Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No.

166786 May 3, 2006

MICHEL J. LHUILLER Pawnshop, Inc. Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent. DECISION YNARES-SANTIAGO, J.: Assailed in this petition for review on certiorari is the June 29, 2004 Decision1 of the Court of Appeals in CA-G.R. SP No. 67667, which reversed the October 24, 2001 Decision2 of the Court Tax Appeals and ordered petitioner Michel J. Lhuillier Pawnshop, Inc., to pay (1) P19,961,636.09 as deficiency Value Added Tax (VAT); and (2) P3,142,986.02 as deficiency Documentary Stamp Tax (DST), for the year 1997. The facts show that petitioner, a corporation engaged in the pawnshop business, received Assessment Notice Nos. 81-VAT-13-97-99-12-118 and 81-DST-13-97-99-12-119, issued by the Chief Assessment Division, Revenue Region No. 13, Cebu City, for deficiency VAT in the amount of P19,961,636.09 and deficiency DST in the amount of P13,142,986.02, for the year 1997. Petitioner filed a motion for reconsideration of said assessment notices but was denied by respondent Commissioner of Internal Revenue (CIR). On petition for review with the Court of Tax Appeals, the latter rendered decision in favor of petitioner setting aside the assessment notices issued by the CIR. It ruled, inter alia, that the subject of a DST under Section 195 of the National Internal Revenue Code (NIRC) is the document evidencing the covered transaction. Holding that a pawn ticket is neither a security nor a printed evidence of indebtedness, the tax court concluded that such pawn ticket cannot be the subject of a DST. The dispositive portion thereof, states: WHEREFORE, in view of all the foregoing, the instant Petition for Review is hereby GRANTED. Accordingly, Assessment Notices Nos. 81-VAT-13-97-99-12-118 and 81-DST-13-97-99-11-119 are hereby CANCELLED and SET ASIDE.

SO ORDERED.3 Respondent filed a petition for review with the Court of Appeals which reversed the CTA decision and sustained the assessments against petitioner. It ratiocinated, among others, that a pawn ticket, per se, is not subject to DST; rather, it is the transaction involved, which in this case is pledge, that is being taxed. Hence, petitioner was properly assessed to pay DST. The decretal portion thereof, provides: WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Tax Appeals dated October 24, 2001 is REVERSED and SET ASIDE. In lieu thereof, respondent Michel J. Lhuillier Pawnshop, Inc., is ORDERED TO PAY: (1) P19,961636.09, as deficiency ValueAdded Tax, inclusive of surcharge and interest; and (2) P3,142,986.02, as deficiency Documentary Stamp Tax, inclusive of surcharge and interest, for the year 1997. No pronouncement as to cost. SO ORDERED.4 Respondent filed a motion for partial reconsideration praying that petitioner be ordered to pay deficiency interest of 20% per annum for failure to pay the same on January 2, 2000, as indicated in the notices. On December 29, 2004, the Court of Appeals granted the motion and modified the June 29, 2004 decision as follows: WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Tax Appeals dated October 24, 2001 is REVERSED and SET ASIDE. In lieu thereof, respondent Michel J. Lhuillier Pawnshop, Inc., is ORDERED TO PAY: (1) 19,961,636.09, as deficiency ValueAdded Tax, inclusive of surcharge and interest; (2) P3,142,986.02, as deficiency Documentary Stamp Tax, inclusive of surcharge and interest, for the year 1997; and (3) Delinquency Interest at the rate of 20% per annum from January 2, 2000, until the deficiency assessment are fully paid, pursuant to Section 249 of the National Internal Revenue Code. No pronouncement as to costs. SO ORDERED.5 On January 25, 2005, petitioner elevated the case to this Court. Subsequently, it filed a motion to withdraw the petition with respect to the issue of VAT.6 Petitioner manifested that the Chamber of Pawnbrokers of the Philippines, where it is a member, entered into a Memorandum of Agreement7 with the Bureau of Internal Revenue (BIR) allowing the pawnshop industry to compromise the issue of VAT on pawnshops. Considering that petitioner already paid the agreed amount

of settlement, it prayed that the case be decided solely on the issue of DST. On September 28, 2005, the Court granted petitioners partial withdrawal of the petition.8 Hence, the lone question to be resolved in the present petition is whether petitioners pawnshop transactions are subject to DST. The Court rules in the affirmative. Sections 173 and 195 of the NIRC, state: SEC. 173. Stamp Taxes Upon Documents, Loan Agreements, Instruments, and Papers. Upon documents, instruments, loan agreements and papers, and upon acceptances, assignments, sales and transfers of the obligation, right or property incident thereto, there shall be levied, collected and paid for, and in respect of the transaction so had or accomplished, the corresponding documentary stamp taxes x x x. (Emphasis supplied) SEC. 195. Stamp Tax on Mortgages, Pledges, and Deeds of Trust. On every mortgage or pledge of lands, estate, or property, real or personal, heritable or movable, whatsoever, where the same shall be made as security for the payment of any definite and certain sum of money lent at the time or previously due and owing or forborne to be paid, being payable and on any conveyance of land, estate, or property whatsoever, in trust or to be sold, or otherwise converted into money which shall be and intended only as security, either by express stipulation or otherwise, there shall be collected a documentary stamp tax at the following rates: "(a) When the amount secured does not exceed Five thousand pesos (P5,000), Twenty pesos (P20).
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(b) On each Five thousand pesos (P5,000), or fractional part thereof in excess of Five thousand pesos (P5,000), an additional tax of Ten pesos (10.00). x x x x. (Emphasis supplied) It is clear from the foregoing provisions that the subject of a DST is not limited to the document embodying the enumerated transactions. A DST is an excise tax on the exercise of a right or privilege to transfer obligations, rights or properties incident thereto. In Philippine Home Assurance Corporation v. Court of Appeals,9 it was held that:

In general, documentary stamp taxes are levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of specific legal relationships through the execution of specific instruments. Examples of such privileges, the exercise of which, as effected through the issuance of particular documents, are subject to the payment of documentary stamp taxes are leases of lands, mortgages, pledges and trusts, and conveyances of real property. (Emphasis added) Pledge is among the privileges, the exercise of which is subject to DST. A pledge may be defined as an accessory, real and unilateral contract by virtue of which the debtor or a third person delivers to the creditor or to a third person movable property as security for the performance of the principal obligation, upon the fulfillment of which the thing pledged, with all its accessions and accessories, shall be returned to the debtor or to the third person.10 This is essentially the business of pawnshops which are defined under Section 3 of Presidential Decree No. 114, or the Pawnshop Regulation Act, as persons or entities engaged in lending money on personal property delivered as security for loans. Section 12 of the Pawnshop Regulation Act and Section 21 of the Rules and Regulations For Pawnshops11 issued by the Central Bank12 to implement the Act, require every pawnshop or pawnbroker to issue, at the time of every such loan or pledge, a memorandum or ticket signed by the pawnbroker and containing the following details: (1) name and residence of the pawner; (2) date the loan is granted; (3) amount of principal loan; (4) interest rate in percent; (5) period of maturity; (6) description of pawn; (7) signature of pawnbroker or his authorized agent; (8) signature or thumb mark of pawner or his authorized agent; and (9) such other terms and conditions as may be agreed upon between the pawnbroker and the pawner. In addition, Central Bank Circular No. 445,13 prescribed a standard form of pawn tickets with entries for the required details on its face and the mandated terms and conditions of the pledge at the dorsal portion thereof. Section 3 of the Pawnshop Regulation Act defines a pawn ticket as follows: "Pawn ticket" is the pawnbrokers receipt for a pawn. It is neither a security nor a printed evidence of indebtedness." True, the law does not consider said ticket as an evidence of security or indebtedness. However, for purposes of taxation, the same pawn ticket is proof of an exercise of a taxable privilege of concluding a contract of pledge. At any rate, it is not said ticket that creates the pawnshops obligation to pay DST but the exercise of the privilege to enter into a

contract of pledge. There is therefore no basis in petitioners assertion that a DST is literally a tax on a document and that no tax may be imposed on a pawn ticket. The settled rule is that tax laws must be construed in favor of the taxpayer and strictly against the government; and that a tax cannot be imposed without clear and express words for that purpose.14 Taking our bearing from the foregoing doctrines, we scrutinized Section 195 of the NIRC, but there is no way that said provision may be interpreted in favor of petitioner. Section 195 unqualifiedly subjects all pledges to DST. It states that "[o]n every x x x pledge x x x there shall be collected a documentary stamp tax x x x." It is clear, categorical, and needs no further interpretation or construction. The explicit tenor thereof requires hardly anything than a simple application.15 The onus of proving that pawnshops are not subject to DST is thus shifted to petitioner. In establishing tax exemptions, it should be borne in mind that taxation is the rule, exemption is the exception. Accordingly, statutes granting tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. One who claims an exemption from tax payments rests the burden of justifying the exemption by words too plain to be mistaken and too categorical to be misinterpreted.16 In the instant case, there is no law specifically and expressly exempting pledges entered into by pawnshops from the payment of DST. Section 19917 of the NIRC enumerated certain documents which are not subject to stamp tax; but a pawnshop ticket is not one of them. Hence, petitioners nebulous claim that it is not subject to DST is without merit. It cannot be over-emphasized that tax exemption represents a loss of revenue to the government and must, therefore, not rest on vague inference.18 Exemption from taxation is never presumed. For tax exemption to be recognized, the grant must be clear and express; it cannot be made to rest on doubtful implications.19 The Court notes that BIR Ruling No. 305-87,20 and BIR Ruling No. 01888,21 which held that a pawn ticket is subject to DST because it is an evidence of a pledge transaction, had been revoked by BIR Ruling No. 325-88.22 In the latter ruling, the BIR held that DST is a tax on the document; and since a pawn ticket is not an evidence of indebtedness, it cannot be subject to DST. Nevertheless, this interpretation is not consistent with the provisions of Section 195 of the NIRC which categorically taxes the privilege to enter into a contract of pledge. Indeed, administrative issuances must not override, supplant or modify the law but must be consistent with the law they intend to carry out.23

Finally, petitioner invokes the declaration of nullity of Revenue Memorandum Circular (RMC) No. 43-91 in Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop, Inc.24 Said case, however, is not applicable to the present controversy. RMC No. 43-91 is actually a clarification of Revenue Memorandum Order No. 15-91 which classified pawnshops as "lending investors" and imposed upon them a 5% lending investors tax. While RMC No. 43-91 declared in addition that pawnshops are subject to DST, such was never an issue in Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop, Inc., because nowhere was it mentioned therein that the pawnshop involved was directed to pay DST. Otherwise stated, the declaration of nullity of RMC No. 43-91 was the Courts finding, among others, that pawnshops cannot be classified as lending investors; and certainly not because pawnshops are not subject to DST. The invocation of said ruling is therefore misplaced. WHEREFORE, the petition is DENIED and the June 29, 2004 Decision of the Court of Appeals, as modified on December 29, 2004, in CA-G.R. SP No. 67667, is AFFIRMED. SO ORDERED. CONSUELO YNARES-SANTIAGO Associate Justice

FIRST DIVISION

[G.R. No. 107199. July 22, 2003]

CEBU CONTRACTORS CONSORTIUM CO., petitioner, vs. COURT OF APPEALS and MAKATI LEASING & FINANCE CORPORATION, respondents. DECISION
AZCUNA, J.:

The instant Petition for Review on Certiorari stems from a complaint for collection of a sum of money with replevin filed by respondent Makati Leasing and Finance Corporation (MLFC) against petitioner Cebu Contractors Consortium Company (CCCC) before the Regional Trial Court of Makati.
1[1] 2[2] 1 [1]

Civil Case No. 5450. Branch 58.

[2]

MLFC alleges that on August 25, 1976 a lease agreement relating to various equipment was entered into between MLFC, as lessor, and CCCC, as lessee. The terms and conditions of the lease were defined in said agreement and in two lease schedules of payment. To secure the lease rentals, a chattel mortgage, and a subsequent amendment thereto, were executed in favor of MLFC over other various equipment owned by CCCC.
3[3] 4[4] 5[5]

On June 30, 1977, CCCC began defaulting on the lease rentals, prompting MLFC to send demand letters. When the demand letters were not heeded, MLFC filed a complaint for the payment of the rentals due and prayed that a writ of replevin be issued in order to obtain possession of the equipment leased and to foreclose on the equipment mortgaged.
7[7] 8[8]

6[6]

For its part, CCCC alleges that it had a contract with the then Ministry of Public Highways for the construction of the Iligan-Cagayan de Oro-Butuan Road. Being in need of additional capital, it approached MLFC for the purpose of securing a loan. MLFC agreed to extend financial assistance to CCCC but, instead of a customary loan covered by a security, MLFC induced CCCC to adopt and apply a sale and lease back scheme. The arrangement provided for the equipment of CCCC to be made to appear as sold to MLFC and then leased back to CCCC which will then pay lease rentals to MLFC. The rentals will be treated as installment payments to repurchase the equipment. It is CCCCs claim that the arrangement is nothing more than an equitable mortgage.
9[9] 10[10]

Pursuant to the sale and lease back scheme, CCCC executed two deeds of sale over its equipment in favor of MLFC, which were then leased back to CCCC. To facilitate payment of the rentals, MLFC required CCCC to execute a deed of assignment of its collectibles from the Ministry of Public Highways. In addition, CCCC was also required to execute a chattel mortgage over its other properties as a security.
11[11] 12[12]

CCCCs position is that it is no longer indebted to MLFC because the total amounts collected by the latter from the Ministry of Public Highways, by virtue of the deed of assignment, and from the proceeds of the foreclosed chattels were more than enough to cover CCCCs liabilities. Finally, CCCC submits that, in any event, the deed of assignment itself already freed CCCC from its obligation to MLFC.
3 [3]

Lease Agreement No. 211 (Exhibit A), Records, pp. 8-10. Lease Schedules Nos. 797 and 931 (Exhibits A-1 and A-2), Records, pp. 10-16. Chattel Mortgage and its Amendment (Exhibits B and C), Records pp. 17-19. Statement of Account (Exhibit D), Records, p. 20. Trial court decision, p. 2, Records, p. 777. Complaint, Records, pp. 1-24. Appellants brief, Rollo, pp. 13-14. Now the Department of Public Works and Highways. Exhibits 1 and 2, Records, pp. 89-95. Petition, p. 6; Rollo, p. 16.

[4]

[5]

[6]

[7]

[8]

[9]

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[10]

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The trial court rendered a decision upholding the lease agreement and finding CCCC liable to MLFC for P1,067,861.79 in lease rentals plus 25% attorneys fees and P486,442.28 in litigation expenses. On appeal by CCCC, the appellate court affirmed the trial courts decision but reduced the attorneys fees to 10% and totally eliminated the awarded litigation expenses. CCCC is now before this Court seeking to reverse the decision of the Court of Appeals.
13[13] 14[14] 15[15] [16] 17[17]

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CCCC presents the following assigned errors:

I. WITH DUE RESPECT, THE RESPONDENT COURT ERRED IN UPHOLDING THE SO-CALLED SALE-LEASE BACK SCHEME OF THE PRIVATE RESPONDENT WHEN THE SAME IS IN REALITY NOTHING BUT AN EQUITABLE MORTGAGE. II. WITH DUE RESPECT, THE RESPONDENT COURT ERRED IN [NOT] HOLDING THAT THE DEED OF ASSIGNMENT EXECUTED BY PETITIONER IN FAVOR OF PRIVATE RESPONDENT FOR THE LATTER TO COLLECT FROM THE MINISTRY OF HIGHWAYS COMPLETELY FREED PETITIONER OF ITS OBLIGATION TO THE PRIVATE RESPONDENT. III. WITH DUE RESPECT, THE RESPONDENT COURT ERRED IN FINDING PETITIONER STILL LIABLE TO THE PRIVATE RESPONDENT DESPITE THE FACT THAT PETITIONER HAD ALREADY OVER-PAID SAID RESPONDENT. IV.WITH DUE RESPECT, THE RESPONDENT COURT ERRED IN NOT GRANTING PETITIONERS CLAIM FOR DAMAGES AGAINST THE PRIVATE RESPONDENT.

With respect to the first assigned error, this Court finds in favor of CCCC. It is clear that the transaction between CCCC and MLFC is what is popularly known as a financial leasing or financing lease. Transactions of this sort are not new to the commercial world and have been recognized as genuine or legitimate contracts, accorded with statutory and administrative recognition.
18[18]

In Beltran v. PAIC Finance Corporation, discuss the nature of a financing lease:

19[19]

this Court had occasion to

A financing lease may be seen to be a contract sui generis, possessing some but not necessarily all the elements of an ordinary or civil law lease. Thus, legal title to the equipment leased is lodged in the financial lessor. The financial lessee is entitled to the possession and use of the leased
13 [13]

Records, pp. 776-779. Trial court decision, Records, p. 779. The appeal was docketed as CA-G.R. No. 30000. Court of Appeals decision, Rollo, p. 43. Dated May 27, 1992. BA Finance Corporation v. Court of Appeals, 228 SCRA 530 (1993). 209 SCRA 105 (1992).

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equipment. At the same time, the financial lessee is obligated to make periodic payments denominated as lease rentals, which enable the financial lessor to recover the purchase price of the equipment which had been paid to the supplier thereof.

MLFCs own evidence discloses that it offers two types of financing lease: a direct lease and a sale-lease back. A direct lease is one where the client buys equipment through a financing company. MLFC would, in effect, initially purchase equipment that is needed by the client and then lease it to the latter. In a sale-lease back, the client already has the equipment but needs working capital. The client sells to MLFC equipment that it owns, which will be leased back to him. The transaction between CCCC and MLFC involved the second type of financing lease.
20[20]

CCCC argues that the sale and lease back scheme is nothing more than an equitable mortgage and, consequently, asks for its reformation. Section 3 (d) of Republic Act No. 5980, otherwise known as the Financing Company Act, defines Financial leasing as:
21[21]

a mode of extending credit through a non-cancelable lease contract under which the lessor purchases or acquires, at the instance of the lessee, machinery, equipment, motor vehicles, appliances, business and office machines, and other movable or immovable property in consideration of the periodic payment by the lessee of a fixed amount of money sufficient to amortize at least seventy percent (70%) of the purchase price or acquisition cost, including any incidental expenses and a margin of profit over an obligatory period of not less than two (2) years during which the lessee has the right to hold and use the leased property with the right to expense the lease rentals paid to the lessor and bears the cost of repairs, maintenance, insurance and preservation thereof, but with no obligation or option on his part to purchase the leased property from the owner-lessor at the end of the lease contract.22[22]

The above definition was originally found in Section 1 (i) of the Revised Rules and Regulations implementing the original Republic Act No. 5980. When Republic Act No. 8556 was enacted, amending Republic Act No. 5980, the definition was given a statutory nature. In Investors Finance Corporation v. Court of Appeals , the Court, applying the definition of financial leasing, differentiated between a true financial leasing and an ordinary loan with mortgage in the guise of a lease. It was explained that the definition contemplates the extension of credit to assist a buyer in acquiring movable property which he can use and eventually own. Thus, in a true financial leasing, a finance company purchases on behalf of or at the instance of the lessee the equipment which the latter is interested to buy but has insufficient funds for the purpose. The finance company therefore leases the equipment to the lessee in consideration of the periodic payment
23[23] 20 [20]

TSN, Rolando Palma, December 3, 1984, p. 16. As amended by Presidential Decree Nos. 1454 and 1793 and Republic Act 8556. Italics supplied. 193 SCRA 701 (1991).

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by the lessee of a fixed amount of rental. However, where the client already owns the equipment but needs additional working capital and the finance company purchases such equipment with the intention of leasing it back to him, the lease agreement is simulated to disguise the true transaction that is a loan with security. In that instance, it is clear that the intention of the parties was not to enable the client to acquire and use the equipment, but to extend to him a loan. Going back to the case at bar, MLFC admits that the transaction with CCCC involved the purchase of already-owned equipment. Consequently, there can be no doubt that the transaction between the parties is not one of financial leasing, as defined by law, but simply a loan secured by a chattel mortgage over CCCCs equipment. When the true intention of the parties to a contract is not expressed in the instrument purporting to embody their agreement by reason of mistake, fraud, inequitable conduct or accident, the remedy of the aggrieved party is to ask for reformation of the instrument under Articles 1359 and 1362 of the Civil Code, to the end that their true agreement may be expressed therein. Under Article 1144 of the Civil Code, the prescriptive period for actions based upon a written contract and for reformation of an instrument is ten years. The right of action for reformation accrued from the date of execution of the contract of lease in 1976. This was properly exercised by CCCC when it filed its answer with counterclaim to MLFCs complaint in 1978 and asked for the reformation of the lease contract.
26[26] 27[27]

24[24]

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Moving on to the second assigned error, CCCC claims that it had assigned to MLFC its collectibles from the Ministry of Public Highways, amounting to P2,469,142.50. The assignment was duly approved by the Ministry of Public Highways. Consequently, CCCC argues that MLFC should be barred from suing because the obligation had been transferred to and assumed by the Ministry of Public Highways. This Court finds that the execution of the deed of assignment in favor of MLFC did not completely free CCCC from its obligations to MLFC under the lease agreement. On its face, the deed speaks of an assignment. However, in light of the circumstances obtaining at the time of the execution of said deed of assignment, this Court cannot regard the transaction as an absolute conveyance. In the interpretation of contracts, if the terms are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of the stipulations shall control. But when the words appear contrary to the evident intention of the parties, the latter shall prevail over the former. In order to judge the intention of the parties, their contemporaneous and subsequent acts shall principally be considered.
28[28] 24 [24]

Ibid. Ramos v. Court of Appeals, 180 SCRA 635 (1989).

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Rosello-Bentir v. Leanda, 330 SCRA 591 (2000).

Records, pp. 75-88. Sy v. Court of Appeals, 131 SCRA 116 (1984).

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The deed of assignment was dated August 27, 1976. CCCC, by its own evidence, was shown to have made partial payments on the obligation, apart from those obtained by MLFC from the Ministry of Public Highways. These partial payments were made after the execution of the deed of assignment. Since subsequent payments were made by CCCC itself, it follows that the execution of the deed of assignment did not extinguish its obligation.
29[29]

In addition, the fact that a chattel mortgage was executed after the execution of the deed of assignment further confirms the existence of CCCCs obligation under the lease agreement. If indeed the deed of assignment extinguished the obligation, there was no reason to execute a chattel mortgage. Evidently, the only conceivable reason for the execution of a chattel mortgage was because the obligation under the lease agreement subsisted. In Citizens Surety and Insurance Co., Inc. v. Court of Appeals , this Court was faced with the same issue. Petitioner in that case, a surety company, issued two surety bonds in behalf of respondent therein to guaranty the fulfillment of an obligation under a contract of sale the latter had entered into with the Singer Sewing Machine Company. In consideration of the bonds, two indemnity agreements were executed by said respondent followed by a deed of assignment executed on the same date. After respondents failure to comply with its obligation under the contract of sale, petitioner was compelled to pay under the surety bonds. When respondent failed to reimburse it, petitioner filed a collection suit. Respondent opposed the money claim, and asserted that the surety bonds and the indemnity agreements had been extinguished by the execution of the deed of assignment.
30[30]

The Court held therein that the deed of assignment cannot be regarded as an absolute conveyance whereby the obligation under the surety bonds was automatically extinguished. Respondents subsequent acts showed that the deed of assignment was intended merely as a security for the issuance of the two bonds. The Court found that partial payments were made after the execution of the deed of assignment to satisfy the obligation under the two surety bonds. Moreover, a second real estate mortgage in favor of petitioner was executed by respondent. These circumstances showed that no debt was extinguished upon the execution of the deed of assignment, which was intended merely as another security for the issuance of the surety bonds. This Court now comes to the issue of overpayment. While the lease agreement is in reality an equitable mortgage, the records show that the equipment have already been sold by MLFC, and that the proceeds from the sale were credited to CCCCs account.
31[31]

The Court of Appeals ruled that CCCC is indebted to MLFC in the amount of P1,048,655.00 and disregarded CCCCs own computation showing an alleged overpayment. This Court agrees with this finding. CCCCs
29 [29]

Exhibit 8, Records, p. 604. 162 SCRA 738 (1988). TSN, Amado Briones, February 1, 1985, p. 8.

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computation proved to be incomplete and unreliable. Noticeably absent from the computation are the penalties incurred by CCCC, when it defaulted on the lease rentals, which would have the effect of substantially increasing CCCCs debt. Moreover, the Court of Appeals computation is part of the findings of fact made by the appellate court. Such findings and conclusions should not be disturbed on appeal, in the absence of any showing that these are unfounded or arbitrarily arrived at or that the Court of Appeals had failed to consider an important evidence to the contrary.
32[32] 33[33]

Finding that CCCC is still indebted to MLFC, the formers claim for damages must also fail. WHEREFORE, the decision appealed from is hereby AFFIRMED. No costs. SO ORDERED. Davide, Jr., C.J., (Chairman), Vitug, Ynares-Santiago, and Carpio, JJ., concur.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 154878 March 16, 2007

CAROLYN M. GARCIA, Petitioner, vs. RICA MARIE S. THIO, Respondent. DECISION CORONA, J.: Assailed in this petition for review on certiorari1 are the June 19, 2002 decision2 and August 20, 2002 resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 56577 which set aside the February 28, 1997 decision of the Regional Trial Court (RTC) of Makati City, Branch 58. Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner Carolyn M. Garcia a crossed check4 dated February 24, 1995 in the amount of US$100,000 payable to the order of a certain
32 [32]

See Section 17 of the Lease Agreement on Default; Records, p. 9.

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Coconut Cooperative Marketing Association, Inc. v. Court of Appeals, 164 SCRA 568 (1988).
[33]

Marilou Santiago.5 Thereafter, petitioner received from respondent every month (specifically, on March 24, April 26, June 26 and July 26, all in 1995) the amount of US$3,0006 and P76,5007 on July 26,8 August 26, September 26 and October 26, 1995. In June 1995, respondent received from petitioner another crossed check9 dated June 29, 1995 in the amount of P500,000, also payable to the order of Marilou Santiago.10 Consequently, petitioner received from respondent the amount of P20,000 every month on August 5, September 5, October 5 and November 5, 1995.11 According to petitioner, respondent failed to pay the principal amounts of the loans (US$100,000 and P500,000) when they fell due. Thus, on February 22, 1996, petitioner filed a complaint for sum of money and damages in the RTC of Makati City, Branch 58 against respondent, seeking to collect the sums of US$100,000, with interest thereon at 3% a month from October 26, 1995 and P500,000, with interest thereon at 4% a month from November 5, 1995, plus attorneys fees and actual damages.12 Petitioner alleged that on February 24, 1995, respondent borrowed from her the amount of US$100,000 with interest thereon at the rate of 3% per month, which loan would mature on October 26, 1995.13 The amount of this loan was covered by the first check. On June 29, 1995, respondent again borrowed the amount of P500,000 at an agreed monthly interest of 4%, the maturity date of which was on November 5, 1995.14 The amount of this loan was covered by the second check. For both loans, no promissory note was executed since petitioner and respondent were close friends at the time.15 Respondent paid the stipulated monthly interest for both loans but on their maturity dates, she failed to pay the principal amounts despite repeated demands.16
1awphi1.nt

Respondent denied that she contracted the two loans with petitioner and countered that it was Marilou Santiago to whom petitioner lent the money. She claimed she was merely asked by petitioner to give the crossed checks to Santiago.17 She issued the checks for P76,000 and P20,000 not as payment of interest but to accommodate petitioners request that respondent use her own checks instead of Santiagos.18 In a decision dated February 28, 1997, the RTC ruled in favor of petitioner.19 It found that respondent borrowed from petitioner the amounts of US$100,000 with monthly interest of 3% and P500,000 at a monthly interest of 4%:20

WHEREFORE, finding preponderance of evidence to sustain the instant complaint, judgment is hereby rendered in favor of [petitioner], sentencing [respondent] to pay the former the amount of: 1. [US$100,000.00] or its peso equivalent with interest thereon at 3% per month from October 26, 1995 until fully paid; 2. P500,000.00 with interest thereon at 4% per month from November 5, 1995 until fully paid. 3. P100,000.00 as and for attorneys fees; and 4. P50,000.00 as and for actual damages. For lack of merit, [respondents] counterclaim is perforce dismissed. With costs against [respondent]. IT IS SO ORDERED.21 On appeal, the CA reversed the decision of the RTC and ruled that there was no contract of loan between the parties: A perusal of the record of the case shows that [petitioner] failed to substantiate her claim that [respondent] indeed borrowed money from her. There is nothing in the record that shows that [respondent] received money from [petitioner]. What is evident is the fact that [respondent] received a MetroBank [crossed] check dated February 24, 1995 in the sum of US$100,000.00, payable to the order of Marilou Santiago and a CityTrust [crossed] check dated June 29, 1995 in the amount of P500,000.00, again payable to the order of Marilou Santiago, both of which were issued by [petitioner]. The checks received by [respondent], being crossed, may not be encashed but only deposited in the bank by the payee thereof, that is, by Marilou Santiago herself. It must be noted that crossing a check has the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only onceto one who has an account with the bank; (c) and the act of crossing the check serves as warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due course. Consequently, the receipt of the [crossed] check by [respondent] is not the issuance and delivery to the payee in contemplation of law since the latter is not the person who could take the checks as a holder, i.e., as a

payee or indorsee thereof, with intent to transfer title thereto. Neither could she be deemed as an agent of Marilou Santiago with respect to the checks because she was merely facilitating the transactions between the former and [petitioner]. With the foregoing circumstances, it may be fairly inferred that there were really no contracts of loan that existed between the parties. x x x (emphasis supplied)22 Hence this petition.23 As a rule, only questions of law may be raised in a petition for review on certiorari under Rule 45 of the Rules of Court. However, this case falls under one of the exceptions, i.e., when the factual findings of the CA (which held that there were no contracts of loan between petitioner and respondent) and the RTC (which held that there were contracts of loan) are contradictory.24 The petition is impressed with merit. A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the object of the contract.25 This is evident in Art. 1934 of the Civil Code which provides: An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract. (Emphasis supplied) Upon delivery of the object of the contract of loan (in this case the money received by the debtor when the checks were encashed) the debtor acquires ownership of such money or loan proceeds and is bound to pay the creditor an equal amount.26 It is undisputed that the checks were delivered to respondent. However, these checks were crossed and payable not to the order of respondent but to the order of a certain Marilou Santiago. Thus the main question to be answered is: who borrowed money from petitioner respondent or Santiago? Petitioner insists that it was upon respondents instruction that both checks were made payable to Santiago.27 She maintains that it was also upon respondents instruction that both checks were delivered to her (respondent) so that she could, in turn, deliver the same to Santiago.28 Furthermore, she argues that once respondent received the checks, the latter had possession and control of them such that she had the choice

to either forward them to Santiago (who was already her debtor), to retain them or to return them to petitioner.29 We agree with petitioner. Delivery is the act by which the res or substance thereof is placed within the actual or constructive possession or control of another.30 Although respondent did not physically receive the proceeds of the checks, these instruments were placed in her control and possession under an arrangement whereby she actually relent the amounts to Santiago. Several factors support this conclusion. First, respondent admitted that petitioner did not personally know Santiago.31 It was highly improbable that petitioner would grant two loans to a complete stranger without requiring as much as promissory notes or any written acknowledgment of the debt considering that the amounts involved were quite big. Respondent, on the other hand, already had transactions with Santiago at that time.32 Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose name appeared in both parties list of witnesses) testified that respondents plan was for petitioner to lend her money at a monthly interest rate of 3%, after which respondent would lend the same amount to Santiago at a higher rate of 5% and realize a profit of 2%.33 This explained why respondent instructed petitioner to make the checks payable to Santiago. Respondent has not shown any reason why Ruiz testimony should not be believed. Third, for the US$100,000 loan, respondent admitted issuing her own checks in the amount of P76,000 each (peso equivalent of US$3,000) for eight months to cover the monthly interest. For the P500,000 loan, she also issued her own checks in the amount of P20,000 each for four months.34 According to respondent, she merely accommodated petitioners request for her to issue her own checks to cover the interest payments since petitioner was not personally acquainted with Santiago.35 She claimed, however, that Santiago would replace the checks with cash.36 Her explanation is simply incredible. It is difficult to believe that respondent would put herself in a position where she would be compelled to pay interest, from her own funds, for loans she allegedly did not contract. We declared in one case that: In the assessment of the testimonies of witnesses, this Court is guided by the rule that for evidence to be believed, it must not only proceed from the mouth of a credible witness, but must be credible in itself such as the common experience of mankind can approve as probable under the circumstances. We have no test of the truth of human testimony

except its conformity to our knowledge, observation, and experience. Whatever is repugnant to these belongs to the miraculous, and is outside of juridical cognizance.37 Fourth, in the petition for insolvency sworn to and filed by Santiago, it was respondent, not petitioner, who was listed as one of her (Santiagos) creditors.38 Last, respondent inexplicably never presented Santiago as a witness to corroborate her story.39 The presumption is that "evidence willfully suppressed would be adverse if produced."40 Respondent was not able to overturn this presumption. We hold that the CA committed reversible error when it ruled that respondent did not borrow the amounts of US$100,000 and P500,000 from petitioner. We instead agree with the ruling of the RTC making respondent liable for the principal amounts of the loans. We do not, however, agree that respondent is liable for the 3% and 4% monthly interest for the US$100,000 and P500,000 loans respectively. There was no written proof of the interest payable except for the verbal agreement that the loans would earn 3% and 4% interest per month. Article 1956 of the Civil Code provides that "[n]o interest shall be due unless it has been expressly stipulated in writing." Be that as it may, while there can be no stipulated interest, there can be legal interest pursuant to Article 2209 of the Civil Code. It is well-settled that: When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.41 Hence, respondent is liable for the payment of legal interest per annum to be computed from November 21, 1995, the date when she received petitioners demand letter.42 From the finality of the decision until it is fully paid, the amount due shall earn interest at 12% per annum, the interim period being deemed equivalent to a forbearance of credit.43 The award of actual damages in the amount of P50,000 and P100,000 attorneys fees is deleted since the RTC decision did not explain the factual bases for these damages.

WHEREFORE, the petition is hereby GRANTED and the June 19, 2002 decision and August 20, 2002 resolution of the Court of Appeals in CAG.R. CV No. 56577 are REVERSED and SET ASIDE. The February 28, 1997 decision of the Regional Trial Court in Civil Case No. 96-266 is AFFIRMED with the MODIFICATION that respondent is directed to pay petitioner the amounts of US$100,000 and P500,000 at 12% per annum interest from November 21, 1995 until the finality of the decision. The total amount due as of the date of finality will earn interest of 12% per annum until fully paid. The award of actual damages and attorneys fees is deleted. SO ORDERED.
Republic of the Philippines SUPREME COURT Manila

SECOND DIVISION ALLIED BANKING CORPORATION, Petitioner, Chairperson, - versus CARPIO MORALES, TINGA, VELASCO, JR., and CHICO-NAZARIO, JJ. G.R. No. 133179 Present: QUISUMBING, J.,

LIM SIO WAN, METROPOLITAN BANK AND TRUST CO., and Promulgated: PRODUCERS BANK, Respondents. March 27, 2008 x----------------------------------------------------------------------------------------x DECISION VELASCO, JR., J.:

To ingratiate themselves to their valued depositors, some banks at times bend over backwards that they unwittingly expose themselves to great risks. The Case This Petition for Review on Certiorari under Rule 45 seeks to reverse the Court of Appeals (CAs) Decision promulgated on March 18, 199834[1] in CA-G.R. CV No. 46290 entitled Lim Sio Wan v. Allied Banking Corporation, et al. The CA Decision modified the Decision dated November 15, 199335[2] of the Regional Trial Court (RTC), Branch 63 in Makati City rendered in Civil Case No. 6757. The Facts The facts as found by the RTC and affirmed by the CA are as follows: On November 14, 1983, respondent Lim Sio Wan deposited with petitioner Allied Banking Corporation (Allied) at its Quintin Paredes Branch in Manila a money market placement of PhP 1,152,597.35 for a term of 31 days to mature on December 15, 1983,36[3] as evidenced by Provisional Receipt No. 1356 dated November 14, 1983.37[4] On December 5, 1983, a person claiming to be Lim Sio Wan called up Cristina So, an officer of Allied, and instructed the latter to preterminate Lim Sio Wans money market placement, to issue a managers check representing the proceeds of the placement, and to give the check
34 35 36 37

to one Deborah Dee Santos who would pick up the check. 38[5] Lim Sio Wan described the appearance of Santos so that So could easily identify her.39[6] Later, Santos arrived at the bank and signed the application form for a managers check to be issued.40[7] The bank issued Managers Check No. 035669 for PhP 1,158,648.49, representing the proceeds of Lim Sio Wans money market placement in the name of Lim Sio Wan, as payee. 41
[8]

The check was cross-checked For Payees Account Only and given

to Santos.42[9] Thereafter, the managers check was deposited in the account of Filipinas Cement Corporation (FCC) at respondent Metropolitan Bank and Trust Co. (Metrobank),43[10] with the forged signature of Lim Sio Wan as indorser.44[11] Earlier, on September 21, 1983, FCC had deposited a money market placement for PhP 2 million with respondent Producers Bank. Santos was the money market trader assigned to handle FCCs account. 45
[12]

Such deposit is evidenced by Official Receipt No. 317568 46[13] and a The placement

Letter dated September 21, 1983 of Santos addressed to Angie Lazo of FCC, acknowledging receipt of the placement.47[14] matured on October 25, 1983 and was rolled-over until December 5, 1983
38 39 40 41 42 43 44 45 46 47

as evidenced by a Letter dated October 25, 1983. 48[15]

When the

placement matured, FCC demanded the payment of the proceeds of the placement.49[16] On December 5, 1983, the same date that So received the phone call instructing her to pre-terminate Lim Sio Wans placement, the managers check in the name of Lim Sio Wan was deposited in the account of FCC, purportedly representing the proceeds of FCCs money market placement with Producers Bank.50[17] In other words, the Allied check was deposited with Metrobank in the account of FCC as Producers Banks payment of its obligation to FCC. To clear the check and in compliance with the requirements of the Philippine Clearing House Corporation (PCHC) Rules and Regulations, Metrobank stamped a guaranty on the check, which reads: All prior endorsements and/or lack of endorsement guaranteed.51[18] The check was sent to Allied through the PCHC. Upon the presentment of the check, Allied funded the check even without checking the authenticity of Lim Sio Wans purported indorsement. Thus, the amount on the face of the check was credited to the account of FCC.52[19] On December 9, 1983, Lim Sio Wan deposited with Allied a second money market placement to mature on January 9, 1984.53[20]

48 49 50 51 52 53

On December 14, 1983, upon the maturity date of the first money market placement, Lim Sio Wan went to Allied to withdraw it. 54[21] She was then informed that the placement had been pre-terminated upon her instructions. She denied giving any instructions and receiving the proceeds thereof. She desisted from further complaints when she was assured by the banks manager that her money would be recovered.55[22] When Lim Sio Wans second placement matured on January 9, 1984, So called Lim Sio Wan to ask for the latters instructions on the second placement. Lim Sio Wan instructed So to roll-over the placement for another 30 days.56[23] On January 24, 1984, Lim Sio Wan, realizing that the promise that her money would be recovered would not materialize, sent a demand letter to Allied asking for the payment of the first placement.57[24] Allied refused to pay Lim Sio Wan, claiming that the latter had authorized the pre-termination of the placement and its subsequent release to Santos.58[25] Consequently, Lim Sio Wan filed with the RTC a Complaint dated February 13, 198459[26] docketed as Civil Case No. 6757 against Allied to recover the proceeds of her first money market placement. Sometime in February 1984, she withdrew her second placement from Allied. Allied filed a third party complaint60[27] against Metrobank and Santos. In turn, Metrobank filed a fourth party complaint 61[28] against
54 55 56 57 58 59 60 61

FCC. FCC for its part filed a fifth party complaint 62[29] against Producers Bank. Summonses were duly served upon all the parties except for Santos, who was no longer connected with Producers Bank.63[30] On May 15, 1984, or more than six (6) months after funding the check, Allied informed Metrobank that the signature on the check was forged.64[31] Thus, Metrobank withheld the amount represented by the check from FCC. Later on, Metrobank agreed to release the amount to FCC after the latter executed an Undertaking, promising to indemnify Metrobank in case it was made to reimburse the amount.65[32] Lim Sio Wan thereafter filed an amended complaint to include Metrobank as a party-defendant, along with Allied.66[33] The RTC admitted the amended complaint despite the opposition of Metrobank. 67[34] Consequently, Allieds third party complaint against Metrobank was converted into a cross-claim and the latters fourth party complaint against FCC was converted into a third party complaint.68[35] After trial, the RTC issued its Decision, holding as follows:
WHEREFORE, judgment is hereby rendered as follows: 1. Ordering defendant Allied Banking Corporation to pay plaintiff the amount of P1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully paid; 2. Ordering defendant Allied Bank to pay plaintiff the amount of P100,000.00 by way of moral damages;

62 63 64 65 66 67 68

3. Ordering defendant Allied Bank to pay plaintiff the amount of P173,792.20 by way of attorneys fees; and, 4. Ordering defendant Allied Bank to pay the costs of suit. Defendant Allied Banks cross-claim against defendant Metrobank is DISMISSED. Likewise defendant Metrobanks third-party complaint as against Filipinas Cement Corporation is DISMISSED. Filipinas Cement Corporations fourth-party complaint against Producers Bank is also DISMISSED. SO ORDERED.69[36]

The Decision of the Court of Appeals Allied appealed to the CA, which in turn issued the assailed Decision on March 18, 1998, modifying the RTC Decision, as follows:
WHEREFORE, premises considered, the decision appealed from is MODIFIED. Judgment is rendered ordering and sentencing defendant-appellant Allied Banking Corporation to pay sixty (60%) percent and defendant-appellee Metropolitan Bank and Trust Company forty (40%) of the amount of P1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully paid. The moral damages, attorneys fees and costs of suit adjudged shall likewise be paid by defendant-appellant Allied Banking Corporation and defendantappellee Metropolitan Bank and Trust Company in the same proportion of 60-40. Except as thus modified, the decision appealed from is AFFIRMED. SO ORDERED.70[37]

Hence, Allied filed the instant petition. The Issues

69 70

Allied raises the following issues for our consideration:

The Honorable Court of Appeals erred in holding that Lim Sio Wan did not authorize [Allied] to pre-terminate the initial placement and to deliver the check to Deborah Santos. The Honorable Court of Appeals erred in absolving Producers Bank of any liability for the reimbursement of amount adjudged demandable. The Honorable Court of Appeals erred in holding [Allied] liable to the extent of 60% of amount adjudged demandable in clear disregard to the ultimate liability of Metrobank as guarantor of all endorsement on the check, it being the collecting bank.71[38]

The petition is partly meritorious. A Question of Fact Allied questions the finding of both the trial and appellate courts that Allied was not authorized to release the proceeds of Lim Sio Wans money market placement to Santos. Allied clearly raises a question of fact. When the CA affirms the findings of fact of the RTC, the factual findings of both courts are binding on this Court.72[39] We also agree with the CA when it said that it could not disturb the trial courts findings on the credibility of witness So inasmuch as it was the trial court that heard the witness and had the opportunity to observe closely her deportment and manner of testifying. Unless the trial court had plainly overlooked facts of substance or value, which, if considered, might affect the result of the case,73[40] we find it best to defer to the trial court on matters pertaining to credibility of witnesses.
71 72 73

Additionally, this Court has held that the matter of negligence is also a factual question.74[41] Thus, the finding of the RTC, affirmed by the CA, that the respective parties were negligent in the exercise of their obligations is also conclusive upon this Court. The Liability of the Parties As to the liability of the parties, we find that Allied is liable to Lim Sio Wan. Fundamental and familiar is the doctrine that the relationship between a bank and a client is one of debtor-creditor. Articles 1953 and 1980 of the Civil Code provide:
Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality. Art. 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan.

Thus, we have ruled in a line of cases that a bank deposit is in the nature of a simple loan or mutuum.75[42] More succinctly, in Citibank, N.A. (Formerly First National City Bank) v. Sabeniano, this Court ruled that a money market placement is a simple loan or mutuum. 76[43] Further, we defined a money market in Cebu International Finance Corporation v. Court of Appeals, as follows:

74 75 76

[A] money market is a market dealing in standardized shortterm credit instruments (involving large amounts) where lenders and borrowers do not deal directly with each other but through a middle man or dealer in open market. In a money market transaction, the investor is a lender who loans his money to a borrower through a middleman or dealer. In the case at bar, the money market transaction between the petitioner and the private respondent is in the nature of a loan.77[44]

Lim Sio Wan, as creditor of the bank for her money market placement, is entitled to payment upon her request, or upon maturity of the placement, or until the bank is released from its obligation as debtor. Until any such event, the obligation of Allied to Lim Sio Wan remains unextinguished. Art. 1231 of the Civil Code enumerates the instances when obligations are considered extinguished, thus:

Art. 1231. Obligations are extinguished: (1) (2) (3) (4) (5) (6) By payment or performance; By the loss of the thing due; By the condonation or remission of the debt; By the confusion or merger of the rights of creditor and debtor; By compensation; By novation.

Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and prescription, are governed elsewhere in this Code. (Emphasis supplied.)

From the factual findings of the trial and appellate courts that Lim Sio Wan did not authorize the release of her money market placement to Santos and the bank had been negligent in so doing, there is no question
77

that the obligation of Allied to pay Lim Sio Wan had not been extinguished. Art. 1240 of the Code states that payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it. commented by Arturo Tolentino:
Payment made by the debtor to a wrong party does not extinguish the obligation as to the creditor, if there is no fault or negligence which can be imputed to the latter. Even when the debtor acted in utmost good faith and by mistake as to the person of his creditor, or through error induced by the fraud of a third person, the payment to one who is not in fact his creditor, or authorized to receive such payment, is void, except as provided in Article 1241. Such payment does not prejudice the creditor, and accrual of interest is not suspended by it.78[45] (Emphasis supplied.)

As

Since there was no effective payment of Lim Sio Wans money market placement, the bank still has an obligation to pay her at six percent (6%) interest from March 16, 1984 until the payment thereof. We cannot, however, say outright that Allied is solely liable to Lim Sio Wan. Allied claims that Metrobank is the proximate cause of the loss of Lim Sio Wans money. It points out that Metrobank guaranteed all prior indorsements inscribed on the managers check, and without Metrobanks guarantee, the present controversy would never have occurred. According to Allied:
Failure on the part of the collecting bank to ensure that the proceeds of the check is paid to the proper party is, aside from being an efficient intervening cause, also the last negligent act, x x x contributory to the injury caused in the present case, which thereby leads to the conclusion that it is the collecting bank, Metrobank that is
78

the proximate cause of the alleged loss of the plaintiff in the instant case.79[46]

We are not persuaded. Proximate cause is that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury and without which the result would not have occurred. 80[47] Thus, there is an efficient supervening event if the event breaks the sequence leading from the cause to the ultimate result. To determine the proximate cause of a controversy, the question that needs to be asked is: If the event did not happen, would the injury have resulted? If the answer is NO, then the event is the proximate cause.

In the instant case, Allied avers that even if it had not issued the check payment, the money represented by the check would still be lost because of Metrobanks negligence in indorsing the check without verifying the genuineness of the indorsement thereon. Section 66 in relation to Sec. 65 of the Negotiable Instruments Law provides:
Section 66. Liability of general indorser.Every indorser who indorses without qualification, warrants to all subsequent holders in due course; 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;

79 80

And in addition, he engages that on due presentment, it shall be accepted or paid, or both, as the case may be according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it. Section 65. Warranty where negotiation by delivery, so forth. Every person negotiating an instrument by delivery or by a qualified indorsement, warrants: a) That the instrument is genuine and in all respects what it purports to be; b) That he has a good title of it; c) That all prior parties had capacity to contract; d) That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless. But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the immediate transferee. The provisions of subdivision (c) of this section do not apply to persons negotiating public or corporation securities, other than bills and notes. (Emphasis supplied.)

The warranty that the instrument is genuine and in all respects what it purports to be covers all the defects in the instrument affecting the validity thereof, including a forged indorsement. Thus, the last indorser will be liable for the amount indicated in the negotiable instrument even if a previous indorsement was forged. We held in a line of cases that a collecting bank which indorses a check bearing a forged indorsement and presents it to the drawee bank guarantees all prior indorsements, including the forged indorsement itself, and ultimately should be held liable therefor.81[48] However, this general rule is subject to exceptions. One such exception is when the issuance of the check itself was attended with negligence. Thus, in the cases cited above where the collecting bank is
81

generally held liable, in two of the cases where the checks were negligently issued, this Court held the institution issuing the check just as liable as or more liable than the collecting bank. In isolated cases where the checks were deposited in an account other than that of the payees on the strength of forged indorsements, we held the collecting bank solely liable for the whole amount of the checks involved for having indorsed the same. In Republic Bank v. Ebrada,82[49] the check was properly issued by the Bureau of Treasury. While in Banco de Oro Savings and Mortgage Bank (Banco de Oro) v. Equitable Banking Corporation,83[50] Banco de Oro admittedly issued the checks in the name of the correct payees. And in Traders Royal Bank v. Radio Philippines Network, Inc.,84[51] the checks were issued at the request of Radio Philippines Network, Inc. from Traders Royal Bank. However, in Bank of the Philippine Islands v. Court of Appeals, we said that the drawee bank is liable for 60% of the amount on the face of the negotiable instrument and the collecting bank is liable for 40%. We also noted the relative negligence exhibited by two banks, to wit:
Both banks were negligent in the selection and supervision of their employees resulting in the encashment of the forged checks by an impostor. Both banks were not able to overcome the presumption of negligence in the selection and supervision of their employees. It was the gross negligence of the employees of both banks which resulted in the fraud and the subsequent loss. While it is true that petitioner BPIs negligence may have been the proximate cause of the loss, respondent CBCs negligence contributed equally to the success of the impostor in encashing the proceeds of the forged checks. Under these circumstances, we apply Article 2179 of the Civil Code to the effect that while respondent CBC may recover its losses, such losses are

82 83 84

subject to mitigation by the courts. ( See Phoenix Construction Inc. v. Intermediate Appellate Courts, 148 SCRA 353 [1987]). Considering the comparative negligence of the two (2) banks, we rule that the demands of substantial justice are satisfied by allocating the loss of P2,413,215.16 and the costs of the arbitration proceeding in the amount of P7,250.00 and the cost of litigation on a 60-40 ratio.85[52]

Similarly, we ruled in Associated Bank v. Court of Appeals that the issuing institution and the collecting bank should equally share the liability for the loss of amount represented by the checks concerned due to the negligence of both parties:

The Court finds as reasonable, the proportionate sharing of fifty percent-fifty percent (50%-50%). Due to the negligence of the Province of Tarlac in releasing the checks to an unauthorized person (Fausto Pangilinan), in allowing the retired hospital cashier to receive the checks for the payee hospital for a period close to three years and in not properly ascertaining why the retired hospital cashier was collecting checks for the payee hospital in addition to the hospitals real cashier, respondent Province contributed to the loss amounting to P203,300.00 and shall be liable to the PNB for fifty (50%) percent thereof. In effect, the Province of Tarlac can only recover fifty percent (50%) of P203,300.00 from PNB. The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%) percent of P203,300.00. It is liable on its warranties as indorser of the checks which were deposited by Fausto Pangilinan, having guaranteed the genuineness of all prior indorsements, including that of the chief of the payee hospital, Dr. Adena Canlas. Associated Bank was also remiss in its duty to ascertain the genuineness of the payees indorsement.86[53]

A reading of the facts of the two immediately preceding cases would reveal that the reason why the bank or institution which issued the check was held partially liable for the amount of the check was because of the negligence of these parties which resulted in the issuance of the checks.
85 86

In the instant case, the trial court correctly found Allied negligent in issuing the managers check and in transmitting it to Santos without even a written authorization.87[54] In fact, Allied did not even ask for the certificate evidencing the money market placement or call up Lim Sio Wan at her residence or office to confirm her instructions. Both actions could have prevented the whole fraudulent transaction from unfolding. Allieds negligence must be considered as the proximate cause of the resulting loss. To reiterate, had Allied exercised the diligence due from a financial institution, the check would not have been issued and no loss of funds would have resulted. In fact, there would have been no issuance of indorsement had there been no check in the first place. The liability of Allied, however, is concurrent with that of Metrobank as the last indorser of the check. When Metrobank indorsed the check in compliance with the PCHC Rules and Regulations 88[55] without verifying the authenticity of Lim Sio Wans indorsement and when it accepted the check despite the fact that it was cross-checked payable to payees account only,89[56] its negligent and cavalier indorsement contributed to the easier release of Lim Sio Wans money and perpetuation of the fraud. Given the relative participation of Allied and Metrobank to the instant case, both banks cannot be adjudged as equally liable. Hence, the 60:40 ratio of the liabilities of Allied and Metrobank, as ruled by the CA, must be upheld.

87 88 89

FCC, having no participation in the negotiation of the check and in the forgery of Lim Sio Wans indorsement, can raise the real defense of forgery as against both banks.90[57] As to Producers Bank, Allied Banks argument that Producers Bank must be held liable as employer of Santos under Art. 2180 of the Civil Code is erroneous. Art. 2180 pertains to the vicarious liability of an employer for quasi-delicts that an employee has committed. Such provision of law does not apply to civil liability arising from delict. One also cannot apply the principle of subsidiary liability in Art. 103 of the Revised Penal Code in the instant case. Such liability on the part of the employer for the civil aspect of the criminal act of the employee is based on the conviction of the employee for a crime. Here, there has been no conviction for any crime. As to the claim that there was unjust enrichment on the part of Producers Bank, the same is correct. Allied correctly claims in its petition that Producers Bank should reimburse Allied for whatever judgment that may be rendered against it pursuant to Art. 22 of the Civil Code, which provides: Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just cause or legal ground, shall return the same to him.

The above provision of law was clarified in Reyes v. Lim, where we ruled that [t]here is unjust enrichment when a person unjustly retains
90

a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience.91[58] In Tamio v. Ticson, we further clarified the principle of unjust enrichment, thus: Under Article 22 of the Civil Code, there is unjust enrichment when (1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with damages to another.92[59] In the instant case, Lim Sio Wans money market placement in Allied Bank was pre-terminated and withdrawn without her consent. Moreover, the proceeds of the placement were deposited in Producers Banks account in Metrobank without any justification. In other words, there is no reason that the proceeds of Lim Sio Wans placement should be deposited in FCCs account purportedly as payment for FCCs money market placement and interest in Producers Bank. With such payment, Producers Banks indebtedness to FCC was extinguished, thereby benefitting the former. Clearly, Producers Bank was unjustly enriched at the expense of Lim Sio Wan. Based on the facts and circumstances of the case, Producers Bank should reimburse Allied and Metrobank for the amounts the two latter banks are ordered to pay Lim Sio Wan. It cannot be validly claimed that FCC, and not Producers Bank, should be considered as having been unjustly enriched. It must be remembered that FCCs money market placement with Producers Bank was already due and demandable; thus, Producers Banks payment thereof was justified. FCC was entitled to such payment. As earlier
91 92

stated, the fact that the indorsement on the check was forged cannot be raised against FCC which was not a part in any stage of the negotiation of the check. FCC was not unjustly enriched. From the facts of the instant case, we see that Santos could be the architect of the entire controversy. Unfortunately, since summons had not been served on Santos, the courts have not acquired jurisdiction over her.93[60] We, therefore, cannot ascribe to her liability in the instant case. Clearly, Producers Bank must be held liable to Allied and Metrobank for the amount of the check plus 12% interest per annum, moral damages, attorneys fees, and costs of suit which Allied and Metrobank are adjudged to pay Lim Sio Wan based on a proportion of 60:40. WHEREFORE, the petition is PARTLY GRANTED. The

March 18, 1998 CA Decision in CA-G.R. CV No. 46290 and the November 15, 1993 RTC Decision in Civil Case No. 6757 are AFFIRMED with MODIFICATION. Thus, the CA Decision is AFFIRMED, the fallo of which is reproduced, as follows:

WHEREFORE, premises considered, the decision appealed from is MODIFIED. Judgment is rendered ordering and sentencing defendant-appellant Allied Banking Corporation to pay sixty (60%) percent and defendant-appellee Metropolitan Bank and Trust Company forty (40%) of the amount of P1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully paid. The moral damages, attorneys fees and costs of suit adjudged shall likewise be paid by defendant-appellant Allied Banking Corporation and defendant93

appellee Metropolitan Bank and Trust Company in the same proportion of 60-40. Except as thus modified, the decision appealed from is AFFIRMED. SO ORDERED.

Additionally and by way of MODIFICATION, Producers Bank is hereby ordered to pay Allied and Metrobank the aforementioned amounts. The liabilities of the parties are concurrent and independent of each other. SO ORDERED.
Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 115324 February 19, 2003

PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK), petitioner, vs. HON. COURT OF APPEALS AND FRANKLIN VIVES, respondents. DECISION CALLEJO, SR., J.: This is a petition for review on certiorari of the Decision1 of the Court of Appeals dated June 25, 1991 in CA-G.R. CV No. 11791 and of its Resolution2 dated May 5, 1994, denying the motion for reconsideration of said decision filed by petitioner Producers Bank of the Philippines. Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and friend Angeles Sanchez to help her friend and townmate, Col. Arturo Doronilla, in incorporating his business, the Sterela Marketing and Services ("Sterela" for brevity). Specifically, Sanchez asked private respondent to deposit in a bank a certain amount of money in the bank account of Sterela for purposes of its incorporation.

She assured private respondent that he could withdraw his money from said account within a months time. Private respondent asked Sanchez to bring Doronilla to their house so that they could discuss Sanchezs request.3 On May 9, 1979, private respondent, Sanchez, Doronilla and a certain Estrella Dumagpi, Doronillas private secretary, met and discussed the matter. Thereafter, relying on the assurances and representations of Sanchez and Doronilla, private respondent issued a check in the amount of Two Hundred Thousand Pesos (P200,000.00) in favor of Sterela. Private respondent instructed his wife, Mrs. Inocencia Vives, to accompany Doronilla and Sanchez in opening a savings account in the name of Sterela in the Buendia, Makati branch of Producers Bank of the Philippines. However, only Sanchez, Mrs. Vives and Dumagpi went to the bank to deposit the check. They had with them an authorization letter from Doronilla authorizing Sanchez and her companions, "in coordination with Mr. Rufo Atienza," to open an account for Sterela Marketing Services in the amount of P200,000.00. In opening the account, the authorized signatories were Inocencia Vives and/or Angeles Sanchez. A passbook for Savings Account No. 10-1567 was thereafter issued to Mrs. Vives.4 Subsequently, private respondent learned that Sterela was no longer holding office in the address previously given to him. Alarmed, he and his wife went to the Bank to verify if their money was still intact. The bank manager referred them to Mr. Rufo Atienza, the assistant manager, who informed them that part of the money in Savings Account No. 10-1567 had been withdrawn by Doronilla, and that only P90,000.00 remained therein. He likewise told them that Mrs. Vives could not withdraw said remaining amount because it had to answer for some postdated checks issued by Doronilla. According to Atienza, after Mrs. Vives and Sanchez opened Savings Account No. 10-1567, Doronilla opened Current Account No. 10-0320 for Sterela and authorized the Bank to debit Savings Account No. 10-1567 for the amounts necessary to cover overdrawings in Current Account No. 100320. In opening said current account, Sterela, through Doronilla, obtained a loan of P175,000.00 from the Bank. To cover payment thereof, Doronilla issued three postdated checks, all of which were dishonored. Atienza also said that Doronilla could assign or withdraw the money in Savings Account No. 10-1567 because he was the sole proprietor of Sterela.5 Private respondent tried to get in touch with Doronilla through Sanchez. On June 29, 1979, he received a letter from Doronilla, assuring him that his money was intact and would be returned to him. On August 13, 1979, Doronilla issued a postdated check for Two Hundred Twelve

Thousand Pesos (P212,000.00) in favor of private respondent. However, upon presentment thereof by private respondent to the drawee bank, the check was dishonored. Doronilla requested private respondent to present the same check on September 15, 1979 but when the latter presented the check, it was again dishonored.6 Private respondent referred the matter to a lawyer, who made a written demand upon Doronilla for the return of his clients money. Doronilla issued another check for P212,000.00 in private respondents favor but the check was again dishonored for insufficiency of funds.7 Private respondent instituted an action for recovery of sum of money in the Regional Trial Court (RTC) in Pasig, Metro Manila against Doronilla, Sanchez, Dumagpi and petitioner. The case was docketed as Civil Case No. 44485. He also filed criminal actions against Doronilla, Sanchez and Dumagpi in the RTC. However, Sanchez passed away on March 16, 1985 while the case was pending before the trial court. On October 3, 1995, the RTC of Pasig, Branch 157, promulgated its Decision in Civil Case No. 44485, the dispositive portion of which reads: IN VIEW OF THE FOREGOING, judgment is hereby rendered sentencing defendants Arturo J. Doronila, Estrella Dumagpi and Producers Bank of the Philippines to pay plaintiff Franklin Vives jointly and severally (a) the amount of P200,000.00, representing the money deposited, with interest at the legal rate from the filing of the complaint until the same is fully paid; (b) the sum of P50,000.00 for moral damages and a similar amount for exemplary damages; (c) the amount of P40,000.00 for attorneys fees; and (d) the costs of the suit. SO ORDERED.8 Petitioner appealed the trial courts decision to the Court of Appeals. In its Decision dated June 25, 1991, the appellate court affirmed in toto the decision of the RTC.9 It likewise denied with finality petitioners motion for reconsideration in its Resolution dated May 5, 1994.10 On June 30, 1994, petitioner filed the present petition, arguing that I.

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT THE TRANSACTION BETWEEN THE DEFENDANT DORONILLA AND RESPONDENT VIVES WAS ONE OF SIMPLE LOAN AND NOT ACCOMMODATION; II. THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THAT PETITIONERS BANK MANAGER, MR. RUFO ATIENZA, CONNIVED WITH THE OTHER DEFENDANTS IN DEFRAUDING PETITIONER (Sic. Should be PRIVATE RESPONDENT) AND AS A CONSEQUENCE, THE PETITIONER SHOULD BE HELD LIABLE UNDER THE PRINCIPLE OF NATURAL JUSTICE; III. THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING THE ENTIRE RECORDS OF THE REGIONAL TRIAL COURT AND AFFIRMING THE JUDGMENT APPEALED FROM, AS THE FINDINGS OF THE REGIONAL TRIAL COURT WERE BASED ON A MISAPPREHENSION OF FACTS; IV. THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THE CITED DECISION IN SALUDARES VS. MARTINEZ, 29 SCRA 745, UPHOLDING THE LIABILITY OF AN EMPLOYER FOR ACTS COMMITTED BY AN EMPLOYEE IS APPLICABLE; V. THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE DECISION OF THE LOWER COURT THAT HEREIN PETITIONER BANK IS JOINTLY AND SEVERALLY LIABLE WITH THE OTHER DEFENDANTS FOR THE AMOUNT OF P200,000.00 REPRESENTING THE SAVINGS ACCOUNT DEPOSIT, P50,000.00 FOR MORAL DAMAGES, P50,000.00 FOR EXEMPLARY DAMAGES, P40,000.00 FOR ATTORNEYS FEES AND THE COSTS OF SUIT.11 Private respondent filed his Comment on September 23, 1994. Petitioner filed its Reply thereto on September 25, 1995. The Court then required private respondent to submit a rejoinder to the reply. However, said rejoinder was filed only on April 21, 1997, due to petitioners delay in furnishing private respondent with copy of the reply12 and several substitutions of counsel on the part of private respondent.13 On January 17, 2001, the Court resolved to give due course to the petition and required the parties to submit their respective memoranda.14 Petitioner

filed its memorandum on April 16, 2001 while private respondent submitted his memorandum on March 22, 2001. Petitioner contends that the transaction between private respondent and Doronilla is a simple loan (mutuum) since all the elements of a mutuum are present: first, what was delivered by private respondent to Doronilla was money, a consumable thing; and second, the transaction was onerous as Doronilla was obliged to pay interest, as evidenced by the check issued by Doronilla in the amount of P212,000.00, or P12,000 more than what private respondent deposited in Sterelas bank account.15 Moreover, the fact that private respondent sued his good friend Sanchez for his failure to recover his money from Doronilla shows that the transaction was not merely gratuitous but "had a business angle" to it. Hence, petitioner argues that it cannot be held liable for the return of private respondents P200,000.00 because it is not privy to the transaction between the latter and Doronilla.16 It argues further that petitioners Assistant Manager, Mr. Rufo Atienza, could not be faulted for allowing Doronilla to withdraw from the savings account of Sterela since the latter was the sole proprietor of said company. Petitioner asserts that Doronillas May 8, 1979 letter addressed to the bank, authorizing Mrs. Vives and Sanchez to open a savings account for Sterela, did not contain any authorization for these two to withdraw from said account. Hence, the authority to withdraw therefrom remained exclusively with Doronilla, who was the sole proprietor of Sterela, and who alone had legal title to the savings account.17 Petitioner points out that no evidence other than the testimonies of private respondent and Mrs. Vives was presented during trial to prove that private respondent deposited his P200,000.00 in Sterelas account for purposes of its incorporation.18 Hence, petitioner should not be held liable for allowing Doronilla to withdraw from Sterelas savings account.
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Petitioner also asserts that the Court of Appeals erred in affirming the trial courts decision since the findings of fact therein were not accord with the evidence presented by petitioner during trial to prove that the transaction between private respondent and Doronilla was a mutuum, and that it committed no wrong in allowing Doronilla to withdraw from Sterelas savings account.19 Finally, petitioner claims that since there is no wrongful act or omission on its part, it is not liable for the actual damages suffered by private respondent, and neither may it be held liable for moral and exemplary damages as well as attorneys fees.20

Private respondent, on the other hand, argues that the transaction between him and Doronilla is not a mutuum but an accommodation,21 since he did not actually part with the ownership of his P200,000.00 and in fact asked his wife to deposit said amount in the account of Sterela so that a certification can be issued to the effect that Sterela had sufficient funds for purposes of its incorporation but at the same time, he retained some degree of control over his money through his wife who was made a signatory to the savings account and in whose possession the savings account passbook was given.22 He likewise asserts that the trial court did not err in finding that petitioner, Atienzas employer, is liable for the return of his money. He insists that Atienza, petitioners assistant manager, connived with Doronilla in defrauding private respondent since it was Atienza who facilitated the opening of Sterelas current account three days after Mrs. Vives and Sanchez opened a savings account with petitioner for said company, as well as the approval of the authority to debit Sterelas savings account to cover any overdrawings in its current account.23 There is no merit in the petition. At the outset, it must be emphasized that only questions of law may be raised in a petition for review filed with this Court. The Court has repeatedly held that it is not its function to analyze and weigh all over again the evidence presented by the parties during trial.24 The Courts jurisdiction is in principle limited to reviewing errors of law that might have been committed by the Court of Appeals.25 Moreover, factual findings of courts, when adopted and confirmed by the Court of Appeals, are final and conclusive on this Court unless these findings are not supported by the evidence on record.26 There is no showing of any misapprehension of facts on the part of the Court of Appeals in the case at bar that would require this Court to review and overturn the factual findings of that court, especially since the conclusions of fact of the Court of Appeals and the trial court are not only consistent but are also amply supported by the evidence on record. No error was committed by the Court of Appeals when it ruled that the transaction between private respondent and Doronilla was a commodatum and not a mutuum. A circumspect examination of the records reveals that the transaction between them was a commodatum. Article 1933 of the Civil Code distinguishes between the two kinds of loans in this wise: By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it, in which case the contract is called a

commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum. Commodatum is essentially gratuitous. Simple loan may be gratuitous or with a stipulation to pay interest. In commodatum, the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to the borrower. The foregoing provision seems to imply that if the subject of the contract is a consumable thing, such as money, the contract would be a mutuum. However, there are some instances where a commodatum may have for its object a consumable thing. Article 1936 of the Civil Code provides: Consumable goods may be the subject of commodatum if the purpose of the contract is not the consumption of the object, as when it is merely for exhibition. Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of the parties is to lend consumable goods and to have the very same goods returned at the end of the period agreed upon, the loan is a commodatum and not a mutuum. The rule is that the intention of the parties thereto shall be accorded primordial consideration in determining the actual character of a contract.27 In case of doubt, the contemporaneous and subsequent acts of the parties shall be considered in such determination.28 As correctly pointed out by both the Court of Appeals and the trial court, the evidence shows that private respondent agreed to deposit his money in the savings account of Sterela specifically for the purpose of making it appear "that said firm had sufficient capitalization for incorporation, with the promise that the amount shall be returned within thirty (30) days."29 Private respondent merely "accommodated" Doronilla by lending his money without consideration, as a favor to his good friend Sanchez. It was however clear to the parties to the transaction that the money would not be removed from Sterelas savings account and would be returned to private respondent after thirty (30) days. Doronillas attempts to return to private respondent the amount of P200,000.00 which the latter deposited in Sterelas account together with an additional P12,000.00, allegedly representing interest on the mutuum, did not convert the transaction from a commodatum into a mutuum because such was not the intent of the parties and because the

additional P12,000.00 corresponds to the fruits of the lending of the P200,000.00. Article 1935 of the Civil Code expressly states that "[t]he bailee in commodatum acquires the use of the thing loaned but not its fruits." Hence, it was only proper for Doronilla to remit to private respondent the interest accruing to the latters money deposited with petitioner. Neither does the Court agree with petitioners contention that it is not solidarily liable for the return of private respondents money because it was not privy to the transaction between Doronilla and private respondent. The nature of said transaction, that is, whether it is a mutuum or a commodatum, has no bearing on the question of petitioners liability for the return of private respondents money because the factual circumstances of the case clearly show that petitioner, through its employee Mr. Atienza, was partly responsible for the loss of private respondents money and is liable for its restitution. Petitioners rules for savings deposits written on the passbook it issued Mrs. Vives on behalf of Sterela for Savings Account No. 10-1567 expressly states that "2. Deposits and withdrawals must be made by the depositor personally or upon his written authority duly authenticated, and neither a deposit nor a withdrawal will be permitted except upon the production of the depositor savings bank book in which will be entered by the Bank the amount deposited or withdrawn."30 Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza, the Assistant Branch Manager for the Buendia Branch of petitioner, to withdraw therefrom even without presenting the passbook (which Atienza very well knew was in the possession of Mrs. Vives), not just once, but several times. Both the Court of Appeals and the trial court found that Atienza allowed said withdrawals because he was party to Doronillas "scheme" of defrauding private respondent: XXX But the scheme could not have been executed successfully without the knowledge, help and cooperation of Rufo Atienza, assistant manager and cashier of the Makati (Buendia) branch of the defendant bank. Indeed, the evidence indicates that Atienza had not only facilitated the commission of the fraud but he likewise helped in devising the means by which it can be done in such manner as to make it appear that the transaction was in accordance with banking procedure.

To begin with, the deposit was made in defendants Buendia branch precisely because Atienza was a key officer therein. The records show that plaintiff had suggested that the P200,000.00 be deposited in his bank, the Manila Banking Corporation, but Doronilla and Dumagpi insisted that it must be in defendants branch in Makati for "it will be easier for them to get a certification". In fact before he was introduced to plaintiff, Doronilla had already prepared a letter addressed to the Buendia branch manager authorizing Angeles B. Sanchez and company to open a savings account for Sterela in the amount of P200,000.00, as "per coordination with Mr. Rufo Atienza, Assistant Manager of the Bank x x x" (Exh. 1). This is a clear manifestation that the other defendants had been in consultation with Atienza from the inception of the scheme. Significantly, there were testimonies and admission that Atienza is the brother-in-law of a certain Romeo Mirasol, a friend and business associate of Doronilla.
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Then there is the matter of the ownership of the fund. Because of the "coordination" between Doronilla and Atienza, the latter knew before hand that the money deposited did not belong to Doronilla nor to Sterela. Aside from such foreknowledge, he was explicitly told by Inocencia Vives that the money belonged to her and her husband and the deposit was merely to accommodate Doronilla. Atienza even declared that the money came from Mrs. Vives. Although the savings account was in the name of Sterela, the bank records disclose that the only ones empowered to withdraw the same were Inocencia Vives and Angeles B. Sanchez. In the signature card pertaining to this account (Exh. J), the authorized signatories were Inocencia Vives &/or Angeles B. Sanchez. Atienza stated that it is the usual banking procedure that withdrawals of savings deposits could only be made by persons whose authorized signatures are in the signature cards on file with the bank. He, however, said that this procedure was not followed here because Sterela was owned by Doronilla. He explained that Doronilla had the full authority to withdraw by virtue of such ownership. The Court is not inclined to agree with Atienza. In the first place, he was all the time aware that the money came from Vives and did not belong to Sterela. He was also told by Mrs. Vives that they were only accommodating Doronilla so that a certification can be issued to the effect that Sterela had a deposit of so much amount to be sued in the incorporation of the firm. In the second place, the signature of Doronilla was not authorized in so far as that account is concerned inasmuch as he had not signed the signature card provided by the bank whenever a deposit is opened. In the third place, neither Mrs. Vives nor Sanchez had given Doronilla the authority to withdraw.

Moreover, the transfer of fund was done without the passbook having been presented. It is an accepted practice that whenever a withdrawal is made in a savings deposit, the bank requires the presentation of the passbook. In this case, such recognized practice was dispensed with. The transfer from the savings account to the current account was without the submission of the passbook which Atienza had given to Mrs. Vives. Instead, it was made to appear in a certification signed by Estrella Dumagpi that a duplicate passbook was issued to Sterela because the original passbook had been surrendered to the Makati branch in view of a loan accommodation assigning the savings account (Exh. C). Atienza, who undoubtedly had a hand in the execution of this certification, was aware that the contents of the same are not true. He knew that the passbook was in the hands of Mrs. Vives for he was the one who gave it to her. Besides, as assistant manager of the branch and the bank official servicing the savings and current accounts in question, he also was aware that the original passbook was never surrendered. He was also cognizant that Estrella Dumagpi was not among those authorized to withdraw so her certification had no effect whatsoever. The circumstance surrounding the opening of the current account also demonstrate that Atienzas active participation in the perpetration of the fraud and deception that caused the loss. The records indicate that this account was opened three days later after the P200,000.00 was deposited. In spite of his disclaimer, the Court believes that Atienza was mindful and posted regarding the opening of the current account considering that Doronilla was all the while in "coordination" with him. That it was he who facilitated the approval of the authority to debit the savings account to cover any overdrawings in the current account (Exh. 2) is not hard to comprehend. Clearly Atienza had committed wrongful acts that had resulted to the loss subject of this case. x x x.31 Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily liable for damages caused by their employees acting within the scope of their assigned tasks. To hold the employer liable under this provision, it must be shown that an employer-employee relationship exists, and that the employee was acting within the scope of his assigned task when the act complained of was committed.32 Case law in the United States of America has it that a corporation that entrusts a general duty to its employee is responsible to the injured party for damages flowing from the employees wrongful act done in the course of his general authority, even though in doing such act, the employee may have failed in its duty to the employer and disobeyed the latters instructions.33

There is no dispute that Atienza was an employee of petitioner. Furthermore, petitioner did not deny that Atienza was acting within the scope of his authority as Assistant Branch Manager when he assisted Doronilla in withdrawing funds from Sterelas Savings Account No. 101567, in which account private respondents money was deposited, and in transferring the money withdrawn to Sterelas Current Account with petitioner. Atienzas acts of helping Doronilla, a customer of the petitioner, were obviously done in furtherance of petitioners interests34 even though in the process, Atienza violated some of petitioners rules such as those stipulated in its savings account passbook.35 It was established that the transfer of funds from Sterelas savings account to its current account could not have been accomplished by Doronilla without the invaluable assistance of Atienza, and that it was their connivance which was the cause of private respondents loss. The foregoing shows that the Court of Appeals correctly held that under Article 2180 of the Civil Code, petitioner is liable for private respondents loss and is solidarily liable with Doronilla and Dumagpi for the return of the P200,000.00 since it is clear that petitioner failed to prove that it exercised due diligence to prevent the unauthorized withdrawals from Sterelas savings account, and that it was not negligent in the selection and supervision of Atienza. Accordingly, no error was committed by the appellate court in the award of actual, moral and exemplary damages, attorneys fees and costs of suit to private respondent. WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of the Court of Appeals are AFFIRMED. SO ORDERED. Bellosillo, (Chairman), Mendoza, Quisumbing and Austria-Martinez, JJ., concur.