has correctly held that the conservator, apart
from being estopped from repudiating the agency and the contract, has
no authority to revoke the contract of sale.
The Issues
From the foregoing positions of the parties, the issues in this case may be
summed up as follows:
3) Assuming there was, was the said contract enforceable under the
statute of frauds?
4) Did the bank conservator have the unilateral power to repudiate the
authority of the bank officers and/or to revoke the said contract?
5) Did the respondent Court commit any reversible error in its findings
of facts?
1) In the earlier or "First Case" from which this proceeding arose, the
Bank was impleaded as a defendant, whereas in the "Second Case"
(assuming the Bank is the real party in interest in a derivative suit), it
was plaintiff;
2) "The derivative suit is not properly a suit for and in behalf of the
corporation under the circumstances";
3) Although the CERTIFICATION/VERIFICATION (supra) signed by
the Bank president and attached to the Petition identifies the action as
a "derivative suit," it "does not mean that it is one" and "(t)hat is a legal
question for the courts to decide";
4) Petitioners did not hide the Second Case at they mentioned it in the
said VERIFICATION/CERTIFICATION.
In this light, Black's Law Dictionary 13 says that forum shopping "occurs
when a party attempts to have his action tried in a particular court or
jurisdiction where he feels he will receive the most favorable judgment or
verdict." Hence, according to Words and Phrases14, "a litigant is open to the
charge of "forum shopping" whenever he chooses a forum with slight
connection to factual circumstances surrounding his suit, and litigants
should be encouraged to attempt to settle their differences without imposing
undue expenses and vexatious situations on the courts".
What therefore originally started both in conflicts of laws and in our domestic
law as a legitimate device for solving problems has been abused and mis-
used to assure scheming litigants of dubious reliefs.
The test for determining whether a party violated the rule against forum
shopping has been laid dawn in the 1986 case of Buan vs. Lopez 19, also by
Chief Justice Narvasa, and that is, forum shopping exists where the
elements of litis pendentia are present or where a final judgment in one
case will amount to res judicata in the other, as follows:
There thus exists between the action before this Court and RTC Case
No. 86-36563 identity of parties, or at least such parties as represent
the same interests in both actions, as well as identity of rights asserted
and relief prayed for, the relief being founded on the same facts, and
the identity on the two preceding particulars is such that any judgment
rendered in the other action, will, regardless of which party is
successful, amount to res adjudicata in the action under consideration:
all the requisites, in fine, of auter action pendant.
As already observed, there is between the action at bar and RTC Case
No. 86-36563, an identity as regards parties, or interests represented,
rights asserted and relief sought, as well as basis thereof, to a degree
sufficient to give rise to the ground for dismissal known as auter action
pendant or lis pendens. That same identity puts into operation the
sanction of twin dismissals just mentioned. The application of this
sanction will prevent any further delay in the settlement of the
controversy which might ensue from attempts to seek reconsideration
of or to appeal from the Order of the Regional Trial Court in Civil Case
No. 86-36563 promulgated on July 15, 1986, which dismissed the
petition upon grounds which appear persuasive.
Applying the foregoing principles in the case before us and comparing it with
the Second Case, it is obvious that there exist identity of parties or interests
represented, identity of rights or causes and identity of reliefs sought.
Very simply stated, the original complaint in the court a quo which gave rise
to the instant petition was filed by the buyer (herein private respondent and
his predecessors-in-interest) against the seller (herein petitioners) to
enforce the alleged perfected sale of real estate. On the other hand, the
complaint 21 in the Second Case seeks to declare such purported sale
involving the same real property "as unenforceable as against the Bank",
which is the petitioner herein. In other words, in the Second Case, the
majority stockholders, in representation of the Bank, are seeking to
accomplish what the Bank itself failed to do in the original case in the trial
court. In brief, the objective or the relief being sought, though worded
differently, is the same, namely, to enable the petitioner Bank to escape
from the obligation to sell the property to respondent. In Danville Maritime,
Inc. vs. Commission on Audit. 22, this Court ruled that the filing by a party of
two apparently different actions, but with the same objective, constituted
forum shopping:
In an earlier case 23 but with the same logic and vigor, we held:
In other words, the filing by the petitioners of the instant special civil
action for certiorari and prohibition in this Court despite the pendency
of their action in the Makati Regional Trial Court, is a species of forum-
shopping. Both actions unquestionably involve the same transactions,
the same essential facts and circumstances. The petitioners' claim of
absence of identity simply because the PCGG had not been impleaded
in the RTC suit, and the suit did not involve certain acts which
transpired after its commencement, is specious. In the RTC action, as
in the action before this Court, the validity of the contract to purchase
and sell of September 1, 1986, i.e., whether or not it had been
efficaciously rescinded, and the propriety of implementing the same
(by paying the pledgee banks the amount of their loans, obtaining the
release of the pledged shares, etc.) were the basic issues. So, too, the
relief was the same: the prevention of such implementation and/or the
restoration of the status quo ante. When the acts sought to be
restrained took place anyway despite the issuance by the Trial Court of
a temporary restraining order, the RTC suit did not become functus
oficio. It remained an effective vehicle for obtention of relief; and
petitioners' remedy in the premises was plain and patent: the filing of
an amended and supplemental pleading in the RTC suit, so as to
include the PCGG as defendant and seek nullification of the acts
sought to be enjoined but nonetheless done. The remedy was certainly
not the institution of another action in another forum based on
essentially the same facts, The adoption of this latter recourse renders
the petitioners amenable to disciplinary action and both their actions, in
this Court as well as in the Court a quo, dismissible.
In the instant case before us, there is also identity of parties, or at least, of
interests represented. Although the plaintiffs in the Second Case (Henry L.
Co. et al.) are not name parties in the First Case, they represent the same
interest and entity, namely, petitioner Bank, because:
Firstly, they are not suing in their personal capacities, for they have no direct
personal interest in the matter in controversy. They are not principally or
even subsidiarily liable; much less are they direct parties in the assailed
contract of sale; and
Secondly, the allegations of the complaint in the Second Case show that the
stockholders are bringing a "derivative suit". In the caption itself, petitioners
claim to have brought suit "for and in behalf of the Producers Bank of the
Philippines" 24. Indeed, this is the very essence of a derivative suit:
In the face of the damaging admissions taken from the complaint in the
Second Case, petitioners, quite strangely, sought to deny that the Second
Case was a derivative suit, reasoning that it was brought, not by the minority
shareholders, but by Henry Co et al., who not only own, hold or control over
80% of the outstanding capital stock, but also constitute the majority in the
Board of Directors of petitioner Bank. That being so, then they really
represent the Bank. So, whether they sued "derivatively" or directly, there is
undeniably an identity of interests/entity represented.
Petitioner also tried to seek refuge in the corporate fiction that the
personality Of the Bank is separate and distinct from its shareholders. But
the rulings of this Court are consistent: "When the fiction is urged as a
means of perpetrating a fraud or an illegal act or as a vehicle for the evasion
of an existing obligation, the circumvention of statutes, the achievement or
perfection of a monopoly or generally the perpetration of knavery or crime,
the veil with which the law covers and isolates the corporation from the
members or stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals." 25
In addition to the many cases 26 where the corporate fiction has been
disregarded, we now add the instant case, and declare herewith that the
corporate veil cannot be used to shield an otherwise blatant violation of the
prohibition against forum-shopping. Shareholders, whether suing as the
majority in direct actions or as the minority in a derivative suit, cannot be
allowed to trifle with court processes, particularly where, as in this case, the
corporation itself has not been remiss in vigorously prosecuting or defending
corporate causes and in using and applying remedies available to it. To rule
otherwise would be to encourage corporate litigants to use their
shareholders as fronts to circumvent the stringent rules against forum
shopping.
Finally, petitioner Bank argued that there cannot be any forum shopping,
even assuming arguendo that there is identity of parties, causes of action
and reliefs sought, "because it (the Bank) was the defendant in the (first)
case while it was the plaintiff in the other (Second Case)",citing as authority
Victronics Computers, Inc., vs. Regional Trial Court, Branch 63, Makati, etc.
et al., 27 where Court held:
The rule has not been extended to a defendant who, for reasons
known only to him, commences a new action against the plaintiff —
instead of filing a responsive pleading in the other case — setting forth
therein, as causes of action, specific denials, special and affirmative
defenses or even counterclaims, Thus, Velhagen's and King's motion
to dismiss Civil Case No. 91-2069 by no means negates the charge of
forum-shopping as such did not exist in the first place. (emphasis
supplied)
Petitioner pointed out that since it was merely the defendant in the original
case, it could not have chosen the forum in said case.
Having said that, let it be emphasized that this petition should be dismissed
not merely because of forum-shopping but also because of the substantive
issues raised, as will be discussed shortly.
The respondent Court correctly treated the question of whether or not there
was, on the basis of the facts established, a perfected contract of sale as
the ultimate issue. Holding that a valid contract has been established,
respondent Court stated:
A: The procedure runs this way: Acquired assets was turned over
to me and then I published it in the form of an inter-office
memorandum distributed to all branches that these are acquired
assets for sale. I was instructed to advertise acquired assets for
sale so on that basis, I have to entertain offer; to accept offer,
formal offer and upon having been offered, I present it to the
Committee. I provide the Committee with necessary information
about the property such as original loan of the borrower, bid price
during the foreclosure, total claim of the bank, the appraised value
at the time the property is being offered for sale and then the
information which are relative to the evaluation of the bank to buy
which the Committee considers and it is the Committee that
evaluate as against the exposure of the bank and it is also the
Committee that submit to the Conservator for final approval and
once approved, we have to execute the deed of sale and it is the
Conservator that sign the deed of sale, sir.
Q: When you went to the Producers Bank and talked with Mr.
Mercurio Rivera, did you ask him point-blank his authority to sell
any property?
A: No, sir. Not point blank although it came from him, (W)hen I
asked him how long it would take because he was saying that the
matter of pricing will be passed upon by the committee. And when
I asked him how long it will take for the committee to decide and
he said the committee meets every week. If I am not mistaken
Wednesday and in about two week's (sic) time, in effect what he
was saying he was not the one who was to decide. But he would
refer it to the committee and he would relay the decision of the
committee to me.
A — He did not say that he had the authority (.) But he said he
would refer the matter to the committee and he would relay the
decision to me and he did just like that.
What transpired after the meeting of early August 1987 are consistent
with the authority and the duties of Rivera and the bank's internal
procedure in the matter of the sale of bank's assets. As advised by
Rivera, the plaintiffs made a formal offer by a letter dated August 20,
1987 stating that they would buy at the price of P3.5 Million in cash.
The letter was for the attention of Mercurio Rivera who was tasked to
convey and accept such offers. Considering an aspect of the official
duty of Rivera as some sort of intermediary between the plaintiffs-
buyers with their proposed buying price on one hand, and the bank
Committee, the Conservator and ultimately the bank itself with the set
price on the other, and considering further the discussion of price at
the meeting of August resulting in a formal offer of P3.5 Million in cash,
there can be no other logical conclusion than that when, on September
1, 1987, Rivera informed plaintiffs by letter that "the bank's counter-
offer is at P5.5 Million for more than 101 hectares on lot basis," such
counter-offer price had been determined by the Past Due Committee
and approved by the Conservator after Rivera had duly presented
plaintiffs' offer for discussion by the Committee of such matters as
original loan of borrower, bid price during foreclosure, total claim of the
bank, and market value. Tersely put, under the established facts, the
price of P5.5 Million was, as clearly worded in Rivera's letter (Exh. "E"),
the official and definitive price at which the bank was selling the
property.
Article 1318 of the Civil Code enumerates the requisites of a valid and
perfected contract as follows: "(1) Consent of the contracting parties; (2)
Object certain which is the subject matter of the contract; (3) Cause of the
obligation which is established."
Petitioners allege that "there is no counter-offer made by the Bank, and any
supposed counter-offer which Rivera (or Co) may have made is
unauthorized. Since there was no counter-offer by the Bank, there was
nothing for Ejercito (in substitution of Demetria and Janolo) to accept." 30
They disputed the factual basis of the respondent Court's findings that there
was an offer made by Janolo for P3.5 million, to which the Bank counter-
offered P5.5 million. We have perused the evidence but cannot find fault
with the said Court's findings of fact. Verily, in a petition under Rule 45 such
as this, errors of fact — if there be any - are, as a rule, not reviewable. The
mere fact that respondent Court (and the trial court as well) chose to believe
the evidence presented by respondent more than that presented by
petitioners is not by itself a reversible error. In fact, such findings merit
serious consideration by this Court, particularly where, as in this case, said
courts carefully and meticulously discussed their findings. This is basic.
(a) The petition itself in par. II-i (p. 3) states that Rivera was "at all
times material to this case, Manager of the Property Management
Department of the Bank". By his own admission, Rivera was already
the person in charge of the Bank's acquired assets (TSN, August 6,
1990, pp. 8-9);
(b) As observed by respondent Court, the land was definitely being
sold by the Bank. And during the initial meeting between the buyers
and Rivera, the latter suggested that the buyers' offer should be no
less than P3.3 million (TSN, April 26, 1990, pp. 16-17);
(c) Rivera received the buyers' letter dated August 30, 1987 offering
P3.5 million (TSN, 30 July 1990, p.11);
(d) Rivera signed the letter dated September 1, 1987 offering to sell
the property for P5.5 million (TSN, July 30, p. 11);
(e) Rivera received the letter dated September 17, 1987 containing the
buyers' proposal to buy the property for P4.25 million (TSN, July 30,
1990, p. 12);
(g) Rivera arranged the meeting between the buyers and Luis Co on
September 28, 1994, during which the Bank's offer of P5.5 million was
confirmed by Rivera (TSN, April 26, 1990, pp. 34-35). At said meeting,
Co, a major shareholder and officer of the Bank, confirmed Rivera's
statement as to the finality of the Bank's counter-offer of P5.5 million
(TSN, January 16, 1990, p. 21; TSN, April 26, 1990, p. 35);
In the very recent case of Limketkai Sons Milling, Inc. vs. Court of Appeals,
et. al.32, the Court, through Justice Jose A. R. Melo, affirmed the doctrine of
apparent authority as it held that the apparent authority of the officer of the
Bank of P.I. in charge of acquired assets is borne out by similar
circumstances surrounding his dealings with buyers.
Petitioners also argued that since Demetria and Janolo were experienced
lawyers and their "law firm" had once acted for the Bank in three criminal
cases, they should be charged with actual knowledge of Rivera's limited
authority. But the Court of Appeals in its Decision (p. 12) had already made
a factual finding that the buyers had no notice of Rivera's actual authority
prior to the sale. In fact, the Bank has not shown that they acted as its
counsel in respect to any acquired assets; on the other hand, respondent
has proven that Demetria and Janolo merely associated with a loose
aggrupation of lawyers (not a professional partnership), one of whose
members (Atty. Susana Parker) acted in said criminal cases.
Petitioners also alleged that Demetria's and Janolo's P4.25 million counter-
offer in the letter dated September 17, 1987 extinguished the Bank's offer of
P5.5 million 34 .They disputed the respondent Court's finding that "there was
a meeting of minds when on 30 September 1987 Demetria and Janolo
through Annex "L" (letter dated September 30, 1987) "accepted" Rivera's
counter offer of P5.5 million under Annex "J" (letter dated September 17,
1987)", citing the late Justice Paras35, Art. 1319 of the Civil Code 36 and
related Supreme Court rulings starting with Beaumont vs. Prieto 37.
Petitioners insist that the respondent Court should have believed the
testimonies of Rivera and Co that the September 28, 1987 meeting "was
meant to have the offerors improve on their position of P5.5. million."38
However, both the trial court and the Court of Appeals found petitioners'
testimonial evidence "not credible", and we find no basis for changing this
finding of fact.
Indeed, we see no reason to disturb the lower courts' (both the RTC and the
CA) common finding that private respondents' evidence is more in keeping
with truth and logic — that during the meeting on September 28, 1987, Luis
Co and Rivera "confirmed that the P5.5 million price has been passed upon
by the Committee and could no longer be lowered (TSN of April 27, 1990,
pp. 34-35)"39. Hence, assuming arguendo that the counter-offer of P4.25
million extinguished the offer of P5.5 million, Luis Co's reiteration of the said
P5.5 million price during the September 28, 1987 meeting revived the said
offer. And by virtue of the September 30, 1987 letter accepting this revived
offer, there was a meeting of the minds, as the acceptance in said letter was
absolute and unqualified.
It also bears noting that this issue of extinguishment of the Bank's offer of
P5.5 million was raised for the first time on appeal and should thus be
disregarded.
Since the issue was not raised in the pleadings as an affirmative defense,
private respondent was not given an opportunity in the trial court to
controvert the same through opposing evidence. Indeed, this is a matter of
due process. But we passed upon the issue anyway, if only to avoid
deciding the case on purely procedural grounds, and we repeat that, on the
basis of the evidence already in the record and as appreciated by the lower
courts, the inevitable conclusion is simply that there was a perfected
contract of sale.
Even assuming that Luis Co or Rivera did relay a verbal offer to sell at
P5.5 million during the meeting of 28 September 1987, and it was this
verbal offer that Demetria and Janolo accepted with their letter of 30
September 1987, the contract produced thereby would be
unenforceable by action — there being no note, memorandum or
writing subscribed by the Bank to evidence such contract. (Please see
article 1403[2], Civil Code.)
Upon the other hand, the respondent Court in its Decision (p, 14) stated:
But let it be assumed arguendo that the counter-offer during the meeting on
September 28, 1987 did constitute a "new" offer which was accepted by
Janolo on September 30, 1987. Still, the statute of frauds will not apply by
reason of the failure of petitioners to object to oral testimony proving
petitioner Bank's counter-offer of P5.5 million. Hence, petitioners — by such
utter failure to object — are deemed to have waived any defects of the
contract under the statute of frauds, pursuant to Article 1405 of the Civil
Code:
A Yes, sir, I think it was September 28, 1987 and I was again present
because Atty. Demetria told me to accompany him we were able to
meet Luis Co at the Bank.
Q What price?
A The 5.5 million pesos and Mr. Luis Co said that the amount cited by
Mr. Mercurio Rivera is the final price and that is the price they intends
(sic) to have, sir.
[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp. 18-
21.]
Q What transpired during that meeting between you and Mr. Luis Co of
the defendant Bank?
A I said that we are going to give him our answer in a few days and he
said that was it. Atty. Fajardo and I and Mr. Mercurio [Rivera] was with
us at the time at his office.
Q For the record, your Honor please, will you tell this Court who was
with Mr. Co in his Office in Producers Bank Building during this
meeting?
Q After this meeting with Mr. Luis Co, did you and your partner accede
on (sic) the counter offer by the bank?
A Yes, sir, we did.? Two days thereafter we sent our acceptance to the
bank which offer we accepted, the offer of the bank which is P5.5
million.
It is not disputed that the petitioner Bank was under a conservator placed by
the Central Bank of the Philippines during the time that the negotiation and
perfection of the contract of sale took place. Petitioners energetically
contended that the conservator has the power to revoke or overrule actions
of the management or the board of directors of a bank, under Section 28-A
of Republic Act No. 265 (otherwise known as the Central Bank Act) as
follows:
In the first place, this issue of the Conservator's alleged authority to revoke
or repudiate the perfected contract of sale was raised for the first time in this
Petition — as this was not litigated in the trial court or Court of Appeals. As
already stated earlier, issues not raised and/or ventilated in the trial court,
let alone in the Court of Appeals, "cannot be raised for the first time on
appeal as it would be offensive to the basic rules of fair play, justice and due
process."43
Our records do not show that Mr. Rivera was authorized by the old
board or by any of the bank conservators (starting January, 1984) to
sell the aforesaid property to any of your clients. Apparently, what took
place were just preliminary discussions/consultations between him and
your clients, which everyone knows cannot bind the Bank's Board or
Conservator.
Rest assured that we have nothing personal against your clients. All
our acts are official, legal and in accordance with law. We also have no
personal interest in any of the properties of the Bank.
In the third place, while admittedly, the Central Bank law gives vast and far-
reaching powers to the conservator of a bank, it must be pointed out that
such powers must be related to the "(preservation of) the assets of the
bank, (the reorganization of) the management thereof and (the restoration
of) its viability." Such powers, enormous and extensive as they are, cannot
extend to the post-facto repudiation of perfected transactions, otherwise
they would infringe against the non-impairment clause of the Constitution 44.
If the legislature itself cannot revoke an existing valid contract, how can it
delegate such non-existent powers to the conservator under Section 28-A of
said law?
Basic is the doctrine that in petitions for review under Rule 45 of the Rules
of Court, findings of fact by the Court of Appeals are not reviewable by the
Supreme Court. In Andres vs. Manufacturers Hanover & Trust Corporation,
45
, we held:
. . . The rule regarding questions of fact being raised with this Court in
a petition for certiorari under Rule 45 of the Revised Rules of Court has
been stated in Remalante vs. Tibe, G.R. No. 59514, February 25,
1988, 158 SCRA 138, thus:
The rule in this jurisdiction is that only questions of law may be raised
in a petition for certiorari under Rule 45 of the Revised Rules of Court.
"The jurisdiction of the Supreme Court in cases brought to it from the
Court of Appeals is limited to reviewing and revising the errors of law
imputed to it, its findings of the fact being conclusive " [Chan vs. Court
of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 737,
reiterating a long line of decisions]. This Court has emphatically
declared that "it is not the function of the Supreme Court to analyze or
weigh such evidence all over again, its jurisdiction being limited to
reviewing errors of law that might have been committed by the lower
court" (Tiongco v. De la Merced, G. R. No. L-24426, July 25, 1974, 58
SCRA 89; Corona vs. Court of Appeals, G.R. No. L-62482, April 28,
1983, 121 SCRA 865; Baniqued vs. Court of Appeals, G. R. No. L-
47531, February 20, 1984, 127 SCRA 596). "Barring, therefore, a
showing that the 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 oral and
documentary evidence submitted by the parties" [Santa Ana, Jr. vs.
Hernandez, G. R. No. L-16394, December 17, 1966, 18 SCRA 973] [at
pp. 144-145.]
As held in the recent case of Chua Tiong Tay vs. Court of Appeals and
Goldrock Construction and Development Corp. 47:
The Court has consistently held that the factual findings of the trial
court, as well as the Court of Appeals, are final and conclusive and
may not be reviewed on appeal. Among the exceptional circumstances
where a reassessment of facts found by the lower courts is allowed are
when the conclusion is a finding grounded entirely on speculation,
surmises or conjectures; when the inference made is manifestly
absurd, mistaken or impossible; when there is grave abuse of
discretion in the appreciation of facts; when the judgment is premised
on a misapprehension of facts; when the findings went beyond the
issues of the case and the same are contrary to the admissions of both
appellant and appellee. After a careful study of the case at bench, we
find none of the above grounds present to justify the re-evaluation of
the findings of fact made by the courts below.
In the same vein, the ruling of this Court in the recent case of South Sea
Surety and Insurance Company Inc. vs. Hon. Court of Appeals, et al. 48 is
equally applicable to the present case:
The first point was clearly passed upon by the Court of Appeals 50, thus:
The respondent Court did not believe the evidence of the petitioners on this
point, characterizing it as "not credible" and "at best equivocal and
considering the gratuitous and self-serving character of these declarations,
the bank's submissions on this point do not inspire belief."
The second point was squarely raised in the Court of Appeals, but
petitioners' evidence was deemed insufficient by both the trial court and the
respondent Court, and instead, it was respondent's submissions that were
believed and became bases of the conclusions arrived at.
In fine, it is quite evident that the legal conclusions arrived at from the
findings of fact by the lower courts are valid and correct. But the petitioners
are now asking this Court to disturb these findings to fit the conclusion they
are espousing, This we cannot do.
To be sure, there are settled exceptions where the Supreme Court may
disregard findings of fact by the Court of Appeals 52. We have studied both
the records and the CA Decision and we find no such exceptions in this
case. On the contrary, the findings of the said Court are supported by a
preponderance of competent and credible evidence. The inferences and
conclusions are seasonably based on evidence duly identified in the
Decision. Indeed, the appellate court patiently traversed and dissected the
issues presented before it, lending credibility and dependability to its
findings. The best that can be said in favor of petitioners on this point is that
the factual findings of respondent Court did not correspond to petitioners'
claims, but were closer to the evidence as presented in the trial court by
private respondent. But this alone is no reason to reverse or ignore such
factual findings, particularly where, as in this case, the trial court and the
appellate court were in common agreement thereon. Indeed, conclusions of
fact of a trial judge — as affirmed by the Court of Appeals — are conclusive
upon this Court, absent any serious abuse or evident lack of basis or
capriciousness of any kind, because the trial court is in a better position to
observe the demeanor of the witnesses and their courtroom manner as well
as to examine the real evidence presented.
Epilogue.
We are not unmindful of the tenacious plea that the petitioner Bank is
operating abnormally under a government-appointed conservator and "there
is need to rehabilitate the Bank in order to get it back on its feet . . . as many
people depend on (it) for investments, deposits and well as employment. As
of June 1987, the Bank's overdraft with the Central Bank had already
reached P1.023 billion . . . and there were (other) offers to buy the subject
properties for a substantial amount of money." 53
While we do not deny our sympathy for this distressed bank, at the same
time, the Court cannot emotionally close its eyes to overriding
considerations of substantive and procedural law, like respect for perfected
contracts, non-impairment of obligations and sanctions against forum-
shopping, which must be upheld under the rule of law and blind justice.
This Court cannot just gloss over private respondent's submission that,
while the subject properties may currently command a much higher price, it
is equally true that at the time of the transaction in 1987, the price agreed
upon of P5.5 million was reasonable, considering that the Bank acquired
these properties at a foreclosure sale for no more than P3.5 million 54. That
the Bank procrastinated and refused to honor its commitment to sell cannot
now be used by it to promote its own advantage, to enable it to escape its
binding obligation and to reap the benefits of the increase in land values. To
rule in favor of the Bank simply because the property in question has
algebraically accelerated in price during the long period of litigation is to
reward lawlessness and delays in the fulfillment of binding contracts.
Certainly, the Court cannot stamp its imprimatur on such outrageous
proposition.
SO ORDERED.